Table of Contents

As filed with the Securities and Exchange Commission on June 4, 2018.

Registration Number 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

TRICIDA, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2834   46-3372526

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

7000 Shoreline Court

Suite 201

South San Francisco, CA 94080

(415) 429-7800

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

Gerrit Klaerner, Ph.D.

Chief Executive Officer & President

Tricida, Inc.

7000 Shoreline Court

Suite 201

South San Francisco, CA 94080

(415) 429-7800

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

 

 

With copies to:

 

Geoffrey W. Levin, Esq.

Sharon R. Flanagan, Esq.

Istvan A. Hajdu, Esq.

Sidley Austin LLP

787 Seventh Avenue

New York, NY 10019

Telephone: (212) 839-5300

Fax: (212) 839-5599

 

David Peinsipp

Divakar Gupta, Esq.

Charles S. Kim, Esq.

Cooley LLP

101 California Street 5th Floor

San Francisco, CA 94111

Telephone: (415) 693-2000

Fax: (415) 693-2222

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 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(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration 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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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 checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

CALCULATION OF REGISTRATION FEE

 

 

TITLE OF EACH CLASS OF

SECURITIES TO BE REGISTERED

 

PROPOSED

MAXIMUM
AGGREGATE

OFFERING PRICE
(1)(2)

  

AMOUNT OF
REGISTRATION

FEE

Common Stock, par value $0.001 per share

  $150,000,000    $18,675

 

 

(1)   The proposed maximum aggregate offering price includes the offering price of additional shares that the underwriters have the option to purchase.
(2)   Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

 

 

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

 

 

 


Table of Contents

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

 

SUBJECT TO COMPLETION, DATED                     , 2018

             Shares

 

 

LOGO

Common Stock

 

 

This is the initial public offering of shares of common stock of Tricida, Inc.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price will be between $             and $             per share.

We have applied to list our common stock on The Nasdaq Global Select Market under the symbol “TCDA.”

We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements in this prospectus and may elect to do so in future filings.

 

 

Investing in our common stock involves risks. See the section titled “ Risk Factors ” beginning on page 12 to read about factors you should consider before deciding to invest in shares of our common stock.

 

 

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

 

 

 

     Per Share      Total  

Initial public offering price

   $                   $               

Underwriting discounts(1)

   $                   $               

Proceeds, before expenses, to us

   $                   $               

 

(1) See the section titled “Underwriting” for a description of the compensation payable to the underwriters.

To the extent that the underwriters sell more than              shares of common stock, the underwriters have an option to purchase up to an additional              shares from us at the initial public offering price, less the underwriting discounts.

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2018.

 

 

 

Goldman Sachs & Co. LLC    J.P. Morgan    Cowen

 

 

Prospectus dated                     , 2018


Table of Contents

TABLE OF CONTENTS

Prospectus

 

     Page  

Prospectus Summary

     1  

The Offering

     8  

Summary Financial Data

     10  

Risk Factors

     12  

Special Note Regarding Forward-Looking Statements

     65  

Use of Proceeds

     67  

Dividend Policy

     69  

Capitalization

     70  

Dilution

     73  

Selected Financial Data

     76  

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

     78  

Business

     96  

Management

     139  

Executive Compensation

     149  

Certain Relationships and Related Party Transactions

     157  

Principal Stockholders

     161  

Description of Capital Stock

     166  

Shares Eligible for Future Sale

     172  

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

     175  

Underwriting

     179  

Legal Matters

     185  

Experts

     185  

Where You Can Find More Information

     185  

Index to Financial Statements

     F-1  

 

 

Through and including                     , 2018 (the 25 th  day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Neither we nor the underwriters have authorized anyone to provide you with information that is different from or additional to that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

Investors Outside the United States

Neither we nor any of the underwriters have taken any action to permit a public offering of the shares of our common stock or the possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

 

-i-


Table of Contents

Market and Industry Data and Forecasts

We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research, as well as from independent market research, industry and general publications and surveys, governmental agencies and publicly available information in addition to research, surveys and studies conducted by third parties. Internal estimates are derived from publicly available information released by industry analysts and third-party sources, our internal research and our industry experience, and are based on assumptions made by us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires. In addition, while we believe the industry, market and competitive position data included in this prospectus is reliable and based on reasonable assumptions, such data involve risks and uncertainties and are subject to change based on various factors, including those discussed in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by third parties or by us.

 

-ii-


Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before deciding to invest in shares of our common stock, you should read this summary together with the more detailed information, including our financial statements and the accompanying notes, provided elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in “Risk Factors,” our financial statements and the accompanying notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included elsewhere in this prospectus. Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.”

Overview

Our goal is to slow the progression of chronic kidney disease, or CKD, through the treatment of metabolic acidosis. We are a late-stage pharmaceutical company focused on the development and commercialization of our drug candidate, TRC101, a non-absorbed polymer designed to treat metabolic acidosis by binding and removing acid from the gastrointestinal tract, or GI tract. We recently completed our double-blind, placebo-controlled, pivotal Phase 3 clinical trial, TRCA-301, in 217 CKD patients with metabolic acidosis. The TRCA-301 trial met both its primary and secondary endpoints in a highly statistically significant manner (p < 0.0001 for all primary and secondary endpoints). TRC101 was well tolerated in our TRCA-301 trial. Both active (124 subjects) and placebo groups (93 subjects) had low discontinuation rates and low rates of treatment-related adverse events. One hundred ninety-six of the 208 eligible subjects who completed the 12-week treatment period in our pivotal TRCA-301 trial agreed to continue into our 40-week blinded safety extension trial, TRCA-301E, which we expect to complete in the first half of 2019. We plan to submit a New Drug Application, or NDA, in the second half of 2019, seeking approval of TRC101 through the U.S. Food and Drug Administration’s, or FDA’s, Accelerated Approval Program. The FDA may grant accelerated approval to a product for a serious or life-threatening disease or condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. Metabolic acidosis is a chronic condition commonly caused by CKD and is believed to accelerate the progression of kidney deterioration. Today, there are no chronic therapies for treating metabolic acidosis approved by the FDA. We believe TRC101, an in-house discovered, new chemical entity, may be an effective treatment for metabolic acidosis and slow the progression of kidney disease in CKD patients affected by metabolic acidosis.

We estimate that metabolic acidosis affects approximately 3 million CKD patients in the United States, and we believe that slowing the progression of CKD in patients with metabolic acidosis represents a significant medical need and market opportunity. If approved, we plan to commercialize TRC101 in the United States initially using a nephrologist-focused sales force. To address markets outside of the United States, we plan to seek one or more partners with international sales expertise who can sell TRC101 in target markets. We have an intellectual property estate that we believe will provide patent protection for TRC101 until at least 2034 in the United States, the European Union, Japan, China, India and certain other markets. Tricida is led by a seasoned management team that includes the founders of Ilypsa, Inc. and Relypsa, Inc. Our management team has extensive experience in the development and commercialization of therapeutics, with deep expertise in developing polymers for the treatment of kidney-related diseases.



 

1


Table of Contents

CKD and Metabolic Acidosis Represent a Major Medical Crisis and are Directly Linked

CKD is a serious condition characterized by the gradual loss of essential kidney functions over time. According to Centers for Disease Control and Prevention, more than 30 million people in the United States are afflicted with CKD, representing an overall prevalence in the adult population of approximately 15%. CKD represents the ninth leading cause of death in the United States. The annual Medicare expense for CKD including end-stage renal disease, or ESRD, is approximately $98 billion. ESRD is the final stage of CKD in which the patient typically requires renal replacement therapy, i.e., dialysis or a kidney transplant, for survival.

Diabetes, hypertension and age have long been recognized as primary risk factors for the progression of CKD. More recently, metabolic acidosis has also been identified as a key risk factor in the progression of CKD. Metabolic acidosis is a serious condition in which the body has accumulated too much acid and occurs when a patient’s kidneys can no longer excrete sufficient acid or produce enough bicarbonate to balance acid production. Metabolic acidosis can be diagnosed by measuring the level of bicarbonate in the blood, which is part of a standard metabolic panel. National and international kidney treatment guidelines recommend that in people with CKD, blood bicarbonate be maintained within the normal range of 22 to 29 mEq/L. Blood bicarbonate concentrations less than 22 mEq/L are associated with increased risk of CKD progression and increased risk of death.

Metabolic acidosis is a chronic condition commonly caused by CKD and is believed to accelerate the progression of kidney deterioration, creating a vicious cycle resulting in the decline in kidney functions, as measured by the estimated glomerular filtration rate, or eGFR. Multiple retrospective studies provide qualitative and quantitative evidence for the relationship between metabolic acidosis and the progression of CKD across a wide range of baseline eGFRs and blood bicarbonate levels. Prospective studies have shown that treating metabolic acidosis translates into a clinically meaningful slowing of CKD progression.

No FDA-Approved Therapy for Chronic Treatment of Metabolic Acidosis

While the need to treat metabolic acidosis to slow the progression of CKD is well-recognized, there are no FDA-approved therapies for the chronic treatment of metabolic acidosis. Unapproved methods to increase blood bicarbonate include oral alkali supplements, such as sodium bicarbonate, which introduce significant amounts of sodium to patients. However, approximately 85% to 95% of later-stage CKD patients suffer from sodium sensitive comorbid conditions, such as hypertension, cardiovascular disease, heart failure or edema, and require a sodium-restricted diet. As such, the use of sodium-based supplements can lead to worsening blood pressure control and volume overload in this population. Given the significant limitations on the use of sodium-based supplements, there exists a significant unmet medical need for a chronic therapy for CKD patients with metabolic acidosis. To chronically treat the broad population of CKD patients with metabolic acidosis, physicians need an FDA-approved treatment that is proven to be safe, effective and easy to comply with.

Our Solution—TRC101

TRC101 is a novel, non-absorbed polymer that is designed to bind hydrochloric acid in the GI tract and remove it from the body through excretion in the feces thereby decreasing the total amount of acid in the body and increasing blood bicarbonate. TRC101 is administered orally as a suspension in water once daily. TRC101 was specifically designed to combine high capacity and high selectivity for binding and removing hydrochloric acid. Importantly, TRC101 does not deliver sodium or other counter-ions, thereby allowing for chronic treatment of CKD patients with common comorbidities such



 

2


Table of Contents

as hypertension, cardiovascular disease, heart failure or edema. We believe that TRC101, if approved, will have a highly favorable product profile enabling rapid adoption amongst the broad population of CKD patients with metabolic acidosis.

TRC101 Target Product Profile

We have designed TRC101 to target the following product profile:

 

    Significantly Increase Blood Bicarbonate

 

    Well-Tolerated

 

    Suitable for a Broad Population of Patients, Including Patients with Sodium-Sensitive Comorbidities

 

    Compatible with Other Medications

 

    Convenient, Once-Daily, Oral Administration

 

    Room-Temperature Stable

TRC101 Pivotal Phase 3 Clinical Data

Initial topline analysis of our pivotal Phase 3 clinical trial, TRCA-301, indicates that treatment with TRC101 resulted in statistically significant increases in blood bicarbonate, meeting both the primary and secondary endpoints of the trial. After 12 weeks of treatment, 59.2% of subjects in the TRC101-treated group, compared with 22.5% of subjects in the placebo group, exhibited an increase in blood bicarbonate level of at least 4 mEq/L or achieved a blood bicarbonate level in the normal range of 22 to 29 mEq/L, which was the primary endpoint of the trial. The secondary endpoint of the trial, the mean change in blood bicarbonate from baseline to week 12, was 4.49 mEq/L in the TRC101-treated group, compared with 1.66 mEq/L in the placebo group. The results of the primary and secondary endpoints were highly statistically significant (p < 0.0001). The following graphs summarize the efficacy data for the once daily dosing of TRC101-treated subjects versus subjects in the placebo group.



 

3


Table of Contents

Summary Data for Our Pivotal Phase 3 Clinical Trial, TRCA-301

 

LOGO

We estimate that each increase of 1 mEq/L in blood bicarbonate is associated with approximately a 6% to 9% reduced risk for progression of CKD, defined as progressing to ESRD or a ³ 40% reduction in eGFR, in CKD patients with metabolic acidosis.

We included two exploratory endpoints in our TRCA-301 trial to assess whether improvement in muscle function and in patient quality of life could be demonstrated in this patient population through the treatment of metabolic acidosis. We believe the results from these two exploratory endpoints indicate a positive trend and suggest an improvement, on average, in the physical function and in quality of life for TRC101-treated subjects in this trial. We believe these results indicate a potential clinical benefit in this acidotic population and are consistent with the basic physiology of the disease.

TRC101 was well tolerated in our TRCA-301 trial. Both active (124 subjects) and placebo groups (93 subjects) had low discontinuation rates and low rates of treatment-related adverse events. The overall safety profile of TRC101 observed in TRCA-301 is consistent with that expected for the general population of patients with Stage 3 to 5 CKD and with similar non-absorbed polymer drugs with a site of action in the GI tract.

Our Development Program for TRC101

Our development program for TRC101 is designed to obtain approval of TRC101 pursuant to the FDA’s Accelerated Approval Program. Under the Accelerated Approval Program, we plan to pursue approval for TRC101 based upon efficacy data related to a primary endpoint measuring a change from baseline in blood bicarbonate level. We have completed a successful 135-subject, Phase 1/2 trial, TRCA-101, and a 217-subject, pivotal Phase 3 clinical trial, TRCA-301. Eligible subjects who completed the 12-week treatment period in our pivotal TRCA-301 trial were invited to continue in our



 

4


Table of Contents

40-week safety extension trial, TRCA-301E, which we expect to complete in the first half of 2019. Based on feedback from the FDA, we believe that the data from the TRCA-101, TRCA-301 and TRCA-301E trials will provide sufficient evidence of clinical safety and efficacy to support the submission and review of an NDA for TRC101 pursuant to the Accelerated Approval Program. We plan to submit an NDA for TRC101 in the second half of 2019.

As part of the Accelerated Approval Program, the FDA may require one or more confirmatory postmarketing trials to verify and describe the anticipated effect or clinical benefit of TRC101. We have committed to conduct a confirmatory postmarketing trial, known as the VALOR-CKD trial, or TRCA-303, to evaluate the efficacy and safety of TRC101 in delaying CKD progression in subjects with metabolic acidosis. We anticipate that the VALOR-CKD trial will randomize approximately 1,400 to 1,600 subjects in order to show a 30% to 35% reduction in renal events, currently expected to be defined for purposes of the VALOR-CKD trial, as progressing to ESRD or a ³ 40% reduction in eGFR. The FDA has requested that our confirmatory postmarketing trial, VALOR-CKD, be completely enrolled, or nearly completely enrolled, prior to submission of our NDA for TRC101. We plan to complete the VALOR-CKD trial after the FDA’s review of our NDA for TRC101 and potential approval of TRC101. The VALOR-CKD trial is a time-to-event study, and we estimate it will take approximately 4 years to accrue the number of events necessary to complete the trial. Assuming successful completion of the VALOR-CKD trial, we plan to file a supplemental NDA, or sNDA, that incorporates results from the VALOR-CKD trial.

Commercial Opportunity and Strategy

We plan to initially commercialize TRC101 in the United States with a specialty sales force of approximately 80 to 100 individuals focused on the highest prescribing subset of the approximately 9,000 practicing nephrologists currently treating our target patient population. We believe that nephrologists in the United States currently treat approximately 600,000 Stage 3 to 5 CKD patients with metabolic acidosis. Based on our market research, we believe that the pricing for TRC101 can be supported above the current pricing for other polymer therapeutics marketed for treating conditions related to kidney disease, but which are not disease modifying.

Over time, due to the disease modification potential of TRC101, we intend to address the broader CKD patient population who receive care from cardiologists, endocrinologists, diabetologists and a subset of primary care physicians, either on our own or with a partner. To address markets outside of the United States, we plan to seek one or more partners with international sales expertise who can sell TRC101 in target markets.

Our Team Has Extensive Experience in the Development and Commercialization of Therapeutics

We have assembled a team with deep scientific, clinical, business and leadership experience in the discovery, development and commercialization of therapeutics, including polymers. Our founder and Chief Executive Officer, Gerrit Klaerner, Ph.D., and our Chief Scientific Officer, Jerry Buysse, Ph.D., founded both Relypsa and Ilypsa, where they led the discovery, development and approval of Veltassa ® (patiromer) and bixalomer (approved in Japan as Kiklin ® ), respectively. Other key members of our management team who had experience with Relypsa include our Chief Development Officer, Claire Lockey, our Chief Technology Officer, Wilhelm Stahl, Ph.D., and our General Counsel, Edward Hejlek, Esq. Our Chief Financial Officer, Geoffrey Parker, was previously the Chief Financial Officer at Anacor Pharmaceuticals, Inc. and prior to that, spent 20 years at Goldman Sachs in the Investment Banking Division. Our Chief Commercial Officer, Jeroen van Beek, Ph.D., over the last 20 years, has launched multiple successful therapeutic products at Alexion Pharmaceuticals, Inc. and Pfizer Inc.



 

5


Table of Contents

Risks Associated with Our Business

Investing in our common stock involves significant risks. You should carefully consider the risks described in “Risk Factors” before making a decision to invest in our common stock. If we are unable to successfully address these risks and challenges, our business, financial condition or results of operations would be materially adversely affected. In such case, the trading price of our common stock would likely decline, and you may lose all or part of your investment. Below is a summary of some of the principal risks we face.

 

    We are dependent on the success of TRC101, our only product candidate. If we are unable to successfully develop, obtain regulatory approval for and commercialize TRC101, or experience significant delays in doing so, our business will be materially harmed.

 

    We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts of TRC101.

 

    We and our auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain further financing.

 

    If we are unable to obtain approval of TRC101 through the Accelerated Approval Program in the United States, we may be required to conduct additional nonclinical and clinical studies and trials beyond those that we currently contemplate, which could increase the expense of obtaining, reduce the likelihood of obtaining and/or delay the timing of obtaining, necessary marketing approval thereby delaying commercialization of TRC101 and adversely impacting our ability to generate revenue, our business and our results of operations.

 

    Even if we receive approval from the FDA under the Accelerated Approval Program, if our confirmatory postmarketing clinical trial, VALOR-CKD, does not verify clinical benefit, or if we do not comply with rigorous postmarketing requirements, the FDA may seek to withdraw the approval.

 

    For approval of TRC101 through the Accelerated Approval Program, we have not yet finalized the design of the confirmatory postmarketing clinical trial, VALOR-CKD, including the sample size, trial duration, endpoint definition, event rate assumptions and eligibility criteria. The FDA and/or comparable foreign regulators may not agree with our proposed confirmatory postmarketing trial design, in which case we may be required to modify our planned clinical trials, or run additional clinical trials, before we can submit the NDA or comparable foreign applications.

 

    We currently have limited sales or marketing capabilities. If we are unable to establish effective sales and marketing capabilities or if we are unable to enter into agreements with third parties to commercialize TRC101, we may not be able to effectively generate product revenues.

 

    We have relied and continue to rely on third parties, particularly contract research organizations, or CROs, to conduct and complete our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize TRC101, if approved.

 

    We rely completely on third-party suppliers to manufacture our clinical drug supply of TRC101 drug substance (currently one supplier) and drug product (currently two suppliers), and we intend to rely on third parties to produce commercial supply of TRC101 drug substance and drug product, if approved. A performance failure on the part of any one of our suppliers could delay the development and potential approval or commercialization of TRC101.


 

6


Table of Contents
    During our year-end close for the fiscal year ended December 31, 2017, we identified material weaknesses in our internal control over financial reporting. If we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock may be materially adversely affected.

 

    If we fail to attract and keep senior management, we may be unable to successfully develop TRC101, conduct our clinical trials and commercialize TRC101, if approved.

Corporate Information

We were incorporated in Delaware in May 2013. Our corporate office is located at 7000 Shoreline Court, Suite 201, South San Francisco, CA 94080, and our telephone number is (415) 429-7800. Our website is tricida.com . The information on, or that can be accessed through, our website is not part of this prospectus and is not incorporated by reference herein.

Trademarks

Tricida and our logo are some of our tradenames used in this prospectus. This prospectus also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ™ or ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.

Implications of Being an Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering. As a result of this status, we have taken advantage of reduced reporting requirements in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, as a result, upon completion of this offering we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies that are not emerging growth companies.



 

7


Table of Contents

THE OFFERING

 

Common stock offered by us

             shares

 

Underwriters’ option to purchase additional shares

We have granted the underwriters a 30-day option to purchase up to             additional shares at the public offering price, less estimated underwriting discounts and commissions.

 

Common stock to be outstanding after the offering

             shares (or              shares if the underwriters exercise in full their option to purchase additional shares)
 

Use of proceeds

We expect that our net proceeds from this offering will be approximately $        million, at an assumed initial public offering price of $        per share of common stock, the midpoint of the range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the proceeds of the offering for supporting our activities for our NDA submission and approval process for TRC101, manufacturing activities related to TRC101, conducting our safety extension trial, TRCA-301E, and commencing our confirmatory postmarketing trial, known as the VALOR-CKD trial, or TRCA-303, commercial expenses related to TRC101, interest payments under our Loan and Security Agreement with Hercules Capital, Inc., and the remainder for working capital and general corporate purposes. See “Use of Proceeds” on page 67 for a more complete description of the intended use of proceeds from this offering.

 

Risk factors

See “Risk Factors” beginning on page 12 and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock.

 

Proposed The Nasdaq Global Select Market symbol

“TCDA”

The number of shares of our common stock to be outstanding after this offering is based on                  shares of our common stock outstanding as of March 31, 2018, which includes the conversion of all of our shares of convertible preferred stock outstanding as of March 31, 2018, into shares of our common stock and              shares of common stock issuable upon conversion of convertible preferred stock issuable upon the net exercise of an outstanding warrant.



 

8


Table of Contents

The number of shares of common stock to be outstanding after this offering excludes:

 

    17,447,456 shares of common stock, with a per share weighted-average exercise price of $0.67, issuable upon exercise of stock options outstanding as of March 31, 2018 under our 2013 Equity Incentive Plan, as amended;

 

    240,000 shares of common stock reserved for issuance pursuant to future awards under the 2013 Equity Incentive Plan, as amended, as of March 31, 2018;

 

                 shares of common stock (or approximately     % of the total number of shares of our common stock outstanding immediately following the completion of this offering, assuming no exercise of the underwriters’ option to purchase additional shares of our common stock) reserved for issuance pursuant to future awards under our 2018 Equity Incentive Plan or our Employee Stock Purchase Plan, each of which will become effective in connection with this offering, and any additional shares that become available under our 2018 Equity Incentive Plan or our Employee Stock Purchase Plan pursuant to provisions thereof that automatically increase the share reserve under each plan each year; and

 

                 shares of common stock issuable upon the exercise of warrants, or the Hercules Warrants, assuming an initial public offering price of $         per share of common stock, the midpoint of the range set forth on the cover of this prospectus. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Hercules Loan and Security Agreement.”

Unless otherwise indicated or the context otherwise requires, this prospectus reflects and assumes the following:

 

    a one-for-            reverse stock split of our common stock and convertible preferred stock, effected on                     , 2018;

 

    no exercise of outstanding options;

 

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

 

    the conversion of all of our outstanding shares of convertible preferred stock into an aggregate of 104,129,702 shares of common stock immediately prior to the completion of this offering;

 

    the net exercise of an outstanding warrant to purchase shares of our convertible preferred stock with a per share exercise price of $0.886, resulting in the issuance of an aggregate of              shares of our common stock, which will occur upon the completion of this offering; and

 

    the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the completion of this offering.


 

9


Table of Contents

SUMMARY FINANCIAL DATA

The following tables summarize our financial data for the periods and as of the dates indicated. We have derived the statements of operations and comprehensive loss data for the years ended December 31, 2016 and 2017 and the balance sheet data as of December 31, 2017 from our audited financial statements included elsewhere in this prospectus. We have derived the statements of operations data for the three months ended March 31, 2017 and 2018 and the balance sheet data as of March 31, 2018 from our unaudited interim financial statements included elsewhere in this prospectus. In our opinion, these unaudited interim financial statements have been prepared on a basis consistent with our audited financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. Our historical results are not necessarily indicative of results that may be expected in the future. You should read the following summary financial data together with our financial statements and the related notes appearing elsewhere in this prospectus and the information in the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Year Ended December 31,     Three Months Ended March 31,  
     2016     2017     2017     2018  
                 (unaudited)  
     (in thousands, except share and per share amounts)  

Statements of Operations and Comprehensive Loss Data:

        

Operating expenses:

        

Research and development

   $ 21,820     $ 35,906     $ 5,844     $ 16,633  

General and administrative

     5,363       11,216       2,825       3,465  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     27,183       47,122       8,669       20,098  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (27,183     (47,122     (8,699     (20,098

Change in fair value—preferred stock tranche obligation

     (1,571     5,649       6,462        

Other income (expense), net

     103       183       (2     (406
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (28,651     (41,290     (2,209     (20,504

Other comprehensive loss:

        

Net unrealized loss on marketable securities, net of tax

           (13     (1     (54
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (28,651   $ (41,303   $ (2,210   $ (20,558
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (3.94   $ (4.85   $ (0.27   $ (2.26
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares outstanding, basic and diluted

     7,267,641       8,508,008       8,116,997       9,067,544  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

         $  

Pro forma weighted-average number of shares, basic and diluted (unaudited)(1)

        
    

 

 

     

 

 

 

 

(1) See Note 10 to our audited financial statements and Note 8 of our unaudited interim financial statements included elsewhere in this prospectus for an explanation of the method used to calculate historical and pro forma basic and diluted net loss per share, and the weighted-average number of shares used in the computation of the per share amounts and unaudited pro forma information.


 

10


Table of Contents
     As of March 31, 2018  
     Actual     Pro Forma(1)     Pro Forma(2)  
     (unaudited)  
    

(in thousands)

 

Balance Sheet Data:

      

Cash, cash equivalents and marketable securities

   $ 75,228     $ 75,228     $           

Working capital(3)

     35,925       35,925    

Total assets

     79,564       79,564    

Total liabilities

     40,716       40,547    

Convertible preferred stock

     147,070          

Accumulated deficit

     (109,890     (109,890  

Total stockholders’ equity (deficit)

     (108,222     39,017    

 

(1) The pro forma balance sheet data in the table above reflects the conversion of our outstanding shares of our convertible preferred stock into 104,129,702 shares of our common stock, and the resulting reclassification of the convertible preferred stock equity (deficit), and the reclassification of the convertible preferred warrant liability to additional paid in capital as a result of the net exercise of the warrant as of immediately prior to the completion of this offering.
(2) The pro forma as adjusted balance sheet data in the table above reflects the pro forma adjustments described in footnote (1) above plus the sale and issuance by us of shares of our common stock in this offering, based upon the assumed initial public offering price of $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders’ equity (deficit) by approximately $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. An increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders’ equity (deficit) by approximately $        million, assuming the assumed initial public offering price of $        per share remains the same, and after deducting the estimated underwriting discounts and commissions. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
(3) We define working capital as current assets less current liabilities. See our financial statements for further details regarding our current assets and current liabilities.


 

11


Table of Contents

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements

We have a limited operating history, have incurred significant losses in each year since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We have only one product candidate, TRC101, which is in clinical trials and has no commercial sales, which, together with our limited operating history, makes it difficult to assess our future viability.

We are a late-stage pharmaceutical company focused on the development and commercialization of our drug candidate, TRC101, a non-absorbed polymer designed to treat metabolic acidosis by binding and removing acid from the gastrointestinal tract. We have only a limited operating history upon which you can evaluate our business and prospects. We are not profitable and have incurred significant losses in each year since our inception in May 2013. Our net losses were $28.7 million and $41.3 million for the years ended December 31, 2016 and 2017, respectively, and $20.5 million for the three months ended March 31, 2018. As of March 31, 2018, we had an accumulated deficit of $109.9 million. Pharmaceutical product development is a highly speculative undertaking, entails substantial upfront capital expenditures and involves a substantial degree of risk, including the risk that a potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable. We have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry. To date, we have focused principally on developing our product candidate TRC101. We have no products approved for commercial sale and have not generated any revenue from product sales or other arrangements to date and neither will we for the foreseeable future. We continue to incur significant research and development and other expenses related to our ongoing operations. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, and seek regulatory approval for, TRC101, prepare for potential commercialization of TRC101 and become a public company.

If TRC101 is not successfully developed or commercialized, including because of a lack of capital, or if we do not generate enough revenue following marketing approval, we will not achieve profitability and our business may fail. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

 

12


Table of Contents

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts of TRC101.

We are currently advancing TRC101 through clinical development. As of March 31, 2018 we had working capital of $35.9 million and cash, cash equivalents and marketable securities of $75.2 million. We believe that we will continue to expend substantial resources for the foreseeable future as we continue clinical development, seek regulatory approval, and prepare for the commercialization of TRC101 and develop any other product candidates we may choose to pursue in the future. These expenditures will include costs associated with research and development, sales and marketing, conducting nonclinical and clinical studies and trials, obtaining regulatory approvals, and manufacturing and supply. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial and the regulatory approval process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of TRC101.

We believe that the net proceeds from this offering, proceeds from our Loan and Security Agreement, or the Term Loan, with Hercules Capital, Inc., or Hercules, together with our existing cash, cash equivalents and marketable securities, will allow us to fund our operating plan through at least the next 12 months. However, we have based these estimates on assumptions that may prove to be wrong, and we could spend our available capital resources much faster than we currently expect or require more capital to fund our operations than we currently expect. Moreover, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity, debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:

 

    the time and cost necessary to obtain regulatory approvals for TRC101 and any future product candidates that we develop, in-license or acquire;

 

    our ability to obtain approval for TRC101 under the Accelerated Approval Program;

 

    the costs of confirmatory postmarketing studies or trials for TRC101 that could be required by regulatory agencies or that we might otherwise choose to conduct;

 

    the costs of obtaining commercial supplies of TRC101;

 

    our ability to successfully commercialize TRC101;

 

    the manufacturing, selling and marketing costs associated with TRC101, including the cost and timing of expanding our sales and marketing capabilities;

 

    the amount of sales and other revenues from TRC101, including the sales price and the availability of adequate third-party reimbursement;

 

    the timing, receipt and amount of sales of, or royalties on, TRC101, if any;

 

    the costs of operating as a public company;

 

    the costs associated with any product recall that could occur;

 

    the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments;

 

13


Table of Contents
    the cash requirements of any future acquisitions or discovery of future product candidates, if any;

 

    the progress, timing, scope and costs of our nonclinical and clinical studies and trials, including the ability to enroll patients in a timely manner for potential future clinical trials;

 

    the time and cost necessary to respond to technological and market developments; and

 

    the costs of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including litigation costs and the outcome of such litigation.

We cannot assure you that anticipated additional financing will be available to us on favorable terms, or at all. Our current Term Loan contains negative covenants that restrict our ability to obtain additional debt financing. Any future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Although we have been successful in obtaining financing through the issuance of our equity securities, we cannot assure you that we will be able to do so in the future. If we are unable to raise additional capital to fund our clinical development and commercialization of TRC101, if approved, and other business activities, we could be forced to significantly delay, scale back or abandon one or more clinical development programs or commercialization efforts and curtail or cease our operations. In addition, our ability to achieve profitability or to respond to competitive pressures would be significantly limited.

We and our auditors have substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain further financing.

Our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements for the year ended December 31, 2017 with respect to this uncertainty. Our 2017 financial statements and our unaudited interim financial statements for the three months ended March 31, 2018 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Our ability to continue as a going concern will require us to obtain additional funding. We believe that the net proceeds from this offering, proceeds from our Term Loan with Hercules, together with our existing cash, cash equivalents and marketable securities, will allow us to fund our operating plan through at least the next 12 months. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect and need to raise additional funds sooner than we anticipate. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs and commercialization efforts.

Risks Related to Our Business

We are dependent on the success of TRC101, our only product candidate. If we are unable to successfully develop, obtain regulatory approval for and commercialize TRC101, or experience significant delays in doing so, our business will be materially harmed.

To date, we have invested all of our efforts and financial resources in the research and development of TRC101, which is our only product candidate, and our business and future success depends on our ability to successfully develop, obtain regulatory approval for and commercialize TRC101. We recently completed a randomized, double-blind, placebo-controlled, multicenter pivotal

 

14


Table of Contents

Phase 3 clinical trial for TRC101, known as TRCA-301. The TRCA-301 trial enrolled 217 CKD patients with metabolic acidosis. Eligible subjects who completed the 12-week treatment period in our pivotal Phase 3 trial were invited to continue in our 40-week safety extension trial, TRCA-301E. We expect to complete our TRCA-301E trial in the first half of 2019 and then seek approval for TRC101 through the Accelerated Approval Program. While we believe that the TRCA-301 trial successfully met its primary and secondary endpoints, we cannot assure you that the FDA or any foreign regulatory agency will approve TRC101 for marketing. Furthermore, even if we obtain regulatory approval for TRC101, we will still need to develop a commercial organization, or collaborate with a third party for the commercialization of TRC101, establish commercially viable pricing and obtain approval for coverage and adequate reimbursement from third parties, including government payors. If we are unable to successfully commercialize TRC101, we may not be able to generate sufficient revenues to continue our business.

Our near-term prospects, including our ability to finance our operations and generate revenue, will depend heavily on the successful development and commercialization of TRC101 in the United States. Though we plan to engage in marketing approval discussions with foreign regulatory agencies in the future, we have not yet begun marketing approval discussions with any regulatory agency other than the FDA, and we are not currently seeking regulatory approval for TRC101 outside the United States. The clinical and commercial success of TRC101 will depend on a number of factors, including the following:

 

    our ability to demonstrate TRC101’s safety and efficacy to the satisfaction of the FDA and/or foreign regulatory agencies;

 

    the timely completion and reporting of our safety extension trial, TRCA-301E, and our confirmatory postmarketing trial, known as the VALOR-CKD trial, or TRCA-303;

 

    whether we are required by the FDA and/or foreign regulatory agencies to conduct additional clinical trials prior to approval to market TRC101;

 

    the prevalence and severity of adverse side effects of TRC101 in our ongoing and future clinical trials and commercial use, if approved;

 

    the timely receipt of necessary regulatory and marketing approvals from the FDA and foreign regulatory agencies for TRC101;

 

    our ability to obtain U.S. marketing approval for TRC101 under the Accelerated Approval Program;

 

    our ability to successfully conduct our confirmatory postmarketing trial, VALOR-CKD, and confirm renal benefit of TRC101, assuming TRC101 is initially approved under the FDA’s Accelerated Approval Program;

 

    our ability to successfully commercialize TRC101, if approved for marketing and sale by the FDA and/or foreign regulatory agencies;

 

    our ability to manufacture clinical trial and commercial quantities of TRC101 drug substance and drug product and to develop, validate and maintain a commercially viable manufacturing process that is compliant with current good manufacturing practices, or cGMP, at a scale sufficient to meet anticipated demand and over time enable us to reduce our cost of manufacturing;

 

    achieving and maintaining compliance with all regulatory requirements applicable to TRC101;

 

    our success in educating physicians and patients about the benefits, administration and use of TRC101;

 

    acceptance of TRC101 as safe and effective by patients and the medical community;

 

15


Table of Contents
    the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;

 

    our ability to obtain and sustain an adequate level of reimbursement for TRC101 by third-party payors;

 

    the effectiveness of our own or any future strategic collaborators’ marketing, sales and distribution strategy and operations;

 

    our ability to continue to obtain protection for and to enforce our intellectual property rights in and to TRC101; and

 

    our ability to avoid and defend against third-party patent interference or patent infringement claims or similar proceedings with respect to our patent rights and patent infringement claims.

Many of these factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of TRC101. If we are not successful in commercializing TRC101, or are significantly delayed in doing so, our business will be materially harmed.

We will attempt to secure approval of TRC101 from the FDA through the use of the Accelerated Approval Program, but such mechanism may not actually lead to a faster development or regulatory review or approval process. If we are unable to obtain approval of TRC101 through the Accelerated Approval Program in the United States, we may be required to conduct additional nonclinical and clinical studies and trials beyond those that we currently contemplate, which could increase the expense of obtaining, reduce the likelihood of obtaining and/or delay the timing of obtaining, necessary marketing approval. Even if we receive approval from the FDA under the Accelerated Approval Program, if our confirmatory postmarketing trial does not verify clinical benefit, or if we do not comply with rigorous postmarketing requirements, the FDA may seek to withdraw the approval.

We currently plan to seek U.S. approval for our sole product candidate, TRC101, through the FDA’s Accelerated Approval Program based on the results of our Phase 1/2 trial, TRCA-101, our pivotal Phase 3 clinical trial, TRCA-301, and our safety extension trial, TRCA-301E. For any approval to market a drug product, we must provide the FDA and foreign regulatory agencies with clinical data that adequately demonstrate the safety and efficacy of the product for the indication applied for in the New Drug Application, or NDA, or other respective regulatory filings. As described in the “Government Regulation” section, the Accelerated Approval Program is one of several approaches used by the FDA to make prescription drugs more rapidly available for the treatment of serious or life-threatening diseases. Section 506(c) of the Federal Food, Drug and Cosmetic Act, or FFDCA, provides that the FDA may grant accelerated approval to “a product for a serious or life-threatening condition upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments.” Approval under the Accelerated Approval Program is subject, however, to the requirement that the applicant conduct additional postmarketing clinical trials to verify and describe the drug’s clinical benefit, where there is uncertainty as to the relationship of the surrogate endpoint to the clinical benefit, or of the observed clinical endpoint to ultimate outcome. Typically, clinical benefit is verified when postmarketing clinical trials show that the drug provides a clinically meaningful positive therapeutic effect, that is, an effect on how a patient feels, functions, or survives. The FDA may require that any confirmatory postmarketing trial be initiated or substantially underway prior to the submission of an application under the Accelerated Approval Program. And, if such confirmatory postmarketing trial fails to confirm the drug’s clinical profile or risks and benefits, the FDA may withdraw its approval of the drug.

 

16


Table of Contents

The FDA has broad discretion with regard to approval under the Accelerated Approval Program, and even if we believe that the Accelerated Approval Program is appropriate for TRC101, we cannot assure you that the FDA will ultimately agree. Furthermore, even if we do obtain approval under the Accelerated Approval Program, we may not experience a faster development process, review or approval compared to conventional FDA procedures.

We have sought feedback from the FDA on our ability to seek and receive approval for TRC101 under the Accelerated Approval Program, but there can be no assurance that the FDA will ultimately agree that the results of our pivotal Phase 3 clinical trial, TRCA-301, and our safety extension trial, TRCA-301E and the design of our confirmatory postmarketing trial, VALOR-CKD, will be sufficient to support such approval. There also can be no assurance that after subsequent FDA feedback that we will continue to pursue approval under the Accelerated Approval Program. Furthermore, if we submit an application for approval through the Accelerated Approval Program, there can be no assurance that such application will be accepted or that approval will be granted on a timely basis, or at all. For example, the FDA could require us to conduct further studies or trials prior to considering our application or granting approval of any type, including by determining that approval under the Accelerated Approval Program is not appropriate and that our pivotal Phase 3 clinical trial, TRCA-301, may not be used to support approval under the conventional pathway. We might not be able to fulfill the FDA’s requirements in a timely manner, which would cause delays, or approval might not be granted because our submission is deemed incomplete by the FDA. A failure to obtain approval under the Accelerated Approval Program could result in a longer time period to commercialize TRC101, could increase the cost of development of it and could significantly harm our financial position and competitive position in the marketplace.

Even if we receive approval for TRC101 under the Accelerated Approval Program, we will be subject to rigorous postmarketing requirements, including the completion of our confirmatory postmarketing trial, VALOR-CKD, or such other confirmatory postmarketing trials as the FDA may require, to verify the clinical benefit of the product, and submission to the FDA of all promotional materials prior to their dissemination. The FDA could seek to withdraw the approval for multiple reasons, including if we fail to conduct any required confirmatory postmarketing trial with due diligence, a confirmatory postmarketing trial does not confirm the predicted clinical benefit, other evidence shows that the product is not safe or effective under the conditions of use, or we disseminate promotional materials that are found by the FDA to be false and misleading.

Any delay in obtaining, or inability to obtain, approval under the Accelerated Approval Program would delay or prevent commercialization of TRC101 and would materially adversely affect our business, financial condition, results of operations, cash flows and prospects.

We may be unable to obtain regulatory approval for TRC101 under applicable regulatory requirements.

To gain approval to market a drug product, regardless of whether it is through Accelerated Approval or the conventional pathway, we must provide the FDA and foreign regulatory agencies with clinical data that adequately demonstrates the safety and efficacy of the product for the intended indication applied for in the NDA or other respective regulatory filing. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in clinical trials even after promising results in earlier nonclinical or clinical studies and trials. These setbacks have been caused by, among other things, nonclinical findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. Success in nonclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we may conduct.

 

17


Table of Contents

Our business currently depends entirely on the successful development, regulatory approval and commercialization of our sole product candidate, TRC101. Based on the results of our pivotal Phase 3 clinical trial, TRCA-301 , we plan to prepare and submit an NDA seeking approval under the FDA’s Accelerated Approval Program to market TRC101. We currently have efficacy and safety data from our TRCA-101 trial, and topline efficacy and safety data from our pivotal Phase 3 clinical trial, TRCA-301. In addition to our TRCA-101 and TRCA-301 clinical results, our NDA submission will include data from our safety extension trial, TRCA-301E, and such additional data may be less favorable than the information we have currently.

Furthermore, TRC101 may not receive marketing approval even though we believe we achieved the primary and secondary endpoints in our pivotal Phase 3 clinical trial, TRCA-301. The FDA and other foreign regulatory agencies have substantial discretion in evaluating the results of our pivotal Phase 3 clinical trial, TRCA-301, and our earlier Phase 1/2 trial, TRCA-101. For example, notwithstanding our view to the contrary, the FDA may determine that the efficacy data and/or safety data from our Phase 1/2 trial, TRCA-101, our pivotal Phase 3 clinical trial, TRCA-301, and our safety extension trial, TRCA-301E, do not support approval of an NDA for TRC101. Clinical data often is susceptible to varying interpretations and many companies that have believed that their products performed satisfactorily in clinical trials have nonetheless failed to obtain FDA approval for their products. The FDA or foreign regulatory agencies may disagree with our trial design and our interpretation of data from our Phase 1/2 trial, TRCA-101, our pivotal Phase 3 clinical trial, TRCA-301, our safety extension trial, TRCA-301E, or our nonclinical studies. Upon the FDA’s review of the data from our pivotal Phase 3 clinical trial, TRCA-301, and our safety extension trial, TRCA-301E, it may request that we conduct additional analyses of the data and, if it believes that the data are not satisfactory, could advise us to delay our submission of an NDA. Accordingly, we may not submit our NDA for TRC101 within our anticipated time frame and, even after we make the submission, the FDA may not accept it for filing, may request additional information from us, including data from additional clinical trials, and, ultimately, may not grant marketing approval for TRC101.

While there are comparable approval pathways outside the United States that are similar to the Accelerated Approval Program, we have not yet explored whether TRC101 might qualify for such a program. Foreign regulatory authorities may determine that the results of our pivotal Phase 3 clinical trial, TRCA-301, and our safety extension trial, TRCA-301E, and our earlier Phase 1/2 trial, TRCA-101, are not sufficient to support regulatory approval and may require us to complete additional clinical trials or other studies prior to submitting an application for approval.

The denial of regulatory approval for TRC101 could mean that we need to cease operations, and a delay in obtaining such approval could delay commercialization of TRC101 and adversely impact our ability to generate revenue, our business and our results of operations.

If we are not successful in commercializing TRC101, or are significantly delayed in doing so, our business will be materially harmed, and we may need to curtail or cease operations. We currently have no drug products approved for sale, and we may never obtain regulatory approval to commercialize TRC101, either under FDA’s Accelerated Program or the conventional pathway. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory agencies in the United States and other countries, and such regulations differ from country to country. We are not permitted to market TRC101 in the United States until we receive approval of an NDA from the FDA.

The FDA or any foreign regulatory agency can delay, limit or deny approval to market TRC101 for many reasons, including:

 

    our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory agency that TRC101 is safe and effective for the requested indication;

 

18


Table of Contents
    our inability to gain agreement from the FDA that TRC101 is appropriate for approval under FDA’s Accelerated Approval Program;

 

    our inability to gain agreement from applicable foreign regulatory authorities that TRC101 is appropriate for approval under applicable regulatory pathways;

 

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

 

    our inability to demonstrate that the clinical and other benefits of TRC101 outweigh any safety or other perceived risks;

 

    our ability to enroll an adequate number of patients in our confirmatory postmarketing trial, VALOR-CKD;

 

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

 

    the FDA’s or the applicable foreign regulatory agency’s having differing requirements for the trial protocols used in our clinical trials;

 

    the FDA’s or the applicable foreign regulatory agency’s non-approval of the formulation, labeling and/or the specifications of TRC101;

 

    the FDA’s or the applicable foreign regulatory agency’s failure to accept the manufacturing processes or third-party manufacturers with which we contract; or

 

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

Of the large number of drugs in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized.

Even if we eventually complete clinical testing and receive approval of an NDA or foreign marketing authorization for TRC101, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials, which may be required after approval. The FDA or the applicable foreign regulatory agency may also approve TRC101 for a more limited indication and/or a narrower patient population than we originally request, and the FDA or applicable foreign regulatory agency may not approve the labeling that we believe is necessary or desirable for the successful commercialization of TRC101. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of TRC101 and would materially adversely impact our business and prospects.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Failure can occur at any stage of clinical development. We have not submitted an NDA for TRC101, or similar drug approval filings, to the FDA or to comparable foreign authorities.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of nonclinical and clinical studies and trials of our product candidate may not be predictive of the results of later-stage clinical trials. For example, the positive results generated to date in our Phase 1/2 trial, TRCA-101, and our pivotal Phase 3 trial, TRCA-301, for TRC101 do not ensure that our late-stage clinical program, including our ongoing safety extension trial, TRCA-301E, will demonstrate similar results. Product

 

19


Table of Contents

candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical and clinical studies and trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies and trials, and we cannot be certain that we will not face similar setbacks. Based upon negative or inconclusive results, we or any potential future collaborator may decide, or regulators may require us, to conduct additional nonclinical and clinical studies and trials. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Furthermore, we rely on contract research organizations, or CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we have agreements governing their committed activities, we have limited influence over their actual performance. Even though we completed our pivotal Phase 3 clinical trial, TRCA-301, and even if our safety extension trial, TRCA-301E, and any future clinical trials are completed, the results may not be sufficient to obtain regulatory approval, regardless of whether it is through the Accelerated Approval Program or the conventional pathway, for our product candidate in the time frame we anticipate, or at all.

For approval of TRC101 through the Accelerated Approval Program, the FDA has specifically requested that a confirmatory postmarketing clinical trial be completely or nearly completely enrolled prior to submission of our NDA. We may experience delays in starting our confirmatory postmarketing trial, VALOR-CKD, as a result of various factors including reaching agreement with the FDA on the final clinical trial protocol for the trial and timely enrollment of an adequate number of patients. In addition, our confirmatory postmarketing trial, VALOR-CKD, may have a large dropout rate of participants, which could add time, expense and risk to the completion of the trial and could affect the results of the trial.

In addition, we do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or aborted for a variety of reasons, including delay or failure to:

 

    obtain regulatory approval to commence a trial, if applicable;

 

    reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

    obtain ethics committee or institutional review board, or IRB, approval at each site;

 

    recruit suitable patients to participate in a trial and have such patients complete the clinical trial or return for post-treatment follow-up;

 

    ensure that clinical sites follow the trial protocol, comply with good clinical practices, or GCPs, and continue to participate in a clinical trial;

 

    address any patient safety concerns that arise during the course of a clinical trial;

 

    ensure that patients comply with and complete clinical trial protocol;

 

    achieve a sufficient level of endpoint events in the placebo group, if applicable;

 

    initiate or add a sufficient number of clinical trial sites;

 

    ensure that trial sites do not deviate from clinical trial protocol or drop out of a clinical trial;

 

    address any conflicts with new or existing laws or regulations;

 

    manufacture sufficient quantities of product candidate for use in clinical trials and ensure clinical trial material is provided to clinical sites in a timely manner; and

 

    obtain the statistical analysis plan to be used to evaluate the clinical trial data.

 

20


Table of Contents

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the ethics committees or IRBs of the institutions in which such trials are being conducted, by an independent Safety Review Board, or SRB, for such trial or by the FDA or other regulatory agencies. Such parties may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory agencies resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

Further, conducting clinical trials in foreign countries presents additional risks that may delay completion of our clinical trials. These risks include the failure of physicians or enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries. In addition, the FDA may determine that clinical trial results obtained in foreign subjects do not represent the safety and efficacy of a product when administered in U.S. patients and are thus not supportive of an NDA approval in the United States.

If we experience delays in the start or completion of, or termination of, any clinical trial of our sole product candidate, TRC101, the commercial prospects of TRC101 may be harmed, and our ability to generate product revenues from TRC101 will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our TRC101 development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of TRC101.

Results from completed human clinical trials may not be representative of the results that are obtained after approval, if obtained, and product launch.

Human clinical trials are very complicated undertakings and working with subjects with CKD is particularly difficult because of the serious nature of the disease and the comorbidities experienced by the subjects. If we obtain FDA approval under the Accelerated Approval Program, safety risks not identified in our prior clinical trials may first appear after we obtain approval and commercialize TRC101. Any new postmarketing adverse events may significantly impact our ability to market TRC101 and may require that we recall and discontinue commercialization of the product. Furthermore, if the confirmatory postmarketing trial, VALOR-CKD, fails to confirm TRC101’s clinical profile or clinical benefits, the FDA may withdraw its approval of TRC101. Any of these events would materially harm our business.

 

21


Table of Contents

We have relied and continue to rely on third parties, particularly CROs, to conduct and complete our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize TRC101, if approved.

We do not have the ability to independently conduct clinical trials. We rely on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as CROs, to conduct clinical trials for TRC101. We rely on these third parties to conduct and complete our clinical trials according to GCPs and the study protocol, statistical analysis plan and other study-specific documents (for example, monitoring and blinding plans). Responsibilities of these third parties include, but are not limited to, monitoring of the study sites and ensuring that the study is conducted in compliance with the informed consent process, protocol-specified inclusion/exclusion criteria, prior/concomitant medication restrictions, visit-specific assessment requirements and all study-specific blinding procedures.

Our safety extension trial, TRCA-301E, is being conducted at 29 sites in the United States and Europe. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, these third parties are not our employees, and, except for contractual duties and obligations, we have limited ability to control the amount or timing of resources that they devote to our program. Although we rely on these third parties to conduct all of our clinical trials, we remain responsible for ensuring that each of our clinical trials is conducted and its data analyzed in accordance with its protocol and statistical analysis plan. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, including GCPs for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial subjects are adequately informed of the potential risks of participating in clinical trials.

In addition, the execution of clinical trials, and the subsequent compilation and analysis of the data produced, requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties communicate and coordinate with one another. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. These third parties may terminate their agreements with us upon as little as 30 days’ prior written notice. Some of these agreements may also be terminated by such third parties under certain other circumstances, including our insolvency. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the intentional or inadvertent failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or terminated or may need to be repeated. The third parties upon whom we rely may be inspected by FDA or other regulatory authorities in relation to our, or to other, studies or trials. Such inspections may result in FDA or other regulatory authorities not accepting the data produced by the third party.

If any of the foregoing were to occur, we may not be able to obtain regulatory approval for or commercialize TRC101, which would have a material adverse effect on our business, results of operations and financial condition.

 

22


Table of Contents

We rely completely on third-party suppliers to manufacture our clinical drug supply of TRC101 drug substance and drug product, and we intend to rely on third parties to produce commercial supply of TRC101 drug substance and drug product, if approved.

We do not currently have, nor do we plan to acquire, the infrastructure or internal capability to manufacture TRC101 on a clinical or commercial scale. As such, we contract with third-party service providers to manufacture TRC101 drug substance and drug product and to perform analytical testing services under cGMPs. Pharmaceutical manufacturing facilities are subject to inspection by the FDA and foreign regulatory agencies on a regular basis, before and after product approval.

We do not directly control, and are completely dependent on, our contract manufacturers for compliance with, applicable requirements including cGMP, for manufacture of both TRC101 drug substance and drug product. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications or they are unable to comply with the strict regulatory requirements of the FDA or foreign regulatory agencies, we will not be able to secure and/or maintain adequate supply of TRC101 drug substance and drug product. In addition, we have no direct control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Furthermore, all of our contract manufacturers are engaged with other companies to supply and/or manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the production of such other materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may generally affect the regulatory clearance of our contract manufacturers’ facilities. If our contract manufacturers’ facilities fail to comply with the FDA or a comparable foreign regulatory agency requirements, we may need to find alternative manufacturing facilities for TRC101 drug substance or drug product, which would negatively impact our ability to develop, obtain regulatory approval for, or market TRC101, if approved, and materially adversely affect our financial condition.

We currently depend on a single third-party supplier for the manufacture of TRC101 drug substance, and any performance failure on the part of our supplier could delay the development and potential commercialization of TRC101.

We cannot be certain that our drug substance supplier will continue to provide us with sufficient quantities of TRC101 drug substance, or that our manufacturers will be able to produce sufficient quantities of drug product incorporating such drug substance, to satisfy our anticipated specifications and quality requirements, or that such quantities can be obtained at pricing necessary to sustain acceptable pharmaceutical margins. We believe that there are a limited number of experienced contract manufacturers in the world capable of manufacturing a polymeric drug substance such as TRC101. Our current dependence on a single supplier for our drug substance and the challenges we may face in obtaining adequate supply of TRC101 drug substance involves several risks, including limited control over pricing, availability, quality and delivery schedules. Any supply interruption in TRC101 drug substance or drug product could materially harm our ability to complete our development program or satisfy commercial demand, if approved, until a new source of supply, if any, could be identified and qualified. We may be unable to find a sufficient alternative supply channel in a reasonable time or on commercially reasonable terms. Any performance failure on the part of our suppliers could delay the development and potential commercialization of TRC101, including limiting supplies necessary for clinical trials and regulatory approvals, which would have a material adverse effect on our business.

Moreover, our current supplier of drug substance may not have the capacity to manufacture TRC101 drug substance in the quantities that we believe will be sufficient to meet anticipated market demand or to enable us to achieve the economies of scale necessary to reduce the manufacturing cost of TRC101 drug substance. Our business plan assumes that we are able to develop a supply chain

 

23


Table of Contents

with multiple suppliers and significantly decrease our cost of goods within the first several years of commercialization of TRC101, if approved, enabling us to achieve gross margins similar to those achieved by other companies with polymer-based drugs. If we are unable to reduce the manufacturing cost of TRC101 drug substance, our financial results will suffer and our ability to achieve profitability will be significantly jeopardized. Outside of our current supplier, we currently do not have any agreements for the commercial production of TRC101 drug substance. If our contract manufacturer for drug substance is unable to source, or we are unable to purchase, sufficient quantities of materials necessary for the production of TRC101 drug substance, the ability of TRC101 to reach its market potential to be launched, would be delayed or suffer from a shortage in supply, which would impair our ability to generate revenues from the sale of TRC101. If there is a disruption to our contract manufacturers’ or suppliers’ relevant operations, we will have no other means of producing TRC101 drug substance until they restore the affected facilities or we or they procure alternative manufacturing facilities. Additionally, any damage to or destruction of our contract manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to manufacture TRC101 on a timely basis.

We are in the process of scaling our two-step manufacturing process to commercial scale with our third-party supplier. Any performance failure or time delay in scaling our two-step drug substance manufacturing process could materially adversely affect or delay validation of our manufacturing process or delay the start or interrupt the execution of our confirmatory postmarketing trial, VALOR-CKD, and potentially impact the commercialization of TRC101, if approved.

While we believe we have sufficient drug substance to supply the anticipated demand for at least the first four months of our confirmatory postmarketing trial, VALOR-CKD, we are in the process of scaling our two-step manufacturing process to commercial scale with our third-party supplier. The scale of the first step in our drug substance manufacturing process, step one, (currently at approximately 340 kg/batch) is being increased two-fold, and the scale of the second step in our manufacturing process, step two, (currently at approximately 65 kg/batch) is being increased ten-fold, to provide targeted commercial batch sizes for each of the steps in the range of 500 to 700 kg. As compared to soluble, small organic molecule pharmaceuticals, insoluble, non-absorbed polymers are manufactured in larger batches to satisfy greater doses, e.g., gram quantities versus milligram or even microgram quantities per dose, which presents unique requirements both in terms of scale-up and process controls. We are in the process of scaling the current production methods to meet our anticipated commercial needs without introducing changes to key TRC101 properties, including binding capacity, selectivity for hydrochloric acid and non-absorption. We use acid binding, competitive anion binding and particle size measurement assays to confirm these properties. Any difficulties experienced in the ongoing scale-up of our drug substance manufacturing processes to commercial scale could materially adversely affect or delay our ability to (i) meet regulatory process validation requirements to demonstrate that our manufacturing process is capable of consistently delivering quality product, or (ii) have sufficient quantities of TRC101 drug product manufactured to timely initiate and successfully conduct our confirmatory postmarketing trial, VALOR-CKD, or (iii) have sufficient quantities of TRC101 drug substance and drug product to supply commercial supply of TRC101, if approved, all of which would have a material adverse effect on our business and our prospects.

If we fail to establish an effective distribution process for TRC101 drug product, if approved, our business may be adversely affected.

We do not currently have the infrastructure necessary for distributing pharmaceutical products to patients. We intend to contract with a third-party logistics company to warehouse TRC101 and distribute it. This distribution network will require significant coordination with our sales and marketing and finance teams. Failure to secure contracts with a logistics company could negatively impact the distribution of TRC101, if approved, and failure to coordinate financial systems could negatively impact

 

24


Table of Contents

our ability to accurately report product revenue. If we are unable to effectively establish and manage the distribution process, the commercial launch and sales of TRC101 will be delayed or severely compromised and our results of operations may be harmed.

Even if TRC101 obtains regulatory approval, it may never achieve market acceptance or commercial success, which will depend, in part, upon the degree of acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community.

Even if we obtain FDA or other regulatory approvals, TRC101 may not achieve market acceptance among physicians, patients, patient advocacy groups, health care payors or the medical community, and may not be commercially successful. If approved, market acceptance of TRC101 depends on a number of factors, including:

 

    the efficacy of the product as demonstrated in clinical trials;

 

    the prevalence and severity of any side effects and overall safety profile of the product;

 

    the clinical indications for which the product is approved;

 

    the potential and perceived advantages of TRC101 over current options or future alternative treatments;

 

    the strength of our marketing organization and distribution channels;

 

    the quality of our relationships with patient advocacy groups;

 

    the availability and sufficiency of third-party coverage and adequate reimbursement;

 

    acceptance by physicians, major operators of clinics and patients of the product as a safe and effective chronic daily treatment and willingness of physicians to prescribe TRC101;

 

    the cost of treatment in relation to alternative treatments and willingness to pay for TRC101, if approved, on the part of patients;

 

    relative convenience and ease of administration of TRC101; and

 

    the availability of the product and our ability to meet market demand, including providing a reliable supply for long-term daily treatment.

Any failure by our product candidate, if it obtains regulatory approval, to achieve market acceptance or commercial success would adversely affect our results of operations.

The incidence and prevalence of the target patient population for TRC101 are based on estimates and third-party sources. If the market opportunity for TRC101 is smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability might be materially and adversely affected.

Periodically, we make estimates regarding the incidence and prevalence of target patient populations based on various third-party sources and internally generated analysis. These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunity for TRC101 will depend on, among other things, acceptance of TRC101 by the medical community and patient access, drug pricing and reimbursement. The number of patients in the addressable markets may turn out to be lower than expected, patients may not be otherwise amenable to treatment with TRC101, or new patients may become increasingly difficult to identify or gain access to, all of which may significantly harm our business, financial condition, results of operations and prospects.

 

25


Table of Contents

TRC101, if approved, may face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.

While we are not aware of any therapies approved by the FDA for the chronic treatment of metabolic acidosis and are not aware of any active clinical development programs other than ours for such a treatment in the United States, the pharmaceutical market is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. Our TRC101 development program may serve as a template for a fast follower to develop a competing product candidate. Furthermore, we expect TRC101 to compete against non-approved options for increasing blood bicarbonate levels, including oral alkali supplementation such as sodium bicarbonate, sodium citrate or potassium citrate. TRC101 may not be able to compete effectively with existing non-approved options for increasing blood bicarbonate levels or new drugs that may be developed by competitors. The risk of competition is specifically important to us because TRC101 is our only product candidate.

Our competitors may have materially greater financial, manufacturing, marketing, research and drug development resources than we do. Large pharmaceutical companies in particular, may have extensive expertise in nonclinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with our competitors.

Failure to compete effectively against available options for raising blood bicarbonate levels or in the future with new products would materially harm our business, financial condition and results of our operations.

We currently have limited sales or marketing capabilities. If we are unable to establish effective sales and marketing capabilities or if we are unable to enter into agreements with third parties to commercialize TRC101, we may not be able to effectively generate product revenues.

We currently have limited sales or marketing capabilities. In order to commercialize TRC101, if approved, we must build marketing and sales capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If TRC101 is approved by the FDA, we plan to initially commercialize it in the United States by deploying an 80- to 100-person specialty sales force targeting that subset of nephrologists most focused on treating CKD patients. Building the requisite sales, marketing or distribution capabilities will be expensive and time-consuming and will require significant attention of our leadership team to manage. Any failure or delay in the development of our sales, marketing or distribution capabilities would adversely impact the commercialization of our product. The competition for talented individuals experienced in selling and marketing pharmaceutical products is intense, and we cannot assure you that we can assemble an effective team. Additionally, we may choose to collaborate, either globally or on a territory-by-territory basis, with third parties on the commercialization of TRC101. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize TRC101 if and when it receives regulatory approval or any such commercialization may experience delays or limitations.

We may be subject to additional risks related to operating in foreign countries either ourselves or through a third-party, including:

 

    differing regulatory requirements in foreign countries;

 

    unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;

 

26


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

 

    compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

    foreign taxes, including withholding of payroll taxes;

 

    foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

    difficulties staffing and managing foreign operations;

 

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

 

    potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;

 

    challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;

 

    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

    business interruptions resulting from geopolitical actions, including war and terrorism.

Our clinical development program may not uncover all possible adverse events that patients who take TRC101 may experience. The number of subjects exposed to TRC101 treatment and the average exposure time in the clinical development program may be inadequate to detect adverse events, or chance findings, that may only be detected once TRC101 is administered to more patients and for greater periods of time.

Clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of subjects and limited duration of exposure, we cannot be fully assured that TRC101 has no serious or severe side effects, and any such side effects may only be uncovered with a significantly larger number of patients exposed to the drug candidate. It is possible that ongoing and future clinical trials, as well as reports received from TRC101 use commercially, if approved, may identify safety concerns.

Although we have monitored the subjects in our trials for certain safety concerns and we have not seen evidence of significant safety concerns in our clinical trials to date, patients treated with TRC101 may experience adverse reactions. The most commonly reported adverse effect of TRC101 in the TRCA-101 trial was mild-to-moderate GI events, such as diarrhea and constipation. The most commonly reported treatment-related adverse events in the TRCA-301 trial were mild to moderate GI disorders, which included diarrhea, flatulence, nausea and constipation. It is possible that the FDA may ask for additional data regarding such matters. In addition, CKD patients often experience significant and frequent comorbidities and are being treated with other medications. Although in vitro studies and human drug-drug interaction, or DDI, studies available to date indicate that TRC101 does not interact with medications commonly used by CKD patients, if significant DDIs occur in the future, TRC101 may no longer be compatible with some of the medications used to treat CKD patients. If safety problems occur or are identified after TRC101 reaches the market, the FDA may require that we amend the labeling of TRC101, recall TRC101, or even withdraw approval for TRC101.

 

27


Table of Contents

The FDA may not agree that the safety of TRC101 has been sufficiently characterized by the amount and quality of data provided from our clinical development program.

The NDA safety database for new drugs intended for chronic use in non-life-threatening conditions typically includes at least 1500 individuals, with at least 100 patients exposed to the drug for a minimum of one year (Guideline for Industry ICH-E1A: The Extent of Population Exposure to Assess Clinical Safety: For Drugs Intended for Long-term Treatment of Non-Life-Threatening Conditions ). At the time of filing our NDA, we anticipate that the TRC101 safety database will be significantly smaller than the guidance suggests. Given the toxicology study results and clinical safety profile observed to date for TRC101, as well as the non-absorbed nature of the drug, we believe our proposed safety database will be adequate for the filing of the TRC101 NDA and its review through the Accelerated Approval Program. However, we cannot assure you that the FDA will agree with our proposal. If they require additional safety data in the initial NDA filing, this could have a material adverse effect on our expected clinical and regulatory timelines, business, prospects, financial condition and results of operations.

Our product candidate, TRC101, may cause undesirable side effects or have other properties that could delay or prevent its regulatory approval, reduce the commercial attractiveness of a prescribing label or result in significant negative consequences following regulatory approval, if approved.

Clinical studies of TRC101 could reveal a high and unacceptable incidence and severity of undesirable and currently unknown side effects. Undesirable side effects could adversely affect patient enrollment in clinical studies, cause us or regulatory authorities to interrupt, delay or halt clinical studies or result in the delay, denial or withdrawal of regulatory approval by the FDA, the European Medicines Agency, or EMA, or other global regulatory authorities. Undesirable side effects also could result in regulatory authorities mandating additional clinical testing prior to approval, postmarketing testing following approval, or a more restrictive prescribing label for a product, which, in turn, could limit the market acceptance of the product by physicians and consumers.

Drug-related side effects could result in potential product liability claims, especially if they were not included in the consent forms for clinical trial patients or included in the warnings of any FDA-approved labeling. We currently carry product liability insurance covering use in our clinical trials in the amount of $10 million in the aggregate; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts if liability and legal costs exceed the threshold limited. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations, business and financial condition, and commercial reputation. In addition, regardless of merit or eventual outcome, product liability claims may result in impairment of our business reputation, withdrawal of clinical study participants, increased costs due to related litigation, distraction of management’s attention from our primary business, initiation of investigations by regulators or other governmental entities, monetary awards to patients or other claimants, the inability to commercialize TRC101 and decreased demand for our product, if approved for marketing.

Additionally, if TRC101 receives regulatory approval, and we or others later identify undesirable side effects or unanticipated adverse events caused by such product, a number of potentially significant negative consequences could result, including but not limited to:

 

    the requirement of additional warnings on the prescribing label;

 

    the withdrawal of approvals by regulatory authorities;

 

    the requirement of a risk evaluation and mitigation strategy plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use;

 

28


Table of Contents
    litigation and the potential to be held liable for harm caused to patients; and

 

    an adverse effect on our reputation.

Any of these events could prevent us from achieving or maintaining market acceptance of TRC101 and could significantly harm our business, results of operations, financial condition and prospects.

We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.

As of May 31, 2018, we had 61 full-time employees. We will need to continue to expand our managerial, operational, finance and other resources in order to manage our operations, regulatory filings, manufacturing and supply activities, clinical trials, marketing and commercialization activities for TRC101. Our management, personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:

 

    expand our general and administrative and sales and marketing organizations;

 

    identify, recruit, retain, incentivize and integrate additional employees;

 

    manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and

 

    continue to improve our operational, legal, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to successfully develop and commercialize TRC101 will depend, in part, on our ability to effectively manage any future growth. Our management will have to dedicate a significant amount of its attention to managing these growth activities. In addition, we expect to incur additional costs in hiring, training and retaining such additional personnel.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully execute the tasks necessary to further develop and commercialize our product candidate and, accordingly, may not achieve our research, development and commercialization goals.

If we fail to attract and keep senior management, we may be unable to successfully develop TRC101, conduct our clinical trials and commercialize TRC101, if approved.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified personnel. In particular, we are highly dependent upon our experienced senior management. The loss of services of any of these individuals or our inability to attract and retain additional qualified personnel could delay or prevent the successful development of our product, completion of our planned clinical trials or the commercialization of TRC101. Although we have entered into employment agreements with our senior management team, these agreements do not provide for a fixed term of service. Any of our employees could leave our employment at any time, with or without notice.

Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we

 

29


Table of Contents

hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.

We may hire part-time employees or use consultants. As a result, certain of our employees, officers, directors or consultants may not devote all of their time to our business, and may from time to time serve as employees, officers, directors and consultants of other companies.

Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of fraud or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. In connection with this offering, we intend to adopt a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from misconduct or other failure to be in compliance with applicable laws or regulations.

Misconduct by our employees, independent contractors, consultants, commercial partners and vendors could include intentional failures to comply with FDA or international regulations, provide accurate information to the FDA or other international regulatory bodies, comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data timely, completely and accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by third parties could also involve the improper use of information obtained in the course of clinical trials.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from government-funded healthcare programs, such as Medicare and Medicaid, additional integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

If we seek and obtain approval to commercialize TRC101 outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If TRC101 is approved for commercialization outside the United States, we may enter into agreements with third parties to market TRC101 outside the United States. We expect that we will be subject to additional risks related to entering into these international business relationships, including:

 

    different regulatory requirements for drug approvals in foreign countries;

 

    differing U.S. and foreign drug import and export rules;

 

    reduced protection for intellectual property rights in foreign countries;

 

    unexpected changes in tariffs, trade barriers and regulatory requirements;

 

30


Table of Contents
    different reimbursement systems, and different competitive drugs indicated to treat metabolic acidosis;

 

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

 

    compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

    foreign taxes, including withholding of payroll taxes;

 

    foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

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

 

    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

 

    potential liability resulting from development work conducted by these distributors; and

 

    business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.

Our Term Loan contains restrictions that limit our flexibility in operating our business.

Our Term Loan with Hercules Capital, Inc. contains various covenants that limit our ability to engage in specified types of transactions without obtaining prior consent from our lenders. These covenants limit our ability to, among other things:

 

    use all of our cash;

 

    create, incur, assume, guarantee or be or remain liable with respect to any indebtedness;

 

    prepay any indebtedness;

 

    subject our assets that serve as collateral under the Term Loan, our intellectual property and all other property and assets used in our business to any lien or legal process;

 

    acquire, own or make investments;

 

    repurchase or redeem shares of our capital stock;

 

    declare or pay any cash dividends or make any other cash distributions;

 

    lend money to our employees, officers or directors, or guarantee such loans;

 

    waive, release or forgive indebtedness owed by our employees, officers or directors;

 

    voluntarily or involuntarily transfer, sell, lease, license, lend or convey our assets;

 

    merge or consolidate with another business organization;

 

    change our corporate name, legal form or jurisdiction of formation;

 

    suffer a change in control;

 

    relocate our chief executive office or principal place of business; and

 

    maintain deposit accounts or securities accounts without account control agreements in place.

The covenants in our Term Loan may limit our ability to take certain actions and, in the event that we breach one or more covenants, the agent may, and at the direction of the lenders will, declare

 

31


Table of Contents

an event of default and require that we immediately repay all amounts outstanding, plus penalties and interest, terminate their commitments to extend further credit and foreclose on the collateral granted to them to secure such indebtedness. The exercise of remedies by the lenders would have a material adverse effect on our business, operating results and financial condition.

Our debt obligations expose us to risks that could adversely affect our business, operating results, overall financial condition and may result in further dilution to our stockholders.

Our Term Loan with Hercules obligates us to make certain interest and principal payments. Our ability to make payments on this indebtedness depends on our ability to generate cash in the future. We expect to experience negative cash flow for the foreseeable future as we fund our operations and capital expenditures. There can be no assurance we will be in a position to repay this indebtedness when due or obtain extensions to the maturity date. We anticipate that we will need to secure additional funding to repay these obligations when due. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If that additional funding involves the sale of equity securities or convertible securities, it would the issuance of additional shares of our capital stock, which would result in dilution to our stockholders.

This level of debt could have an adverse impact on our business or operations. For example, it could:

 

    limit our flexibility in planning for the development, clinical testing, approval and marketing of TRC101;

 

    place us at a competitive disadvantage compared to any of our competitors that are less leveraged than we are;

 

    increase our vulnerability to both general and industry-specific adverse economic conditions; and

 

    limit our ability to obtain additional funds.

We will incur significant costs as a result of operating as a public company, and our management will devote substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would harm our business.

We will incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and regulations regarding corporate governance practices. The listing requirements of The Nasdaq Global Select Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.

 

32


Table of Contents

In addition, we implemented an enterprise resource planning, or ERP, system for our company. An ERP system is intended to combine and streamline the management of our financial, accounting, human resources, sales and marketing and other functions, enabling us to manage operations and track performance more effectively. However, an ERP system would likely require us to complete many processes and procedures for the effective use of the system or to run our business using the system, which may result in substantial costs. Additionally, in the future, we may be limited in our ability to convert any business that we acquire to the ERP. Any disruptions or difficulties in using an ERP system could adversely affect our controls and harm our business, including our ability to forecast or make sales and collect our receivables. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management attention.

After this offering, we will be subject to Section 404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the Securities and Exchange Commission, or SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Beginning with the second annual report that we will be required to file with the SEC, Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30 th , and (2) the date on which we have issued more than an aggregate of $1.0 billion in non-convertible debt during the prior three-year period.

We have identified material weaknesses in our internal control over financial reporting, and if we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock may be materially adversely effected.

To date, we have never conducted a review of our internal control for the purpose of providing the reports required by the Sarbanes-Oxley Act. During our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. We and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting, related to (i) the lack of sufficient qualified accounting personnel and controls with respect to the review of third-party valuations used to determine the fair value of our preferred stock tranche obligations and the recording of the corresponding fair value, and (ii) a lack of effective communication and coordination between the accounting and operations personnel with respect to estimation of progress to completion on work orders with contract manufacturers, which resulted in a number of adjustments in contract manufacturing accruals. Following identification of the material weaknesses, we have undertaken specific remediation actions to address the control deficiencies in our financial reporting which are outlined elsewhere in this prospectus.

Furthermore, if in the future, we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our

 

33


Table of Contents

operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we will be required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The Nasdaq Global Select Market or other adverse consequences that would materially harm our business. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, and other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation and our financial condition, or divert financial and management resources from our core business.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize TRC101.

We may seek to establish collaboration or similar agreements with one or more established biotechnology, pharmaceutical or specialty pharmaceutical companies to support the development, regulatory approval and commercialization of TRC101 outside of the United States and we may seek similar arrangements for the development or commercialization of TRC101. We may enter into these arrangements on a selective basis depending on the merits of retaining commercialization rights for ourselves as compared to entering into selective collaboration arrangements with leading pharmaceutical or biotechnology companies for TRC101, both in the United States and internationally. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations.

Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority.

Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. If we were to enter into any collaboration agreements, any such termination or expiration would adversely affect us financially and could harm our business reputation.

If we engage in acquisitions, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.

Although we currently have no intent to do so, we may attempt to acquire businesses, technologies, services, products or product candidates that we believe are a strategic fit with our business. If we do undertake any acquisitions, the process of integrating an acquired business, technology, service, products or product candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional

 

34


Table of Contents

integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.

Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of TRC101 and other hazardous compounds. We and our 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 our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our 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 we believe that the safety procedures utilized by us and our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable agencies may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the recent global financial crisis, could result in a variety of risks to our business, including reduced ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. It may also harm our ability to attract and retain collaboration partners or customers. Additionally, currency fluctuations may affect our ability to successfully market and sell TRC101 in markets outside of the United States. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current or future economic climate and financial market conditions could adversely impact our business.

We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate headquarters and other facilities are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes. We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

 

35


Table of Contents

If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Furthermore, integral parties in our supply chain may operate from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business.

Our internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer security breaches, which could result in material disruptions to our drug development programs.

Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, cyber attacks, industrial espionage, other unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur, it could cause interruptions to our operations and result in material disruptions to our drug development programs. For example, the loss or theft of clinical trial data from completed or ongoing clinical trials for our product candidate could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss or theft of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be adversely affected, our reputation could be harmed and the further development of our product candidate could be delayed.

We are subject to European data protection laws, including the new EU General Data Protection Regulation 2016/679, or GDPR. If we fail to comply with existing or future data protection regulations, our business, financial condition, results of operations and prospects may be materially adversely affected.

By virtue of our clinical trial activities in Europe, we are subject to European data protection laws, including GDPR. The GDPR which came into effect on May 25, 2018, establishes new requirements applicable to the processing of personal data (i.e., data which identifies an individual or from which an individual is identifiable), affords new data protection rights to individuals (e.g., the right to erasure of personal data) and imposes penalties for serious breaches of up to 4% annual worldwide turnover or 20 million, whichever is greater. Individuals (e.g., study subjects) also have a right to compensation for financial or non-financial losses (e.g., distress). There may be circumstances under which a failure to comply with GDPR, or the exercise of individual rights under the GDPR, would limit our ability to utilize clinical trial data collected on certain subjects. The GDPR will likely impose additional responsibility and liability in relation to our processing of personal data. This may be onerous and materially adversely affect our business, financial condition, results of operations and prospects.

 

36


Table of Contents

Risks Related to Government Regulation

The regulatory approval process is highly uncertain and we may not obtain approval under the Accelerated Approval Program or the conventional pathway, as required for the commercialization of TRC101.

The research, testing, manufacturing, labeling, approval, selling, import, export, pricing and reimbursement marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory agencies in the United States and other countries, which regulations differ from country to country. Neither we nor any future collaboration partner is permitted to market TRC101 in the United States until we receive approval of an NDA from the FDA. We have not submitted an application or obtained marketing approval for TRC101 anywhere in the world. Obtaining regulatory approval of an NDA, even under the Accelerated Approval Program, can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable U.S. and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions or other actions, including:

 

    warning letters;

 

    civil and criminal penalties;

 

    injunctions;

 

    withdrawal of regulatory approval of products;

 

    product seizure or detention;

 

    product recalls;

 

    total or partial suspension of production; and

 

    refusal to approve pending NDAs or supplements to approved NDAs.

Prior to obtaining approval to commercialize a drug candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory agencies, that such drug candidates are safe and effective for their intended uses. The number of nonclinical and clinical studies and trials that will be required for FDA approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. We will seek approval for TRC101 under the FDA’s Accelerated Approval Program, which would allow us to demonstrate an effect on a surrogate endpoint that is reasonably likely to predict TRC101’s clinical benefit, but we will be subject to rigorous postmarketing requirements, including the completion of one or more confirmatory postmarketing trials to verify the clinical benefit of TRC101. If unable to obtain approval under the Accelerated Approval Program, we will have to pursue a conventional approval pathway for TRC101. In addition, in such case, the FDA could determine that our pivotal Phase 3 clinical trial, TRCA-301, may not be sufficient to support approval under the conventional pathway . Results from nonclinical and clinical trials and studies can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our drug candidate is promising, such data may not be sufficient to support approval by the FDA and other regulatory agencies. Administering drug candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials and result in the FDA or other regulatory agencies denying approval of a drug candidate for any or all targeted indications.

Both accelerated and conventional regulatory approval pathways of an NDA or NDA supplement are not guaranteed, and the approval process is expensive and may take several years. The FDA also has substantial discretion in the approval process and we may encounter matters with the FDA that require us to expend additional time and resources and delay or prevent the approval of our product

 

37


Table of Contents

candidate. For example, the FDA may require us to conduct additional studies or trials for TRC101 either prior to approval or postmarketing, such as additional drug-drug interaction studies or safety or efficacy studies or trials, or it may object to elements of our clinical development program such as the number of subjects enrolled in our current clinical trials from the United States. Despite the time and expense exerted, failure can occur at any stage. The FDA can delay, limit or deny approval of a drug candidate for many reasons, including, but not limited to, the following:

 

    a drug candidate may not be deemed safe or effective;

 

    the FDA might not approve our trial design and analysis plan;

 

    the FDA may not find the data from nonclinical and clinical studies and trials sufficient;

 

    clinical inspection(s) by the FDA or other regulatory authorities may result in unacceptable findings that could negatively impact approval of TRC101;

 

    the FDA might not accept or deem acceptable a third-party manufacturers’ processes or facilities; or

 

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

If TRC101 fails to demonstrate safety and efficacy in clinical trials or does not gain regulatory approval, our business and results of operations will be materially and adversely harmed. Additionally, if the FDA requires that we conduct additional clinical trials, places limitations on TRC101 in our label, delays approval to market TRC101 or limits the use of TRC101, our business and results of operations may be harmed.

We have not yet finalized the design of the confirmatory postmarketing trial, VALOR-CKD, including the sample size, trial duration, endpoint definition, event rate assumptions and eligibility criteria. The FDA and/or comparable foreign regulators may not agree with our proposed confirmatory postmarketing trial design, in which case we may be required to modify our planned clinical trials, or conduct additional clinical trials, before we can submit the NDA or comparable foreign applications.

We are in discussions with the FDA to finalize the design of our confirmatory postmarketing trial, VALOR-CKD, for TRC101’s approval under the Accelerated Approval Program. There can be no assurance that we will reach agreement with the FDA on the VALOR-CKD trial design. For example, we anticipate a sample size of 1,400 to 1,600 subjects, but agreement with the FDA on the sample size and the design of the VALOR-CKD trial is needed to support FDA’s acceptance of the NDA submission for review under the Accelerated Approval Program; this is still an outstanding topic in our ongoing discussions with the FDA. The FDA has noted that a quantitative understanding of the relationship between changes in blood bicarbonate caused by TRC101 in our pivotal, Phase 3 study, TRCA-301, and the kidney disease progression endpoint planned for the VALOR-CKD trial is a key factor in finalizing the VALOR-CKD trial design. To address this factor and justify our methodology for establishing the sample size for our confirmatory postmarketing trial, VALOR-CKD, we are currently using a quantitative predictive model developed by Navdeep Tangri, M.D., Ph.D., of the University of Manitoba, in which he modeled the relationship between the change in blood bicarbonate and the risk of kidney disease progression. We have submitted that model to the FDA. However, if we are unable to reach consensus with the FDA on the sample size for our confirmatory postmarketing trial, VALOR-CKD, we may be required to find other approaches to justify the sample size, thereby requiring an increase or decrease of our proposed sample size. Moreover, the FDA may require us to make other changes to our proposed design of our confirmatory postmarketing trial, VALOR-CKD, including changes related to trial duration, endpoint definition, event rate assumptions and eligibility criteria. In general, a sponsor planning to use the Accelerated Approval Program should discuss with the FDA the possibility of accelerated approval and design of any necessary confirmatory postmarketing trials

 

38


Table of Contents

during development and any confirmatory postmarketing trials should be in progress at the time of NDA approval. The FDA has specifically requested that our confirmatory postmarketing trial, VALOR-CKD, be completely enrolled or nearly completely enrolled prior to submission of our NDA for TRC101. Therefore, we must obtain the FDA’s agreement and finalize the design of our confirmatory postmarketing trial, VALOR-CKD, and completely enroll or nearly completely enroll our confirmatory postmarketing trial, VALOR-CKD, prior to the submission of an NDA. Our NDA submission may be delayed if the FDA does not accept the design of our proposed confirmatory postmarketing trial, we are unable to completely, or nearly completely, enroll our confirmatory postmarketing trial, VALOR-CKD, or the FDA imposes any additional requirements prior to NDA submission, any of which could have a material adverse effect on our expected clinical and regulatory timelines, business, prospects, financial condition and results of operations.

Because we are developing a product candidate for the treatment of a disease or condition on the basis of an unvalidated surrogate endpoint, there are increased risks that the FDA or other regulatory authorities may find that our clinical program provides insufficient evidence of clinical benefit, may have difficulty analyzing and interpreting the results of our clinical program, and may delay or refuse to approve TRC101.

There are no FDA-approved therapies for the chronic treatment of metabolic acidosis in CKD patients. In addition, we are not aware of any chronic therapeutic agent that has previously been approved by the FDA on the basis of a clinical trial that used blood bicarbonate level as the primary endpoint. We have engaged in discussions with the FDA regarding the design of our pivotal Phase 3 clinical trial, TRCA-301, and whether the use of blood bicarbonate as a surrogate endpoint is reasonably likely to predict clinical benefit. However, the FDA has discretion at any time, including during the NDA review, to determine whether there is support for the use of blood bicarbonate as a surrogate endpoint.

Key issues with our endpoint include uncertainty about the degree of change from baseline blood bicarbonate that will translate into improved clinical outcomes, the population in which such change is expected to translate into improved clinical outcomes, and the need for data supporting a causal relationship between blood bicarbonate concentration and clinical outcomes. As a result, we cannot be certain that FDA will ultimately conclude that the design and results of our pivotal Phase 3 clinical trial, TRCA-301, which uses changes from baseline in blood bicarbonate level as the primary endpoint, will be sufficient for approval of TRC101.

Moreover, even if the FDA does find that changes from baseline in blood bicarbonate are sufficiently likely to predict clinical benefit for patients, the FDA may not agree that we have achieved the primary endpoint in our pivotal Phase 3 clinical trial, TRCA-301, to the magnitude or to the degree of statistical significance required by the FDA. Further, even if those requirements are satisfied, the FDA also could give overriding weight to inconsistent or otherwise confounding results on other efficacy endpoints or other results of the trial, including results on secondary and exploratory endpoints. The FDA also weighs the benefits of a product against its risks and the FDA may view the efficacy results in the context of safety as not being supportive of regulatory approval. Regulatory authorities in other countries may take similar positions.

We are conducting and may in the future conduct clinical trials for our product candidate, TRC101, outside the United States and the FDA may not accept data from such trials.

Although the FDA may accept data from clinical trials conducted outside the United States in support of safety and efficacy claims for TRC101, this is subject to certain conditions. For example, such foreign clinical trials should be conducted in accordance with GCPs, including review and approval by an independent ethics committee and obtaining the informed consent from subjects of the

 

39


Table of Contents

clinical trials. The foreign clinical data should also be applicable to the U.S. population and U.S. medical practice. Other factors that may affect the acceptance of foreign clinical data include differences in clinical conditions, study populations or regulatory requirements between the United States and the foreign country.

We conducted the TRCA-301 trial and are conducting the TRCA-301E trial with majority enrollment outside the United States and may, in the future, conduct clinical trials of our product candidates outside the United States. The FDA may not accept such foreign clinical data, and in such event, we may be required to re-conduct the relevant clinical trials within the United States, which would be costly and time-consuming, and which could have a material and adverse effect on our ability to carry out our business plans.

Even if we receive regulatory approval for TRC101, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, TRC101, if approved, could be subject to labeling and other restrictions and market withdrawal, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with TRC101.

Even if a drug is approved by the FDA and/or foreign regulatory agencies, regulatory agencies may still impose significant restrictions on a product’s indicated uses or marketing or impose various ongoing requirements. Furthermore, any new legislation addressing drug safety issues could result in delays or increased costs to assure compliance. In addition, if a drug receives approval under the FDA’s Accelerated Approval Program, it will be subject to special postmarketing requirements, including the completion of confirmatory postmarketing clinical trials to verify the clinical benefit of the product, and submission to the FDA of all promotional materials prior to their dissemination. The FDA could seek to withdraw the approval for multiple reasons, including if we fail to conduct any required confirmatory postmarketing trial with due diligence, a confirmatory postmarketing trial does not confirm the predicted clinical benefit, other evidence shows that the product is not safe or effective under the conditions of use, or we disseminate promotional materials that are found by the FDA to be false and misleading.

If TRC101 receives approval under the Accelerated Approval Program, it will be subject to ongoing regulatory requirements for conducting postmarketing clinical studies and trials, labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information, including both federal and state requirements in the United States. In addition, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMP. As such, we and our contract manufacturers are subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, we must conduct the confirmatory postmarketing trial in a diligent manner and we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with requirements concerning advertising and promotion for TRC101. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we may not promote TRC101 for indications or uses for which it does not have FDA approval.

If TRC101 receives approval under the Accelerated Approval Program but we fail to conduct the required confirmatory postmarketing trials with due diligence or such postmarketing trials fail to confirm TRC101’s clinical profile or risks and benefits, the FDA may withdraw its approval. If a regulatory agency discovers previously unknown problems with TRC101, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or

 

40


Table of Contents

disagrees with the promotion, marketing, or labeling of a product, the regulatory agency may impose restrictions on the product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may:

 

    issue warning letters;

 

    impose civil or criminal penalties;

 

    suspend regulatory approval;

 

    suspend any of our ongoing clinical trials;

 

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

 

    impose restrictions on our operations, including closing our contract manufacturers’ facilities; or

 

    seize or detain products or require a product recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues from TRC101. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate revenues from the sale of TRC101 our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.

The regulatory requirements and policies may change, and additional government regulations may be enacted for which we may also be required to comply. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or in other countries. If we or any future collaboration partner are not able to maintain regulatory compliance, we or such collaboration partner, as applicable, may face government enforcement action and our business will suffer.

Currently we plan to seek regulatory approval to market TRC101 for the treatment of metabolic acidosis and slowing of kidney disease progression in patients with metabolic acidosis associated with CKD and, unless we seek regulatory approval for additional indications, we will be prohibited from marketing TRC101 for other indications.

We intend to seek FDA approval to market TRC101 for the treatment of metabolic acidosis and slowing of kidney disease progression in patients with metabolic acidosis, but we cannot be certain what indication and what labeling language will be approved for TRC101 until the NDA review and potentially as late as approval. If TRC101 is approved under the Accelerated Approval Program, the indications and usage section of the label is likely to include a statement that clinical benefit of TRC101 has not yet been established and that continued approval may be contingent upon demonstration of clinical benefit in a confirmatory postmarketing trial. The FDA strictly regulates the promotional claims that may be made about prescription products, and TRC101 may not be promoted for uses that are not approved by the FDA as reflected in its approved labeling. Under applicable regulations, promoting uses that are not reflected in the FDA-approved labeling, referred to as “off-label” marketing, is prohibited. If we are found to have promoted such off-label uses, we may become subject to significant liability.

 

41


Table of Contents

If we fail to comply or are found to have failed to comply with FDA and other regulations related to the promotion of TRC101 for unapproved uses, we could be subject to criminal penalties, substantial fines or other sanctions and damage awards.

The regulations relating to the promotion of products for unapproved uses are complex and subject to substantial interpretation by the FDA and other government agencies. If we receive marketing approval for TRC101, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. We intend to implement compliance and training programs designed to ensure that our sales and marketing practices comply with applicable regulations. Notwithstanding these programs, the FDA or other government agencies may allege or find that our practices constitute prohibited promotion of TRC101 for unapproved uses. We also cannot be sure that our employees will comply with company policies and applicable regulations regarding the promotion of products for unapproved uses.

Over the past several years, a significant number of pharmaceutical and biotechnology companies have been the target of inquiries and investigations by various federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for unapproved uses and other sales practices, including the Department of Justice and various U.S. Attorneys’ Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. These investigations have alleged violations of various federal and state laws and regulations, including claims asserting antitrust violations, violations of the FFDCA, the federal civil False Claims Act, or FCA, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of products for unapproved uses and Medicare and/or Medicaid reimbursement. Many of these investigations originate as “qui tam” actions under the FCA. Under the FCA, any individual can bring a claim on behalf of the government alleging that a person or entity has presented a false claim, or caused a false claim to be submitted, to the government for payment. The person bringing a qui tam suit is entitled to a share of any recovery or settlement. Qui tam suits, also commonly referred to as “whistleblower suits,” are often brought by current or former employees. In a qui tam suit, the government must decide whether to intervene and prosecute the case. If it declines, the individual may pursue the case alone.

If the FDA or any other governmental agency initiates an enforcement action against us or if we are the subject of a qui tam suit and it is determined that we violated prohibitions relating to the promotion of products for unapproved uses, or other applicable prohibitions we could be subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects and reputation.

If approved, TRC101 may cause or contribute to adverse medical events that we are required to report to regulatory agencies and if we fail to do so we could be subject to sanctions that would materially harm our business.

Some participants in our Phase 1/2 trial, TRCA-101, and our pivotal Phase 3 clinical trial, TRCA-301, reported mild to moderate adverse effects after being treated with TRC101, most commonly mild-to-moderate GI events, such as diarrhea, flatulence, nausea and constipation. If we are successful in commercializing TRC101, FDA and most foreign regulatory agency regulations require that we report certain information about adverse medical events if the product may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate

 

42


Table of Contents

that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of TRC101. If we fail to comply with our reporting obligations, the FDA or a foreign regulatory agency could take action, including criminal prosecution, the imposition of civil monetary penalties, and seizure of our products.

If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.

Before commercial distribution of TRC101, contract manufacturers may be inspected to determine acceptability by FDA or foreign regulatory agencies for their manufacturing facilities, processes and quality systems, as part of the NDA approval. In addition, pharmaceutical manufacturing facilities are subject to inspection by the FDA and foreign regulatory agencies on a regular basis, before and after product approval. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost-effective manner.

If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, TRC101 may not be approved, or we may be subject to fines, unanticipated compliance expenses, recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our financial results and financial condition.

We are currently only seeking regulatory approval to market TRC101 in the United States. If we want to expand the geographies in which we may market TRC101, we will need to obtain additional regulatory approvals.

We currently plan to seek regulatory approval for TRC101 in the United States. In the future, we may attempt to develop and seek regulatory approval to promote and commercialize TRC101 outside of the United States. In order to obtain such approvals, we may be required to conduct additional clinical trials or studies to support our applications, which would be time consuming and expensive, and may produce results that do not result in regulatory approvals. Further, we will have to expend substantial time and resources in order to establish the commercial infrastructure or pursue a collaboration arrangement that would be necessary to promote and commercialize TRC101 outside of the United States. If we do not obtain regulatory approvals for TRC101 in foreign jurisdictions, our ability to expand our business outside the United States will be severely limited.

Our failure to obtain regulatory approvals in foreign jurisdictions for TRC101 would prevent us from marketing our products internationally.

In order to market any product in the European Economic Area, or EEA (which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein), and many other foreign jurisdictions, separate regulatory approvals are required. In the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization. Before granting a Marketing Authorization, the EMA, or the competent agencies of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. It is unclear how the United Kingdom’s pending exit of the European Union may affect our ability to seek marketing authorization for the United Kingdom market.

The approval procedures vary among countries and can involve additional nonclinical and clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval.

 

43


Table of Contents

Clinical trials conducted in one country may not be accepted by regulatory agencies in other countries. Approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one or more foreign regulatory agencies does not ensure approval by regulatory agencies in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not be able to file for regulatory approvals or to do so on a timely basis, and even if we do file we may not receive necessary approvals to commercialize TRC101 in any market. If we do not obtain regulatory approvals for TRC101 in foreign jurisdictions, our ability to expand our business outside the United States will be severely limited.

We may be subject to healthcare laws, regulation and enforcement; our failure to comply with these laws could have a material adverse effect on our results of operations and financial conditions.

Although we do not currently have any products on the market, we are subject to a variety of regulatory requirements, and from time to time, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments of the countries in which we conduct our business. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights may be applicable to our business. The laws that affect our current and future operations include:

 

    the federal healthcare programs’ Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, 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. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback Statute has also been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other the other hand. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;

 

   

federal civil and criminal false claims laws and civil monetary penalty laws, such as the FCA which imposes significant penalties and can be enforced by private citizens through civil qui tam actions, prohibits individuals or entities from, among other things, knowingly presenting, or causing to be presented, false, fictitious or fraudulent claims for payment of federal funds, and knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. For example, pharmaceutical companies have been prosecuted under the FCA in connection with their alleged off-label promotion of drugs, purportedly concealing price concessions in the pricing information submitted to the government for government price reporting purposes, and allegedly providing free product to customers with the expectation that the customers would bill federal health care programs for the product. In addition, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. In addition, manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. Criminal prosecution is also possible for making or presenting a false, fictitious or fraudulent claim to the federal government. Government enforcement agencies and private whistleblowers have

 

44


Table of Contents
 

investigated pharmaceutical companies for or asserted liability under the FCA for a variety of alleged promotional and marketing activities, such as providing free product to customers with the expectation that the customers would bill federal programs for the product, providing consulting fees and other benefits to physicians to induce them to prescribe products, engaging in promotion for “off-label” uses, and submitting inflated best price information to the Medicaid Rebate Program;

 

    the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, or collectively, HIPAA, which imposes privacy, security and breach reporting obligations with respect to individually identifiable health information upon entities subject to the law, such as health plans, healthcare clearinghouses and healthcare providers and their respective business associates that perform services for them that involve individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in U.S. federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

 

    state law equivalents of each of the above federal laws, such as Anti-Kickback Statute and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers;

 

    U.S. and European reporting requirements detailing interactions with and payments to healthcare providers, such as the U.S. the federal transparency requirements under the Physician Payments Sunshine Act, which requires, among other things, certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human Services information related to payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests, including such ownership and investment interests held by a physician’s immediate family members. Failure to submit required information may result in civil monetary penalties; and

 

    state and foreign laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or to track and report gifts, compensation and other remuneration provided to physicians and other health care providers, and other federal, state and foreign laws that govern the privacy and security of health information or personally identifiable information in certain circumstances, including state health information privacy and data breach notification laws which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus requiring additional compliance efforts.

In addition, the approval and commercialization of TRC101 outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws. Further, the Patient Protection and Affordable Care Act, or PPACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute and criminal health care fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

 

45


Table of Contents

In addition, there has been a recent trend of increased federal and state regulation related to payments made to physicians. Some states mandate implementation of compliance programs and/or the tracking and reporting of gifts, compensation, and other remuneration to physicians. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

Ensuring that our business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that apply to us, we may be subject to penalties, including civil, administrative and criminal penalties, damages, fines, the curtailment or restructuring of our operations, contractual damages, disgorgement, reputational harm, additional oversight and reporting obligations if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, the exclusion from participation in federal and state healthcare programs and individual imprisonment, any of which could adversely affect our ability to market TRC101, if approved, and adversely impact our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the applicable regulatory agencies or the courts, and their provisions are open to a variety of interpretations.

Legislative or regulatory FDA reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or approval of TRC101 and to produce, market and distribute our products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of TRC101. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:

 

    additional clinical trials to be conducted prior to obtaining approval;

 

    changes to manufacturing methods;

 

    recall, replacement, or discontinuance of TRC101; and

 

    additional record keeping.

Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals would harm our business, financial condition and results of operations.

Further, the United States and some foreign jurisdictions have enacted or are considering a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products, if approved, and profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access.

In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives, including the PPACA, which contains provisions that may potentially reduce the profitability of products, including, for example, increased

 

46


Table of Contents

rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. There have been judicial and Congressional challenges to the PPACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the PPACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the PPACA have been signed into law, including the repeal, effective January 1, 2019, of the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain fees mandated by the PPACA, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Moreover, the Bipartisan Budget Act of 2018, among other things, amends the PPACA, effective January 1, 2019, to increase from 50% to 70% the point-of-sale discount to eligible beneficiaries during their coverage gap period that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In the future, there may be additional challenges and amendments to the PPACA. It remains to be seen precisely what new legislation will provide, when it will be enacted, and what impact it will have on the availability of healthcare and containing or lowering the cost of healthcare, including the cost of pharmaceutical products.

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains additional drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to end Medicare Part B coverage of medications and to shift those medication costs to Medicare Part D, to allow some states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize TRC101 and those for which we may receive regulatory approval in the future.

If we fail to obtain and sustain an adequate level of coverage and reimbursement for TRC101 by third-party payors, sales would be adversely affected.

We expect patients who have metabolic acidosis to need chronic treatment but we anticipate that most patients will rely on coverage and reimbursement by a third-party payor, such as Medicare, Medicaid or a private health insurer, to pay for such treatment. There will be no commercially viable

 

47


Table of Contents

market for TRC101 without coverage and reimbursement from third-party payors. Additionally, even if we obtain third-party payor coverage and reimbursement for TRC101, if the level of coverage and reimbursement is below our expectations, our revenue and gross margins will be adversely affected.

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor can be an expensive and time-consuming process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. We cannot be certain if and when we will obtain formulary approval to allow us to sell TRC101, if approved, into our target markets. Even if we do obtain formulary approval, third-party payors, carefully review and increasingly question the coverage of, and challenge the prices charged for, drugs. Reimbursement rates from third-party payors vary depending on the payor, the insurance plan and other factors. A current trend in the United States health care industry is toward cost containment. Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, are questioning the coverage of, and challenging the prices charged for medical products and services, and many third-party payors limit coverage of, or reimbursement for, newly approved health care products.

In addition, there may be significant delays in obtaining such coverage and reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacture, sale and distribution expenses.

Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors, by any future laws limiting drug prices and by any future relaxation of laws that presently restrict imports of product from countries where they may be sold at lower prices than in the United States.

Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

 

    a covered benefit under its health plan;

 

    safe, effective and medically necessary;

 

    appropriate for the specific patient;

 

    cost-effective; and

 

    neither experimental nor investigational.

We cannot be sure that reimbursement will be available for TRC101 and, if coverage and reimbursement are available, what the level of reimbursement will be. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Reimbursement may impact the demand for, and the price of, TRC101, if approved. Assuming we obtain coverage for TRC101 by a third-party payor, the resulting reimbursement payment rates may

 

48


Table of Contents

not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikely to use TRC101 unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of TRC101. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new products when more established or lower cost therapeutic alternatives are already available or subsequently become available.

We expect to experience pricing pressures in connection with the sale of our product candidate due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the successful commercialization of new products. Further, the adoption and implementation of any future governmental cost containment or other health reform initiative may result in additional downward pressure on the price that we may receive for TRC101, if approved.

These cost-control initiatives could decrease the price we might establish for TRC101, which could result in product revenues being lower than anticipated. The pricing, coverage and reimbursement of TRC101, if approved, must be adequate to support a commercial infrastructure. If the price for TRC101 decreases or if governmental and other third-party payors do not provide adequate coverage and reimbursement levels, our revenue and prospects for profitability will suffer. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis.

Outside the United States, international operations are generally subject to extensive governmental price controls and market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, China and other countries will put pressure on the pricing and usage of TRC101. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medicinal products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for TRC101, if approved. Accordingly, in markets outside the United States, the reimbursement for TRC101 compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations which can harm our business.

We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the United States domestic bribery statute contained in 18 U.S.C. § 201, the United States Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other partners from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may

 

49


Table of Contents

engage third parties for clinical trials outside of the United States, to sell TRC101 abroad once we enter a commercialization phase, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.

Risks Related to Intellectual Property

We may become subject to claims alleging infringement of third parties’ patents or proprietary rights and/or claims seeking to invalidate our patents, which would be costly, time consuming and, if successfully asserted against us, delay or prevent the development and commercialization of TRC101.

Our success depends in part on our ability to develop, manufacture, market and sell TRC101, if approved, and use our proprietary technologies without alleged or actual infringement, misappropriation or other violation of the patents and other intellectual property rights of third parties. There have been many lawsuits and other proceedings asserting patents and other intellectual property rights in the pharmaceutical and biotechnology industries. We cannot assure you that TRC101 will not infringe existing or future third-party patents. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe by commercializing TRC101. There may also be issued patents or pending patent applications that we are aware of, but that we think are irrelevant to TRC101, which may ultimately be found to be infringed by the manufacture, sale, or use of TRC101. Moreover, we may face claims from non-practicing entities that have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect. In addition, TRC101 has a complex structure that makes it difficult to conduct a thorough search and review of all potentially relevant third-party patents. We may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of TRC101.

We may be subject to third-party claims in the future against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing a third-party’s patents. Furthermore, because of the potential for significant damage awards, which are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims resulting in large settlements. We may be required to indemnify future collaborators against such claims. If a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or forced to redesign it, or to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. Even if we are successful in defending against such claims, such litigation can be expensive and time consuming to litigate and would divert management’s attention from our core business. Moreover, some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual

 

50


Table of Contents

property litigation to a greater degree and for longer periods of time than we could. Any of these events could harm our business significantly.

In addition to infringement claims against us, if third parties prepare and file patent applications in the United States that also claim technology similar or identical to ours, we may have to participate in interference or derivation proceedings in the U.S. Patent and Trademark Office, or the USPTO, to determine which party is entitled to a patent on the disputed invention. 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. This reform adds uncertainty to the possibility of challenge to our patents in the future. We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to TRC101 and our technology. Since patent applications are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidate.

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

Competitors may infringe, misappropriate or otherwise violate our patents, trademarks, copyrights or other intellectual property, or those of our licensors. To counter infringement, misappropriation, unauthorized use or other violations, we may be required to file legal claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

We may not be able to prevent, alone or with our licensees or any future licensors, infringement, misappropriation or other violations of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from exploiting the claimed subject matter at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from exploiting its technology on the grounds that our patents do not cover such technology. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making, using, importing and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.

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

 

51


Table of Contents

of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

If our intellectual property related to TRC101 is not adequate, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection, employment and confidentiality agreements to protect the intellectual property related to TRC101. Any disclosure to or misappropriation by third parties of our confidential or proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in foreign countries, and even if issued, the patents may not meaningfully protect TRC101, effectively prevent competitors and third parties from commercializing competitive products or otherwise provide us with any competitive advantage. Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Further, the examination process may require us to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. Even if patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be opposed by any person within nine months from the publication of the grant. Similar proceedings are available in other jurisdictions, and in some jurisdictions third parties can raise questions of validity with a patent office even before a patent has granted. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. For example, a third party may develop a competitive product that provides therapeutic benefits similar to TRC101 but has a sufficiently different composition to fall outside the scope of our patent protection. If the breadth or strength of protection provided by the patents and patent applications we hold or pursue with respect to TRC101 is successfully challenged, then our ability to commercialize TRC101 could be negatively affected, and we may face unexpected competition that could have a material adverse impact on our business. Further, if we encounter delays in our clinical trials, the period of time during which we could market TRC101 under patent protection would be reduced.

Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. If we or one of our future collaborators were to initiate legal proceedings against a third party to enforce a patent covering TRC101, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/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. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability against our intellectual property related to TRC101, we would lose at least part, and perhaps all, of the patent protection on TRC101. Such a loss of patent protection would have a material adverse impact on our business. There is also a risk that, even if the validity of such patents is upheld, the court will construe

 

52


Table of Contents

the patent’s claims narrowly or decide that we do not have the right to stop the other party from exploiting its technology on the grounds that our patents do not cover that technology. Moreover, our competitors could counterclaim that we infringe their intellectual property, and some of our competitors have substantially greater intellectual property portfolios than we do.

We also rely on trade secret protection, employment and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain and/or enforce and any other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. Further, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors or third parties such as contract manufacturers will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, we and our third-party suppliers continue to refine and improve the manufacturing process, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes, particularly as we seek to significantly increase our capacity to commercialize TRC101. Our reliance on contract manufacturers exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.

Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidate, TRC101.

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 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 us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant going forward of the time

 

53


Table of Contents

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, we cannot be certain that we or our licensors were the first to either (i) file any patent application related to TRC101 or (ii) invent any of the subject matter claimed in our or our 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 U.S. 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 our 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 our owned or in-licensed patent applications and the enforcement or defense of our owned or in-licensed issued patents, all of which could have a material adverse effect on our 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 our existing patent portfolio and our ability to protect and enforce our intellectual property in the future.

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

The USPTO and various foreign patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions to maintain patent applications and issued patents. Noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

We have not yet registered trademarks for a commercial trade name for TRC101 in the United States or elsewhere and failure to secure such registrations could adversely affect our business.

We have not yet registered trademarks for a commercial trade name for TRC101 in the United States or elsewhere. During trademark registration proceedings, our trademark application may be rejected. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties can oppose pending trademark applications and seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our

 

54


Table of Contents

trademarks may not survive such proceedings. Moreover, any name we propose to use with our product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, approval may be delayed or we 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.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. For example, the requirements for patentability may differ in certain countries, particularly developing countries, and we may be unable to obtain issued patents that contain claims that adequately cover or protect TRC101 or any future product candidates. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market TRC101. Consequently, we may not be able to prevent third parties from practicing our technology in all countries outside the United States, or from selling or importing products made using our technology in and into those other jurisdictions where we do not have intellectual property rights. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain and enforce adequate intellectual property protection for our technology.

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

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

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual

 

55


Table of Contents

property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. To the extent that we fail to obtain such assignments, such assignments do not contain a self-executing assignment of intellectual property rights or such assignments are breached, we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.

Patent terms may be inadequate to protect our competitive position on our product candidate, TRC101, for an adequate amount of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering TRC101 are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of our product candidate, TRC101, patents protecting TRC101 might expire before or shortly after TRC101 is commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

Intellectual property rights do not necessarily address all potential threats to our business.

Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked, or may lose the allowed or granted claims altogether. In addition, the degree of future protection afforded by our intellectual property rights is uncertain because even granted intellectual property rights have limitations, and may not adequately protect our business. The following examples are illustrative:

 

    others may be able to make products that are similar to TRC101 but that are not covered by the claims of our patent rights;

 

    the patents of third parties may have an adverse effect on our business;

 

    we or our licensors or any future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;

 

    we or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;

 

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

 

    it is possible that our pending patent applications will not lead to issued patents;

 

56


Table of Contents
    issued patents that we may own or that we exclusively license in the future may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

 

    our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

    third parties performing manufacturing or testing for us using our product candidates or technologies could use the intellectual property of others without obtaining a proper license;

 

    we may not develop additional proprietary technologies that are patentable; and

 

    the patents of others may have an adverse effect on our business.

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

Risks Related to Our Common Stock and This Offering

Our stock price may be volatile and you may not be able to resell shares of our common stock at or above the price you paid.

The trading price of our common stock following this offering could be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this “Risk Factors” section of this prospectus and others such as:

 

    announcements of regulatory approval or a complete response letter to TRC101, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process;

 

    announcements of therapeutic innovations or new products by us or our competitors;

 

    adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

 

    adverse events experienced by the patient population taking TRC101, whether or not related to our product candidate;

 

    changes or developments in laws or regulations applicable to TRC101;

 

    changes in existing tax laws, treaties or regulations or the interpretations or enforcement thereof, or the enactment or adoption of new tax laws, regulations or policies;

 

    any adverse changes to our relationship with any manufacturers or suppliers;

 

    the success of our testing and clinical trials;

 

    the success of our efforts to acquire or license or discover additional product candidates, if any;

 

    any intellectual property infringement actions in which we may become involved;

 

    announcements concerning our competitors or the pharmaceutical industry in general;

 

    achievement of expected product sales and profitability;

 

    manufacture, supply or distribution shortages;

 

57


Table of Contents
    actual or anticipated fluctuations in our operating results;

 

    changes in financial estimates or recommendations by securities analysts;

 

    trading volume of our common stock;

 

    sales of our common stock by us, our executive officers and directors or our stockholders in the future;

 

    general economic and market conditions and overall fluctuations in the United States equity markets; and

 

    the loss of any of our key scientific or management personnel.

In addition, the stock markets in general, and the markets for pharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business, which could seriously harm our financial position. Any adverse determination in litigation could also subject us to significant liabilities.

An active, liquid and orderly market for our common stock may not develop, and you may not be able to resell your common stock at or above the public offering price.

Prior to this offering, there has been no public market for shares of our common stock, and an active public market for our shares may not develop or be sustained after this offering. We and the representatives of the underwriters have determined the initial public offering price of our common stock through negotiation. This price does not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. In addition, an active trading market may not develop following the completion of this offering or, if it is developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, applications or technologies using our shares as consideration.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

58


Table of Contents

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

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements 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 and an extended transition period for complying with new or revised accounting standards. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30 th , and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and, as a result, we 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 our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock before giving effect to this offering. Accordingly, if you purchase our common stock in this offering, you will incur immediate substantial dilution of approximately $         per share, based on the assumed initial public offering price of $        per share, the midpoint of the price range on the cover of this prospectus, and our pro forma net tangible book value as of March 31, 2018. In addition, following this offering, purchasers in this offering will have contributed approximately     % of the total gross consideration paid by stockholders to us to purchase shares of our common stock, through                     , 2018, but will own only approximately     % of the shares of common stock outstanding immediately after this offering. Furthermore, if the underwriters exercise their option to purchase additional shares, or outstanding options and warrants are exercised, you could experience further dilution. For a further description of the dilution that you will experience immediately after this offering, see the section titled “Dilution.”

 

59


Table of Contents

If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.

We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based upon the number of shares outstanding as of                     , 2018, upon the completion of this offering, we will have outstanding a total of              shares of common stock, assuming no exercise of the underwriters’ option to purchase additional shares. Of these shares, approximately              shares of common stock, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable, without restriction, in the public market immediately following this offering. The underwriters, however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. After the lock-up agreements expire, as of             , 2018, up to an additional              shares of common stock will be eligible for sale in the public market,             of which shares are held by current directors, executive officers and other affiliates and may be subject to Rule 144 under the Securities Act.

In addition, as of                     , 2018,              shares of common stock that are either subject to outstanding options, reserved for future issuance under our equity incentive plans or subject to outstanding warrants will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

After this offering, the holders of approximately                      shares of our common stock, or approximately     % of our total outstanding common stock as of                 , 2018, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to vesting schedules and to the lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Certain of our principal stockholders and/or their affiliates have been allocated an aggregate of approximately $    of shares of common stock in this offering. As of                     , 2018, our executive

 

60


Table of Contents

officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately     % of our outstanding voting stock and, upon the completion of this offering, that same group will hold approximately     % of our outstanding voting stock (assuming no exercise of the underwriters’ option to purchase additional shares and no exercise of outstanding options).

Therefore, even after this offering these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our 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 our common stock that you may feel are in your best interest as one of our stockholders.

We have broad discretion to determine how to use the funds raised in this offering and may use them in ways that may not enhance our operating results or the price of our common stock.

Our management will have broad discretion over the use of proceeds from this offering, and we could spend the proceeds from this offering in ways our stockholders may not agree with or that do not yield a favorable return, if at all. We currently intend to use substantially all of the net proceeds of this offering for supporting our activities for our NDA submission and approval process for TRC101, manufacturing activities related to TRC101, conducting our safety extension trial, TRCA-301E, and commencing our confirmatory postmarketing trial, VALOR-CKD, commercial expenses related to TRC101, interest payments under our Term Loan with Hercules, and the remainder for working capital and general corporate purposes. However, our use of these proceeds may differ substantially from our current plans. If we do not invest or apply the proceeds of this offering in ways that improve our operating results, we may fail to achieve expected financial results, which could cause our stock price to decline.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect immediately prior to the completion of this offering will contain provisions that could significantly reduce the value of our shares to a potential acquirer or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents will include the following:

 

    a classified board of directors with 3-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;

 

    no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

    the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors, unless the board of directors determines by resolution that any such vacancy shall be filled by the affirmative vote of the stockholders;

 

    the prohibition on removal of directors without cause;

 

    the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

 

61


Table of Contents
    the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

 

    the required approval of at least 66  2 3 % of the shares entitled to vote at an election of directors to adopt, amend or repeal certain provisions of our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors;

 

    a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

    the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer or the president, in the absence of a chief executive officer, or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

 

    advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.

In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.

We are also subject to the anti-takeover provisions contained in Section 203 of the General Corporation Law of the State of Delaware, or the DGCL. Under Section 203 of the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. For a description of our capital stock, see the section titled “Description of Capital Stock.”

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

Our amended and restated certificate of incorporation provides that we will indemnify our directors and officers to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the DGCL, our amended and restated certificate of incorporation to be effective immediately prior to the completion of this offering and our indemnification agreements that we have entered into with our directors and officers provide that:

 

    We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our 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.

 

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

 

    We are required to advance expenses, as incurred, to our 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.

 

62


Table of Contents
    We will not be obligated pursuant to our amended and restated certificate of incorporation to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.

 

    The rights conferred in our amended and restated certificate of incorporation are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

 

    We may not retroactively amend our amended and restated certificate of incorporation provisions to reduce our indemnification obligations to directors and officers.

Our amended and restated certificate of incorporation and our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our current or former directors, officers or employees.

Our amended and restated certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders, any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine, or any other action asserting an “internal corporate claim,” as defined in Section 115 of the DGCL. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate of incorporation and amended and restated bylaws described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our current or former directors, officers or other employees, which may discourage such lawsuits against us and our current or former directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and restated certificate and our amended and restated bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be required to pay severance benefits to our executive officers who are terminated in connection with a change in control, which could harm our financial condition or results.

Certain of our executive officers are parties to severance arrangements that contain change in control and severance provisions providing for aggregate cash payments of up to approximately $            for severance and other benefits and acceleration of vesting of stock options with a value of approximately $              (as of                     , 2018, based on an assumed initial public offering price of $            per share, the midpoint of the price range on the cover of this prospectus) in the event of a termination of employment in connection with a change in control of our company. The accelerated vesting of options could result in dilution to our existing stockholders and harm the market price of our common stock. The payment of these severance benefits could harm our financial condition and results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with us.

 

63


Table of Contents

We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Additionally, the terms of our Term Loan restrict our ability to pay dividends. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.

Our ability to use our net operating losses to reduce our tax liability may be limited.

As of December 31, 2017, we had net operating loss carryforwards of approximately $89.6 million for U.S. federal income tax purposes, which begin to expire in 2033. However, our ability to utilize these net operating loss carryforwards is subject to the rules of Section 382 of the Internal Revenue Code of 1986, as amended, or the Code. Section 382 generally restricts the use of net operating loss carryforwards after an “ownership change.” If we have experienced or experience in the future an “ownership change” for purposes Section 382, we may be subject to annual limits on our ability to utilize net operating loss carryforwards. An ownership change is, as a general matter, triggered by sales or acquisitions of our stock in excess of 50% on a cumulative basis during a three-year period by persons or groups of persons owning 5% or more of our total equity value. We have not performed any analysis under Section 382 of the Code. As a result, uncertainty exists as to whether we may have undergone an ownership change in the past or will undergo one as a result of this offering. We cannot provide any assurance that our net operating losses will be available. Accordingly, we could pay taxes earlier and/or in larger amounts than would be the case if the net operating losses were available to reduce federal income taxes without restriction.

As noted above under “Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements,” we anticipate that we will continue to incur losses for the foreseeable future. Our ability to utilize any future net operating losses may also be limited by the recently enacted legislation commonly known as the Tax Cuts and Jobs Act, or the Tax Act. Under the Tax Act, the amount of post-2017 net operating losses that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the net operating loss deduction itself. In addition, the Tax Act generally eliminates the ability to carry back any net operating loss to prior taxable years, while allowing post-2017 unused net operating losses to be carried forward indefinitely. Due to these changes under the Tax Act, or potential future ownership changes under Section 382 of the Code, we may not be able to realize a tax benefit from the use of our net operating losses, whether or not we attain profitability in future years.

 

64


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

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

 

    the prospects of TRC101, our only product candidate, which is still in development;

 

    our expectations regarding the timing of submitting an NDA to the FDA, and our ability to obtain approval, for TRC101 under the Accelerated Approval Program;

 

    our expectations regarding the timing of the completion of our nonclinical studies and drug-drug interaction studies;

 

    our expectations regarding the timing of the completion and reporting of our safety extension trial, TRCA-301E;

 

    the design of our confirmatory postmarketing trial, VALOR-CKD, including the sample size, trial duration, endpoint definition, event rate assumptions and eligibility criteria;

 

    our expectations regarding the timing of the enrollment, completion and reporting of our confirmatory postmarketing trial, VALOR-CKD;

 

    outcome and results of TRCA-301, TRCA-301E and VALOR-CKD trials;

 

    market acceptance or commercial success of TRC101 and the degree of acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community;

 

    our expectations regarding competition, potential market size, the size of the patient populations for TRC101, if approved for commercial use, and market acceptance;

 

    our ability to maintain regulatory approval of TRC101, and any related restrictions, limitations and/or warnings in the label of TRC101;

 

    our sales, marketing or distribution capabilities and our ability to commercialize TRC101, if we obtain regulatory approval;

 

    current and future agreements with third parties in connection with the manufacturing, commercialization, packaging and distribution of TRC101;

 

    our expectations regarding the ability of our contract manufacturing partners to produce TRC101 in the quantities and timeframe that we will require;

 

    our expectations regarding our future costs of goods;

 

    our ability to attract, retain and motivate key personnel and increase the size of our organization;

 

    the scope of protection we are able to establish and maintain for intellectual property rights covering TRC101;

 

    potential claims relating to our intellectual property and third-party intellectual property;

 

65


Table of Contents
    the duration of our intellectual property estate that will provide protection for TRC101;

 

    our ability to establish collaborations in lieu of obtaining additional financing;

 

    our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

 

    our anticipated use of proceeds from this offering; and

 

    our financial performance.

These forward-looking statements are based on management’s current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this prospectus. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this prospectus. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See “Where You Can Find More Information.”

 

66


Table of Contents

USE OF PROCEEDS

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

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the aggregate net proceeds to us from this offering by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $        million, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the initial public offering price or the number of shares by these amounts would have a material effect on our uses of the proceeds from this offering, although it may accelerate the time at which we will need to seek additional capital.

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

 

    approximately $         million to $         million for supporting our activities for our NDA submission and approval process for TRC101;

 

    approximately $         million to $         million for manufacturing activities related to TRC101;

 

    approximately $         million to $         million for conducting our safety extension trial, TRCA-301E, and commencing our confirmatory postmarketing trial, known as the VALOR-CKD trial, or TRCA-303;

 

    approximately $         million to $         million for commercial expenses related to TRC101;

 

    approximately $         million to $         million for interest payments under our Loan and Security Agreement, or the Term Loan, with Hercules Capital, Inc., or Hercules; and

 

    the remainder for working capital and general corporate purposes.

On February 28, 2018, we entered into the Term Loan with Hercules. The Term Loan bears interest at a floating per annum interest rate equal to the greater of either (i) 8.35% or (ii) the lesser of (x) 8.35% plus the prime rate as reported in The Wall Street Journal minus 5.00% and (y) 9.85%. The Term Loan repayment schedule provides for interest only payments for the first 16 months, followed by consecutive equal monthly payments of principal and interest commencing on July 1, 2019 and continuing through the maturity date of March 1, 2022; however, if we obtain final approval from the U.S. Food and Drug Administration for the New Drug Application for TRC101 on or before February 15, 2022, the maturity date will be September 1, 2022. The Term Loan also provides for a payment equal to 6.55% multiplied by the greater of (i) the aggregate term loans funded and (ii)(a) the aggregate term loans funded plus the greater of (i) the aggregate term loans funded and (ii)(a) the aggregate term loans funded plus (b) one half of (x) $60.0 million minus (y) the aggregate term loans funded, which is due when the Term Loan becomes due or upon prepayment of the facility. If we elect to prepay the Term Loan, there is also a prepayment fee of between 1% and 2% of the principal amount being prepaid depending on the timing and circumstances of prepayment. Proceeds from the Term Loan are being used for general corporate purposes.

 

67


Table of Contents

Our expected use of proceeds from this offering represents our current intentions based on our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the proceeds to be received upon the completion of this offering or the actual amounts that we will spend on the uses set forth above. We may also use a portion of the proceeds to in-license, acquire or invest in additional businesses, technologies, products or assets. Although we have no specific agreements, commitments or understandings with respect to any in-licensing activity or acquisition, we evaluate these opportunities and engage in related discussions with other companies from time to time.

The net proceeds from this offering, together with our cash, cash equivalents and marketable securities and the available amount under our Term Loan with Hercules may not be sufficient for us to fund TRC101 through regulatory approval, and we will need to raise additional capital to complete our confirmatory postmarketing trial, VALOR-CKD, and commercialization of TRC101.

The amount and timing of our actual expenditures will depend on numerous factors, including the results of our research and development efforts, the timing and outcome of any ongoing or future clinical studies, and the timing and outcome of regulatory submissions. As a result, our management will have broad discretion over the use of the proceeds from this offering.

Pending the use of the proceeds from this offering, we may invest the proceeds in interest-bearing, investment-grade securities, certificates of deposit or government securities.

 

68


Table of Contents

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. In addition, unless waived, the terms of our Term Loan with Hercules prohibit us from paying any cash dividends. Any future determination related to dividend policy will be made at the discretion of our board of directors.

 

69


Table of Contents

CAPITALIZATION

The following table sets forth our cash, cash equivalents and marketable securities and capitalization as of March 31, 2018:

 

    on an actual basis;

 

    on a pro forma basis to give effect to:

 

    the conversion of all of our outstanding shares of convertible preferred stock into an aggregate of 104,129,702 shares of common stock immediately prior to the completion of this offering, and the resulting reclassification of the convertible preferred stock equity (deficit);

 

    the net exercise of an outstanding warrant to purchase shares of our convertible preferred stock with a per share exercise price of $0.886, resulting in the issuance of an aggregate of              shares of our common stock and the reclassification of our convertible preferred stock warrant liability to additional paid-in capital immediately prior to the completion of this offering;

 

    the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the completion of this offering; and

 

    on a pro forma as adjusted basis, to give effect to:

 

    the pro forma adjustments set forth above; and

 

    the sale and issuance of              shares of our common stock by us in this offering, based upon the assumed initial public offering price of $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

 

70


Table of Contents

You should read this information in conjunction with our financial statements and the related notes and the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.

 

     As of March 31, 2018  
     Actual     Pro Forma     Pro Forma
as
adjusted(1)
 
    

(unaudited)

 
     (in thousands, except share and
per share amounts)
 

Cash, cash equivalents and marketable securities

   $ 75,228     $ 75,228     $           
  

 

 

   

 

 

   

 

 

 

Convertible preferred stock warrant liability ($0.886 per share exercise price)

   $ 169     $    

Term loan

     22,941       22,941    

Convertible preferred stock par value $0.001 per share; 104,232,023 shares authorized, 104,129,702 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     147,070           $  

Stockholders’ equity (deficit):

      

Common stock, par value $0.001 per share; 134,000,000 shares authorized, 9,162,544 shares issued and outstanding, actual;                  shares authorized,                  shares issued                  shares issued and outstanding, pro forma as adjusted

     9      

Additional paid-in capital

     1,726      

Accumulated other comprehensive loss

     (67     (67  

Accumulated deficit

     (109,890     (109,890  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (108,222     39,017    
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 38,848     $ 39,017     $  
  

 

 

   

 

 

   

 

 

 

 

(1) Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) our cash and cash equivalents and total stockholders’ equity by approximately $         million, assuming that the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) the amount of our cash and cash equivalents and total stockholders’ equity by approximately $         million, based upon the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions payable by us.

The number of shares of our common stock to be outstanding after the completion of this offering excludes:

 

    17,447,456 shares of common stock, with a per share weighted-average exercise price of $0.67, issuable upon exercise of stock options outstanding as of March 31, 2018 under our 2013 Equity Incentive Plan, as amended;

 

    240,000 shares of common stock reserved for issuance pursuant to future awards under our 2013 Equity Incentive Plan, as amended, as of March 31, 2018;

 

71


Table of Contents
                 shares of common stock (or approximately     % of the total number of shares of our common stock outstanding immediately following the completion of this offering, assuming no exercise of the underwriters’ option to purchase additional shares of our common stock) reserved for issuance pursuant to future awards under our 2018 Equity Incentive Plan or our Employee Stock Purchase Plan, each of which will become effective in connection with this offering, and any additional shares that become available under our 2018 Equity Incentive Plan or our Employee Stock Purchase Plan pursuant to provisions thereof that automatically increase the share reserve under each plan each year; and

 

    212,765 shares of common stock issuable upon the exercise of the Hercules Warrants.

 

72


Table of Contents

DILUTION

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

Our historical net tangible book value (deficit) as of March 31, 2018 was $(108.2) million, or $(11.81) per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total assets less our total liabilities and convertible preferred stock, which is not included in our stockholders’ equity (deficit). Historical net tangible book value per share represents historical net tangible book value (deficit) divided by the number of shares of our common stock outstanding as of March 31, 2018.

Our pro forma net tangible book value as of March 31, 2018 was $39.0 million, or $         per share of our common stock. Pro forma net tangible book value represents the amount of our total assets less our total liabilities, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 104,129,702 shares of common stock upon the completion of this offering. This includes the impact to assets and stockholders’ equity of 104,129,702 shares issuable upon conversion of our convertible preferred stock. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of March 31, 2018, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into an aggregate of              shares of our common stock upon the completion of this offering (including              shares issuable upon conversion of our convertible preferred stock).

After giving further effect to our sale of              shares of common stock in this offering at the assumed initial public offering price of $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 would have been approximately $        million, or approximately $        per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $         per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of approximately $         per share to new investors purchasing common stock in this offering. Dilution per share to new investors purchasing common stock in this offering is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the assumed initial public offering price per share paid by new investors.

The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $               

Historical net tangible book value (deficit) per share as of March 31, 2018

   $ (11.81  

Pro forma increase in net tangible book value (deficit) per share

    
  

 

 

   

Pro forma net tangible book value (deficit) per share as of March 31, 2018

    

Increase in pro forma net tangible book value per share attributable to investors purchasing shares in this offering

    
  

 

 

   

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

    
    

 

 

 

Dilution per share to new investors purchasing shares in this offering

     $  
    

 

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease)

 

73


Table of Contents

our pro forma as adjusted net tangible book value as of March 31, 2018 after this offering by approximately $        million, or approximately $        per share, and would decrease (increase) dilution to investors in this offering by approximately $        per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1.0 million in the number of shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value as of March 31, 2018 after this offering by approximately $        million, or approximately $        per share, and would decrease (increase) dilution to investors in this offering by approximately $        per share, assuming the assumed initial public offering price per share remains the same, after deducting the estimated underwriting discounts and commissions payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

If the underwriters fully exercise their option to purchase additional shares, pro forma as adjusted net tangible book value after this offering would increase to approximately $        per share, and there would be an immediate dilution of approximately $        per share to new investors.

The following table summarizes, on a pro forma as adjusted basis, as of March 31, 2018, the difference between the number of shares of common stock purchased from us (on an as converted to common stock basis), the total consideration paid, and the weighted-average price per share paid, by existing stockholders and by new investors in this offering, assuming an initial public offering price of $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total
Consideration
    Average
Price
Per
Share
 
    

 

   

 

   

 

 
     Number      Percent     Amount      Percent    

Existing stockholders before this offering

               $                            $               

Investors participating in this offering

             $  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100   $        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. An increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) the total consideration paid by new investors by $        million, assuming no change in the assumed initial public offering price and after deducting the estimated underwriting discounts and commissions payable by us.

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

 

74


Table of Contents

The number of shares of our common stock to be outstanding after this offering is based on                  shares of our common stock outstanding as of March 31, 2018, which includes the conversion of all of our shares of convertible preferred stock outstanding as of March 31, 2018, into shares of our common stock and                  shares of common stock issuable upon conversion of convertible preferred stock issuable upon net exercise of an outstanding warrant.

The number of shares of common stock to be outstanding after this offering excludes:

 

    17,447,456 shares of common stock, with a per share weighted-average exercise price of $0.67, issuable upon exercise of stock options outstanding as of March 31, 2018 under our 2013 Equity Incentive Plan, as amended as of March 31, 2018;

 

    240,000 shares of common stock reserved for issuance pursuant to future awards under the 2013 Equity Incentive Plan, as amended;

 

                     shares of common stock (or approximately         % of the total number of shares of our common stock outstanding immediately following the completion of this offering, assuming no exercise of the underwriters’ option to purchase additional shares of our common stock) reserved for issuance pursuant to future awards under our 2018 Equity Incentive Plan or our Employee Stock Purchase Plan, each of which will become effective in connection with this offering, and any additional shares that become available under our 2018 Equity Incentive Plan or our Employee Stock Purchase Plan pursuant to provisions thereof that automatically increase the share reserve under each plan each year; and

 

    212,765 shares of common stock issuable upon the exercise of the Hercules Warrants.

To the extent that any outstanding options are exercised or new options are issued under the equity benefit plans, or we issue additional shares of common stock or convertible securities in the future, there will be further dilution to investors participating in this offering.

 

75


Table of Contents

SELECTED FINANCIAL DATA

The following tables summarize our selected financial data for the periods and as of the dates indicated. We have derived our selected statements of operations and comprehensive loss data for the years ended December 31, 2016 and 2017, and the balance sheets data as of December 31, 2016 and 2017, from our audited financial statements and related notes included elsewhere in this prospectus. The selected statements of operations data for the three months ended March 31, 2017 and 2018 and the selected balance sheet data as of March 31, 2018 have been derived from our unaudited interim financial statements included elsewhere in this prospectus. In our opinion, these unaudited interim financial statements have been prepared on a basis consistent with our audited financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the financial and other data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended December 31,     Three Months Ended March 31,  
     2016     2017     2017     2018  
                 (unaudited)  
     (in thousands, except share and per share amounts)  

Statements of Operations and Comprehensive Loss Data:

        

Operating expenses:

        

Research and development

   $ 21,820     $ 35,906     $ 5,844     $ 16,633  

General and administrative

     5,363       11,216       2,825       3,465  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     27,183       47,122       8,669       20,098  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (27,183     (47,122     (8,669     (20,098

Change in fair value—preferred stock tranche obligation

     (1,571     5,649       6,462       —    

Other income (expense), net

     103       183       (2     (406
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (28,651     (41,290     (2,209     (20,504

Other comprehensive loss:

        

Net unrealized loss on marketable securities, net of tax

     —         (13     (1     (54
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (28,651   $ (41,303   $ (2,210   $ (20,558
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (3.94   $ (4.85   $ (0.27   $ (2.26
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares outstanding, basic and diluted

     7,267,641       8,508,008       8,116,997       9,067,544  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

         $  

Pro forma weighted-average number of shares, basic and diluted (unaudited)(1)

        
    

 

 

     

 

 

 

 

(1) See Note 10 to our audited financial statements and Note 8 to our unaudited interim financial statements included elsewhere in this prospectus for an explanation of the method used to calculate historical and pro forma net loss per share and the weighted-average number of shares used in the computation of the per share amounts and unaudited pro forma information.

 

76


Table of Contents
     As of December 31,     As of March 31,  
     2016     2017     2018  
                 (unaudited)  
     (in thousands)  

Balance Sheets Data:

      

Cash, cash equivalents and marketable securities

   $ 26,450     $ 67,514     $ 75,228  

Working capital(1)

     18,963       58,202       35,925  

Total assets

     27,684       70,574       79,564  

Total liabilities

     8,429       11,545       40,716  

Convertible preferred stock

     66,883       147,070       147,070  

Accumulated deficit

     (48,096     (89,386     (109,890

Total stockholders’ equity (deficit)

     (47,628     (88,041     (108,222

 

(1) We define working capital as current assets less current liabilities. See our financial statements for further details regarding our current assets and current liabilities.

 

77


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Selected Financial Data” and our financial statements and the related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. You should review “Risk Factors” for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a late-stage pharmaceutical company focused on the development and commercialization of our drug candidate, TRC101, a non-absorbed polymer designed to treat metabolic acidosis by binding and removing acid from the gastrointestinal tract, or GI tract. Our goal is to slow the progression of chronic kidney disease, or CKD, through the treatment of metabolic acidosis. We recently completed our pivotal Phase 3 clinical trial, TRCA-301, that met both its primary and secondary endpoints in a highly statistically significant manner (p<0.0001 for all primary and secondary endpoints). One hundred ninety-six of the 208 eligible subjects who completed the 12-week treatment period in our pivotal TRCA-301 trial were invited to continue in our safety extension trial, TRCA-301E, which we expect to complete in the first half of 2019. We plan to submit a New Drug Application, or NDA, in the second half of 2019, seeking approval through the U.S. Food and Drug Administration’s, or FDA’s, Accelerated Approval Program. Metabolic acidosis is a chronic condition commonly caused by CKD and is believed to accelerate the progression of kidney deterioration. Today, there are no chronic therapies for treating metabolic acidosis approved by the FDA. We believe TRC101, an in-house discovered, new chemical entity, may be an effective treatment for metabolic acidosis and slow the progression of kidney disease in CKD patients affected by metabolic acidosis.

We estimate that metabolic acidosis affects approximately 3 million CKD patients in the United States, and we believe that slowing the progression of CKD in patients with metabolic acidosis represents a significant medical need and market opportunity. If approved, we plan to commercialize TRC101 in the United States initially using a nephrologist-focused sales force. To address markets outside of the United States, we plan to seek one or more partners with international sales expertise who can sell TRC101 in target markets. We have an intellectual property estate that we believe will provide patent protection for TRC101 until at least 2034 in the United States, the European Union, Japan, China, India and certain other markets. Tricida is led by a seasoned management team that includes the founders of Ilypsa, Inc. and Relypsa, Inc. Our management team has extensive experience in the development and commercialization of therapeutics, with deep expertise in developing polymers for the treatment of kidney-related diseases.

We have no products approved for marketing, and we have not generated any revenue from product sales or other arrangements. To date, we have primarily funded our operations through the sale of $152.3 million of convertible preferred stock. We have incurred losses in each year since our inception. Our net losses were $28.7 million and $41.3 million for the years ended December 31, 2016 and 2017, respectively, and $2.2 million and $20.5 million for the three months ended March 31, 2017 and 2018, respectively. As of December 31, 2016, December 31, 2017 and March 31, 2018, we had an accumulated deficit of $48.1 million, $89.4 million and $109.9 million, respectively. Substantially all of our operating losses resulted from expenses incurred in connection with advancing TRC101 through development activities and general and administrative costs associated with our operations.

 

78


Table of Contents

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect our expenses will increase substantially in connection with our ongoing activities as we:

 

    conduct clinical studies of TRC101;

 

    manufacture clinical study materials, and upon a successful validation campaign, commercial launch materials;

 

    increase our research and development efforts;

 

    hire additional personnel;

 

    create additional infrastructure to support our product development;

 

    seek regulatory approval for TRC101;

 

    maintain, expand and protect our intellectual property portfolio; and

 

    add operational, financial and management information systems to support ongoing operations, including operating as a public company.

We do not expect to generate any revenues from product sales until we successfully complete development and obtain regulatory approval for TRC101, which we expect will take a number of years. If we obtain regulatory approval for TRC101, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will seek to fund our operations through public or private equity or debt financings or other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and ability to develop TRC101.

Components of Our Results of Operations

Research and Development Expenses

Research and development expenses consist primarily of costs associated with the development of our product candidate and include salaries, benefits, travel and other related costs, including equity-based compensation expenses, for personnel engaged in research and development functions; expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants that conduct our nonclinical and clinical studies; manufacturing development and scale-up expenses and the cost of acquiring and manufacturing clinical study materials and commercial materials, including manufacturing registration and validation batches; payments to consultants engaged in the development of TRC101, including equity-based compensation, travel and other expenses; costs related to compliance with quality and regulatory requirements; research and development facility-related expenses, which include direct and allocated expenses, and other related costs. Research and development expenses are charged to operations as incurred when these expenditures relate to our research and development efforts and have no alternative future uses. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

All of our research and development expenses to date have been incurred in connection with TRC101. We expect our research and development expenses to increase for the foreseeable future as we advance TRC101 through clinical development, including conducting our ongoing safety extension trial, TRCA-301E, and our confirmatory postmarketing trial, known as the VALOR-CKD trial, or TRCA-303. The process of conducting clinical studies necessary to obtain regulatory approval is costly and time consuming and the successful development of TRC101 is highly uncertain. As a result, we

 

79


Table of Contents

are unable to determine the duration and completion costs of our research and development projects or when, and to what extent, we will generate revenue from commercialization and sale of TRC101. Therefore, we are unable to estimate with any certainty the costs we will incur in the continued development of TRC101. The degree of success, timelines and cost of development can differ materially from expectations. We may never succeed in achieving regulatory approval for TRC101.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, related benefits, travel, equity-based compensation expense and facility-related expenses for personnel in finance and administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, accounting and audit services and other related costs.

We anticipate that our general and administrative expenses will increase in the future as we build our infrastructure to support our continued research and development of TRC101. We also anticipate increased expenses related to accounting, legal and regulatory-related services associated with maintaining compliance with exchange listing and the Securities and Exchange Commission, or the SEC, requirements, director and officer insurance premiums and other costs associated with being a public company.

Results of Operations and Comprehensive Loss

The following table summarizes our results of operations for the three months ended March 31, 2017 and 2018:

 

     Three Months Ended March 31,  
     2017     2018  
     (unaudited)  
     (in thousands)  

Operating expenses:

    

Research and development

   $ 5,844     $ 16,633  

General and administrative

     2,825       3,465  
  

 

 

   

 

 

 

Total operating expenses

     8,669       20,098  
  

 

 

   

 

 

 

Loss from operations

     (8,669     (20,098

Change in fair value—preferred stock tranche obligation

     6,462       —    

Other income (expense), net

     (2     (87

Interest expense

     —         (319
  

 

 

   

 

 

 

Net loss

     (2,209     (20,504

Other comprehensive loss

     (1     (54
  

 

 

   

 

 

 

Comprehensive loss

   $ (2,210   $ (20,558
  

 

 

   

 

 

 

 

80


Table of Contents

Research and Development Expense

The following table summarizes our research and development expense for the three months ended March 31, 2017 and 2018:

 

     Three Months Ended
March 31,
 
     2017      2018  
     (unaudited)  
     (in thousands)  

Clinical development costs

   $ 4,669      $ 13,668  

Personnel and related costs

     596        1,949  

Equity-based compensation expense

     79        172  

Other research and development costs

     500        844  
  

 

 

    

 

 

 

Total research and development expense

   $ 5,844      $ 16,633  
  

 

 

    

 

 

 

Comparison of the Three Months Ended March 31, 2017 and 2018

Research and development expense was $5.8 million and $16.6 million for the three months ended March 31, 2017 and 2018, respectively. The increase of $10.8 million was due to increased activities in connection with our TRC101 clinical development program, resulting in increased clinical development costs of $9.0 million related to drug-drug interaction, or DDI, studies, TRCA-301 trial recruitment and TRCA-301E trial preparation, increased personnel and related costs of $1.4 million and increased equity-based compensation expense of $0.1 million related to increased headcount and increased other research and development costs of $0.3 million.

General and Administrative Expense

The following table summarizes our general and administrative expense for the three months ended March 31, 2017 and 2018:

 

     Three Months Ended
March 31,
 
     2017      2018  
     (unaudited)  
     (in thousands)  

Personnel and related costs

   $ 1,719      $ 1,836  

Equity-based compensation expense

     111        181  

Other general and administrative costs

     995        1,448  
  

 

 

    

 

 

 

Total general and administration expense

   $ 2,825      $ 3,465  
  

 

 

    

 

 

 

Comparison of the Three Months Ended March 31, 2017 and 2018

General and administrative expense was $2.8 million and $3.5 million for the three months ended March 31, 2017 and 2018, respectively. The increase of $0.6 million was due to increased administrative costs supporting the increased activities in connection with our TRC101 clinical development program, resulting in increased personnel and related costs of $0.1 million, increased equity-based compensation expense of $0.1 million due to increases in headcount and increased other general and administrative expenses of $0.5 million.

Change in Fair Value—Preferred Stock Tranche Obligation

The fair value of the Series C preferred stock tranche obligation was determined considering the terms of the preferred stock agreement and the fair value of the Series C stock relative to the

 

81


Table of Contents

contractual purchase price for the tranche. At issuance, the Series C preferred stock tranche obligation was considered to be a contingent obligation, where the investors had agreed to invest at a price of $1.55 per share upon achievement of a specified milestone.

The Series C preferred stock tranche obligation was modeled as a warrant within the Option Pricing Model framework as of December 2016. The various assumptions used to determine the fair value of the Series C preferred stock tranche obligation in the option pricing model were time to liquidity of 2.4 years, volatility of 54.0%, risk-free interest rate of 1.3% and equity value of $91.4 million. The fair value of the tranche obligation was determined to be a liability and recorded at $3.4 million as of December 31, 2016. At March 31, 2017, the fair value of the tranche obligation was determined to be an asset of $3.1 million, which resulted in a mark-to-market adjustment of $6.5 million for the period ended March 31, 2017.

Results of Operations and Comprehensive Loss

The following table summarizes our results of operations for the years ended December 31, 2016 and 2017:

 

     Year Ended
December 31,
 
     2016     2017  
     (in thousands)  

Operating expenses:

    

Research and development

   $ 21,820     $ 35,906  

General and administrative

     5,363       11,216  
  

 

 

   

 

 

 

Total operating expenses

     27,183       47,122  
  

 

 

   

 

 

 

Loss from operations

     (27,183     (47,122

Change in fair value—preferred stock tranche obligation

     (1,571     5,649  

Interest income (expense) and other, net

     103       183  
  

 

 

   

 

 

 

Net loss

     (28,651     (41,290

Other comprehensive loss

           (13
  

 

 

   

 

 

 

Comprehensive loss

   $ (28,651   $ (41,303
  

 

 

   

 

 

 

Research and Development Expense

The following table summarizes our research and development expense for the years ended December 31, 2016 and 2017:

 

     Year Ended
December 31,
 
     2016      2017  
     (in thousands)  

Clinical development costs

   $ 15,488      $ 28,774  

Personnel and related costs

     4,781        5,127  

Equity-based compensation expense

     185        379  

Other research and development costs

     1,366        1,626  
  

 

 

    

 

 

 

Total research and development expense

   $ 21,820      $ 35,906  
  

 

 

    

 

 

 

 

82


Table of Contents

Comparison of the Years Ended December 31, 2016 and 2017

Research and development expense was $21.8 million and $35.9 million for the years ended December 31, 2016 and 2017, respectively. The increase of $14.1 million was due to increased activities in connection with our TRC101 clinical development program, resulting in increased clinical development costs of $13.3 million related to drug-drug interaction, or DDI, studies, TRCA-301 trial recruitment and TRCA-301E trial preparation, increased personnel and related costs of $0.3 million and increased equity-based compensation expense of $0.2 million related to increased headcount and increased other research and development costs of $0.3 million.

General and Administrative Expense

The following table summarizes our general and administrative expense for the years ended December 31, 2016 and 2017:

 

     Year Ended
December 31,
 
     2016      2017  
     (in thousands)  

Personnel and related costs

   $ 2,878      $ 5,886  

Equity-based compensation expense

     87        497  

Other general and administrative costs

     2,398        4,833  
  

 

 

    

 

 

 

Total general and administration expense

   $ 5,363      $ 11,216  
  

 

 

    

 

 

 

Comparison of the Years Ended December 31, 2016 and 2017

General and administrative expense was $5.4 million and $11.2 million for the years ended December 31, 2016 and 2017, respectively. The increase of $5.9 million was due to increased administrative costs supporting the increased activities in connection with our TRC101 clinical development program, resulting in increased personnel and related costs of $3.0 million, increased equity-based compensation expense of $0.4 million due to increases in headcount and increased other general and administrative expenses of $2.4 million, which included increases in commercialization, medical affairs and outside consultants of $1.5 million, $0.5 million in legal and audit services, and facilities, travel and entertainment and office expenses of $0.6 million.

Change in Fair Value—Preferred Stock Tranche Obligation

The fair value of the Series C preferred stock tranche obligation was determined considering the terms of the preferred stock agreement and the fair value of the Series C stock relative to the contractual purchase price for the tranche. At issuance, the Series C preferred stock tranche obligation was considered to be a contingent obligation, where the investors had agreed to invest at a price of $1.55 per share upon achievement of a specified milestone.

The Series C preferred stock tranche obligation was modeled as a warrant within the option-pricing model framework as of December 2016. The various assumptions used to determine the fair value of the Series C preferred stock tranche obligation in the option-pricing model were time to liquidity of 2.4 years, volatility of 54.0%, risk-free interest rate of 1.3% and equity value of $91.4 million. The fair value of the tranche obligation was determined to be a liability and recorded at $3.4 million as of December 31, 2016.

On April 25, 2017, the tranche obligation was settled, and the obligation was valued at intrinsic value, using the fair value of the Series C preferred stock from the option-pricing model. The various

 

83


Table of Contents

assumptions used to determine the fair value of the Series C preferred stock in the option-pricing model were time to liquidity of 2.4 years, volatility of 54.0%, risk-free interest rate of 1.4% and equity value of $118.5 million. Since per share value was lower than the contractual purchase price, the fair value of the tranche obligation was determined to be an asset and recorded at $2.3 million at settlement on April 25, 2017.

Liquidity and Capital Resources

Sources of Liquidity

From our inception through March 31, 2018, we have funded our operations primarily through the sale and issuance of our convertible preferred stock and a term loan. From our inception through March 31, 2018, we raised aggregate cash proceeds of $152.3 million from the issuance of our convertible preferred stock and $23.6 million from the issuance of a term loan. As of March 31, 2018, we had cash, cash equivalents and marketable securities of $75.2 million.

Hercules Loan and Security Agreement

On February 28, 2018, we entered into a Loan and Security Agreement, or the Term Loan, with Hercules Capital, Inc., or Hercules. The Term Loan provides for a loan in an aggregate principal amount of up to $100.0 million to be funded in five tranches subject to certain performance-based milestones. The first tranche, in the amount of $25.0 million, was funded on the closing date of the Term Loan. We believe that a second tranche of $25.0 million will be available on or before December 31, 2018, based on our achievement of positive clinical data from the pivotal Phase 3 clinical trial, TRCA-301, before December 15, 2018. A third tranche of $15.0 million will be available on or before December 31, 2019, on the condition that we submit a New Drug Application, or NDA, to the United States Food and Drug Administration, or FDA, which the FDA accepts for review, on or before December 31, 2019. A fourth tranche of $10.0 million will be available on or before December 15, 2020, provided that we obtain product approval from the FDA for the NDA for TRC101 on or before December 15, 2020. The fifth tranche of $25.0 million will be available on or before December 31, 2020, upon request by us and the approval of Hercules’ investment committee.

The Term Loan bears interest at a floating per annum interest rate equal to the greater of either (i) 8.35% or (ii) the lesser of (x) 8.35% plus the prime rate as reported in The Wall Street Journal minus 5.00% and (y) 9.85%.

The Term Loan repayment schedule provides for interest only payments for the first 16 months, followed by consecutive equal monthly payments of principal and interest commencing on July 1, 2019 and continuing through the maturity date of March 1, 2022. The Term Loan also provides for a $650,000 facility fee that was paid at closing and an additional payment equal to 6.55% multiplied by the greater of (i) the aggregate term loans funded and (ii)(a) the aggregate term loans funded plus (b) one half of (x) $60.0 million minus (y) the aggregate term loans funded, which is due when the Term Loan becomes due or upon prepayment of the facility. If we elect to prepay the Term Loan, there is also a prepayment fee of between 1% and 2% of the principal amount being prepaid depending on the timing and circumstances of prepayment.

In conjunction with the Term Loan, we have issued warrants to purchase 212,765 shares of common stock with an exercise price of $2.35 per share. The estimated fair value of the warrants at the date of issuance was approximately $156,000. The fair value of the common stock warrant liability was determined using the probability weighted expected return method. As of March 31, 2018, the various assumptions used in the option-pricing model were time to liquidity of 0.25 to 1.7 years, volatility of 72%, risk-free rate of 2.4% and equity value of $306 million to $420 million. It was recorded

 

84


Table of Contents

at its fair value at inception and is being remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the accompanying condensed statement of operations and comprehensive loss. As of March 31, 2018, the fair value of the common stock warrant was approximately $194,000 and was classified as a long-term liability on the balance sheet.

In connection with any subsequent draw down under tranches two through five, we are obligated to issue additional common stock warrants equal to the quotient derived by dividing (a) 2.0% of the amount(s) funded under such tranche and (b) the lower of (x) the offering price of the shares of our common stock under this offering and (y) and the effective price at which the shares of our Series D convertible preferred stock converted into common stock; provided however that in no event shall (x) or (y) be less than $0.20 per share.

The Term Loan is secured by substantially all of our assets, except our intellectual property, which is the subject of a negative pledge.

We determined that certain loan features were embedded derivatives requiring bifurcation and separate accounting. Those embedded derivatives were bundled together as a single, compound embedded derivative and then bifurcated and accounted for separately from the host contract. We recorded a compound derivative liability of $654,000, which will be marked to market in future periods. We calculated the fair values of the compound derivative, using the “with and without” method under the income approach, by computing the difference between the fair value of the Term Loan with the compound derivative and the fair value of the Term Loan without the compound derivative. We calculated the fair values using a probability weighted discounted cash flow analysis. The key valuation assumptions used consist of the discount rate and the probability of the occurrence of certain events. The compound derivative liability is being remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the condensed statements of operations and comprehensive loss. As of March 31, 2018, the fair value of the compound derivative liability was approximately $689,000 and was classified as accrued expenses and other current liabilities on the condensed balance sheets.

The facility fee, fair value of warrants at issuance, fair value of embedded derivatives which were bifurcated, and other debt issuance costs have been treated as debt discounts on our balance sheet and together with the additional payment are being amortized to interest expense throughout the life of the Term Loan using the effective interest rate method.

Funding Requirements

We have incurred losses and negative cash flows from operations since inception and anticipate that we will continue to incur net losses for the foreseeable future. As of March 31, 2018, we had an accumulated deficit of $109.9 million. Management expects to incur additional losses in the future to conduct product research and development and to conduct pre-commercialization activities and recognizes the need to raise additional capital to fully implement its business plan.

Such future capital requirements are difficult to forecast and will depend on many factors, including:

 

    our ability to initiate, and the progress and results of, our planned clinical studies of TRC101;

 

    the timing and outcome of regulatory reviews of TRC101;

 

    the revenue, if any, received from commercial sales of TRC101 for which we may receive regulatory approval;

 

    our ability to maintain and enforce our intellectual property rights and defend any intellectual property-related claims;

 

85


Table of Contents
    the costs, timing and success of future commercialization activities, including product manufacturing, marketing, sales and distribution, for TRC101 if we receive regulatory approval and do not partner for commercialization; and

 

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

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic partnerships and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. If we raise additional funds through collaborations, strategic partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to TRC101, associated intellectual property, our other technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us.

However, there can be no assurance that we will be successful in securing additional funding at levels sufficient to fund its operations or on terms acceptable to us. These conditions raise substantial doubt about our ability to continue as a going concern for a period of one year from the date of the issuance of our interim financial statements for the three months ended March 31, 2018. If we are unsuccessful in its efforts to raise additional financing, we could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of its development programs or its future commercialization efforts, out-license intellectual property rights to its product candidates and sell unsecured assets, or a combination of the above, any of which may have a material adverse effect on our business, results of operations, financial condition and/or its ability to fund its scheduled obligations on a timely basis or at all. The accompanying financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if we are unable to continue as a going concern.

We estimate that our net proceeds from this offering will be approximately $        million based on an assumed initial public offering price of $        per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We believe that our existing cash as of March 31, 2018 and the estimated net proceeds from this offering, proceeds from our Term Loan with Hercules, together with our existing cash, cash equivalents and marketable securities, will allow us to fund our operating plan through at least the next 12 months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our debt financing agreement includes covenants limiting or restricting our ability to take specific actions, such as incurring additional debt.

 

86


Table of Contents

Cash Flows

The following table sets forth a summary of the net cash flow activity for each of the periods set forth below:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2016     2017     2017     2018  
                

(unaudited)

 
    

(in thousands)

 

Net cash provided by (used in):

        

Operating activities

   $ (23,115   $ (40,401   $ (8,170   $ (15,096

Investing activities

     (20,281     (37,947     10,012       (5,431

Financing activities

     42,973       82,440       (6     23,235  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (423   $ 4,092     $ 1,836     $ 2,708  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Used in Operating Activities

During the three months ended March 31, 2017, cash used in operating activities was $8.2 million, which consisted of a net loss of $2.2 million, adjusted by non-cash charges of $6.2 million and cash provided by changes in our operating assets and liabilities of $0.2 million. The non-cash charges consisted primarily of changes in the fair value of our preferred stock tranche obligation by $6.5 million, partially offset by share-based compensation expense of $0.2 million. The changes in our operating assets and liabilities were primarily due to an increase in accrued expenses and other liabilities of $0.5 million and a decrease in prepaid expenses and other current assets of $0.4 million, offset by a decrease in accounts payable of $0.7 million.

During the three months ended March 31, 2018, cash used in operating activities was $15.1 million, which consisted of a net loss of $20.5 million, adjusted by cash provided by changes in our operating assets and liabilities of $4.8 million, and non-cash charges of $0.6 million. The changes in our operating assets and liabilities were primarily due to an increase in accounts payable of $4.7 million and a decrease in prepaid expenses and other current assets of $1.1 million, offset by a decrease in accrued expenses and other current liabilities of $1.0 million. The non-cash charges consisted primarily of share-based compensation of $0.4 million and depreciation and amortization of $0.1 million.

During fiscal 2016, cash used in operating activities was $23.1 million, which consisted of a net loss of $28.7 million, adjusted by cash provided by changes in our operating assets and liabilities of $3.2 million, and non-cash charges of $2.3 million. The changes in our operating assets and liabilities were primarily due to an increase in accruals of $1.7 million and accounts payable of $1.6 million, partially offset by an increase in prepaid and other assets of $0.1 million. The non-cash charges consisted primarily of changes in the fair value of our preferred stock tranche financing obligation by $1.6 million, depreciation and amortization of $0.4 million and stock-based compensation of $0.3 million.

During fiscal 2017, cash used in operating activities was $40.4 million, which consisted of a net loss of $41.3 million, adjusted by cash provided by changes in non-cash charges of $4.5 million and our operating assets and liabilities of $5.4 million. The non-cash charges consisted primarily of changes in the fair value of our preferred stock trance financing obligation of $5.6 million, stock-based compensation of $0.9 million and depreciation and amortization of $0.3 million. The changes in our operating assets and liabilities of $5.4 million, are mostly due to $4.8 million of increases in clinical and manufacturing accruals and $1.8 million in accounts payable offset by increases of advance payments to clinical and manufacturing of $1.2 million.

 

87


Table of Contents

Cash Provided by (Used in) Investing Activities

The net cash provided by and used in investing activities was $10.0 million and $5.4 million for the three months ended March 31, 2017 and 2018, respectively. The net cash provided by investing activities during the three months ended March 31, 2017 was primarily due to maturities of marketable securities of $13.3 million, partially offset by purchases of marketable securities of $3.2 million. The net cash used in investing activities during the three months ended March 31, 2018 was due to purchases of marketable securities of $16.8 million, offset by maturities of marketable securities of $11.9 million and purchases of property and equipment of $0.5 million.

Net cash used in investing activities was $20.3 million and $37.9 million for the years ended December 31, 2016 and 2017, respectively. The net cash used in investing activities in 2016 was primarily due to purchases of marketable securities of $39.1 million, purchases of property and equipment of $0.2 million, offset by maturities of marketable securities of $18.5 million. The net cash used in investing activities in 2017 was primarily due to purchases of marketable securities of $76.8 million, purchases of property and equipment of $1.0 million, offset by maturities of marketable securities of $39.9 million.

Cash Provided by (Used in) Financing Activities

The net cash used in and provided by financing activities was $6,000 and $23.2 million for the three months ended March 31, 2017 and 2018, respectively. The net cash used in financing activities during the three months ended March 31, 2017 was primarily the result of repayment of tenant improvement loan of $11,000. The net cash provided by financing activities during the three months ended March 31, 2018 was primarily the result of net proceeds from the Hercules loan of $23.6 million.

Net cash provided by financing activities was $43.0 million and $82.4 million for the years ended December 31, 2016 and 2017, respectively. Net cash provided by financing activities during each period was primarily the result of net proceeds from the issuance of shares of our convertible preferred stock.

During fiscal 2016, net proceeds from our sale of convertible preferred stock were comprised of $13.1 million from sale of Series B convertible preferred stock, net of issuance cost of $37,000 and $29.9 million from sale of Series C convertible preferred stock, net of issuance cost of $0.3 million.

During fiscal 2017 net proceeds from our sale of convertible preferred stock were comprised of $25.2 million from sale of Series C convertible preferred stock, net of issuance costs of $65,000 and $57.3 million from sale of Series D convertible preferred stock, net of issuance costs of $0.3 million.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of March 31, 2018 (in thousands):

 

    Payments Due by Period  
    Total     Less Than
1 Year
    1-3 Years     3-5 Years     More Than
5 Years
 

Term Loan(1)

  $ 33,563     $ 3,130     $ 19,953     $ 10,480     $     —      

Operating lease obligations and commitments(2)

    3,901       1,198       2,399       304           —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 37,464     $ 4,328     $ 22,352     $ 10,784     $     —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

On February 28, 2018, we entered into the Term Loan with Hercules. The Term Loan bears interest at a floating per annum interest rate equal to the greater of either (i) 8.35% or (ii) the

 

88


Table of Contents
  lesser of (x) 8.35% plus the prime rate as reported in The Wall Street Journal minus 5.00% and (y) 9.85%. The Term Loan repayment schedule provides for interest only payments for the first 16 months, followed by consecutive equal monthly payments of principal and interest commencing on July 1, 2019 and continuing through the maturity date of March 1, 2022. The Term Loan also provides for a payment equal to 6.55% multiplied by the greater of (i) the aggregate term loans funded and (ii)(a) the aggregate term loans funded plus the greater of (i) the aggregate term loans funded and (ii)(a) the aggregate term loans funded plus (b) one half of (x) $60.0 million minus (y) the aggregate term loans funded, which is due when the Term Loan becomes due or upon prepayment of the facility. If we elect to prepay the Term Loan, there is also a prepayment fee of between 1% and 2% of the principal amount being prepaid depending on the timing and circumstances of prepayment.
(2) We lease our current facilities under an operating lease. In April 2014, we entered into a lease for our current laboratory and office space that commenced in July 2014 and was due to expire in June 2019. In September 2017, we entered into a first and second amendment to our lease which expanded the rentable square feet from 13,729 to 26,897 and expires in June 2021. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes. In addition, associated with our operating lease we have tenant improvement loan totaling approximately $0.5 million, which is to be amortized at 8% interest over the life of the lease.

On May 8, 2018, we and Patheon Austria GmbH & Co KG, or Patheon, entered into a master development/validation services and clinical/launch supply agreement, or MDS, pursuant to which Patheon will manufacture and supply to us drug substances. Statements of work under the MDS commit us to certain purchase obligations of approximately $43.0 million over the next 36 months with approximately one-third of this amount occurring in each of the three successive 12-month periods.

We also enter into other contracts in the normal course of business with CROs, contract development and manufacturing organizations and other service providers and vendors. These contracts generally provide for termination on short notice and are cancelable contracts and accordingly, are not included in the contractual obligations and disclosures summarized above.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules of the SEC.

Internal Control Over Financial Reporting

In connection with the audit of our financial statements, we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting related to (i) the lack of sufficient qualified accounting personnel and controls with respect to the review of third-party valuations used to determine the fair value of our preferred stock tranche obligations and the recording of the corresponding fair value, and (ii) a lack of effective communication and coordination between the accounting and operations personnel with respect to the estimation of progress to completion on work orders with contract manufacturers, which resulted in a number of adjustments in contract manufacturing accruals. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. We are implementing a remediation plan to establish more robust processes related to the review of third-party valuations and the determination and recording of fair value of these tranche obligations as well as the communication and coordination between the accounting and operations personnel and the

 

89


Table of Contents

recording of contract manufacturing accruals. See “Risk Factors—We have identified material weaknesses in our internal control over financial reporting, and if we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock may be seriously harmed.”

During the first quarter of 2018, we have undertaken specific remediation actions to address the control deficiencies in our financial reporting. These remediation actions included hiring a Chief Accounting Officer who has extensive experience in developing and executing plans to remediate control deficiencies. In addition, we hired a Director of Financial Planning & Analysis who has extensive experience in developing and implementing internal controls specific to research and development and manufacturing operations. We added new control activities, modified existing controls, and enhanced the documentation that evidences that controls are performed. We concluded that the control deficiencies have been remediated as of March 31, 2018, as the applicable controls have operated for a sufficient period and we have concluded that these controls are operating effectively.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are exposed to market risk related to changes in interest rates. We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. We do maintain significant amounts of cash at one or more financial institutions that are in excess of federally insured limits and have highly liquid marketable securities.

The primary objective of our investment activities is to preserve capital to fund our operations. We classify our marketable securities as available-for-sale securities in our financial statements. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive loss. Realized gains and losses on the sale of all such securities are reported in other income (expense), net and computed using the specific identification method. For the three months ended March 31, 2017 and 2018, there were no realized gains or losses on these securities. Our investments are in commercial paper, asset-backed securities and corporate debt securities. Pursuant to our investment policy, all purchased securities have a minimum short-term rating of A1 (Moody’s) or P1 (Standard & Poor’s) or equivalent. If there is no short-term rating, a purchased security is required to have a long-term rating no lower than A3/A- or equivalent.

Our investments are subject to interest rate risk and could fall in value if market interest rates increase. A hypothetical 10% relative change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

Foreign Currency Sensitivity

The majority of our transactions occur in U.S. dollars. However, we do have certain transactions with CROs and contract manufacturing organizations, or CMOs, that are denominated in currencies other than the U.S. dollar, primarily the Euro, and we therefore are subject to foreign exchange risk. The fluctuation in the value of the U.S. dollar against the Euro affects the reported amounts of expenses, assets and liabilities associated with a limited number of nonclinical and clinical activities. We do not engage in any hedging activity to reduce our potential exposure to currency fluctuations. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our financial statements.

 

90


Table of Contents

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and clinical study costs. We do not believe that inflation has had a material effect on our results of operations during the periods presented.

Jumpstart Our Business Startups Act

We are an emerging growth company, as defined in the JOBS Act. Under this act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We also intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ significantly from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in the notes to our audited financial statements elsewhere in this prospectus, we believe that the following accounting policies related to accrued expenses and equity-based compensation are most critical to understanding and evaluating our reported financial results.

Research and development expenses

Research and development costs are expensed as incurred. Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid expense and recognized as an expense as the related goods are delivered or the related services are performed.

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and purchase orders, communicating with internal personnel and external service providers to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We

 

91


Table of Contents

make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions, contract research organizations that conduct and manage clinical trials on our behalf and contract manufacturing organizations that manage drug production on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Furthermore, all additional identified costs incurred are accrued from all outside third-party service providers.

Our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period. To date, there have been no material differences between our estimates and the amount actually incurred. However, due to the nature of these estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies or other research activity.

Stock-Based Compensation

Equity-based compensation expense represents the grant-date fair value of employee awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We account for awards to non-employees using the fair value approach. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is recognized on a straight-line basis, net of forfeitures, over the requisite service period, which is the vesting period of the respective awards.

The Black-Scholes option-pricing model requires the derivation and use of subjective assumptions to determine the estimated fair value of stock-based awards. These assumptions include:

 

    Expected Term —We have concluded that our stock option exercise history does not provide a reasonable basis upon which to estimate expected term, and therefore we use the simplified method for estimating the expected term of stock option grants. Under this approach, the weighted-average expected term is presumed to be the average of the vesting term and the contractual term of the option.

 

    Expected Volatility —Since we do not have any trading history for our common stock, the expected volatility is estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle, or area of specialty.

 

    Risk-Free Interest Rate —The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

 

    Dividend Yield —We have not paid dividends on our common stock and do not anticipate paying dividends for the foreseeable future, and we therefore used an expected dividend yield of zero.

 

92


Table of Contents

In addition to the Black-Scholes assumptions, we estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. The impact from any forfeiture rate adjustment would be recognized in full in the period of adjustment. If the actual number of future forfeitures materially differs from our estimates, we will be required to record adjustments to stock-based compensation expense in future periods.

We expect the impact of our stock-based compensation expense for stock options granted to employees to grow in future periods due to the potential increases in the value of our common stock and the number of awards we expect to grant.

We issue incentive and non-statutory stock options under the Tricida 2013 Equity Incentive Plan, or the Plan. The incentive stock and non-statutory options were issued to certain directors, officers, employees and consultants in consideration for services provided to us. To date, all incentive stock options have provided for vesting over a four year period from either the date of grant or the commencement of service. To date, all non-statutory stock options have provided for vesting over periods ranging from one to four years from either the date of grant or commencement of service. The Plan allows the option holders to exercise their options prior to vesting. Unvested common stock is issued upon the early exercise of options and are subject to repurchase by us at the original exercise price at our option.

Common stock valuation methodologies

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant. These factors include, but are not limited to: our most recently available valuations of our common stock by an unrelated third party; the prices at which we sold shares of our convertible preferred stock to outside investors in arms-length transactions; the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock; our results of operations, financial position and capital resources; current business conditions and projections; the lack of marketability of our common stock; the hiring of key personnel and the experience of management; the risk inherent in the development of our products; our stage of development and material risks related to its business; the fact that the option grants involve illiquid securities in a private company; and the likelihood of achieving a liquidity event, such as an initial public offering or sale, in light of prevailing market conditions. We have periodically determined the estimated fair value of our common stock at various dates using contemporaneous valuations performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide,  Valuation of Privately-Held-Company Equity Securities Issued as Compensation , or the Guide. The Guide identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Guide, our board of directors considered the following methods:

 

    Current Value Method.     Under the Current Value Method, or CVM, our value is determined based on our balance sheet. This value is then first allocated based on the liquidation preference associated with preferred stock issued as of the valuation date, and then any residual value is assigned to the common stock.

 

    Option-Pricing Method.     Under the option-pricing method, or OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these options.

 

93


Table of Contents
    Probability Weighted Expected Return Method.     The probability weighted expected return method, or PWERM, is a scenario-based analysis that estimates value per share based on the probability weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

 

    Hybrid Methods of Enterprise Value Allocation.     The hybrid method is a hybrid between the PWERM and OPM, estimating the probability weighted value across multiple scenarios but using the OPM to estimate the allocation of value within one or more of those scenarios. The hybrid method can be a useful alternative to explicitly modeling all PWERM scenarios in situations when the company has transparency into one or more near-term exits but is unsure about what will occur if the current plans fall through.

Our common stock valuation as of February 2, 2016 was based on the income approach valuation method and the OPM was selected as the principal equity allocation method.

The June 7, 2016 common stock valuation was based on a back-solve method of OPM, which derives the implied equity value for one type of equity security from a contemporaneous transaction involving another type of security, the Series C preferred shares in this instance.

The common stock valuation as of December 31, 2016, April 25, 2017 and September 1, 2017 were based on the income approach for valuation of the equity and the OPM for allocation of equity.

For valuation as of November 7, 2017, February 28, 2018 and March 31, 2018, we have used a hybrid method to determine the fair value of our common stock, in addition to giving consideration to recent sale of Series D preferred stock. Under the hybrid method, multiple valuation approaches were used and then combined into a single probability weighted valuation, consistent with the Guide. Our approach included the use of initial public offering scenario and an OPM.

Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events. Changes in any or all of these estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have a material impact on the valuation of common stock.

Our board of directors and management develop best estimates based on application of these approaches and the assumptions underlying these valuations, giving careful consideration to the advice from our third-party valuation expert. Such estimates involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation could be materially different. Following the completion of this offering, our board of directors will determine the fair market value of our common stock based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

Preferred Stock Tranche Obligation Valuation Methodologies

For the December 2016 valuation, the Series C tranche was modelled as a warrant to buy Series C shares at fixed price of $1.55 per share. The OPM model yields a fair value of these warrants which represented the value of the tranche. Since the tranche was considered a warrant or option, they reflected a positive value and thus for the December valuation the tranche was treated as a liability on our financial statements.

 

94


Table of Contents

For the March 2017 valuation, the Series C tranche obligation was treated as an asset of $3.1 million on our financial statements.

For the April 2017 valuation, at the time of the issuance of the Series C tranche shares, the methodology was changed to reflect that the time to maturity for the warrants was zero. The premise of this analysis was to determine the value of a Series C share 1 day before the Series C tranche is funded. To isolate the impact of the Series C tranche, we excluded the shares and the money invested. Based on this model we estimated the fair value of the initial Series C purchase. We then compared the fair value of the initial Series C purchased shares against the contractual price for Series C tranche shares and noted that the fair value was lower than the $1.55 purchase price and resulted in an asset on our balance sheet.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or the FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the our financial position or results of operations upon adoption.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share; Distinguishing Liabilities from Equity; Derivatives and Hedging, (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception . The guidance in ASU 2017-11 allows for the exclusion of a down round feature, when evaluating whether or not an instrument or embedded feature requires derivative classification. We early adopted this guidance beginning January 1, 2018. The adoption of this standard had no material impact on our financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new standard is effective for annual periods and interim periods beginning after December 15, 2018 and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. We are currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , or ASC 842, which for operating leases requires the lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The guidance also requires a lessee to recognize single lease costs, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The accounting standard is effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. Early adoption is permitted. We expect the implementation of ASC 842 to have an impact on our financial statements and related disclosures as we had aggregate future minimum lease payments of approximately $3.9 million as of March 31, 2018. We anticipate recognition of additional assets and corresponding liabilities related to these leases on our balance sheet.

 

95


Table of Contents

BUSINESS

Overview

Our goal is to slow the progression of chronic kidney disease, or CKD, through the treatment of metabolic acidosis. We are a late-stage pharmaceutical company focused on the development and commercialization of our drug candidate, TRC101, a non-absorbed polymer designed to treat metabolic acidosis by binding and removing acid from the gastrointestinal, or GI, tract. We recently completed our pivotal Phase 3 clinical trial, TRCA-301, that met both its primary and secondary endpoints in a highly statistically significant manner (p<0.0001 for all primary and secondary endpoints). One hundred ninety-six of the 208 eligible subjects who completed the 12-week treatment period in our pivotal TRCA-301 trial were invited to continue in our safety extension trial, TRCA-301E, which we expect to complete in the first half of 2019. We plan to submit a New Drug Application, or NDA, in the second half of 2019, pursuant to the U.S. Food and Drug Administration’s, or FDA’s, Accelerated Approval Program.

Metabolic acidosis is a chronic condition commonly caused by CKD and is believed to accelerate the progression of kidney deterioration. Today, there are no chronic therapies for treating metabolic acidosis approved by the FDA. We believe TRC101, an in-house discovered, new chemical entity, may be an effective treatment for metabolic acidosis and slow the progression of kidney disease in CKD patients affected by metabolic acidosis.

We estimate that metabolic acidosis affects approximately 3 million CKD patients in the United States, and we believe that slowing the progression of CKD in patients with metabolic acidosis represents a significant medical need and market opportunity. We have an intellectual property estate that we believe will provide patent protection for TRC101 until at least 2034 in the United States, the European Union Japan, China, India and certain other markets. Tricida is led by a seasoned management team that includes the founders of Ilypsa, Inc. and Relypsa, Inc. Our management team has extensive experience in the development and commercialization of therapeutics, with deep expertise in developing polymers for the treatment of kidney-related diseases.

Our Strategy

Our strategy is focused on developing and commercializing TRC101 as a first-in-class FDA-approved chronic treatment for metabolic acidosis for the large CKD patient population with metabolic acidosis. Key elements of our strategy are to:

 

    Obtain FDA approval of TRC101.     Based on feedback from the FDA, we believe TRC101 will be eligible for review and potential approval through the FDA’s Accelerated Approval Program. If approved, TRC101 could be the first FDA-approved therapy for the chronic treatment of metabolic acidosis to slow the progression of CKD. We plan to submit an NDA for TRC101 in the second half of 2019.

 

    Commercialize TRC101 in the United States.     If TRC101 is approved by the FDA, we plan to initially commercialize it in the United States by deploying an 80- to 100-person specialty sales force targeting that subset of nephrologists most focused on treating CKD patients. With this sales force approach we believe we can reach a majority of the approximately 600,000 Stage 3 to 5 CKD patients with metabolic acidosis treated by nephrologists. Over time, due to the disease modification potential of TRC101, we intend to address the broader population of CKD patients who receive care from cardiologists, endocrinologists, diabetologists and a subset of primary care physicians, either on our own or with a partner.

 

   

Commercialize TRC101 outside of the United States with one or more partners.     We believe there is a significant commercial opportunity for TRC101 in markets outside the United States.

 

96


Table of Contents
 

To address these markets, we plan to seek one or more partners with international sales expertise who can sell TRC101 in target markets.

Chronic Kidney Disease and Metabolic Acidosis Represent a Major Health Crisis

Overview of CKD

CKD is a serious condition characterized by the gradual loss of essential kidney functions over time. In patients with CKD, normal fluid and electrolyte balance can no longer be maintained, and the excretion of metabolic end products, toxins and drugs is impaired. Furthermore, production and secretion of certain enzymes and hormones are disturbed.

According to the Centers for Disease Control and Prevention, or CDC, more than 30 million people in the United States are afflicted with CKD, representing an overall prevalence in the adult population of approximately 15%. The incidence of CKD is primarily driven by the increasing prevalence of diabetes and hypertension. CKD represents the ninth leading cause of death in the United States. The treatment of CKD adds a tremendous financial burden to the United States, with annual Medicare expenses for CKD at approximately $98 billion, including approximately $64 billion on CKD costs and approximately $34 billion for end-stage renal disease, or ESRD. ESRD is total and permanent kidney failure that is treated with a kidney transplant or dialysis. There are approximately 700,000 people in the United States living on kidney dialysis or with a kidney transplant and approximately 124,000 new ESRD cases annually. Each year kidney disease kills more people than breast cancer or prostate cancer. According to United States Renal Data System report, there were approximately 100,000 deaths from ESRD in 2015. There is a significant medical need to slow progression of kidney disease and reduce the number of patients progressing to kidney failure.

To help improve the diagnosis and management of kidney disease, the National Kidney Foundation, or NKF, has divided CKD into five stages. The severity of CKD at each stage is identified by the estimated glomerular filtration rate, or eGFR. Treatment during the first four stages of CKD focuses on ways to preserve kidney function for as long as possible. ESRD is the final stage of CKD in which the patient typically requires renal replacement therapy, i.e., dialysis or a kidney transplant, for survival.

Stages of CKD and Key Risk Factors for CKD Progression

 

 

LOGO

 

LOGO

 

97


Table of Contents

Overview of Metabolic Acidosis

Diabetes, hypertension and age have long been recognized as primary risk factors for the progression of CKD. More recently, metabolic acidosis, a serious condition in which the body has accumulated too much acid, has also been identified as a key risk factor in the progression of CKD. The human body generates acid every day through normal food intake and metabolism. Sources of acid include amino and nucleic acids from daily dietary intake and digestion of proteins. A healthy kidney counteracts these sources of acid through excretion mechanisms that rid the body of the excess acid and by restoring bicarbonate, a base that buffers acid. Metabolic acidosis results when the kidneys can no longer excrete sufficient acid or produce enough bicarbonate to balance acid production.

The prevalence and severity of metabolic acidosis in people with CKD progressively rises as kidney function declines. Adaptations by the kidneys initially prevent a fall in blood bicarbonate concentration but as eGFR continues to decline below 40 ml/min/1.73 m 2 , metabolic acidosis commonly develops. Over time, metabolic acidosis can lead to an increased risk of muscle wasting, loss of bone density and death. Additionally, if uncontrolled, a vicious cycle of worsening acidosis and accelerated progression of kidney disease can result.

The mechanism that links metabolic acidosis to kidney disease involves a cascade of events whereby patients with compromised kidneys do not excrete adequate amounts of acid to maintain acid-base balance. This imbalance and acid load accumulation leads to increases in the production of select peptides and hormones, including endothelin-1, aldosterone and angiotensin II, that increase the secretion of acid through the proximal and distal renal tubules of the remaining healthy nephrons. As currently understood, this sustained over-production of hormones exacerbates the damage in the diseased kidneys, resulting in long-term consequences, including renal fibrosis, proteinuria and inflammation, as well as sodium and water retention, which are hallmarks of the progression of CKD.

Metabolic acidosis can be diagnosed by measuring the level of bicarbonate in the blood, which is part of a standard metabolic panel. Properly functioning kidneys will maintain a blood bicarbonate level of between 22 to 29 milliequivalents per liter, or mEq/L. A persistent blood bicarbonate level below 22 mEq/L indicates metabolic acidosis. The NKF’s Kidney Disease Outcomes Quality Initiative, or KDOQI, guidelines and the International Society of Nephology’s Kidney Disease: Improving Global Outcomes, or KDIGO, guidelines recommend that in people with CKD, blood bicarbonate be maintained within the normal range of 22 to 29 mEq/L. Blood bicarbonate concentrations less than 22 mEq/L are associated with increased risk of CKD progression and increased risk of death.

 

98


Table of Contents

The prevalence and severity of metabolic acidosis increases from Stage 3 to Stage 5 of CKD. We estimate the prevalence of metabolic acidosis to be 9% of the estimated 13.4 million Stage 3a CKD patients, 18% of the estimated 5.7 million Stage 3b CKD patients and over 30% of the estimated 2.5 million Stage 4 and Stage 5 CKD, patients resulting in a total prevalence of approximately 3 million patients in the United States.

Metabolic Acidosis Poses a Significant Health Risk to Approximately 3 Million CKD Patients in the United States

 

 

LOGO

There is Significant Evidence that Treating Metabolic Acidosis Can Slow the Progression of CKD

Multiple retrospective studies provide qualitative and quantitative evidence for the relationship between metabolic acidosis and the progression of CKD across a wide range of baseline eGFRs and blood bicarbonate levels. Prospective studies have shown that treating metabolic acidosis translates into a clinically meaningful slowing of CKD progression.

In particular, three prospective trials (Garneata et al., 2016; de Brito-Ashurst et al., 2009; Phisitkul et al., 2010) studying Stage 3 to 5 CKD patients with metabolic acidosis demonstrated slowing of CKD progression following an increase in blood bicarbonate with three different interventions, comprising a very low-protein diet, oral sodium bicarbonate and oral sodium citrate, respectively. Increases in blood bicarbonate resulted in improved clinical outcomes, including fewer patients who progressed to ESRD and/or experienced significant declines of eGFR. Additionally, clinical trials reported by Goraya et al., 2013 and 2014 and Mahajan et al., 2010 showed that, in patients with CKD Stages 2 to 4 due to hypertensive nephropathy, increasing blood bicarbonate levels with sodium bicarbonate or a low protein diet rich in fruits and vegetables resulted in reduced markers of kidney injury and slower decline in eGFR.

Four large published retrospective database analyses show an association between higher blood bicarbonate levels and slower progression of CKD, independent of baseline eGFR and other factors such as age, sex, proteinuria, hypertension and diabetes (Shah et al., 2009; Dobre et al., 2013; Raphael et al., 2011; Tangri et al., 2011). In these four distinct large cohorts of CKD patients, the analyses all demonstrate that clinical outcomes for CKD patients with blood bicarbonate levels that are

 

99


Table of Contents

below normal (i.e., < 22 mEq/L) are significantly worse compared to patients with normal blood bicarbonate levels (i.e., 22 to 29 mEq/L).

Dr. Navdeep Tangri, M.D., Ph.D., and colleagues have developed a validated model which is an accepted standard for predicting the risk of kidney disease progression (Tangri, et al., 2011). This validated model and its underlying kidney failure risk equations have been proven generalizable in a multinational retrospective study of more than 30 cohorts and 720,000 participants with CKD, including 450,000 individuals from the Veterans Affairs Health System (Tangri, et al., 2016). Blood bicarbonate is one of the key variables predicting kidney disease progression in Dr. Tangri’s eight variable risk equation.

Together with Dr. Tangri, we presented data at the NKF 2018 Spring Clinical Meeting that describes an analysis of the relationship between blood bicarbonate and the proposed renal outcome of interest in our confirmatory postmarketing trial (progressing to ESRD or ³ 40% reduction in eGFR). For purposes of this analysis, Dr. Tangri isolated the effect of blood bicarbonate on disease progression in a population of CKD patients with metabolic acidosis. Included in this analysis were 2,378 non-dialysis Stage 3 to 5 CKD patients from Dr. Tangri’s validated cohort who had at least two nephrology visits and a blood bicarbonate value at their baseline visit (including a cohort of 289 patients with eGFR between 15 to 45 mL/min/1.73m 2 and blood bicarbonate of 12 to 22 mEq/L). The resulting predictive metabolic acidosis model, or the Predictive MA Model, established the quantitative relationship between an increase in blood bicarbonate and the reduction in risk of kidney disease progression (defined as progression to ESRD or a ³ 40% reduction in eGFR). The Predictive MA Model shows that the relationship between blood bicarbonate and the renal outcome of interest is effectively linear, independent of baseline kidney function (eGFR), and consistent across subgroups of patients with reduced eGFR and those with established metabolic acidosis. Furthermore, it shows that each 1 mEq/L increase in blood bicarbonate is associated with a 6% to 9% reduction in the risk of CKD progression.

 

100


Table of Contents

The following table summarizes the three prospective trials most relevant to our target population and the retrospective Predictive MA Model. (See Summary of Key Prospective Studies, for additional background information regarding the prospective studies.)

Four Studies Supporting Relationship between Metabolic Acidosis and CKD Progression across a Wide Range of Baseline eGFR and Blood Bicarbonate

 

    

Garneata

(2016)

(N = 207)

 

de Brito-Ashurst

(2009)

(N = 134)

 

Phisitkul

(2010)

(N = 59)

 

Predictive MA
Model

(N = 289)

Baseline Blood Bicarbonate (mEq/L) Mean (Range or SD)

 

Active: 16.7 (15.8 –17.6)

Control: 16.8 (15.9–17.8)

 

Active: 19.8 (2.2)

Control: 19.9 (1.5)

 

Active: 20.5 (1.1) a

Control: 20.5 (0.8) a

  20.1 (2.0)

Baseline eGFR (ml/min/1.73m 2 ) Mean (Range or SD)

 

Active: 18.0 (15.5–20.1)

Control: 17.9 (14.3–19.3)

 

Active: 20.1 (6.5) b

Control: 20.7 (5.6) b

 

Active: 32.7 (8.2)

Control: 32.5 (8.3)

  28.6 (8.5)

Type of Study (intervention)

 

Prospective

(diet)

 

Prospective

(oral sodium bicarbonate)

  Prospective (oral sodium citrate)  

Retrospective

(NA)

Number of Patients (active/control)

  104/103   67/67   30/29   289 c

Duration

  15 months   2 years   2 years   Median follow up 1.2 years

Renal Event Endpoint

  ESRD / > 50% eGFR reduction   ESRD   Not Applicable  

ESRD /  ³  40%

eGFR reduction

Renal Event Rate

Control

Active

 

Relative Risk Reduction of Renal Events

 

 

LOGO

 

69%              

 

 

LOGO

 

80%                

 

 

Not Applicable

 

 

20.6% d

Not Applicable

 

Not Applicable

Difference in Blood Bicarbonate (mEq/L) from baseline (active versus control at end of study)

  6.8*   4**   4.2**   Not Applicable

Difference eGFR (ml/min/1.73m 2 ) decline (active versus control at end of study)

  4.2*   4.0**   4.4***   Not Applicable

Relative Risk Reduction of Renal Events per 1 mEq/L of Blood Bicarbonate Increase Over Study Duration

  10%   20%   Not Applicable   6 - 9% e
a   Reported as venous total CO 2 . Greater than 90% of the total CO 2 in blood is in the form of bicarbonate.
b   Reported as creatinine clearance, or CrCI.
c   Number of patients who met the criteria of eGFR 15 to 45 ml/min/1.73m 2 and blood bicarbonate 12 to 22 mEq/L out of total cohort of 2,378 subjects.
d   Annualized.
e   From Cox proportional hazards model adjusted for age, sex, eGFR and urine albumin-to-creatinine ratio across four patient populations: 1) the entire cohort of 2,378 patients with eGFR of 10 to 60 ml/min/1.73m 2 2) 1,560 patients with eGFR of 15-45 ml/min/1.73m 2 3) 437 patients with blood bicarbonate of 12 to 22 mEq/L and 4) 289 patients with eGFR of 15-45 ml/min/1.73m 2 and blood bicarbonate of 12 to 22 mEq/L.

* p < 0.01       ** p< 0.0001       *** p = 0.066

The Unmet Medical Need for the Chronic Treatment of Metabolic Acidosis

While the need to treat metabolic acidosis to slow the progression of CKD is well established, there are no FDA-approved therapies for the chronic treatment of metabolic acidosis. Specifically, the KDIGO guidelines recommend that in people with CKD, blood bicarbonate be maintained within the normal range of 22 to 29 mEq/L, because blood bicarbonate concentrations less than 22 mEq/L are associated with increased risk of CKD progression and increased risk of death.

 

101


Table of Contents

Unapproved methods to increase blood bicarbonate include oral alkali supplements, such as sodium bicarbonate. However, the use of alkali supplements such as sodium bicarbonate to increase blood bicarbonate introduces significant amounts of sodium to patients. Approximately 85% to 95% of later-stage CKD patients suffer from sodium sensitive comorbid conditions, such as hypertension, cardiovascular disease, heart failure or edema, and require a sodium-restricted diet. As such, the use of sodium-based supplements can lead to worsening blood pressure control and volume overload in this population.

A randomized, crossover study conducted by Husted et al., 1977, demonstrated that when equal amounts of sodium were delivered from either sodium bicarbonate or sodium chloride, each regimen led to similar increases in systolic blood pressure and fluid retention resulting in weight gain after just 4 days of dosing. In the control cohort the CKD patients were given approximately 12 grams/day of sodium chloride and in the treatment cohort the CKD patients were given approximately 6 grams/day sodium chloride plus approximately 8 grams/day sodium bicarbonate. During the treatment period, mean blood bicarbonate increased from 21 to 26 mEq/L. Systolic blood pressure increases (9 to 13 mm Hg) and weight gains (2 to 3 pounds) were not significantly different after administration of sodium chloride or sodium bicarbonate. We believe that increases of this magnitude in systolic blood pressure and fluid-based weight gain would pose a significant risk in CKD patients.

Consistent with the Husted et al., 1977 study, Abramowitz et al., 2013, demonstrated that achieving a 2 to 3 mEq/L increase in blood bicarbonate requires 4 to 6 grams of sodium bicarbonate (for an 80 kilogram, or kg, patient) which results in an additional sodium load of 1.1 to 1.6 grams (each gram of sodium bicarbonate delivers 274 mg of sodium). According to the CDC, the average diet in the United States includes approximately 3.4 grams of sodium each day, which equates to 8.6 grams of sodium chloride. KDIGO guidelines recommend that patients with CKD consume less than 2 grams of total sodium per day. Given the sodium-sensitive comorbidities of most CKD patients, there are significant limitations on the use of sodium-based supplements.

As a result, while existing guidelines recommend treating patients into the normal range of blood bicarbonate, the limitations of currently available options results in approximately 3 million CKD patients with metabolic acidosis in the United States alone. There is a significant unmet medical need for a chronic therapy which treats metabolic acidosis and slows the progression of kidney disease in these patients. To chronically treat the broad population of CKD patients with metabolic acidosis, physicians need an FDA-approved treatment that is proven to be safe, effective and easy to comply with.

Our Solution—TRC101

TRC101 is a novel, non-absorbed polymer that is designed to bind hydrochloric acid in the GI tract and remove it from the body through excretion in the feces thereby decreasing the total amount of acid in the body and increasing blood bicarbonate. TRC101 is administered orally as a suspension in water and removes acid without delivering additional sodium or other counter-ions, such as potassium and calcium, which would allow for the chronic treatment of patients with common comorbidities such as hypertension, edema and heart failure.

TRC101 Target Product Profile

We have designed TRC101 to target the following product profile:

 

   

Significantly Increase Blood Bicarbonate :    Bind and remove sufficient amounts of acid such that a majority of the patients will achieve an increase from baseline blood bicarbonate of 4 mEq/L or more and/or reach the normal blood bicarbonate range. We estimate that each

 

102


Table of Contents
 

increase of 1 mEq/L in blood bicarbonate is associated with approximately a 6% to 9% reduced risk for progression of CKD, defined as progressing to ESRD or a ³ 40% reduction in eGFR, in CKD patients with metabolic acidosis. In our pivotal TRCA-301 trial, 59.2% of TRC101-treated patients achieved a ³ 4 mEq/L increase from baseline blood bicarbonate or reached the normal blood bicarbonate range, which we believe is a clinically meaningful increase in blood bicarbonate.

 

    Well-Tolerated :    Based on our TRCA-101 and TRCA-301 trial results, patients infrequently reported GI-related adverse events, which were generally mild, self-limited and did not require treatment or dose adjustment of TRC101.

 

    Suitable for a Broad Population of Patients, including Patients with Sodium-Sensitive Comorbidities :    Increase blood bicarbonate without delivering sodium or other counter-ions; such a therapy would be particularly advantageous for the approximately 85% to 95% of later-stage CKD patients with hypertension, cardiovascular disease, heart failure or edema comorbidities.

 

    Compatible with Other Medications :    Avoid drug-drug interactions and allow concomitant dosing of common CKD medications. TRC101’s unique characteristics include a particle size designed to prevent systemic absorption and size-exclusion that provides high selectivity for hydrochloric acid. Hydrochloric acid binding results in a transient increase in gastric pH. Therefore we believe that the only dose separation instructions that may be required for TRC101 would be for drugs with pH-dependent bioavailability, which are not commonly used in CKD patients.

 

    Convenient, Once-Daily, Oral Administration:     In our pivotal TRCA-301 trial, subjects self-administered 3-, 6- or 9-gram doses, once daily, with high overall compliance.

 

    Room-Temperature Stable:     Current data demonstrate 12-month room temperature stability and we plan to have data supporting 24-month shelf-life at room temperature at the time of the commercial launch.

TRC101 Mechanism of Action

The metabolic acidosis observed in patients with CKD is often caused by an imbalance in production of acids relative to acid excretion. The human body generates acid every day through normal food intake and metabolism. Sources of acid include amino and nucleic acids from daily dietary intake and digestion of proteins. The daily load of acids from metabolic processes amounts to approximately 1 mEq per kg of body weight, or 50 to 100 mEq per day for adults. Prior studies with alkali supplementation have shown that 40% to 80% (20 to 80 mEq) of the daily acid produced needs to be neutralized in order to increase blood bicarbonate.

Acid binding is a novel approach to treating metabolic acidosis and increasing blood bicarbonate levels without introducing deleterious counter-ions or metals. This approach mimics the physiologic response to acid removal seen with persistent vomiting or nasogastric suction that results in an elevated blood bicarbonate level. To achieve the desired effect of increasing blood bicarbonate with a compliance enhancing daily dose of less than 10 grams per day, an acid binding polymer should have an amine capacity to bind at least 5 mEq of proton/gram. Once protonated, the acid binding polymer needs to preserve the effect of the proton binding by not removing anions such as fatty and bile acids that represent precursors metabolized to bicarbonate in the blood. The complementary anion to be bound that ensures net acid removal from the GI tract is chloride, the smallest anion present in the GI tract.

TRC101 is composed of low-swelling, spherical polymer beads that are approximately 100 micrometers in diameter. Each bead is a single, high molecular weight, crosslinked polyamine

 

103


Table of Contents

molecule. The size of the beads prevents the systemic absorption of TRC101 from the GI tract. The high degree of cross-linking within the TRC101 beads limits swelling and the overall volume in the GI tract, to ensure good GI tolerability. The high amine content of TRC101 provides proton binding capacity of at least 10 mEq/gram of polymer. Size exclusion built into the three-dimensional structure of the polymer enables preferential binding of chloride versus larger inorganic and organic anions, including phosphate, citrate, fatty acids and bile acids. This size exclusion mechanism allows a majority of the binding capacity to be used for hydrochloric acid binding.

The mechanism of action of TRC101 is illustrated below:

TRC101 Mechanism of Action

 

LOGO

 

  NH 2 = Amino group, H + = proton, NH 3 + = Ammonium, Cl - = Chloride

Our Development Program for TRC101

Overview

Our development program for TRC101 is designed to obtain approval of TRC101 pursuant to the FDA’s Accelerated Approval Program. Under the Accelerated Approval Program, we plan to pursue approval for TRC101 based upon data from a primary endpoint that measures a change from baseline in blood bicarbonate. We have completed a successful 135-subject, Phase 1/2 trial, TRCA-101, and a successful 217-subject, pivotal, Phase 3 clinical trial, TRCA-301. Both TRCA-101 and TRCA-301 utilized change from baseline in blood bicarbonate as their primary endpoint. Eligible subjects who completed the 12-week treatment period in our pivotal TRCA-301 trial were invited to continue in our safety extension trial, TRCA-301E, which we expect to complete in the first half of 2019. Based on feedback from the FDA, we believe that the data from the TRCA-101, TRCA-301 and TRCA-301E clinical trials will provide sufficient clinical evidence of safety and efficacy to support the submission and review of an NDA for TRC101 pursuant to the Accelerated Approval Program. We plan to submit the NDA for TRC101 in the second half of 2019.

As part of the Accelerated Approval Program, the FDA may require one or more confirmatory postmarketing trials to verify and describe the anticipated effect or clinical benefit. We have committed to conduct a confirmatory postmarketing trial, known as the VALOR-CKD trial, or TRCA-303, to

 

104


Table of Contents

evaluate the efficacy and safety of TRC101 in delaying CKD progression in subjects with metabolic acidosis. We anticipate that the VALOR-CKD trial will randomize approximately 1,400 to 1,600 subjects in order to show a 30% to 35% reduction in renal events, currently expected to be defined for purposes of the VALOR-CKD trial, as progressing to ESRD or a ³ 40% reduction in eGFR. The FDA has requested that the VALOR-CKD confirmatory postmarketing trial be completely enrolled, or nearly completely enrolled, prior to submission of our NDA for TRC101. We plan to complete the VALOR-CKD trial after the FDA’s review of our NDA for TRC101 and potential approval of TRC101. VALOR-CKD is a time-to-event study, and we estimate it will take approximately 4 years to accrue the number of events necessary to complete the study. Assuming successful completion of the VALOR-CKD trial, we plan to file a supplemental NDA, or sNDA, that incorporates results from the VALOR-CKD trial.

TRC101 Clinical and Nonclinical Results

TRCA-301 Phase 3 Clinical Trial

In May 2018, we completed our pivotal Phase 3 clinical trial, TRCA-301. The double blind, randomized, placebo-controlled trial enrolled 217 subjects with Stage 3b or 4 CKD (an estimated glomerular filtration rate, or eGFR, of 20 to 40 mL/min/1.73m 2 ) and low blood bicarbonate levels (between 12 mEq/L and 20 mEq/L). At the beginning of the 12-week treatment period, subjects were randomized in a 4:3 ratio to receive once-daily, or QD, TRC101 or placebo. Subjects in the active group initially received a QD dose of 6 grams of TRC101 (2 sachets). After week 4, bi-directional blinded dose adjustments to 3 grams/day (1 sachet) or 9 grams/day (3 sachets) were allowed in order to maintain blood bicarbonate in the normal range. Subjects in the placebo group initially received 2 sachets of placebo, with the same ability for bi-directional dose adjustments after 4 weeks. The dose titration algorithm required down-titration at blood bicarbonate values of ³ 27 to £ 30 mEq/L. Subjects with a blood bicarbonate level >30 mEq/L underwent an interruption of the study drug in accordance with the titration algorithm. Subjects were permitted to continue their existing oral alkali supplement during the trial, provided that dosing remained stable. We conducted the trial at 47 sites in the United States and Europe.

TRCA-301 Pivotal Phase 3 Clinical Trial

 

LOGO

eGFR = Estimated glomerular filtration rate, QD = Once daily

 

105


Table of Contents

The underlying comorbid conditions of TRC101-treated subjects and subjects in the placebo group in the TRCA-301 trial were well-balanced and included 97% hypertension, 65% type 2 diabetes, 44% left ventricular hypertrophy, and 31% congestive heart failure. During the three months prior to baseline, 12% of subjects had shortness of breath with exertion and 9% had edema or fluid overload. Nine percent of the total patient population in the trial reported the use of oral alkali therapy at baseline.

TRCA-301 Pivotal Phase 3 Trial Results

Primary and Secondary Endpoints

The blood bicarbonate levels of subjects were measured on day 1, week 1, week 2, and bi-weekly thereafter, up to and including week 14, which was a post-treatment visit for those subjects not continuing into the TRCA-301E safety extension trial. The primary endpoint of the trial was an increase in blood bicarbonate level of at least 4 mEq/L or achieving a blood bicarbonate level in the normal range of 22 to 29 mEq/L, at the end of the 12-week treatment period. The secondary endpoint of the trial was the change from baseline in blood bicarbonate at the end of the 12-week treatment period.

Initial topline analysis of our pivotal Phase 3 trial demonstrated that treatment with TRC101 resulted in statistically significant increases in blood bicarbonate, meeting both the primary and secondary endpoints. After 12 weeks of treatment, 59.2% of subjects in the TRC101-treated group, compared with 22.5% of subjects in the placebo group, had an increase in blood bicarbonate level of at least 4 mEq/L or achieved a blood bicarbonate level in the normal range of 22 to 29 mEq/L, which was the primary endpoint of the trial. The secondary endpoint of the trial, the mean change from baseline to week 12 in blood bicarbonate, was 4.49 mEq/L in the TRC101-treated group, compared with 1.66 mEq/L in the placebo group. The results of the primary and secondary endpoints were highly statistically significant (p<0.0001).

The Pivotal Phase 3 Trial, TRCA-301, Met Both Its Primary and Secondary Endpoints

 

LOGO

 

106


Table of Contents

Exploratory Endpoints

Metabolic acidosis has been implicated as an important factor contributing to reduced muscle mass, manifested in decreases in lean body mass and muscle strength as well as increases in protein catabolic rate. Prior to a measurable decrease in blood bicarbonate, the body adapts, in part, to the increasing acid load by using intracellular buffers in muscle (primarily proteins and organic phosphates).

We included two exploratory endpoints in our pivotal Phase 3 trial, TRCA-301, to assess whether improvement in muscle function and patient quality of life could be demonstrated in this patient population through the treatment of metabolic acidosis.

The first exploratory endpoint examined the effect of treatment with TRC101 on self-reported responses to the physical functioning subpart of the Kidney Disease and Quality of Life Short Form, or the KDQOL-SF, survey. The KDQOL-SF survey is a validated questionnaire designed to assess health-related quality of life, or HRQOL, in kidney disease patients. Subjects in the trial responded to 10 questions related to physical function during daily activities, or KDQOL-SF Physical Function Survey.

The second exploratory endpoint objectively measured physical function derived from a repeated chair stand test, or Repeated Chair Stand Test. In the Repeated Chair Stand Test, subjects were asked to fold their arms across their chests and to stand up from a sitting position once; if they successfully rose from the chair, they were asked to stand up and sit down five times as quickly as possible, and the time for these five repetitions was recorded.

The KDQOL-SF Physical Function Survey and Repeated Chair Stand Test were administered and scored in a blinded fashion, and a change in Physical Function Survey score and Repeated Chair Stand Test time from baseline at week 12 were pre-defined as exploratory endpoints.

Initial topline analyses of the TRCA-301 trial demonstrated statistically significant results from the KDQOL-SF Physical Function Survey. The least squares, or LS, mean change from baseline in the TRC101-treated group was 6.29 points (p<0.0001). In the placebo group, the LS mean change from baseline was 1.10 points (p=0.4787). The between group change from baseline difference between TRC101-treated subjects versus subjects in the placebo group was 5.19 points and was statistically significant (p=0.0122).

 

107


Table of Contents

KDQOL-SF Physical Function Survey Results Demonstrated Statistically Significant Improvement with TRC101 Benefit

(Point Estimate of Least Squares Mean with 95% Confidence Interval)

 

LOGO

The TRCA-301 results for the second exploratory endpoint, the Repeated Chair Stand Test, showed a statistically significant improvement for the TRC101-treated subjects after 12 weeks of treatment, compared to their baseline score (a reduction in the LS mean of 1.17 seconds, p=0.0249) and showed a trend toward significance for the difference between TRC101-treated subjects and subjects in the placebo group (a reduction in the LS mean of 1.52 seconds, p=0.0630).

We believe the results from the two exploratory endpoints are consistent and suggest an improvement, on average, in the physical function and related quality of life for TRC101-treated subjects in this trial. We believe the two endpoints together address that same potential clinical benefit in this acidotic population and are consistent with the basic physiology of the disease.

Safety

The overall safety profile of TRC101 observed in our pivotal Phase 3 trial, TRCA-301, is consistent with that expected for the general population of patients with Stage 3 to 5 CKD and with similar non-absorbed polymer drugs with a site of action in the gastrointestinal tract. The incidence of serious adverse events was low and balanced in the two treatment groups. The types of serious adverse events were consistent with those expected in the study population, and none of the serious adverse events were assessed to be related to treatment by the trial investigator, Medical Monitor or Drug Safety and Pharmacovigilance Team. There were two deaths in the study and both of these occurred in the placebo group.

TRC101 was well-tolerated in our pivotal Phase 3 trial, TRCA-301. In total, over 95% of subjects in each of the groups completed the trial. Overall treatment-related adverse events occurred in 9.7% of subjects in the placebo group and 13.7% of TRC101-treated subjects. The most common treatment-related adverse events were mild to moderate GI disorders, which occurred in 5.4% of subjects in the placebo group and 12.9% of TRC101-treated subjects. The treatment-related GI adverse events that occurred in more than one subject in the trial included diarrhea, flatulence, nausea and constipation. The only other treatment-related adverse event that occurred in more than one subject was paresthesia (1.1% of subjects in the placebo group and 0.8% of TRC101-treated subjects). There were no apparent effects of TRC101 on serum parameters, such as sodium, calcium, potassium, phosphate,

 

108


Table of Contents

magnesium, or low-density lipoprotein observed in the trial that would indicate off-target effects of TRC101. A high blood bicarbonate level, defined as greater than 30 mEq/L, was observed transiently in 2 subjects, or 0.9%. Discontinuation of TRC101 per the protocol-defined dosing algorithm resulted in normalization of blood bicarbonate in these subjects.

TRCA-101 Phase 1/2 Clinical Trial

In 2016, we completed our Phase 1/2 trial, TRCA-101, a 135-subject, double-blind, randomized, placebo-controlled trial of TRC101. In this trial, subjects received either placebo or one of four different dosing regimens of TRC101 for two weeks as shown in the diagram below:

TRCA-101 Phase 1/2 Clinical Trial

 

LOGO

eGFR = Estimated glomerular filtration rate, R = Randomization, BID = Twice daily, QD = Once daily, CRU = Clinical Research Unit

The subjects were Stage 3 or 4 CKD patients with blood bicarbonate levels at baseline between 12 and 20 mEq/L. The treatment groups were demographically well matched, and the mean blood bicarbonate levels at baseline ranged between 17.5 and 18.0 mEq/L across the treatment groups. Comorbid conditions of the subjects enrolled in TRCA-101 included 93% with hypertension, 70% with type 2 diabetes, 29% with left ventricular hypertrophy and 21% with congestive heart failure. We conducted the trial at five in-patient clinical research units where the subjects were monitored for the duration of the 2-week treatment period. During the 16-day in-unit residence (including the 14-day treatment period), clinical trial subjects were given a diet controlled for protein, caloric content, anions, cations and fiber, in accordance with dietary recommendations for patients with CKD. The potential renal acid load, or PRAL, value was calculated for the daily meal plans to ensure that the trial diet was neither acidic nor basic. Daily PRAL values averaged 0.8 mEq/day. Average protein intake during the trial was 0.7 g/kg/day.

 

109


Table of Contents

The blood bicarbonate levels of subjects were measured on a daily basis. Statistically significant increases in blood bicarbonate levels were observed in all TRC101-treated groups within 24 to 72 hours of initiation of therapy. After 14 days of treatment, the mean increase in blood bicarbonate levels from baseline in each of the TRC101-treated groups was between 2.95 and 3.83 mEq/L, with a mean blood bicarbonate increase of 3.3 mEq/L in the combined TRC101 group. All of these results were highly statistically significant (p-value < 0.0001), as were the increases from baseline as compared to the placebo group, whose mean blood bicarbonate level decreased by 0.18 mEq/L. The blood bicarbonate levels of all subjects were measured up to four times during the 2-week off-treatment follow-up period. In the TRC101-treated groups, the mean levels had reverted to near baseline levels after two weeks off treatment.

TRC101 Significantly Increased Mean Blood Bicarbonate Throughout the 2-week Treatment Period, with Blood Bicarbonate Rapidly Returning Toward Baseline After Treatment Discontinuation

 

LOGO

In our Phase 1/2 trial, TRC101 was well-tolerated. All subjects completed treatment and remained in the trial through the applicable follow-up period. All treatment emergent adverse events, or TEAEs, were mild or moderate, and there were no serious adverse events. The most common TEAE was diarrhea which was reported by 20.2% of TRC101 treated subjects as compared to 12.9% of subjects in the placebo group. All cases of diarrhea were mild, self-limited, and none required treatment. There were no apparent effects of TRC101 on serum parameters, such as sodium, calcium, potassium, phosphate, magnesium, or low-density lipoprotein observed in the trial that would indicate off-target effects of TRC101. There were no apparent effects on vital signs, such as blood pressure, heart rate, respiratory rate or temperature, or body weight. The results of this trial were published in the Clinical Journal of the American Society of Nephrology (Bushinsky, et al., 2018).

 

110


Table of Contents

Nonclinical Studies

We have conducted a range of nonclinical in vivo and in vitro studies to assess the mechanism of action, pharmacology, pharmacokinetics, and toxicology of TRC101.

Nonclinical in vitro and in vivo pharmacology studies demonstrated robust proton and chloride binding and retention by the TRC101 polyamine polymer resulting in removal of hydrochloric acid from the body. In vitro studies demonstrated that TRC101 can selectively bind and retain chloride under conditions that mimic the pH, transit times, and ionic content of various compartments of the GI tract. The marked binding capacity and selectivity for chloride observed with TRC101 in vitro translates into in vivo pharmacological effects. Removal of acid by TRC101 results in a dose-dependent increase in mean blood bicarbonate, as observed in rats with adenine-induced nephropathy and low blood bicarbonate. A significant increase in fecal chloride relative to controls suggests that TRC101 retained its functional integrity during transit through the rat GI tract. This study in an animal model of CKD illustrated the potential of TRC101 to correct depleted blood bicarbonate levels, the hallmark of metabolic acidosis.

Safety pharmacology assessments of the central nervous, respiratory, cardiovascular, and GI systems did not identify any TRC101-related adverse effects at oral doses up to 4 g/kg (central nervous system, respiratory) and up to 2 g/kg (GI) in rats and at 2 g/kg (cardiovascular) in dogs.

Lack of TRC101 absorption from the GI tract was demonstrated in both rats and dogs administered a single oral dose of radiolabeled [ 14 C]-TRC101. Because radioactivity was not observed in the plasma of either species, metabolism was not evaluated. The lack of absorption, in conjunction with the in vivo pharmacology study in rats, supports that TRC101 is not metabolized or degraded but maintains functional, and therefore, structural integrity during transit through the GI tract following oral administration. The results of the radiolabeled TRC101 absorption, distribution, metabolism, and excretion, or ADME, studies demonstrating a lack of oral bioavailability is consistent with the physicochemical properties of TRC101 (insolubility in aqueous and organic solvents, particle size averaging 100 micrometers in diameter, and particle stability).

Repeat-dose, GLP toxicology studies of up to 26-weeks duration in rats and 39-weeks duration in dogs demonstrated that TRC101 has a very low order of toxicity and was well tolerated. There were no effects on male or female reproductive organs and local GI tolerance was good. The no observed adverse effect level, or NOAEL, in both the rat and dog in the chronic toxicity studies was the highest dose of 2 g/kg/day; this dose of TRC101 is 13-fold higher than the highest proposed human dose of 9 g/day (0.15 g/kg/day based on a 60-kg patient). We also established that the polymer has no effect on the absorption of fat soluble vitamins, such as A, D2, D3, and E. Reproductive toxicity studies indicate there are no adverse TRC101-related effects on maternal reproductive function or embryofetal development and no evidence of teratogenicity. TRC101 was not mutagenic or clastogenic when evaluated in genotoxicity studies. Given the non-absorbed nature of TRC101, we have been granted a waiver from FDA for fertility and early embryonic development (Segment I) and peri/postnatal development (Segment III) reproductive toxicity and carcinogenicity studies.

Drug-drug Interaction Studies

As part of our NDA filing, we will submit data evaluating the potential for drug-drug interactions, or DDIs, to occur with TRC101. TRC101 was designed to minimize DDIs. The size of the TRC101 particles prevents systemic absorption of the polymer from the GI tract; therefore, potential DDIs are confined to those that could occur in the GI tract (i.e., direct binding or indirect effects on bioavailability resulting from transient increases in gastric pH). In vitro studies have demonstrated that, as expected, given the charge and the size exclusion properties of TRC101, potential direct binding interactions are

 

111


Table of Contents

limited to small compounds (< 200 daltons) that are negatively charged under physiologic conditions. In our review of the structures of drugs commonly used in the CKD patient population, we observed that drugs with these characteristics are uncommon (approximately 10% of commonly used drugs in CKD patients). In our studies, the two drugs commonly used in CKD patient population showing the most binding to TRC101 in vitro (aspirin and furosemide, both of which are small and negatively-charged) have been tested in human DDI studies in healthy volunteers, and preliminary results suggest no significant impact on their bioavailability upon co-administration with TRC101. Since TRC101 binds acid in the stomach, it was anticipated that it would transiently increase gastric pH. Therefore, we have conducted a study in healthy volunteers to evaluate the effect of the polymer on fed and fasting gastric pH, both with and without concomitant administration of a proton pump inhibitor. Preliminary results suggest TRC101 increases gastric pH by an amount comparable to food, proton pump inhibitors and phosphate binders (approximately 2 to 4 pH units) and that the increase is transient, with pH levels returning to baseline in less than 4 hours. Recognizing that even a transient increase in gastric pH could alter the absorption of drugs with pH-dependent bioavailability, the TRC101 label may contain instructions to separate dosing from drugs of this type. We do not believe that drugs with pH-dependent bioavailability (e.g., ketoconazole and itraconazole, which are antifungal therapies, atazanavir, which is an HIV therapy, iron salts used for anemia therapy, erlotinib, which is a non-small cell lung cancer therapy, mycophenolate mofetil, which is a transplant rejection therapy) are commonly used in CKD patients.

Final analysis of data from our DDI studies is anticipated in the second half of 2018.

TRC101 Regulatory Pathway and Future Clinical Trials

Our Development of TRC101 Pursuant to the Accelerated Approval Program

Based upon the success of the TRCA-101 Phase 1/2 and TRCA-301 pivotal Phase 3 trials and discussions with the FDA, we plan to pursue approval of TRC101 through the Accelerated Approval Program. The FDA’s Accelerated Approval Program allows for drugs for serious conditions that address an unmet medical need to be approved based on a surrogate endpoint that is reasonably likely to predict clinical benefit. Surrogate endpoints are used instead of clinical outcomes in some clinical trials. Surrogate endpoints are used when the clinical outcomes might take a very long time to study, or in cases where the clinical benefit of improving the surrogate endpoint, such as controlling blood pressure, is well understood. Clinical trials are needed to show that surrogate endpoints can be relied upon to predict, or correlate with, clinical benefit. Surrogate endpoints that have undergone this testing are called validated surrogate endpoints and these are accepted by the FDA as evidence of benefit.

Surrogate endpoints that FDA determines are reasonably likely to predict clinical benefit may be used to support approval, in some cases, but are not yet validated. This is accomplished under FDA’s Accelerated Approval Program, which is intended to provide patients with serious diseases more rapid access to promising therapies. Because such surrogate endpoints have not been validated, sponsors relying on them are generally required to verify the predicted clinical benefit of their products with confirmatory postmarketing clinical trials.

We believe that TRC101 is eligible for approval pursuant to the FDA’s Accelerated Approval Program based upon meeting the following three criteria:

 

    Treatment of a Serious Condition : We believe that the progression of CKD to ESRD is a serious condition and the chronic treatment of metabolic acidosis may slow the progression of CKD.

 

   

Meaningful Advantage over Available Therapy : We believe that there is an unmet need for chronic therapies that slow progression to ESRD in patients with CKD and metabolic acidosis.

 

112


Table of Contents
 

There are no FDA-approved chronic treatments for metabolic acidosis and there exists a large CKD patient population with metabolic acidosis.

 

    Demonstrates an Effect on an Endpoint That Is Reasonably Likely to Predict Clinical Benefit : We believe that blood bicarbonate is an appropriate surrogate endpoint and that increasing blood bicarbonate is reasonably likely to predict a slowing of progression of CKD.

Under the Accelerated Approval Program, we believe that our TRCA-301 Phase 3 trial will serve as the pivotal trial for our NDA submission for TRC101.

As a condition of filing our NDA pursuant to the Accelerated Approval Program, we have committed to conduct our confirmatory postmarketing trial, VALOR-CKD, which is designed to demonstrate that TRC101 provides a clinical benefit beyond increasing blood bicarbonate levels. The FDA has requested that the trial be completely enrolled, or nearly completely enrolled, prior to submission of our NDA. If we receive FDA approval for TRC101, but do not complete the postmarketing trial, or if the postmarketing trial fails to show a clinical benefit, the FDA may revoke its approval of TRC101.

TRCA-301E Safety Extension Clinical Trial

At the conclusion of participation in the TRCA-301 trial, eligible subjects were invited to participate in a 40-week safety extension trial, TRCA-301E. One hundred ninety-six subjects have been enrolled in the extension trial and will continue to receive the same treatment (TRC101 or placebo) they were receiving in the parent trial. Trial drug doses may be adjusted upwards or downwards during the extension trial in an effort to maintain blood bicarbonate within the normal range. In addition, subjects receiving an oral alkali supplement during the parent trial may discontinue supplementation if their blood bicarbonate is ³ 22 mEq/L. The purpose of the TRCA-301E trial is to obtain up to one year of safety data to be included in the NDA filing. This trial will be conducted in parallel with enrollment of the VALOR-CKD trial. The primary endpoint of the trial is the incidence of adverse events, serious adverse events and adverse events leading to withdrawal. This trial also includes secondary endpoints to assess the durability of effect and the physical function and quality of life of TRC101-treated patients.

TRCA-301E Phase 3 Safety Extension Clinical Trial

 

LOGO

 

113


Table of Contents

Based on the initial topline analyses from the TRCA-301 trial, we have amended the protocol for the TRCA-301E safety extension trial to add assessments at an additional timepoint for two secondary endpoints and to modify the dose-titration algorithm. Given the statistically significant improvement on the KDQOL-SF Physical Function Survey observed in the TRCA-301 trial, assessment of this parameter has been added to the week 40 visit in the TRCA-301E trial. Similarly, given the strong trend observed in improvement in the Repeated Chair Stand Test, assessment of this parameter has been added to the week 40 visit. Both of these secondary endpoints will also be assessed at week 52. Very few instances of blood bicarbonate values >30 mEq/L were observed in the TRCA-301 trial; therefore, the dose titration algorithm has been amended to delete the required down-titration at blood bicarbonate values of ³ 27 to £ 30 mEq/L.

VALOR-CKD (also known as TRCA-303) Clinical Trial

Based on feedback from the FDA regarding potential approval of TRC101 pursuant to the Accelerated Approval Program, we plan to conduct a postmarketing trial to confirm that treatment with TRC101 provides clinical benefit in slowing progression of kidney disease. For this trial, we plan to conduct a double-blind, placebo-controlled, randomized withdrawal trial of approximately 1,400 to 1,600 CKD patients with Stage 3b or 4 CKD (eGFR of 20 to 40 ml/min/1.73m 2 ) with blood bicarbonate levels between 12 and 20 mEq/L. Subjects will be followed in the trial until the target number of endpoint events has been observed. The entry and exclusion criteria for the trial and the trial procedures will be similar to those used in our pivotal Phase 3 clinical trial, TRCA-301. The primary endpoint will compare the time to first renal event, with a renal event currently expected to be defined as progressing to ESRD or a ³ 40% reduction in eGFR, in TRC101-treated subjects and subjects in the placebo group. The trial will terminate when the independent blinded Clinical Endpoint Committee has positively adjudicated the targeted number of primary endpoint events, which is estimated to be approximately four years following full enrollment.

Based on the magnitude of change from baseline increase in blood bicarbonate observed in the TRCA-301 trial, we are designing the VALOR-CKD trial with a TRC101 run-in period of up to 8 weeks where all subjects will receive TRC101, followed by a placebo-controlled, randomized withdrawal. This run-in period is designed to ensure that, over the duration of treatment we will have a large separation of blood bicarbonate levels in TRC101-treated subjects and subjects in the placebo group.

In the TRCA-301 trial, 90 out of 120, or 75%, of TRC101-treated subjects achieved a ³ 4 mEq/L increase in blood bicarbonate or blood bicarbonate in the normal range of 22 to 29 mEq/L at the 4-week or 8-week visit. This group of subjects achieved a 5.5 mEq/L mean change from baseline increase in blood bicarbonate at the week 12 visit. The sample size for the VALOR-CKD trial has been determined based on a change from baseline in blood bicarbonate increase observed in this patient population together with the Predictive MA Model, where a 1.0 mEq/L increase in blood bicarbonate is associated with a 6% to 9% reduction in the risk of the VALOR-CKD trial renal endpoint event. We anticipate that the VALOR-CKD trial will enroll approximately 1,900 to 2,100 subjects in the run-in portion of the trial to randomize 1,400 to 1,600 subjects. We believe that this number of randomized subjects will be sufficient to demonstrate a 30% to 35% reduction in renal events, currently expected to be defined for purposes of the VALOR-CKD trial as progressing to ESRD or a ³ 40% reduction in eGFR.

Additionally, in this trial, based on observations from the TRCA-301 trial, we have strengthened the screening requirements in the VALOR-CKD trial to enable enrollment of subjects with metabolic acidosis at baseline, and we have removed the down-titration dosing algorithm for subjects with blood bicarbonate of ³ 27 mEq/L and £ 30 mEq/L, as we believe that down-titration is no longer needed to avoid sustained blood bicarbonate levels above the normal range.

 

114


Table of Contents

VALOR-CKD Clinical Trial

 

LOGO

The FDA has requested that the VALOR-CKD trial should be completely enrolled, or nearly completely enrolled, prior to submission of our NDA for TRC101.

Commercial Opportunity and Commercialization Plan

The commercial opportunity for TRC101, as potentially the first and only FDA-approved therapy for the chronic treatment of CKD patients with metabolic acidosis, is rooted in its distinctive value proposition. TRC101 has the potential for disease modification by slowing the progression of CKD by treating metabolic acidosis.

CKD patients suffering from metabolic acidosis frequently present with diabetes, hypertension, and cardiovascular disease leading to progressive kidney disease. CKD patients are managed by multiple physician specialties and are generally referred to a nephrologist as their kidney disease progresses to Stage 3 or 4. Nephrologists have few treatment options to slow the progression of CKD, such as renin-angiotensin-aldosterone system, or RAAS, inhibitors, and typically manage common symptoms and complications of kidney disease, such as hyperkalemia, hyperphosphatemia and anemia.

We have identified nephrologist-treated, CKD patients with metabolic acidosis as our initial target patient population for TRC101 if approved. We estimate that metabolic acidosis affects approximately 3 million of the approximately 22 million Stage 3 to 5 CKD patients in the United States, but only approximately 35% of those patients are currently diagnosed. Of those CKD patients diagnosed with metabolic acidosis, we estimate that approximately 50%, or 600,000, are treated by a nephrologist. We plan to initially commercialize TRC101 in the United States with a specialty sales force of approximately 80 to 100 individuals focused on the highest prescribing subset of the approximately 9,000 practicing nephrologists who we believe are currently treating our target patient population.

Small academic trials conducted in CKD patients with mild metabolic acidosis (blood bicarbonate of > 20 and £ 22 mEq/L) and no sodium-sensitive co-morbidities (hypertension, cardiovascular disease, heart failure or edema) suggest that metabolic acidosis in this patient population may be adequately treated with oral alkali supplements. We estimate that approximately 50 % of CKD patients with metabolic acidosis present with milder disease (blood bicarbonate > 20 and £ 22 mEq/L), but that approximately 85% to 95% of this population has one or more sodium sensitive comorbidities. Accordingly, we believe that less than 10% of our 600,000 target patient population are candidates for oral alkali supplementation. We believe this results in approximately 90%, or approximately 550,000, of our targeted patients with metabolic acidosis (blood bicarbonate of > 12 and £  22 mEq/L) and one or more sodium-sensitive co-morbidities without a safe and efficacious treatment option for their metabolic acidosis.

 

115


Table of Contents

Our pre-launch activities are focused on delivering comprehensive disease awareness and education to nephrology specialists. These disease education efforts will communicate the existing evidence that increasing blood bicarbonate in CKD patients with metabolic acidosis slows the progression of CKD and reduces kidney failure events. We believe the broad understanding of this evidence will help to establish and increase the urgency to treat patients with TRC101 and support our rapid launch uptake following FDA approval, if achieved. Over time, due to the disease modification potential of TRC101, we intend to address the broader CKD patient population who receive care from cardiologists, endocrinologists, diabetologists and a subset of primary care physicians, either on our own or with a partner.

We have conducted market research with physicians and payors to forecast the potential commercial opportunity for TRC101 in the United States. We have also completed preliminary health economic analyses of the potential direct cost savings that TRC101 may be able to provide to the healthcare system and have completed multiple surveys with payors to evaluate the potential coverage for TRC101 by health insurers. Health insurers surveyed have indicated that their perception of the likelihood of TRC101 coverage is influenced by the lack of FDA-approved chronic treatments for metabolic acidosis and the potential for TRC101 to provide significant direct cost savings based on its potential to slow the progression of kidney disease for CKD patients with metabolic acidosis. Based on these analyses, we believe that the pricing for TRC101 can be supported above the current pricing for other polymer therapeutics marketed for treating conditions related to kidney disease, but which are not disease modifying. Notably, we estimate that approximately 25% to 30% of our target patient population is commercially-insured and may be eligible for co-pay assistance programs to help them access TRC101.

To address markets outside of the United States, we plan to seek one or more partners with international sales expertise who can sell TRC101 in target markets. We anticipate that in certain markets additional clinical trials of TRC101 may be required to obtain regulatory approval and/or ensure market access.

Manufacturing

TRC101 drug substance is a room-temperature stable, free flowing powder, composed of low-swelling, polymeric beads, approximately 100 micrometers in diameter. As a non-absorbed polymeric drug, TRC101 is designed to be insoluble in all solvents, including water, and is characterized by its desired function, including high binding capacity and selectivity, physical properties, such as minimal swelling, and impurities. Characterization of isolated intermediates and careful control of each step of the process, such as rate and amount of incorporation of starting materials, define the structure of the polymer. Because the process to manufacture TRC101 fundamentally defines the key polymer attributes for safety and efficacy, the same process that was originally developed by us during the discovery and early development phase, is still closely followed at larger scales.

TRC101 is manufactured using an efficient, scalable, two-step process. This two-step approach enables, in step one, the preparation of a crosslinked polymer having a high binding capacity, and in step two, further crosslinking for low swelling and selectivity for hydrochloric acid.

The resulting TRC101 drug substance is converted into drug product by filling it into sachets without the addition of excipients. TRC101 drug product is stored at room temperature. Ongoing stability studies demonstrate that TRC101 is stable at room temperature for at least 12 months and we plan to conduct registration stability studies that we anticipate will enable us to indicate on our label, if approved, that TRC101 is stable at room temperature for up to 24 months.

 

116


Table of Contents

We contract with third-party service providers to manufacture TRC101 drug substance, TRC101 drug product and to perform analytical testing services. We currently have no manufacturing facilities and limited personnel with manufacturing experience. We developed the process to manufacture TRC101 drug substance in-house and have successfully transferred it to three manufacturers. We believe that there are a limited number of experienced contract manufacturers in the world capable of manufacturing a polymeric drug substance such as TRC101. We currently rely on Patheon Austria GmbH & Co KG, or Patheon, as our sole supplier for drug substance manufacturing and we have two suppliers for drug product manufacturing. We intend to initially commercialize with a single supplier for drug substance and a single supplier for drug product. Nevertheless, we plan to establish a diverse and volume-appropriate portfolio of third-party manufacturers to reduce our dependency on single suppliers for drug substance and drug product in the future. We plan to continue to rely upon contract manufacturers and commercial suppliers of raw materials for the commercial manufacture of TRC101 if it is approved by regulatory authorities.

In May 2018, we entered into a Master Development/Validation Services and Clinical/Launch Supply Agreement, or the Patheon Agreement, with Patheon. Pursuant to the Patheon Agreement, Patheon has agreed to manufacture and supply to us, and we have agreed to purchase from Patheon, on a project basis, TRC101 drug substance in amounts necessary to satisfy our currently projected demand for the our confirmatory postmarketing trial, VALOR-CKD, manufacturing process validation to satisfy FDA requirements, and the initial commercial supply for our TRC101 launch, assuming approval, through at least 2020. The Patheon Agreement has an initial term of three years or such time as there has been a period of 12 months without any statement of work outstanding absent earlier termination. Thereafter, the Patheon Agreement will continue for consecutive one-year renewal terms unless earlier terminated. Either party may terminate the Patheon Agreement after the initial term, at any time, by providing the other party at least three months written notice of termination prior to the end of the then current term. Either party may terminate the Patheon Agreement for the other party’s material breach or bankruptcy.

We have adequate TRC101 drug substance and drug product supply for our currently ongoing TRCA-301E trial. We have also completed manufacturing of TRC101 drug substance for our ongoing registration stability studies. TRC101 drug product registration stability studies are scheduled to begin in mid-2018. Ongoing TRC101 drug substance manufacturing campaigns have produced the initial quantities to support the anticipated demand for at least the first four months of our confirmatory postmarketing trial, VALOR-CKD, and drug product manufacturing will commence as the drug substance batches are released.

Manufacturing commercial quantities of TRC101 will require larger scale production than we have been using to produce TRC101 for use in our clinical trials. We believe that our current production methods can be scaled to meet our anticipated commercial needs without introducing changes to key TRC101 properties, including binding capacity, selectivity for hydrochloric acid and non-absorption. We use acid binding, competitive anion binding and particle size measurement assays to confirm these properties. The scale of the first step in our drug substance manufacturing process, step one, (currently at approximately 340 kg/batch) is being increased two-fold, and the scale of the second step in our drug substance manufacturing process, step two, (currently at approximately 65 kg/batch) is being increased ten-fold, to provide targeted commercial batch sizes for each of the steps in the range of 500 to 700 kg.

Our third-party service providers, their facilities and the TRC101 used in our clinical trials or for commercial sale are required to be in compliance with current Good Manufacturing Practices, or cGMP. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and packaging containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records

 

117


Table of Contents

and reports, and returned or salvaged products. The facilities manufacturing and testing our products must meet cGMP requirements and satisfy FDA or other authorities before any product is approved and before we can manufacture commercial products. Our third-party manufacturers are also subject to periodic inspections of facilities by the FDA and other authorities, including procedures and operations used in the testing and manufacture of TRC101 to assess compliance with applicable regulations. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including warning letters, the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations and civil and criminal penalties. These actions could have a material impact on the availability of TRC101. Contract manufacturers at times encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel.

Summaries of Key Prospective Studies

In multiple prospective studies it has been observed that increasing blood bicarbonate results in improved renal outcomes in CKD patients. In particular, three prospective studies (Garneata et al., 2016, de Brito-Ashurst et al., 2009; Phisitkul et al., 2010) ranging from 15 months to 2 years in duration, demonstrated slowing of CKD progression following an increase in blood bicarbonate in Stage 3 to 5 CKD patients with metabolic acidosis ( See table titled, “Four Studies Supporting Relationship between Metabolic Acidosis and CKD Progression across a Wide Range of Baseline eGFR and Blood Bicarbonate”). Clinical observations included fewer cases of rapid kidney function decline, and fewer patients who developed ESRD requiring dialysis in CKD patients who received interventional therapy in order to increase their blood bicarbonate.

The following are summaries of these three prospective studies:

Prospective Study #1: Ketoanalogue-Supplemented Vegetarian Very Low-Protein Diet and CKD Progression, Garneata et al., 2016

In this single-center, open-label, prospective, parallel-group study, 207 patients with CKD and metabolic acidosis were studied for 15 months. One hundred four (104) patients were randomized to receive a vegetarian, ketoanalogue-supplemented very low protein diet (0.3 g/kg/day; N = 104) and the remaining 103 patients served as the control group and received a typical low protein diet (0.6 g/kg/day; N = 103). The patient population had a baseline average eGFR of ~ 18 ml/min/1.73m 2 and an average blood bicarbonate of approximately 16.7 mEq/L. Patients with hypertension (BP ³ 145/85 mmHg), diabetes, or heart failure were not allowed to enroll in the trial; only 14% of the screened patients met all the eligibility criteria and agreed to adhere to the dietary requirements and could, therefore, be randomized in this study.

At the end of the 15-month treatment period, blood bicarbonate levels in the treated patients increased by 6.8 mEq/L compared to the control group; these results were clinically meaningful and statistically significant (p < 0.01).

Kidney function decline over the treatment period was significantly slower (-4.2 mL/min/1.73m 2 ; p < 0.01) in the patients on the very low protein diet compared to controls. Patients treated with the very low protein diet were also significantly less likely (p < 0.001) than control patients to meet the primary endpoint of renal replacement therapy or a decrease in eGFR of > 50% (13% vs 42%) over the 15-month treatment period.

 

118


Table of Contents

Garneata: A Lower Percentage of Patients on VLPD

Experienced > 50% Reduction of Initial EGFR or Renal Replacement Therapy

 

 

LOGO

Garneata et al. JASN 2016;27:2164-2176

© 2016 by American Society of Nephrology. Reprinted with permission.

Prospective Study #2: Bicarbonate Supplementation Slows Progression of CKD and Improves Nutritional Status, de Brito-Ashurst et al., 2009

In this single-center, open-label, prospective, parallel-group study, 134 CKD patients with mild metabolic acidosis were randomized to intervention with oral sodium bicarbonate or standard care with no intervention (67 patients in each group) for 2 years. The patient population had a baseline average eGFR of approximately 20 ml/min/1.73m 2 and an average blood bicarbonate of approximately 20 mEq/L. Patients with poorly controlled hypertension or overt congestive heart failure were not allowed to enroll in the trial.

At the end of the 2-year study, blood bicarbonate levels in the treated patients increased by approximately 4 mEq/L compared to the control group; these results were clinically meaningful and statistically significant (p < 0.001).

Kidney function decline over the 2-year treatment period was significantly slower (-4.0 mL/min/1.73m 2 ; p < 0.0001) in the sodium bicarbonate treated patients compared to controls. Patients who received treatment for their metabolic acidosis were also significantly less likely than untreated patients to experience rapid progression of kidney failure (9% vs 45%; p < 0.0001) or to develop ESRD (6.5% vs 33%; p < 0.001) over the 2-year treatment period.

 

119


Table of Contents

de Brito-Ashurst: Kaplan-Meier Analysis to Assess the Probability of

Reaching ESRD Between Oral Alkali Supplement Intervention and Control

 

 

LOGO

de Brito-Ashurst et al. JASN 2009;20:2075-2084

© 2009 by American Society of Nephrology. Reprinted with permission.

Prospective Study #3: Amelioration of Metabolic Acidosis in Patients with Low GFR Reduced Kidney Endothelin Production and Kidney Injury, and Better Preserved GFR, Phisitkul et al., 2010

In this single-center, open-label, prospective, parallel-group study, 59 patients with hypertensive nephropathy and mild metabolic acidosis were studied. Thirty (30) patients were treated with oral sodium citrate for 2 years, and the remaining 29 patients, who were unable or unwilling to take sodium citrate, served as controls. The patient population had a baseline average eGFR of approximately 32.5 ml/min/1.73m 2 and an average blood bicarbonate of approximately 20.5 mEq/L. Patients with diabetes, heart failure or edema were not allowed to enroll in the trial, and blood pressure was controlled to recommended levels in all patients prior to and during the treatment period.

At the end of the 2-year study, blood bicarbonate levels in the treated patients increased by 4.2 mEq/L compared to the control group; these results were clinically meaningful and statistically significant (p < 0.0001). Kidney function decline over the 2-year treatment period was 4.4 mL/min/1.73m 2 slower in the sodium citrate treated patients compared to controls, but the difference between groups in eGFR at the end of this small study did not reach statistical significance (p = 0.066).

Intellectual Property

Our commercial success depends in part on our ability to obtain and maintain proprietary protection for our drug candidates, manufacturing and process discoveries, and other know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our proprietary position.

TRC101 was discovered by us utilizing our proprietary technology. We have filed several non-provisional and provisional patent applications, all owned by us, relating to TRC101 in the United

 

120


Table of Contents

States, certain foreign countries, and the World Intellectual Property Organization that are directed to compositions-of-matter, dosage unit forms, methods-of-treatment, medical use, and methods of manufacture.

Our patent portfolio, which is solely owned by us, includes two issued U.S. composition of matter patents (U.S. Patent No. 9,205,107B2 and No. 9,925,214B2), an allowed U.S. method of treatment patent application that is scheduled to issue on June 12, 2018 (U.S. Patent No. 9,993,500) and an issued European medical use patent (EP3 003 327B1); each of these patents is expected to expire in 2034, excluding any additional term resulting from patent term extension if the appropriate maintenance fees are paid. In addition, we expect that U.S. and European patents and the patent applications in this portfolio, if issued, would expire between 2034 and 2038, excluding any additional term from patent term adjustment or patent term extension if appropriate maintenance and other governmental fees are paid. Additional patent term for the presently-issued or later issued U.S. patents may be awarded as a result of the patent term extension provision of the Hatch-Waxman Amendments of 1984, or the Hatch-Waxman Act. In the European Union member countries, a supplementary protection certificate, if obtained, provides a maximum five years of market exclusivity.

In other jurisdictions (currently, Australia, Brazil, Canada, China, Hong Kong, India, Israel, Japan, Mexico, Republic of Korea, and Russia), the term and patent applications relating to TRC101, including composition of matter and various other patents, including dosage unit form, method-of-treatment, medical use and method of manufacture patents, where applicable, are expected to expire between 2034 and 2038, if the appropriate maintenance, renewal, annuity, and other government fees are paid. These patents and patent applications (if applicable), depending on the national laws, may benefit from extension of patent term in individual countries if regulatory approval of TRC101 is obtained in those countries. For example, in Japan, the term of a patent may be extended by a maximum of five years in certain circumstances.

Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are effective for 20 years from the earliest effective filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the USPTO delay in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. The actual protection afforded by a patent varies on a product by product basis, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.

We also protect our proprietary technology and processes, in part, by confidentiality and invention assignment agreements with our employees, consultants, scientific advisors and other contractors. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants, scientific advisors or other contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Our commercial success will also depend in part on not infringing the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, alter our drugs or processes, obtain licenses or cease certain

 

121


Table of Contents

activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future drugs may have a material adverse impact on us.

Research and Development

We are conducting clinical trials and other development activities to support submission of our NDA for TRC101 and manufacturing of commercial supply of TRC101. We invested $21.8 million and $35.9 million in research and development in the years ended December 31, 2016 and 2017, respectively, and invested $16.6 million in research and development for the three months ended March 31, 2018.

Competition

Our industry is highly competitive and subject to rapid and significant technological change. While we believe that our development experience, commercialization expertise and scientific knowledge provide us with competitive advantages, we may face competition from large pharmaceutical and biotechnology companies, smaller pharmaceutical and biotechnology companies, specialty pharmaceutical companies, academic institutions, government agencies and research institutions and others.

Many of our competitors may have significantly greater financial, technical and human resources than we have. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop or market products or other novel technologies that are more effective, safer or less costly than TRC101, or they may obtain regulatory approval for their products more rapidly than we may obtain approval for ours.

There are no therapies approved by the FDA for the chronic treatment of metabolic acidosis, and we are not aware of any active clinical development programs other than ours for a treatment in the United States. The FDA has approved generic intravenous sodium bicarbonate solutions for the treatment of acute metabolic acidosis which may occur in severe renal disease, uncontrolled diabetes, and certain other disorders accompanied by a significant loss of bicarbonate; however, those therapies are used for short-term hospital-based treatments and are not used in clinical practice to treat metabolic acidosis. Metabolic acidosis in CKD patients is currently most commonly treated using oral alkali supplementations, such as sodium bicarbonate, sodium citrate or, less frequently, potassium citrate. These treatments have not been approved by the FDA for the treatment of metabolic acidosis.

Government Regulation

Government Regulation and Product Approval

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, postmarketing monitoring and reporting, and import and export of drug products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

FDA Approval Process

In the United States, the Food and Drug Administration, or FDA, regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and implementing regulations. These laws and

 

122


Table of Contents

other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, postmarketing monitoring and reporting, sampling, and import and export of drug products. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as clinical hold, FDA refusal to approve pending regulatory applications, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.

The process required by the FDA before a drug may be marketed in the United States generally includes the following:

 

    completion of nonclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices, or GLP, or other applicable regulations;

 

    submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin in the United States;

 

    performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or GCP, to establish the safety and efficacy of the product candidate for its intended use;

 

    submission to the FDA of a New Drug Application, or NDA, for a new product;

 

    satisfactory completion of an FDA inspection, if conducted, of the facility or facilities where the product candidate is manufactured to assess compliance with the FDA’s current Good Manufacturing Practices, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug product candidate’s identity, strength, quality, purity, and potency;

 

    potential FDA inspection of the nonclinical and clinical trial sites;

 

    potential FDA inspection of us and vendors involved in the generation of the data in support of the NDA; and

 

    FDA review and approval of the NDA.

Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product candidate or disease. A clinical hold may occur at any time during the life of an IND and may affect one or more specific trials or all trials conducted under the IND.

Nonclinical tests include laboratory evaluation of the product candidate’s chemistry, formulation, and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product candidate. The conduct of the nonclinical tests must comply with federal regulations and requirements, including GLP. The results of nonclinical testing are submitted to the FDA as part of an IND along with other information, including information about product candidate’s chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term nonclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted. A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigational product to healthy volunteers or subjects under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with GCP, an international standard meant to protect the rights and health of subjects and

 

123


Table of Contents

to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) 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 involving testing on U.S. subjects and subsequent protocol amendments must be submitted to the FDA as part of the IND.

The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial subjects. The trial protocol and informed consent information for subjects in clinical trials must also be submitted to an ethics committee/institutional review board, or IRB, for approval. An ethics committee/IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the ethics committee/IRB’s requirements, or may impose other conditions. The study sponsor may also suspend a clinical trial at any time on various grounds, including a determination that the subjects are being exposed to an unacceptable health risk.

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the product candidate is usually into healthy human subjects, the product candidate is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the product candidate for a particular indication, dosage tolerance, and optimal dosage, and to identify common adverse effects and safety risks. If a product candidate demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain additional information about clinical efficacy and safety in a larger number of subjects, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the product candidate and to provide adequate information for the labeling of the product candidate. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the product candidate. A single Phase 3 trial may be sufficient in certain circumstances.

A drug product candidate being studied in clinical trials may be made available for treatment of individual patients, in certain circumstances. Pursuant to the 21st Century Cures Act, or Cures Act, which was signed into law in December 2016, the manufacturer of an investigational product for a serious disease or condition is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for individual patient access to such investigational product.

During the development of a new product candidate, sponsors are given opportunities to meet with the FDA at certain points; specifically, prior to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trials that they believe will support the approval of the new product candidate.

Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing commercial quantities of the product candidate in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and the manufacturer must develop methods for testing the quality, purity and potency of the product candidate. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its proposed shelf life. After completion of

 

124


Table of Contents

the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include the results of all nonclinical, clinical, and other testing and a compilation of data relating to the product candidate’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, and the applicant under an approved NDA is also subject to annual product and establishment user fees. These fees are typically increased annually. On August 3, 2017, Congress passed the FDA Reauthorization Act of 2017, or FDARA, which reauthorizes the various user fees to facilitate the FDA’s product review and oversight.

The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. The FDA may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the NDA must be resubmitted with the additional information and the resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for standard review product candidates are reviewed within ten months of the date the FDA files the NDA; most applications for priority review product candidates are reviewed within six months of the date the FDA files the NDA. Priority review can be applied to a product candidate that the FDA determines has the potential to treat a serious or life-threatening condition and, if approved, would be a significant improvement in safety or effectiveness compared to available therapies. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.

Among other things, the FDA reviews an NDA to determine whether the product is safe and effective for its intended use and whether the product candidate is being manufactured in accordance with cGMP. The FDA may also refer applications for novel product candidates, or product candidates that present difficult questions of safety or efficacy, to an advisory committee—typically a panel that includes clinicians and other experts—for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.

Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA may inspect the facility or the facilities at which the product candidate is manufactured. The FDA will not approve the product candidate unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. To assure GCP and cGMP compliance, an applicant must incur significant expenditures of time, money and effort in the areas of training, record keeping, production, and quality control.

Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive. The FDA may disagree with our trial design or interpret data from nonclinical studies and clinical trials differently than we interpret the same data. If the agency decides not to approve the NDA in its present form, the FDA will issue a complete response letter that describes all of the specific deficiencies in the application identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing the deficiencies identified in the letter, or withdraw the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will

 

125


Table of Contents

issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial marketing of the drug in the United States with specific prescribing information for specific indications.

Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific indications and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk evaluation and mitigation strategy, or REMS, or otherwise limit the scope of any approval. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for an REMS can materially affect the potential market and profitability of the product. In addition, the FDA may require confirmatory postmarketing trials, sometimes referred to as “Phase 4” clinical trials, designed to further assess a product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

Foreign Clinical Studies to Support an IND or NDA

The FDA will accept as support for an IND or NDA a well-designed, well-conducted, non-IND foreign clinical trial if it was conducted in accordance with GCP and the FDA is able to validate the data from the trial through an on-site inspection, if necessary. A sponsor or applicant who wishes to rely on a non-IND foreign clinical trial must submit supporting information to the FDA to demonstrate that the trial conformed to GCP.

Regulatory applications based solely on foreign clinical data meeting these criteria may be approved if the foreign data are applicable to the U.S. population and U.S. medical practice, the trials have been performed by clinical investigators of recognized competence, and the data may be considered valid without the need for an on-site inspection by FDA or, if FDA considers such an inspection to be necessary, FDA is able to validate the data through an on-site inspection or other appropriate means. Failure of an application to meet any of these criteria may result in the application not being approvable based on the foreign data alone.

Disclosure of Clinical Trial Information

Sponsors of clinical trials of FDA-regulated products are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

Expedited Development and Review Programs

The FDA has various programs, including Fast Track Designation, Priority Review Designation, Accelerated Approval Program and Breakthrough Therapy Designation, which are intended to expedite or simplify the process for reviewing product candidates. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product candidate no longer meets the conditions for qualification or that the time period for FDA review or approval will be lengthened. Generally, product candidates that are eligible for these programs are those for serious or life-

 

126


Table of Contents

threatening conditions, those with the potential to address unmet medical needs and those that offer meaningful benefits over existing treatments. For example, Fast Track Designation is a process designed to facilitate the development and expedite the review of product candidates to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Priority Review Designation is designed to give a product candidate that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness, an initial review within eight months as compared to a standard review time of within ten months of the date the FDA files the NDA.

Although Fast Track Designation and Priority Review Designation do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track Designation product candidate and expedite review of the application for a Priority Review Designation product candidate.

In the Food and Drug Administration Safety and Innovation Act, or FDASIA, which was signed into law in July 2012, the U.S. Congress encouraged the FDA to utilize innovative and flexible approaches to the assessment of product candidates under the Accelerated Approval Program. The law required the FDA to issue related guidance and also promulgate confirming regulatory changes. In May 2014, the FDA published a final Guidance for Industry titled “Expedited Programs for Serious Conditions—Drugs and Biologics,” which provides guidance on the FDA programs that are intended to facilitate and expedite development and review of new product candidates as well as threshold criteria generally applicable to concluding that a product candidate is a candidate for these expedited development and review programs.

In addition to the Fast Track Designation and Priority Review Designation Programs discussed above, the FDA also provided guidance on a new program for Breakthrough Therapy Designation, established by FDASIA to subject a new category of product candidates to expedited approval. A sponsor may seek Breakthrough Therapy Designation of a product candidate if the product candidate is intended, alone or in combination with one or more other therapeutics, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A request for Breakthrough Therapy Designation should be submitted concurrently with, or as an amendment to, an IND, but ideally no later than the end of Phase 2 meeting.

Accelerated Approval Program

Under the accelerated approval provisions of the FFDCA and the FDA’s implementing regulations, the FDA may grant accelerated approval to a product for a serious or life-threatening disease or condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. Products approved under the Accelerated Approval Program must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

The Accelerated Approval Program is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a product, while the effect on the surrogate endpoint occurs more rapidly. The FDA will not grant approval under the Accelerated Approval Program to products that meet standards for traditional approval.

The evidence to support the determination that an endpoint is reasonably likely to predict clinical benefit may include epidemiological, pathophysiological, therapeutic, pharmacologic, or other evidence developed using biomarkers, for example, or other scientific methods or tools. The FDA considers all

 

127


Table of Contents

relevant evidence and may consult external experts, as needed. Important factors for the agency’s consideration include the disease process and the relationship between the drug’s effect and the disease process.

Approval under the Accelerated Approval Program is subject, however, to the requirement that the applicant conduct additional postmarketing clinical trials to verify and describe the drug’s clinical benefit, where there is uncertainty as to the relationship of the surrogate endpoint to the clinical benefit, or of the observed clinical endpoint to ultimate outcome. Typically, clinical benefit is verified when postmarketing clinical trials show that the drug provides a clinically meaningful positive therapeutic effect, that is, an effect on how a patient feels, functions, or survives. The FDA may require that any confirmatory postmarketing trial be initiated or substantially underway prior to the submission of an application under the Accelerated Approval Program. And, if such confirmatory postmarketing trial fails to confirm the drug’s clinical profile or risks and benefits, the FDA may withdraw its approval of the drug. The FDA may also withdraw the approval if other evidence demonstrates that the product is not safe or effective. All promotional materials for product candidates approved under the Accelerated Approval Program are subject to prior review by the FDA. The FDA has issued labeling instructions specific to the program. For example, if a drug is approved based on a surrogate endpoint under the program, its labeling should include a succinct description of the limitations of usefulness of the drug and any uncertainty about anticipated clinical benefits. False or misleading promotional materials may also lead to expedited withdrawal of approval.

Patent Term Restoration and Marketing Exclusivity

After approval, owners of relevant drug patents may apply for up to a five-year patent extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch- Waxman Act. The allowable patent term extension is calculated as half of the product’s testing phase—the time between IND and NDA submission—and all of the review phase—the time between NDA submission and approval, up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.

For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the U.S. Patent and Trademark Office must determine that approval of the product candidate covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a product candidate for which an NDA has not been submitted.

Market exclusivity provisions under the FFDCA also can delay the submission or the approval of certain applications. The FFDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A product candidate is a new chemical entity if the FDA has not previously approved any other new product candidate containing the same active moiety, which is the molecule or ion responsible for the action of the product candidate substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such product candidate where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FFDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an approved NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for

 

128


Table of Contents

new indications, dosages or strengths of an existing product candidate. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for product candidates containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Postmarketing Requirements

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may under some circumstances require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA under some circumstances has the power to prevent or limit further marketing of a product based on the results of these postmarketing programs.

TRC101, which will be manufactured or distributed by us or our collaborators pursuant to FDA approvals, is subject to continuing regulation by the FDA, including, among other things:

 

    record-keeping requirements;

 

    reporting of adverse experiences associated with the product;

 

    providing the FDA with updated safety and efficacy information;

 

    therapeutic sampling and distribution requirements;

 

    notifying the FDA and gaining its approval of specified manufacturing or labeling changes;

 

    registration and listing requirements; and

 

    complying with FDA promotion and advertising requirements, which include, among other things, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approved labeling, limitations on industry-sponsored scientific and educational activities and requirements for promotional activities involving the internet.

Manufacturers, their subcontractors, and other entities involved in the manufacture and distribution of TRC101, if approved, are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMP, including data integrity requirements, and other laws. The FDA periodically inspects manufacturing facilities to assess compliance with ongoing regulatory requirements, including cGMP, which impose extensive procedural, substantive and record-keeping requirements upon us and third-party manufacturers engaged by us if TRC101 is approved. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require FDA approval before being implemented. FDA regulations would also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and our third-party manufacturers. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory actions, such as warning letters, suspension of manufacturing, seizures of products, injunctive actions or other civil penalties.

 

129


Table of Contents

In addition, drug manufacturers in the United States must comply with applicable provisions of the Drug Supply Chain Security Act and provide and receive product tracing information, maintain appropriate licenses, ensure they only work with other properly licensed entities, and have procedures in place to identify and properly handle suspect and illegitimate product.

New Legislation and Regulations

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and TRC101. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations will be changed or what the effect of such changes, if any, may be.

Other U.S. Healthcare Laws and Compliance Requirements

In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services (such as the Office of Inspector General and the Health Resources and Service Administration), the U.S. Department of Justice, or the DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, sales, marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended, as applicable.

The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. The Anti- Kickback Statute has been interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.

Additionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or the PPACA , to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the PPACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA (discussed below).

The federal false claims and civil monetary penalty laws, including the FCA, which imposes significant penalties and can be enforced by private citizens through civil qui tam actions, prohibit any

 

130


Table of Contents

person or entity from, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal healthcare programs, including Medicare and Medicaid, or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. For instance, historically, pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, off-label, and thus generally non-reimbursable, uses.

HIPAA created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the PPACA amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Also, many states have similar, and typically more prohibitive, fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Additionally, to the extent that TRC101 may in the future be sold in a foreign country, we may be subject to similar foreign laws.

We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, independent contractors, or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus complicating compliance efforts.

We expect that TRC101, if approved, may be eligible for coverage under Medicare, the federal health care program that provides health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain pharmaceutical products, that are medically necessary to treat a beneficiary’s health condition. In addition, TRC101 may be covered and reimbursed under other government programs, such as Medicaid and the 340B Drug Pricing Program. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities that participate in the program. As part of the requirements to participate in these government

 

131


Table of Contents

programs, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average manufacturer price, or AMP, and best price.

Additionally, the federal Physician Payments Sunshine Act, or the Sunshine Act, within the PPACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. In addition, many states also govern the reporting of payments or other transfers of value, many of which differ from each other in significant ways, are often not pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.

In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.

Ensuring business arrangements with third parties comply with applicable healthcare laws and regulations is a costly endeavor. If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other current or future governmental regulations that apply to us, we may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of TRC101, if approved. In the United States and in foreign markets, sales of TRC101, if and when we receive regulatory approval for commercial sale, will depend, in part, on the extent to which third-party payors provide coverage and establish adequate reimbursement levels for such products. In the United States, third-party payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid in the United States, and commercial payors are critical to new product acceptance.

 

132


Table of Contents

Our ability to commercialize TRC101 successfully also will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which therapeutics they will pay for and establish reimbursement levels. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a therapeutic is:

 

    a covered benefit under its health plan;

 

    safe, effective and medically necessary;

 

    appropriate for the specific patient;

 

    cost-effective; and

 

    neither experimental nor investigational.

We cannot be sure that reimbursement will be available for TRC101 and, if coverage and reimbursement are available, what the level of reimbursement will be. Coverage may also be more limited than the indications for which the product is approved by the FDA or comparable foreign regulatory authorities. Reimbursement may impact the demand for, or the price of, TRC101, if approved.

Third-party payors are increasingly challenging the price, examining the medical necessity, and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. Obtaining reimbursement for TRC101 may be particularly difficult because of the higher prices often associated with branded drugs and drugs administered under the supervision of a physician. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost- effectiveness of TRC101, in addition to the costs required to obtain FDA approvals. TRC101 may not be considered medically necessary or cost-effective. Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of TRC101 on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. It is difficult to predict how Medicare coverage and reimbursement policies will be applied to TRC101 in the future and coverage and reimbursement under different federal healthcare programs are not always consistent. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize TRC101.

Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs has become intense. As a result, increasingly high barriers

 

133


Table of Contents

are being erected to the entry of new products. In addition, in some countries, cross- border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of TRC101, if approved, for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care, the increasing influence of health maintenance organizations, and additional legislative changes in the United States has increased, and we expect will continue to increase, the pressure on healthcare pricing. The downward pressure on the rise in healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments, has become very intense. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Healthcare Reform

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

For example, the PPACA has substantially changed healthcare financing and delivery by both governmental and private insurers. Among the PPACA provisions of importance to the pharmaceutical and biotechnology industries, in addition to those otherwise described above, are the following:

 

    an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs that began in 2011;

 

    an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP;

 

    a new Medicare Part D coverage gap discount program, in which manufacturers must currently agree to offer 50%, which will change to 70% starting in 2019, point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D;

 

    extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

 

    expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals beginning in 2014 and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;

 

    expansion of the entities eligible for discounts under the 340B Drug Discount Program;

 

    a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

 

134


Table of Contents
    expansion of healthcare fraud and abuse laws, including the FCA and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

 

    a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected;

 

    requirements to report certain financial arrangements with physicians and teaching hospitals;

 

    a requirement to annually report certain information regarding drug samples that manufacturers and distributors provide to physicians;

 

    establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending that began on January 1, 2011; and

 

    a licensure framework for follow on biologic products.

There have been legal and judicial, Congressional, and political challenges to certain aspects of the PPACA, as well as recent efforts by the Trump administration to repeal and replace certain aspects of the PPACA. Since January 2017, President Trump has signed two executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the PPACA. Furthermore, each chamber of Congress has put forth multiple bills designed to repeal or repeal and replace portions of the PPACA. The newly enacted federal income tax law includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain PPACA-mandated fees, including the so called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on nonexempt medical devices. Further, the Bipartisan Budget Act of 2018 among other things, amends the PPACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Congress may consider other legislation that would alter other aspects of the PPACA.

We anticipate that the PPACA, if substantially maintained in its current form, will continue to result in additional downward pressure on coverage and the price that we receive for TRC101, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize TRC101. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

Further legislation or regulation could be passed that could harm our business, financial condition and results of operations. Other legislative changes have been proposed and adopted since the PPACA was enacted. For example, in August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect beginning on April 1, 2013 and will stay in effect through 2027 unless additional Congressional action is taken.

 

135


Table of Contents

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, individual states in the United States are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures. For example, in September 2017, the California State Assembly approved SB17, which requires pharmaceutical companies to notify health insurers and government health plans at least 60 days before any scheduled increases in the prices of their products if they exceed certain thresholds over a two-year period, and further requiring pharmaceutical companies to explain the reasons for such increase. Effective in 2016, Vermont passed a law requiring certain manufacturer identified by the state to justify their price increases.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act, or the FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

Additional Regulation

In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.

Other Regulations

We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.

 

136


Table of Contents

European Union / Rest of World Government Regulation

In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any future commercial sales and distribution of TRC101. Whether or not we obtain FDA approval to market TRC101, we must obtain the requisite approvals from regulatory authorities in foreign jurisdictions prior to the commencement of clinical trials or marketing of the products in those countries.

Even if a product obtains FDA marketing approval, most foreign jurisdiction require that the investigational product undergo national requirements related to clinical trials and authorization processes, similar to those in the United States. With respect to clinical trials, certain countries outside of the United States have a similar process that requires the submission of a clinical trial application, much like the IND, prior to the commencement of human clinical trials. In the European Union, for example, before starting a clinical trial, a valid request for authorization must be submitted by the sponsor to the competent authority of the EU Member State(s) in which the sponsor plans to conduct the clinical trial, as well as to independent national Ethics Committee(s). A clinical trial may commence only once the relevant Ethics Committee(s) has (have) issued a favorable opinion and the competent authority of the EU Member State(s) concerned has (have) not informed the sponsor of any grounds for non-acceptance. Failure to comply with the EU requirements may subject a company to the rejection of the request and the prohibition to start a clinical trial. Clinical trials conducted in the European Union (or used for marketing authorization application in the European Union) must be conducted in accordance with applicable laws, GCP and GMP rules, International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use, or ICH, guidelines and be consistent with ethical principles. EU Member State inspections are regularly conducted to verify the sponsor’s compliance with applicable rules. The sponsor is required to record and report to the relevant national competent authorities (and to the Ethics Committee) information about suspected serious unexpected adverse reactions.

The authorization of a clinical trial may be suspended or revoked by EU Member States in their territory if the conditions in the request for an authorization are no longer met, or if an EU Member State has information raising doubts about the safety or scientific validity of the clinical trial. Various penalties exist in EU Member States for non-compliance with the clinical trial rules and related requirements, for example with respect to data protection and privacy. If we or our potential collaborators fail to comply with applicable EU regulatory requirements, we may also be subject to damage compensation and civil and criminal liability. The way clinical trials are conducted in the European Union will undergo a major change when the new EU Clinical Trial Regulation (Regulation 536/2014) comes into application in 2019.

As in the United States, no medicinal product may be placed on the EU market unless a marketing authorization has been issued. Medicinal products may be authorized in different ways in the EU, depending on certain criteria: the national authorization procedure (i.e., via the EU Member States’ national authorization procedure, which later allows for application via the mutual-recognition procedure), the centralized authorization procedure (i.e., at EU level), or the decentralized authorization procedure (i.e., authorization of a product that is not yet authorized in the EU, which can simultaneously be authorized in several EU Member States). Products submitted for approval via the national procedure must follow the national authorization procedures, which vary from Member State to Member State. Products submitted for approval via the centralized procedure (only available for certain products and indications) are assessed by the Committee for Medicinal Products for Human Use, or CHMP, a committee within the European Medicines Agency, or EMA. The CHMP assesses, inter alia, whether a medicine meets the necessary quality, safety and efficacy requirements and whether it has a positive risk-benefit balance. Products submitted for approval via the decentralized procedure, as for the mutual-recognition procedure, must first undergo an assessment performed by one Member State, or reference Member State, which another Member State may approve.

 

137


Table of Contents

Various penalties and sanctions exist in different EU Member States for non-compliance with the EU marketing authorization procedure. In addition, for centrally authorized products the European Commission may also impose financial penalties on the holders of marketing authorizations if they fail to comply with certain obligations in connection with the authorizations as well as pharmacovigilance rules. If we or our potential collaborators fail to comply with applicable EU or other foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Coverage and reimbursement status of TRC101, if approved, are provided for by the national laws of EU Member States. The requirements may differ across the EU Member States. Also at EU Member State level, actions have been taken to enact transparency laws regarding payments between pharmaceutical companies and health care professionals, or HCPs.

The EU Data Protection Directive and Member State implementing legislation may also apply to health-related and other personal information obtained outside of the United States. The Directive will be replaced by the EU General Data Protection Regulation in May 2018. The Regulation will increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new EU data protection rules.

For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements. The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement also vary from country to country.

Employees

As of May 31, 2018, we had 61 full-time employees. Of these employees, 45 are engaged in research and development. Our employees are not represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.

Facilities

We lease approximately 26,897 square feet of office and laboratory space in South San Francisco, California under a lease that expires June 30, 2021. We believe that our existing facilities and other available properties will be sufficient for our needs for the foreseeable future.

Legal Proceedings

From time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

138


Table of Contents

MANAGEMENT

Executive Officers and Directors

The following table sets forth information regarding our executive officers and directors, as of June 1, 2018:

 

Name

  

Age

    

Position(s)

Executive Officers

     

Gerrit Klaerner, Ph.D.

     47     

President and Chief Executive Officer, Director

Geoffrey M. Parker

     53     

Chief Financial Officer and Senior Vice President

Jerry M. Buysse, Ph.D.

     62     

Chief Scientific Officer and Senior Vice President

Edward J. Hejlek, Esq.

     62     

General Counsel and Senior Vice President

Claire Lockey

     65      Chief Development Officer and Senior Vice President

Wilhelm Stahl, Ph.D.

     58     

Chief Technology Officer and Senior Vice President

Jeroen van Beek, Ph.D.

     54     

Chief Commercial Officer and Senior Vice President

Non-Employee Directors

     

Klaus Veitinger, M.D., Ph.D., M.B.A.(1)

     56     

Chairman of the Board

Robert J. Alpern, M.D.(1)

     67     

Director

David Bonita, M.D.(1)(2)(3)

     42     

Director

Sandra I. Coufal, M.D.(2)

     54     

Director

Kathryn Falberg(3)

     57     

Director

David Hirsch, M.D., Ph.D.(2)(3)

     47     

Director

 

(1) Member of the nominating and corporate governance committee.
(2) Member of the compensation committee.
(3) Member of the audit committee.

Executive Officers

Dr.  Gerrit Klaerner, Ph.D. , our Founder, has served as a member of our board of directors since July 2013 and as our Chief Executive Officer and President since August 2013. Dr. Klaerner was the Founder of Relypsa, Inc. and served as its President and as a member of its board of directors from October 2007 until June 2013. Dr. Klaerner co-founded Ilypsa, Inc. in 2003 and served as its Chief Business Officer and Senior Vice President from December 2006 until July 2007 and its Director of Technology Assessment and Business Development from January 2003 until December 2006. Dr. Klaerner served in Symyx Technologies, Inc. from October 1998 until January 2003 as Staff Scientist, Senior Staff Scientist and Director of Business Development. Dr. Klaerner received his Ph.D. in polymer and organic chemistry from the Max Planck Institute for Polymer Research in Mainz, Germany, his M.S. in Chemistry from the Philipps University of Marburg and completed post-doctoral research at Stanford University and the IBM Almaden Research Center.

We believe that Dr. Klaerner is qualified to serve as our President and Chief Executive Officer and on our board of directors because of his extensive experience in leadership and management roles at various life sciences companies.

Mr.  Geoffrey  M. Parker has served as our Senior Vice President and Chief Financial Officer since April 2017. Mr. Parker previously served as Chief Financial Officer of Anacor Pharmaceuticals, Inc. from September 2010 to May 2015. From 1997 to 2009, Mr. Parker led the West Coast Healthcare Investment Banking practice at Goldman Sachs. Mr. Parker has served as a member of the board of

 

139


Table of Contents

directors of Perrigo Company plc, Genomic Health, Inc., and ChemoCentryx, Inc. since November 2016, June 2016, and December 2009, respectively. Mr. Parker was also a member of the board of directors of Sunesis Pharmaceuticals, Inc. from March 2016 until December 2017. Mr. Parker holds an AB degree in Economics and Engineering Sciences from Dartmouth College and an M.B.A. from Stanford University.

Dr.  Jerry  M. Buysse, Ph.D. , has served as our Senior Vice President and Chief Scientific Officer since January 2014. Dr. Buysse was Senior Vice President and Chief Scientific Officer of Relypsa, Inc. from October 2007 until December 2013. Dr. Buysse was Vice President of Preclinical Research and Development at Ilypsa, Inc. from May 2003 to July 2007. Dr. Buysse was Vice President of Discovery Biology at Microcide Pharmaceuticals Inc. (later Essential Therapeutics, Inc.) from 1996 to 2003. Previously, he served as a senior research scientist at Pharmacia & Upjohn (acquired by Pfizer) and as a senior research scientist at the Walter Reed Army Institute of Research. Dr. Buysse was a National Research Council Fellow at Walter Reed and NIH Post-Doctoral Fellow at Tufts University. He received a B.S. in Microbiology from the University of Michigan and a Ph.D. in Immunology and Microbiology from the Wayne State University School of Medicine.

Mr.  Edward  J. Hejlek, Esq. , has served as our Senior Vice President and General Counsel since January 2016. Mr. Hejlek served as a Partner at Bryan Cave Leighton Paisner LLP from April 2008 until December 2015 and as an attorney at Senniger Powers LLP from 1983 until March 2008 (Partner from 1986 to March 2008). Mr. Hejlek also served as outside patent counsel to Ilypsa, Inc. from 2005 until March 2008 and as outside patent counsel to Relypsa, Inc. from 2007 to March 2008. He was an adjunct professor of law at the Saint Louis University School of Law from 1987 until 2012. He received a J.D. from University of Missouri-Columbia and a B.S. in Chemical Engineering from Washington University.

Ms.  Claire  J. Lockey has served as our Senior Vice President and Chief Development Officer since November 2015. Ms. Lockey served as the Senior Vice President of Pharmaceutical Development and Regulatory Affairs at Relypsa, Inc. from February 2010 until November 2015. Ms. Lockey served as Vice President of Regulatory Affairs at FibroGen, Inc. from July 2003 until January 2010 and has held similar executive-level positions at other biopharmaceutical companies including Titan Pharmaceuticals, Inc., Layton Bioscience, Inc., Connetics Corporation and Gore Hybrid Technologies, Inc., as well as a consulting position at Synergia LLC from 1985 until 1995. She received a B.A. in Biology from Boston University.

Dr.  Wilhelm Stahl, Ph.D. , has served as our Senior Vice President and Chief Technology Officer since February 2017. Dr. Stahl served in a number of roles, including as Senior Vice President of Pharmaceutical Operations and as Chief Technology Officer, at Relypsa, Inc. from September 2011 until January 2017. Since January 2009, Dr. Stahl has been Managing Director of Rondaxe Deutschland OHG, a subsidiary of Rondaxe Enterprises, LLC, a consulting firm, providing consulting services and strategic advice on CMC aspects of drug development, supply chain management and strategic business support, where he was a Managing Partner from October 2009 to September 2011. From 2005 to 2008, Dr. Stahl was Head of the Pharma Custom Manufacturing business of Saltigo GmbH, a subsidiary of Lanxess AG. He received a Ph.D. in Chemistry from the Institute for Organic Chemistry and Biochemistry at the University of Bonn.

Dr.  Jeroen van Beek, Ph.D. , has served as our Senior Vice President and Chief Commercial Officer since January 2018. Dr. van Beek served in various roles at Alexion Pharmaceuticals, Inc. from 2007 until 2017, including most recently as Vice President of Global Commercial Operations and Development. Prior to working at Alexion Pharmaceuticals, Dr. van Beek worked at Pfizer Inc. in multiple roles, including as Marketing Director, Oncology from 1999 until 2007. He received a B.S. in Chemistry from the University of Virginia, an M.S. and Ph.D. in Chemistry from Cornell University and an M.B.A. from the Darden School of Business, University of Virginia.

 

140


Table of Contents

Non-Employee Directors

Dr.  Klaus  R. Veitinger, M.D., Ph.D., M.B.A. , has served as a member of our board of directors since February 2014 and as our chairman of the board since September 2015. Dr. Veitinger has served as a Venture Partner with OrbiMed Advisors LLC, an affiliate of one of our principal shareholders, since October 2007. Prior to OrbiMed Advisors, Dr. Veitinger was a Member of the Executive Board of Schwarz Pharma AG and the Chief Executive Officer of Schwarz Pharma, Inc. with responsibility for the U.S. and Asia businesses. Dr. Veitinger has served on the boards of public companies, including Intercept Pharmaceuticals, Inc. from August 2012 until July 2016 and Relypsa, Inc. from October 2010 until June 2015, and currently serves on the board of scPharmaceuticals, Inc. since November 2017. Dr. Veitinger currently serves on the boards of directors of the following private companies: Neurogastrx, Inc. and Promentis Pharmaceuticals, Inc. For seven years he was a Director of PhRMA. Dr. Veitinger received his M.D. and his doctorate (Ph.D.) from the University of Heidelberg. He earned his M.B.A. at INSEAD in France.

We believe that Dr. Veitinger is qualified to serve on our board of directors due to his management and investment experience in the life sciences sector and medical and scientific background.

Dr.  Robert  J. Alpern, M.D. , has served as a member of our board of directors since October 2013 and as chairman of our Scientific Advisory Board since October 2013. Dr. Alpern has served as the Ensign Professor of Medicine (Nephrology), Professor of Internal Medicine, and Dean of Yale School of Medicine since June 2004. He served as a Member of Scientific Advisory Board at Relypsa, Inc. from 2007 until 2014 and Ilypsa, Inc. from 2004 until 2007. From July 1998 until June 2004, Dr. Alpern was the Dean of The University of Texas Southwestern Medical School. Dr. Alpern has also served as a director of AbbVie Inc. since January 2013, Abbott Laboratories since October 2008 and has served on the board of trustees of Yale-New Haven Hospital since 2005. Dr. Alpern was on the leadership committee of the American Society of Nephrology and served as its president. Dr. Alpern has held or been awarded field-specific journal editorial board and fellowship positions, leadership positions in advisory councils and associations, and teaching awards. Dr. Alpern received his M.D. from the University of Chicago Pritzker School of Medicine and his B.A. in Chemistry from Northwestern University.

We believe that Dr. Alpern is qualified to serve on our board of directors due to his extensive background in medicine and his experience as a board member in the life sciences industry.

Dr.  David Bonita, M.D. , has served as a member of our board of directors since January 2014. Since June 2013, Dr. Bonita has held the position of Private Equity Partner at OrbiMed Advisors LLC, an affiliate of one of our principal shareholders. From June 2004 to June 2013, Dr. Bonita held other positions at OrbiMed. Dr. Bonita has served on the boards of directors of Clementia Pharmaceuticals Inc. and View Ray Inc. since April 2013 and January 2008, respectively. Dr. Bonita also previously served on the boards of directors of Ambit Biosciences Corporation and Loxo Oncology, Inc. Dr. Bonita currently serves on the boards of directors of the following private companies: Acutus Medical Inc., Cryterion Medical Inc., Enobia Pharma Inc., Keystone Heart Ltd., Kyn Therapeutics Inc., Prelude Therapeutics Inc. and Si-Bone, Inc.; and has previously served on the board of directors of CardiAQ Valve Technologies, Inc. Dr. Bonita has also worked as a corporate finance analyst in the healthcare investment banking groups of Morgan Stanley and UBS. He has published scientific articles in peer-reviewed journals based on signal transduction research performed at the Harvard Medical School. He received his A.B. in Biological Sciences from Harvard University and his joint M.D./M.B.A. from Columbia University.

We believe Dr. Bonita is qualified to serve on our board of directors due to his significant scientific and industry knowledge, as well as valuable experience gained from prior board service.

 

141


Table of Contents

Dr.  Sandra  I. Coufal, M.D. , has served as a member of our board of directors since July 2013 and as a member of our Scientific Advisory Board since August 2013. Dr. Coufal is a co-founder and has served as a co-manager of Sibling Capital Ventures LLC, an affiliate of one of our principal stockholders, since 2013. Dr. Coufal was a co-founder and a co-manager of Sibling Capital, LLC from 2012 to 2016. For the past 17 years, Dr. Coufal has been the Biomedical Advisor for the Genomics Institute of the Novartis Research Foundation. Dr. Coufal served as the Head of the Division of Internal Medicine at the Torrey Pines site of Scripps Clinic from 1997 until 1999, was a member of the board of directors of Scripps Green Hospital from 1997 until 1999. Dr. Coufal founded and served on Relypsa, Inc.’s Scientific Advisory Board since 2007 and was a co-founder of Ilypsa’s Scientific Advisory Board. Dr. Coufal has served on the boards of directors of BioAesthetics Corporation and SafetySpot Inc., since February 2016 and March 2017, respectively. Dr. Coufal served as Associate Faculty in the Division of Internal Medicine for the University of California San Diego. She completed an internship and residency in Internal Medicine at the University of Texas Southwestern Medical School at Dallas. Dr. Coufal received her M.D. from the University of Texas Southwestern Medical School at Dallas and received her B.S. in Science Preprofessional Studies from the University of Notre Dame and was designated a Notre Dame Scholar.

We believe that Dr. Coufal is qualified to serve on our board of directors due to her experience as an investor in the life sciences industry and her extensive experience as a practicing physician.

Ms. Kathryn Falberg has served as a member of our board of directors since May 2018. From March 2012 to March 2014, Ms. Falberg served as the Executive Vice President and Chief Financial Officer of Jazz Pharmaceuticals plc. From December 2009 to March 2012, Ms. Falberg held the position of Senior Vice President and Chief Financial Officer of Jazz Pharmaceuticals plc. From 2001 through 2009, Ms. Falberg worked with a number of smaller companies while serving as a corporate director and audit committee chair for several companies. From 1995 to 2001, Ms. Falberg served various roles at Amgen Inc., including as Senior Vice President, Finance and Strategy, and Chief Financial Officer, and as Vice President, Chief Accounting Officer, and as Vice President, Treasurer. Ms. Falberg currently serves on the boards of public companies, including Aimmune Therapeutics, Inc., Arcus Biosciences, Inc., Urogen Pharma Ltd., and The Trade Desk, Inc. Ms. Falberg previously served on the boards of directors of Axovant Sciences, Ltd., BioMarin Pharmaceutical Inc., Medivation Inc., Halozyme Therapeutics, Inc., aTyr Pharma, Inc., and multiple other companies. Ms. Falberg is an inactive certified public accountant. Ms. Falberg holds an M.B.A. in Finance and B.A. in Economics from the University of California, Los Angeles.

We believe Ms. Falberg is qualified to serve on our board of directors due to her extensive background in the life science industry and her leadership experience as senior financial executive, director and audit committee member of various other companies in the life science industry.

Dr. David Hirsch, M.D., Ph.D., has served as a member of our board of directors since July 2016. Since 2007, Dr. Hirsch has served as a Founder and Managing Director at Longitude Capital Management, an affiliate of one of our principal shareholders, where he focuses on investments in biotechnology. From 2005 to 2006, Dr. Hirsch was Vice President of Pequot Ventures where he worked in the life sciences practice. Prior to Pequot Ventures, Dr. Hirsch was an Engagement Manager in the pharmaceutical practice of McKinsey & Co. Dr. Hirsch currently serves on the boards of directors of the following public companies: Collegium Pharmaceutical, Inc., since 2012, and Molecular Templates, Inc., since 2017. Dr. Hirsch also serves on the boards of directors of the following private companies: Rapid Micro Biosystems, Inc., Velicept Therapeutics, Inc., and Zavante Therapeutics, Inc. Dr. Hirsch previously served on the boards of directors of Civitas Therapeutics, Inc. and Precision Therapeutics, Inc. Dr. Hirsch received his B.A. in Biology from The Johns Hopkins University, his M.D. from Harvard Medical School and his Ph.D. in Biology from the Massachusetts Institute of Technology.

 

142


Table of Contents

We believe that Dr. Hirsch is qualified to serve on our board of directors due to his perspective and experience as an investor and board member in the life sciences industry, as well as his strong medical and scientific background.

Board Composition

Our board of directors currently consists of seven members. After the completion of this offering, the number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws. Each of our current directors will continue to serve as a director until the election and qualification of his or her successor, or until his or her earlier death, resignation or removal.

Director Independence

Under the rules of Nasdaq, independent directors must comprise a majority of a listed company’s board of directors within one year of the completion of its initial public offering. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation and corporate governance and nominating committees be independent. Our board of directors has determined that                 ,                 ,                  and                , qualify as “independent” directors in accordance with the Nasdaq listing requirements. The Nasdaq independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us. In addition, as required by Nasdaq rules, our board of directors has made a subjective determination as to each independent director that no relationships exist, which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management. There are no family relationships among any of our directors or executive officers.

Classified Board of Directors

In accordance with our amended and restated certificate of incorporation to be in effect immediately prior to the completion of this offering, our board of directors will be divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Effective upon the completion of this offering, we expect that our directors will be divided among the three classes as follows:

 

    the Class I directors will be                 ,                  and                  , and their terms will expire at the annual meeting of stockholders to be held in 2019;

 

    the Class II directors will be                 ,                  and                  , and their terms will expire at the annual meeting of stockholders to be held in 2020; and

 

    the Class III directors will be                 ,                  and                  , and their terms will expire at the annual meeting of stockholders to be held in 2021.

Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company.

 

143


Table of Contents

Leadership Structure of the Board

Our amended and restated bylaws and corporate governance guidelines, which will become effective immediately prior to the completion of this offering, will provide our board of directors with flexibility to combine or separate the positions of Chairman of the board and Chief Executive Officer and/or the implementation of a lead director in accordance with its determination that utilizing one or the other structure would be in the best interests of our company. Dr. Klaus R. Veitinger currently serves as the Chairman of our board of directors.

As a general policy, our board of directors believes that separation of the positions of Chairman and Chief Executive Officer reinforces the independence of our board of directors from management, creates an environment that encourages objective oversight of management’s performance and enhances the effectiveness of our board of directors as a whole. As such, Dr. Gerrit Klaerner serves as our President and Chief Executive Officer while Dr. Klaus R. Veitinger serves as the Chairman of our board of directors but is not an officer. Our board of directors has concluded that our current leadership structure is appropriate at this time. However, our board of directors will continue to periodically review our leadership structure and may make such changes in the future as it deems appropriate.

Board Committees

Audit Committee

Upon the completion of this offering, our board of directors will have an audit committee and our board of directors will adopt an audit committee charter, which will define the audit committee’s principal functions, including oversight related to:

 

    our accounting and financial reporting process;

 

    appointing our independent registered public accounting firm;

 

    evaluating the independent registered public accounting firm’s qualifications, independence and performance;

 

    the compensation, retention, oversight of the work of, and termination of the independent registered public accounting firm;

 

    discussing with management and the independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements;

 

    pre-approving all audit and permitted non-audit and tax services to be provided;

 

    monitoring the rotation of partners of the independent registered public accounting firm on our engagement team in accordance with requirements established by the SEC;

 

    reviewing our financial statements and our management’s discussion and analysis of financial condition and results of operations to be included in our annual and quarterly reports to be filed with the SEC;

 

    reviewing our critical accounting policies and estimates; and

 

    reviewing the audit committee charter and the committee’s performance at least annually.

Upon the completion of this offering, our audit committee will be composed of Dr. David Bonita, Kathryn Falberg and Dr. David Hirsch. Ms. Falberg serves as the chairperson of the committee. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. Our board of directors has determined that Ms. Falberg is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite

 

144


Table of Contents

financial sophistication as defined under the applicable rules and regulations of Nasdaq. Under the rules of the SEC, members of the audit committee must also meet heightened independence standards. However, a minority of the members of the audit committee may be exempt from the heightened audit committee independence standards for one year from the date of effectiveness of the registration statement of which this prospectus forms a part. Our board of directors is expected to determine that each of Dr. Bonita, Dr. Hirsch and Ms. Falberg are independent under the applicable rules of Nasdaq. The audit committee will operate under a written charter that satisfies the applicable standards of the SEC and Nasdaq.

Compensation Committee

Upon the completion of this offering, our board of directors will have a compensation committee and our board of directors will adopt a compensation committee charter, which will define the compensation committee’s principal functions, including recommending policies relating to compensation and benefits of our directors, officers and employees. Among other matters, the compensation committee will review and recommend corporate goals and objectives relevant to compensation of our Chief Executive Officer, evaluate the performance of our Chief Executive Officer in light of those goals and objectives and recommend to our board of directors the compensation of the Chief Executive Officer based on such evaluations. The compensation committee will also recommend to our board of directors the issuance of stock options and other awards under our stock plans. The compensation committee will review and evaluate, at least annually, the performance of the compensation committee and its members, including adherence by the compensation committee to its charter. Upon the completion of this offering, our compensation committee will be composed of Dr. David Bonita, Dr. Sandra Coufal and Dr. David Hirsch. Dr. Bonita serves as the chairperson of the committee. Each of the members of our compensation committee is expected to be independent under the applicable rules and regulations of Nasdaq and is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act. The compensation committee will operate under a written charter that satisfies the applicable standards of the SEC and Nasdaq.

Nominating and Corporate Governance Committee

Upon the completion of this offering, our board of directors will have a nominating and corporate governance committee and our board of directors will adopt a nominating and corporate governance committee charter. The nominating and corporate governance committee will be responsible for making recommendations to our board of directors regarding candidates for directorships and the size and composition of our board of directors. Among other matters, the nominating and corporate governance committee will be responsible for developing and monitoring compliance with our corporate governance guidelines and reporting and making recommendations to our board of directors concerning governance matters. Upon the completion of this offering, our nominating and corporate governance committee will be composed of Dr. Robert Alpern, Dr. David Bonita and Dr. Klaus Veitinger. Dr. Veitinger serves as the chairman of the committee. Each of the members of our nominating and corporate governance committee is expected to be an independent director under the applicable rules and regulations of Nasdaq relating to nominating and corporate governance committee independence. The nominating and corporate governance committee will operate under a written charter that satisfies the applicable standards of the SEC and Nasdaq.

Compensation Committee Interlocks and Insider Participation

During the year ended December 31, 2017, our compensation committee consisted of Dr. David Bonita, Dr. Sandra Coufal and Dr. David Hirsch. Dr. Bonita served as the chairperson of the committee. None of the members of our compensation committee has at any time been one of our

 

145


Table of Contents

officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee (or other board of directors committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers on our board of directors or compensation committee.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Following the consummation of this offering, the code of business conduct and ethics will be available on our website at tricida.com. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website following this offering. The reference to our web address does not constitute incorporation by reference of the information contained at or available through our website.

Limitation on Liability and Indemnification Matters

Our amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

 

    any breach of the director’s duty of loyalty to us or our stockholders;

 

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

    unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the General Corporation Law of the State of Delaware; or

 

    any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, provides that we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law. Our amended and restated certificate of incorporation also provides that, subject to limited exceptions, we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permits us to secure insurance on behalf of any current or former director or officer against any liability asserted against such person, whether or not we would have the power to indemnify such person against such liability under our amended and restated certificate of incorporation or otherwise. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these provisions of our amended and restated certificate of incorporation and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage.

 

146


Table of Contents

Director Compensation

Commencing in 2013, we adopted a director compensation arrangement whereby we pay an annual retainer of $40,000 per year to each non-employee director. Such cash fees are paid monthly in arrears. From time to time, we have granted stock options to those non-employee directors for their service on our board of directors. Such grants have been made to Dr. Veitinger and Dr. Alpern. We reimburse our directors for their reasonable out-of-pocket expenses incurred in attending board and committee meetings. Dr. Bonita and Dr. Hirsch have waived all compensation for their services on the Board.

In connection with the offering, our board of directors engaged an independent compensation consultant to assist in the evaluation of our post-offering non-employee director compensation program. Based on such analysis, our board of directors approved the following director compensation program, to be effective upon the consummation of the offering:

 

Post-Offering Annual Cash Compensation Elements

   Amount  

Board Retainer

   $ 40,000  

Audit Committee Retainer (chair/member)

   $ 20,000/$7,500  

Compensation Committee Retainer (chair/member)

   $ 12,500/$6,000  

Nominating and Corporate Governance Committee Retainer (chair/member)

   $ 8,000/$4,000  

Additional Retainer for Non-Executive Chair

   $ 15,000 to $60,000  

All retainers are paid quarterly in arrears and, if applicable, are prorated based upon board or chair service during the calendar year.

In order to further align our director compensation program with stockholder interests, directors will also receive as part of the annual compensation program an equity grant on the date of each annual meeting of stockholders. The grant date fair value of the annual equity awards will be equal to approximately $230,000 and the annual equity award is expected to be delivered 70% in the form of stock options and 30% in the form of restricted stock units. The stock options are scheduled to vest in 12 monthly installments, while the restricted stock units are scheduled to vest on the one-year anniversary of the grant date, subject in each case to earlier vesting if the annual meeting precedes the one-year anniversary of the grant date.

The post-offering director compensation program also contemplates that newly appointed directors will receive an initial equity award with a grant date fair value of approximately $460,000 and expected to be delivered with the same stock option and restricted stock unit mix as the annual equity awards. The initial stock option grants are scheduled to vest on a monthly basis over 36 months and the restricted stock unit awards are scheduled to vest in one-third installments on each of the first, second and third anniversaries of the date of grant.

 

147


Table of Contents

2017 Director Compensation Table

The following table sets forth information for the year ended December 31, 2017 regarding the compensation awarded to, earned by or paid to our non-employee directors:

 

Name

   Fees
Earned
or Paid
in Cash
($)
     Option
Awards(1)
($)
     All Other
Compensation
($)
    Total ($)  

Klaus Veitinger, M.D., Ph.D.(2)

   $ 40,000      $ 12,157      $ 80,000 (5)    $ 132,157  

Robert J. Alpern, M.D.(3)

     40,000               50,000 (6)      90,000  

David Bonita, M.D.

                          

Sandra I. Coufal, M.D.(4)

     40,000               80,000 (7)      120,000  

David Hirsch, M.D., Ph.D.

                          

 

(1) Amounts reported in this column reflect the aggregate grant date fair value of stock options awarded in 2017, computed in accordance with FASB ASC Topic 718, Compensation—Stock Compensation based on the following assumptions: risk-free interest rate of 1.7%; expected volatility of 72.7%- 78.5%; expected term of 6.2—6.3 years and expected dividend rate of 0%.
(2) Dr. Veitinger is paid a monthly cash retainer of $3,333 for his service on our board of directors. As of December 31, 2017, Dr. Veitinger held options to purchase 490,000 shares of our common stock, of which options to purchase 262,916 shares were vested as of December 31, 2017.
(3) Dr. Alpern is paid a monthly cash retainer of $3,333 for his service on our board of directors. As of December 31, 2017, Dr. Alpern held options to purchase 37,500 shares of our common stock, of which options to purchase 17,969 shares were vested as of December 31, 2017.
(4) Dr. Coufal is paid a monthly cash retainer of $3,333 for her service on our board of directors.
(5) Includes consulting fees for services rendered by Klaus Veitinger Consulting LLC.
(6) Includes consulting fees payable to Dr. Alpern for services on our Scientific Advisory Board.
(7) Includes consulting fees payable to Dr. Coufal for services on our Scientific Advisory Board.

 

148


Table of Contents

EXECUTIVE COMPENSATION

The following is a discussion and analysis of compensation arrangements of our named executive officers. This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion. As an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies.

Overview

Our current executive compensation program is intended to align executive compensation with our business objectives and to enable us to attract, retain and reward executive officers who contribute to our long-term success. The compensation paid or awarded to our executive officers is generally based on the assessment of each individual’s performance compared against the business objectives established for the fiscal year as well as our historical compensation practices. In the case of new hire executive officers, their compensation is primarily determined based on the negotiations of the parties as well as our historical compensation practices. For 2017, the material elements of our executive compensation program were base salary, annual cash bonuses and equity-based compensation in the form of stock options.

This section provides a discussion of the compensation paid or awarded to our President and Chief Executive Officer and our two other most highly compensated executive officers as of December 31, 2017. We refer to these individuals as our “named executive officers.” For 2017, our named executive officers were:

 

    Gerrit Klaerner, Ph.D., President and Chief Executive Officer;

 

    Geoffrey M. Parker, Senior Vice President and Chief Financial Officer; and

 

    Wilhelm Stahl, Ph.D. Senior Vice President and Chief Technical Officer.

We expect that our executive compensation program will evolve to reflect our status as a public company and market practices. In 2018, the board of directors engaged an independent compensation consultant to assist in the evaluation of our post-offering executive compensation program. Following a review of the compensation consultant’s analysis of our executive compensation program, the compensation committee increased certain elements of Dr. Klaerner’s and Mr. Parker’s compensation to further align their compensation with the competitive market. Accordingly, the compensation committee approved an increase in Dr. Klaerner’s annual base salary from $450,000 to $565,000 and annual incentive target, as a percentage of base salary, from 40% to 55% and an increase in Mr. Parker’s annual incentive target from 30% to 40% of base salary. These compensation adjustments will become effective upon the consummation of the offering.

Compensation of Named Executive Officers

Base Salary

Base salaries are intended to provide a level of compensation sufficient to attract and retain an effective management team, when considered in combination with the other components of our executive compensation program. The relative levels of base salary for our named executive officers are designed to reflect each executive officer’s scope of responsibility and accountability with us. Please see the “Salary” column in the 2017 Summary Compensation Table for the base salary amounts received by each named executive officer in 2017.

 

149


Table of Contents

Annual Cash Bonuses

Historically, we have provided our senior leadership team with short-term incentive compensation through our annual cash bonus plan. Annual bonus compensation holds executives accountable, rewards the executives based on actual business results and helps create a “pay for performance” culture. Our annual cash bonus program provides cash incentive award opportunities for the achievement of performance goals established by our board of directors at the beginning of each fiscal year.

The payment of awards under the 2017 annual cash bonus program applicable to the named executive officers was subject to the attainment of a number of goals relating to (i) clinical studies (weighted 50% in the aggregate), (ii) regulatory and manufacturing developments (weighted 25% in the aggregate) and (iii) financial, strategic and general operational goals (weighted 25% in the aggregate).

Early in 2017, the board of directors established bonus targets for each participant in the annual bonus program, including each of the named executive officers. Each named executive officer had a 2017 target bonus equal to 30% of his base salary. Based on our 2017 performance, the board of directors awarded payouts under our annual cash bonus program in a total payout of 139% of the target bonus opportunity. Please see the “Non-Equity Incentive Compensation” column in the 2017 Summary Compensation Table for the amount of annual bonuses paid to each named executive officer in 2017.

Stock Options

To further align the interests of our executive officers with the interests of our stockholders and to further focus our executive officers on our long-term performance, we have historically granted equity compensation in the form of stock options. Stock options generally vest 25% on the first anniversary of the vesting commencement date and in subsequent 1/48 th  increments for each subsequent month of continuous employment. Under the terms of the stock option agreements, executive officers have the option of exercising the stock option prior to vesting and receive restricted stock upon exercise, which is subject to the same vesting conditions applicable to the underlying stock options. In 2017, the board of directors awarded Dr. Klaerner, Geoffrey Parker and Dr. Stahl stock options to purchase 575,000, 1,120,000, and 990,000 shares of our common stock, respectively. The vesting of these stock options will not accelerate in connection with this offering.

2017 Summary Compensation Table

The following table shows information regarding the compensation of our named executive officers for services performed in the year ended December 31, 2017.

 

Name and Principal Position

  Year     Salary
($)(1)
    Bonus
($)(2)
    Option
Awards
($)(3)
    Non-Equity
Incentive
Plan
Compensation
($)(4)
    All Other
Compensation
($)
    Total ($)  

Gerrit Klaerner, Ph.D.,

    2017     $ 425,000     $     $ 170,362     $ 223,600     $ 2,043     $ 821,005  

President and Chief Executive Officer

             

Geoffrey M. Parker,

    2017       287,388             272,547       142,200       2,333       704,467  

Senior Vice President & Chief Financial Officer

             

Wilhelm Stahl, Ph.D.,

    2017       357,500       100,000       225,432       140,400       2,073       825,405  

Senior Vice President & Chief Technical Officer

             

 

150


Table of Contents

 

(1) Amounts reported in this column reflect the base salaries earned during the year. Under the terms of their 2017 offers of employment, Mr. Parker and Dr. Stahl are eligible to receive an annual base salary of $395,000 and $390,000, respectively.
(2) The amount reported in this column for Dr. Stahl represents a sign-on bonus, which is subject to pro rata repayment if Dr. Stahl resigns or is terminated by us prior to the one-year anniversary of his employment commencement date.
(3) Amounts reported in this column reflect the aggregate grant date fair value of stock options awarded in 2017, computed in accordance with FASB ASC Topic 718, Compensation—Stock Compensation based on the following assumptions: risk-free interest rate of 1.7%; expected volatility of 72.7%- 78.5%; expected term of 6.2—6.3 years and expected dividend rate of 0%.
(4) Amounts reported in this column for each named executive officer represents payouts under our annual cash bonus program based on performance with respect to goals relating to (i) clinical studies (weighted 50%), (ii) regulatory and manufacturing developments (weighted 25%) and (iii) financial, strategic and general operational goals (weighted 25%).

Outstanding Equity Awards at 2017 Fiscal Year-End

The following table presents information regarding the outstanding stock options held by each of the named executive officers as of December 31, 2017. None of the named executive officers held any outstanding restricted stock or other equity awards as of that date.

 

Name

  Grant
Date(1)
    Vesting
Commencement
Date
    Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable(2)
    Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
 

Gerrit Klaerner Ph.D.

    3/9/2015       3/1/2015       435,000                   0.200       3/8/2025  
    2/24/2016       1/1/2016       300,000                   0.240       2/23/2026  
    9/27/2016       6/8/2016       305,000                   0.420       9/26/2026  
    11/3/2016       10/1/2016       460,000                   0.420       11/2/2026  
    9/15/2017       9/1/2017       575,000                   0.600       9/14/2027  

Geoffrey M. Parker

    6/15/2017       4/10/2017       1,000,000                   0.460       6/14/2027  
    9/15/2017       9/1/2017       120,000                   0.600       9/14/2027  

Wilhelm Stahl, Ph.D.

    12/4/2014       9/29/2014       80,000                   0.180       12/3/2024  
    2/8/2017       2/1/2017       870,000                   0.420       2/7/2027  
    9/15/2017       9/1/2017       120,000                   0.600       9/14/2027  

 

(1) This option vests 25% on the first anniversary of the vesting commencement date and in subsequent 1/48 th increments for each subsequent month of continuous employment.
(2) Because options may be early exercised for restricted stock, options are reported in this table as “Exercisable.” Please see footnote (1) to this table for the vesting schedule applicable to the option awards.

Additional Narrative Disclosure

Executive Severance Benefit Plan

Each of our named executive officers participates in the Tricida, Inc. Executive Severance Benefit Plan, as amended, or the Executive Severance Plan. In the event a participant in the Executive

 

151


Table of Contents

Severance Plan experiences a termination without cause or resigns for good reason, each as defined in the plan, then such participant will be eligible to receive (i) a cash severance benefit in an amount equal to a specified number of months of base salary, payable in monthly installments, and (ii) company-paid premiums for healthcare continuation coverage during the severance period while the participant continues to participate in our health plans or until the participant is entitled to alternative coverage. The period for monthly severance benefits is equal to 12 for Dr. Klaerner and nine for the other named executive officers.

In the event an Executive Severance Plan participant’s employment is terminated without cause or due to good reason within three months prior to or 15 months following a change in control, the participant will also receive immediate vesting of any outstanding and unvested equity awards and an additional cash payment equal to the participant’s target annual bonus for the year of termination, prorated based on the number of months in the year prior to the date of termination if, as of the date of the participant’s termination of employment, the company and participant were on “target” to achieve the applicable performance goals.

As part of the compensation committee’s evaluation of the post-offering compensation program, the compensation committee amended the Executive Severance Plan to provide that in the event of a qualifying termination of employment within three months prior to or 15 months following a change in control, the period for monthly severance benefits will be 18 months for Dr. Klaerner and 12 months for the other named executive officers. This change was made after a review of competitive market data, as presented by the independent compensation consultant.

401(k) Plan

We maintain a qualified 401(k) savings plan which allows participants to defer from 0% to 100% of cash compensation up to the maximum amount allowed under Internal Revenue Service guidelines. We do not provide any matching or company contributions to the plan. Participants are always vested in their contributions to the plan.

Equity Compensation Plans and Other Benefit Plans

2018 Equity Incentive Plan

In connection with this offering, our board of directors expects to adopt, and our current stockholders expect to approve, the Tricida, Inc. 2018 Equity Incentive Plan, or the 2018 Incentive Plan, prior to the effective date of this offering. The 2018 Incentive Plan will replace the 2013 Equity Incentive Plan, as described below.

The purposes of the 2018 Incentive Plan are to align the interests of our stockholders and those eligible for awards, to retain officers, directors, employees, and other service providers, and to encourage them to act in our long-term best interests. Our 2018 Incentive Plan provides for the grant of incentive stock options (within the meaning of Internal Revenue Code Section 422), nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards, and performance awards. Officers, directors, employees, consultants, agents and independent contractors who provide services to us or to any subsidiary of ours are eligible to receive such awards. The material terms of the 2018 Incentive Plan are as follows:

Stock Subject to the Plan .    The number of shares reserved for issuance under the 2018 Incentive Plan is                     , plus an annual increase added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2019 and continuing until, and including, the fiscal year ending December 31, 2028. The annual increase will be equal to 4% of the number of shares of common stock outstanding on the first day of such fiscal year,                  shares of our common stock

 

152


Table of Contents

or such lesser amount as is determined by our board of directors. To the extent an equity award granted under the 2018 Incentive Plan (other than any substitute award) expires or otherwise terminates without having been exercised or paid in full, or is settled in cash, the shares subject to such award will become available for future grant under the 2018 Incentive Plan. In addition, to the extent shares subject to an award are withheld to satisfy a participant’s tax withholding obligation upon the exercise or settlement of such award (other than any substitute award) or to pay the exercise price of a stock option, such shares will become available for future grant under the 2018 Incentive Plan.

Plan Administration .    Our compensation committee will administer the 2018 Incentive Plan. Our board of directors has the authority to amend and modify the plan, subject to any stockholder approval required by law or stock exchange rules. Subject to the terms of the 2018 Incentive Plan, our compensation committee will have the authority to determine the eligibility for awards and the terms, conditions, and restrictions, including vesting terms, the number of shares subject to an award, and any performance goals applicable to grants made under the 2018 Incentive Plan. The compensation committee also will have the authority, subject to the terms of the 2018 Incentive Plan, to construe and interpret the 2018 Incentive Plan and awards, and amend outstanding awards at any time.

Stock Options and Stock Appreciation Rights.     Our compensation committee may grant incentive stock options, nonstatutory stock options, and stock appreciation rights under the 2018 Incentive Plan, provided that incentive stock options are granted only to employees. The exercise price of stock options and stock appreciation rights under the 2018 Incentive Plan will be fixed by the compensation committee, but must equal at least 100% of the fair market value of our common stock on the date of grant. The term of an option or stock appreciation right may not exceed ten years; provided, however, that an incentive stock option held by an employee who owns more than 10% of all of our classes of stock, or of certain of our affiliates, may not have a term in excess of five years, and must have an exercise price of at least 110% of the fair market value of our common stock on the grant date. Subject to the provisions of the 2018 Incentive Plan, the compensation committee will determine the remaining terms of the options and stock appreciation rights (e.g., vesting). Upon a participant’s termination of service, the participant may exercise his or her option or stock appreciation right, to the extent vested (unless the compensation committee permits otherwise), as specified in the award agreement.

Stock Awards .    Our compensation committee will decide at the time of grant whether an award will be in the form of restricted stock, restricted stock units, or other stock award. The compensation committee will determine the number of shares subject to the award, vesting, and the nature of any performance measures. Unless otherwise specified in the award agreement, the recipient of restricted stock will have voting rights and be entitled to receive dividends with respect to his or her shares of restricted stock. The recipient of restricted stock units will not have voting rights, but his or her award agreement may provide for the receipt of dividend equivalents. Any dividends or dividend equivalents paid with respect to restricted stock or restricted stock units will be subject to the same vesting conditions as the underlying awards. Our compensation committee may grant other stock awards that are based on or related to shares of our common stock, such as awards of shares of common stock granted as bonus and not subject to any vesting conditions, deferred stock units, stock purchase rights, and shares of our common stock issued in lieu of our obligations to pay cash under any compensatory plan or arrangement.

Performance Awards .    Our compensation committee will determine the value of any performance award, the vesting and nature of the performance measures, and whether the award is denominated or settled in cash or in shares of our common stock. The performance goals applicable to a particular award will be determined by our compensation committee at the time of grant.

Transferability of Awards .    The 2018 Incentive Plan does not allow awards to be transferred other than by will or the laws of inheritance following the participant’s death, and options may be exercised, during the lifetime of the participant, only by the participant. However, an award agreement

 

153


Table of Contents

may permit a participant to assign an award to a family member by gift or pursuant to a domestic relations order, or to a trust, family limited partnership or similar entity established for one of the participant’s family members. A participant may also designate a beneficiary who will receive outstanding awards upon the participant’s death.

Certain Adjustments .    If any change is made in our common stock subject to the 2018 Incentive Plan, or subject to any award agreement under the 2018 Incentive Plan, without the receipt of consideration by us, such as through a stock split, stock dividend, extraordinary distribution, recapitalization, combination of shares, exchange of shares or other similar transaction, appropriate adjustments will be made in the number, class, and price of shares subject to each outstanding award and the numerical share limits contained in the plan.

Change in Control .    Subject to the terms of the applicable award agreement, upon a “change in control” (as defined in the 2018 Incentive Plan), our board of directors may, in its discretion, determine whether some or all outstanding options and stock appreciation rights will become exercisable in full or in part, whether the restriction period and performance period applicable to some or all outstanding restricted stock awards and restricted stock unit awards will lapse in full or in part and whether the performance measures applicable to some or all outstanding awards will be deemed to be satisfied. Our board of directors may further require that shares of stock of the corporation resulting from such a change in control, or a parent corporation thereof, be substituted for some or all of our shares of common stock subject to an outstanding award and that any outstanding awards, in whole or in part, be surrendered to us by the holder and be immediately cancelled by us in exchange for a cash payment, shares of capital stock of the corporation resulting from or succeeding us or a combination of both cash and such shares of stock.

Clawback .    Awards granted under the 2018 Incentive Plan and any cash payment or shares of our common stock delivered pursuant to an award are subject to forfeiture, recovery, or other action pursuant to the applicable award agreement or any clawback or recoupment policy that we may adopt.

Plan Termination and Amendment.     Our board of directors has the authority to amend, suspend, or terminate the 2018 Incentive Plan, subject to any requirement of stockholder approval required by law or stock exchange rules. Our 2018 Incentive Plan will terminate on the ten-year anniversary of its approval by our board of directors, unless we terminate it earlier.

New Plan Benefits .    The compensation committee has the discretion to grant awards under the 2018 Incentive Plan, and therefore it is not possible at the time of filing of this prospectus to determine future awards that will be received by our named executive officers or others under the 2018 Incentive Plan. All officers, directors, employees, consultants, agents and independent contractors are eligible for consideration to participate in the 2018 Incentive Plan.

2013 Equity Incentive Plan

The following is a description of the material terms of the Tricida, Inc. 2013 Equity Incentive Plan, or the 2013 Incentive Plan. The summary below does not contain a complete description of all provisions of the 2013 Equity Incentive Plan and is qualified in its entirety by reference to the plan, a copy of which will be included as an exhibit to the registration statement of which this prospectus forms a part. See “Where You Can Find More Information.”

As discussed above, we expect to replace the 2013 Incentive Plan with a new plan adopted prior to the completion of this offering. Once that new plan becomes effective, we will no longer make awards under the 2013 Incentive Plan. However, the 2013 Incentive Plan will continue to govern outstanding awards granted prior to its termination.

 

154


Table of Contents

Authorized Shares.     Under the 2013 Incentive Plan, 18,040,000 shares of our common stock are reserved for issuance, subject to adjustment for stock splits and other similar changes in capitalization. As of March 31, 2018, our employees, directors and consultants held outstanding stock options granted under the 2013 Incentive Plan for the purchase of up to 17,447,456 shares of our common stock, with 5,547,985 of those options vested as of such date. No other equity awards are outstanding under the 2013 Incentive Plan as of such date.

Administration.     Our board of directors, or a committee appointed by our board, administers the 2013 Incentive Plan. Under the terms of the plan, the number of shares subject to outstanding awards and the exercise or base prices of those awards are subject to adjustment in the event of certain changes in our capital structure, reorganizations and other extraordinary events.

Participants.     Employees, directors and consultants of the company and our affiliates are eligible to participate in the 2013 Incentive Plan, if selected for participation by the plan administrator.

Types and Terms of Awards.     Under the 2013 Equity Incentive Plan, we are authorized to grant stock options, stock appreciation rights, restricted stock units, restricted stock and other stock awards. Stock options and stock appreciation rights may not be exercised beyond a ten-year term (or such shorter period as required with respect to incentive stock options held by certain holders). The terms of the awards will be specified in an underlying award agreement approved by the plan administrator.

Termination of Employment .    The terms relating to exercise, cancellation, other disposition, forfeiture, satisfaction of performance measures, termination of restriction periods or termination of performance periods upon termination of employment with or service to the company, whether by reason of disability, cause, retirement, death or other termination, are set forth in the underlying award agreement.

Change in Control.     In the event we experience a change in control under the terms of the plan, the plan administrator may provide for the cash settlement, vesting, assumption, substitution or termination of outstanding awards. Under the forms of the director option agreements, upon a change in control the options will immediately vest. This offering will not constitute a change in control under the plan.

Amendment and Termination .    The board of directors may, at any time, amend, suspend or terminate the 2013 Incentive Plan as it shall deem advisable, subject to any stockholder approval required by applicable law, rule or regulation. No amendment may impair the rights of a holder of an outstanding award without the consent of such holder.

Employee Stock Purchase Plan

In June 2018, our board of directors adopted, and our stockholders approved, the Tricida, Inc. Employee Stock Purchase Plan, or the ESPP. Our ESPP will be effective prior to the effectiveness of this offering.

Generally, all of our employees (including those of our consolidated subsidiaries, other than those subsidiaries excluded from participation by our board of directors or compensation committee) who have been employed for at least 90 days are eligible to participate in the ESPP. The ESPP permits employees to purchase our common stock through payroll deductions during six-month offering periods, with the first offering period scheduled to begin on                     , 2018. Participants may authorize payroll deductions of a specific percentage of compensation of up to 15%, with such deductions being accumulated for six-month purchase periods beginning on the first business day of each offering period and ending on the last business day of each offering period. Under the terms of

 

155


Table of Contents

the ESPP, the purchase price per share with respect to an offering period will equal the lesser of (i) 85% of the fair market value of a share of our common stock on the first business day of such offering period and (ii) 85% of the fair market value of a share of our common stock on the last business day of such offering period, although the compensation committee has discretion to change the purchase price with respect to future offering periods, subject to the terms of the ESPP. No employee may participate in an offering period if the employee owns 5% or more of the total combined voting power or value of our stock or the stock of any of our subsidiaries. No participant may purchase more than      shares of our common stock during any offering period.

                     shares of our common stock, subject to adjustment for stock splits, stock dividends or other changes in our capital stock, have been reserved for issuance under the ESPP. Subject to the adjustment provisions contained in the ESPP, the maximum number of shares of our common stock available under the ESPP will automatically increase on the first trading day in January of each calendar year, commencing January 2019, by an amount equal to the lesser of 1% of the shares of our common stock issued and outstanding on December 31 of the immediately preceding calendar year,                      shares of our common stock or such lesser amount as is determined by our board of directors.

The ESPP will be administered by the compensation committee or a designee of the compensation committee. The ESPP may be amended by our board of directors or the compensation committee but may not be amended without prior stockholder approval to the extent required by Section 423 of the Code. The ESPP shall continue in effect until the earlier of (i) the termination of the ESPP by our board of directors or the compensation committee pursuant to the terms of the ESPP and (ii) the ten-year anniversary of the effective date of the ESPP, with no new offering periods commencing on or after such ten-year anniversary.

 

156


Table of Contents

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements, with our directors and executive officers, including those discussed in the sections titled “Management” and “Executive Compensation,” the following is a description of each transaction since January 1, 2015 and each currently proposed transaction in which:

 

    we have been or are to be a participant;

 

    the amounts involved exceeded or will exceed $120,000; and

 

    any of our directors, executive officers or holders of more than five percent of our capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest.

Investor Rights Agreement

We have entered into an amended and restated investors rights agreement, dated as of November 7, 2017, as amended, that provides holders of our convertible preferred stock, including certain holders of five percent or more of our capital stock and entities affiliated with certain of our directors, with rights of first refusal in favor of the holders of our convertible preferred stock with respect to certain issuances of our capital stock and securities convertible into or exercisable or exchangeable for our capital stock. The rights of first refusal do not include the shares to be sold in this offering and will terminate upon the completion of this offering. The registration rights given to holders of our convertible preferred stock include the right to demand that we file a registration statement or request that their shares be covered by a registration statement that we are otherwise filing, subject, in each case, to certain exceptions. These holders have waived their rights to include shares in the registration statement of which this prospectus forms a part and to exercise their registration rights during the lock-up period for this offering. For a description of these registration rights, see “Description of Capital Stock—Registration Rights.”

Voting Agreement

We have entered into an amended and restated voting agreement, dated as of November 7, 2017, with certain holders of our capital stock, including certain holders of five percent or more of our capital stock and entities affiliated with certain of our directors. Pursuant to the amended and restated voting agreement, the parties thereto have agreed as to the manner in which they will vote their shares of our capital stock with respect to certain matters, including the election of directors. The voting agreement will terminate and be of no further effect upon the completion of this offering.

Right of First Refusal and Co-Sale Agreement

We have entered into an amended and restated right of first refusal and co-sale agreement, dated as of November 7, 2017, with certain holders of our capital stock, including certain holders of five percent or more of our capital stock and entities affiliated with certain of our directors. Pursuant to the amended and restated right of first refusal and co-sale agreement, we have a right to purchase shares of our common stock which certain stockholders propose to sell to other parties. The amended and restated right of first refusal and co-sale agreement will terminate and be of no further effect upon the completion of this offering.

 

157


Table of Contents

Sales and Purchases of Securities

Convertible Preferred Stock

The following table sets forth a summary of the sale and issuance of our convertible preferred stock to related persons since January 1, 2015, other than compensation arrangements which are described under the sections of this prospectus captioned “Management—Director Compensation” and “Executive Compensation.” For a description of beneficial ownership see the section of this prospectus captioned “Principal Stockholders.”

 

Stockholder

   Affiliated Director(s)      Series B
Convertible
Preferred
Stock
     Series C
Convertible
Preferred
Stock
     Series D
Convertible
Preferred
Stock
 

5% Stockholders:

           

OrbiMed Private Investments V, LP

     David P. Bonita, M.D.        17,117,085        14,292,958        4,255,319

Entities affiliated with Sibling Capital(1)

     Sandra I. Coufal, M.D.        12,495,612        7,204,578        2,385,532  

Longitude Venture Partners II, L.P.

     David Hirsch, M.D., Ph.D.             9,677,419        1,817,447

Hadley Harbor Master Investors (Cayman) II L.P.

                  8,510,638

Limulus Venture Partners Limited Partnership

        2,645,364        1,908,526        1,035,319

 

(1) Entities associated with Sibling Capital holding our securities whose shares are aggregated for purposes of reporting share ownership information are Sibling Capital Fund II-B L.P., Sibling Capital Fund II-C L.P., and Sibling Capital Fund II-D L.P.

Issuance of Series D Convertible Preferred Stock

In November 2017, we issued and sold an aggregate of 24,493,615 shares of our Series D convertible preferred stock at a purchase price of $2.35 per share for an aggregate purchase price of approximately $57.5 million in cash, including (i) 8,510,638 shares issued to Hadley Harbor Master Investors (Cayman) II L.P. for an aggregate purchase price of $19,999,999.30, (ii) 4,255,319 shares issued to OrbiMed Private Investments V, LP for an aggregate purchase price of $9,999,999.65, (iii) 2,385,532 shares issued to Sibling Capital Fund II-D L.P. for an aggregate purchase price of $5,606,000.20, (iv) 1,817,447 shares issued to Longitude Venture Partners II, L.P. for an aggregate purchase price of $4,271,000.45, and (v) 1,035,319 shares issued to Limulus Venture Partners Limited Partnership for an aggregate purchase price of $2,432,999.65.

Issuance of Series C Convertible Preferred Stock

In July 2016, August 2016 and April 2017, we issued and sold an aggregate of 35,806,451 shares of our Series C convertible preferred stock at a purchase price of $1.55 per share for an aggregate purchase price of approximately $55.5 million in cash, including (i) 14,292,958 shares issued to OrbiMed Private Investments V, LP for an aggregate purchase price of $22,154,084.90, (ii) 9,677,419 shares issued to Longitude Venture Partners II, L.P. for an aggregate purchase price of $14,999,999.45, (iii) 7,204,578 shares issued to Sibling Capital Fund II-C L.P. for an aggregate purchase price of $11,167,095.90, and (iv) 1,908,526 shares issued to Limulus Venture Partners Limited Partnership for an aggregate purchase price of $2,958,215.30.

 

158


Table of Contents

Issuance of Series B Convertible Preferred Stock

In February 2015 and February 2016, we issued and sold an aggregate of 32,526,878 shares of our Series B convertible preferred stock at a purchase price of $0.93 per share for an aggregate purchase price of approximately $30.2 million in cash, including (i) 17,117,085 shares issued to OrbiMed Private Investments V, LP for an aggregate purchase price of $15,918,889.05, (ii) 12,495,612 shares issued to Sibling Capital Fund II-B L.P. for an aggregate purchase price of $11,620,919.16, and (iii) 2,645,364 shares issued to Limulus Venture Partners Limited Partnership for an aggregate purchase price of $2,460,188.52.

Consulting Agreements

Veitinger Consultant Services Agreement

We are party to an amended and restated consultant services agreement, or the Veitinger CSA, dated March 31, 2014, with Klaus Veitinger Consulting LLC, an entity that is owned by Klaus Veitinger, M.D., Ph.D., a member of our board of directors. Pursuant to the Veitinger CSA, Klaus Veitinger Consulting LLC will assist us with corporate, commercial, reimbursement, medical and regulatory strategy in the area of polymer-based therapeutics for the treatment and/or prevention of metabolic acidosis. As compensation for these services, we are obligated to pay Klaus Veitinger Consulting LLC a fee of $6,666.67 per month for up to and including four days of work per month and an additional amount of $2,500 per day for any additional days of work beyond four days in a given month. Pursuant to an amendment to the Veitinger CSA which we entered into on November 15, 2016, we have agreed to certain indemnification obligations in favor of Klaus Veitinger Consulting LLC. The Veitinger CSA was terminated in May 2018.

Coufal Scientific Advisor Agreement

We are party to an amended and restated scientific advisor agreement, or the Coufal SAA, dated March 31, 2014, with Sandra Coufal, M.D., a member of our board of directors. Pursuant to the Coufal SAA, Dr. Coufal will serve as a member of our Scientific Advisory Board and attend meetings of our Scientific Advisory Board. As compensation for these services, we are obligated to pay Dr. Coufal a fee of $6,666.67 per month for up to and including four days of work per month and an additional amount of $2,500 per day for any additional days of work beyond four days in a given month. The Coufal SAA was terminated in May 2018.

Alpern Scientific Advisor Agreement

We are party to an amended and restated scientific advisor agreement, or the Alpern SAA, dated March 31, 2014, with Robert Alpern, M.D., a member of our board of directors. Pursuant to the Alpern SAA, Dr. Alpern consults and advises, at our request, in the area of polymer therapeutics in cardiorenal disease and will serve as the chairman of our Scientific Advisory Board and attend meetings of our Scientific Advisory Board. Dr, Alpern will also work with us in the area of polymer therapeutics in cardiorenal disease. As compensation for these services, we are obligated to pay Dr. Alpern a fee of $4,166.67 per month. The Alpern SAA was terminated in May 2018.

Miksch Transition and Consulting Agreement

We are a party to a transition and consulting agreement, dated April 15, 2015, or the Miksch TCA, with Melissa J. Miksch, JD, the spouse of Gerrit Klaerner, Ph.D., our President and Chief Executive Officer. Pursuant to the Miksch TCA, Ms. Miksch advises us on certain corporate matters as an independent consultant. As compensation for these consulting services, we are obligated to pay

 

159


Table of Contents

Ms. Miksch a fee of $6,400 per month for up to and including four days of work per month and an additional amount of $1,600 per day for any additional days of work beyond four days in a given month. The Miksch TCA also provides that the restricted stock held by Ms. Miksch will continue to vest pursuant to the terms of a restricted stock purchase agreement that Ms. Miksch entered into in connection with her employment with us. As of December 31, 2017, all of the restricted stock held by Ms. Miksch has vested. Ms. Miksch’s retention as a consultant pursuant to the Miksch TCA was contingent upon the execution by Ms. Miksch of a general release of claims in favor of us. Ms. Miksch executed such a general release of claims in favor of us on May 1, 2015. The transition and consulting agreement with Ms. Miksch was terminated effective April 1, 2018.

Executive Severance Plan

Our executive officers participate in our Executive Severance Plan. See “Executive Compensation—Additional Narrative Disclosure—Executive Severance Benefit Plan” for additional information.

Indemnification of Officers and Directors

Our amended and restated certificate of incorporation provides that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. In addition, we have entered into indemnification agreements with each of our directors and executive officers that are broader in scope than the specific indemnification provisions contained in the DGCL.

Policies and Procedures for Related Person Transactions

Following this offering, pursuant to the written charter of our audit committee adopted in                 2018, our audit committee of the board of directors will be responsible for reviewing and approving, prior to our entry into any such transaction, all related person transactions involving a principal stockholder, a member of the board of directors, senior management or an immediate family member of any of the aforementioned individuals. In addition, our code of business conduct and ethics requires that our officers and employees avoid taking for themselves personally opportunities that are discovered through the use of our property, information or position or use of our property, information or position for personal gain.

 

160


Table of Contents

PRINCIPAL STOCKHOLDERS

The following table sets forth information relating to the beneficial ownership of our common stock as of May 31, 2018, by:

 

    each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of common stock;

 

    each of our directors;

 

    each of our named executive officers; and

 

    all our current directors and executive officers 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 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 May 31, 2018, through the exercise of any stock option, warrants or other rights. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by that person.

The percentage of shares beneficially owned is computed on the basis of 113,611,614 shares of our common stock outstanding as of May 31, 2018, which assumes (i) the conversion of all of the outstanding shares of our convertible preferred stock into an aggregate of 104,129,702 shares of common stock immediately prior to the completion of this offering, (ii) the exercise of an outstanding warrant to purchase shares of our convertible preferred stock with a per share exercise price of $0.886, resulting in the issuance of 95,936 shares of our common stock and (iii) the one-for-                reverse stock split. The percentage of shares beneficially owned after this offering is computed on the basis of shares of common stock outstanding immediately after the completion of this offering (assuming no exercise of the underwriters’ option to purchase additional shares of our common stock), which reflects (i) the conversion of all of the outstanding shares of our convertible preferred stock into an aggregate of 104,129,702 shares of common stock immediately prior to the completion of this offering, (ii) the exercise of an outstanding warrant with a per share exercise price of $0.886, into an aggregate of 95,936 shares of common stock immediately prior to this offering and (iii) the one-for-                reverse stock split. Shares of our common stock that a person has the right to acquire within 60 days of May 31, 2018, 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.

 

161


Table of Contents

Unless otherwise indicated below, the address for each beneficial owner listed is c/o Tricida, Inc., at 7000 Shoreline Court, Suite 201, South San Francisco, CA 94080.

 

     SHARES OF COMMON
STOCK BENEFICIALLY
OWNED
     PERCENTAGE OF
SHARES
BENEFICIALLY OWNED
 

NAME OF BENEFICIAL OWNER

   BEFORE
OFFERING
     AFTER
OFFERING
     BEFORE
OFFERING
    AFTER
OFFERING

5% Stockholders

          

OrbiMed Private Investments V, LP(1)

     41,873,036           36.9             

Entities affiliated with Sibling Capital(2)

     26,617,375           23.4  

Longitude Venture Partners II, L.P.(3)

     11,494,866           10.1  

Hadley Harbor Master Investors (Cayman) II L.P.(4)

     8,510,638           7.5  

Limulus Venture Partners Limited Partnership(5)

     6,548,576           5.8  

Directors and Named Executive Officers

          

Gerrit Klaerner, Ph.D.(6)

     6,005,000           5.2  

Robert J. Alpern, M.D.(7)

     737,500           *    

David P. Bonita, M.D.(8)

     41,873,036           36.9  

Sandra I. Coufal, M.D.(9)

     27,567,375           24.3  

Kathryn Falberg(10)

     210,000           *    

David Hirsch, M.D., Ph.D.(11)

     11,494,866           10.1  

Geoffrey M. Parker(12)

     1,260,000           1.1  

Wilhelm Stahl, Ph.D.(13)

     1,180,000           1.0  

Klaus Veitinger, M.D., Ph.D.(14)

     1,540,000           1.3  

All directors and executive officers as a group (13 persons)(15)

     96,347,789           78.3  

 

* Indicates beneficial ownership of less than 1% of the outstanding shares of our common stock.
(1) Consists of (a) 6,207,674 shares of common stock issuable upon conversion of Series A convertible preferred stock, (b) 17,117,085 shares of common stock issuable upon conversion of Series B convertible preferred stock, (c) 14,292,958 shares of common stock issuable upon conversion of Series C convertible preferred stock, and (d) 4,255,319 shares of common stock issuable upon conversion of Series D convertible preferred stock. All shares are held directly by OrbiMed Private Investments V, LP, or OPI V. OrbiMed Capital GP V LLC, or OrbiMed GP, is the sole general partner of OPI V, and OrbiMed Advisors LLC, or OrbiMed Advisors, a registered adviser under the Investment Advisors Act of 1940, as amended, is the sole managing member of OrbiMed GP. By virtue of such relationships, OrbiMed GP and OrbiMed Advisors may be deemed to have voting and investment power with respect to the shares held by OPI V noted above and as a result may be deemed to beneficially own such securities for purposes of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. OrbiMed Advisors exercises this investment and voting power through a management committee comprised of Carl L. Gordon, Ph.D., Sven H. Borho and Jonathan T. Silverstein, each of whom disclaims beneficial ownership of the shares held by OPI V. David P. Bonita, M.D., is an employee of OrbiMed Advisors and its designee to our board of directors pursuant to our amended and restated voting agreement. Each of OrbiMed GP, OrbiMed Advisors, Dr. Gordon, Mr. Borho, Mr. Silverstein and Dr. Bonita disclaims beneficial ownership of the shares held by OPI V, except to the extent of its or his proportionate pecuniary interest therein, if any. The address of OrbiMed Advisors is 601 Lexington Avenue, New York, NY 10022.
(2)

Consists of (a) 95,936 shares of common stock issuable upon conversion of Series A convertible preferred stock issuable upon the exercise of a warrant held by Sibling Co-Investment LLC, or Sibling Co-Investment, (b) 300,000 shares of common stock held by Sibling Co-Investment, (c) 580,413 shares of common stock issuable upon conversion of Series A convertible preferred

 

162


Table of Contents
  stock held by Sibling Co-Investment, (d) 3,555,304 shares of common stock issuable upon conversion of Series A convertible preferred stock held by Sibling Capital Fund II-A L.P., or Sibling A, (e) 12,495,612 shares of common stock issuable upon conversion of Series B convertible preferred stock held by Sibling Capital Fund II-B L.P., or Sibling B, (f) 7,204,578 shares of common stock issuable upon conversion of Series C convertible preferred stock held by Sibling Capital Fund II-C L.P., or Sibling C, and, (g) 2,385,532 shares of common stock issuable upon conversion of Series D convertible preferred stock held by Sibling Capital Fund II-D L.P., or Sibling D, and together with Sibling A, Sibling B and Sibling C, the Sibling Funds. Sibling Capital Ventures LLC, or SCV, is (i) the sole manager of Sibling Co-Investment and (ii) the sole general partner of Sibling A. Sibling Capital Ventures II LLC, or SCV II, is the sole general partner of Sibling B. Sibling Capital Ventures III LLC, or SCV III, is the sole general partner of Sibling C. Sibling Capital Ventures IV LLC, or SCV IV, is the sole general partner of Sibling D. Each of Sandra I. Coufal, M.D., the designee of SCV to our board of directors pursuant to our amended and restated voting agreement, and Brian M. Isern, the brother of Dr. Coufal, is co-manager of SCV, SCV II, SCV III, and SCV IV and, as such, may be deemed to have voting and investment power with respect to the shares held by Sibling Co-Investment and the Sibling Funds. Each of SCV, SCV II, SCV III, SCV IV, Dr. Coufal and Mr. Isern disclaims beneficial ownership of shares held by Sibling Co-Investment and the Sibling Funds, except to the extent of its, her or his proportionate pecuniary interest therein, if any. The address of SCV, SCV II, SCV III, and SCV IV is 702 San Antonio Street, Austin, Texas 78701.
(3) Consists of (a) 9,677,419 shares of common stock issuable upon conversion of Series C convertible preferred stock and (b) 1,817,447 shares of common stock issuable upon conversion of Series D convertible preferred stock. All shares are held directly by Longitude Venture Partners II, L.P., or Longitude II. Longitude Capital Partners II, LLC, or LCP2, the general partner of Longitude II, may be deemed to share voting and investment power with respect to the shares held by the Longitude II. Patrick G. Enright and Juliet Tammenoms Bakker are managing members of LCP2 and may be deemed to share voting and investment power over the shares held by Longitude II. David Hirsch, M.D., Ph.D. is a member of LCP2 and may be deemed to share voting and investment power over the shares held by Longitude II. Each of LCP2, Mr. Enright, Ms. Bakker and Dr. Hirsch disclaims beneficial ownership of the shares held by Longitude II, except to the extent of its, his or her proportionate pecuniary interest therein, if any. The address of LCP2 is 2740 Sand Hill Road, Menlo Park, CA 94025.
(4) Consists of 8,510,638 shares of common stock issuable upon conversion of Series D convertible preferred stock held directly by Hadley Harbor Master Investors (Cayman) II L.P., or Hadley Harbor. Wellington Management Company, LLP, or Wellington Management, is an investment adviser registered under the Investment Advisers Act of 1940, as amended, and serves as the advisor to Hadley Harbor. Wellington Management, in such capacity, may be deemed to share beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of the shares held by Hadley Harbor. The address of Hadley Harbor is c/o Wellington Management Company, LLP, 280 Congress Street, Boston, Massachusetts 02210.
(5) Consists of (a) 959,367 shares of common stock issuable upon conversion of Series A convertible preferred stock, (b) 2,645,364 shares of common stock issuable upon conversion of Series B convertible preferred stock, (c) 1,908,526 shares of common stock issuable upon conversion of Series C convertible preferred stock, and (d) 1,035,319 shares of common stock issuable upon conversion of Series D convertible preferred stock. All shares are held directly by Limulus Venture Partners Limited Partnership, or Limulus. Limulus LLC is the general partner of Limulus. The address of Limulus is One Gateway Center, Suite 407, Newton, MA 02458.
(6)

Consists of (a) 2,745,000 shares of common stock held by Gerrit Klaerner, Ph.D., (b) 585,000 shares of common stock held by the spouse of Dr. Klaerner, and (c) 2,675,000 shares of common stock issuable upon exercise of stock options held by Dr. Klaerner that are exercisable as of May 31, 2018 or will become exercisable within 60 days of such date, 910,104 of which are vested, the remainder of which are eligible for early exercise as described in footnote (15) below.

 

163


Table of Contents
  Excludes (i) 30,000 shares of common stock held by Dr. Klaerner’s sister in-law, who does not live in the same household as Dr. Klaerner. Dr. Klaerner disclaims beneficial ownership of shares held by his sister in-law.
(7) Consists of (a) 700,000 shares of common stock held by Robert J. Alpern, M.D. and (b) 37,500 shares of common stock issuable upon exercise of stock options held by Dr. Alpern that are exercisable as of May 31, 2018 or will become exercisable within 60 days of such date, 23,437 of which are vested, the remainder of which are eligible for early exercise as described in footnote (15) below.
(8) Consists of 41,873,036 shares beneficially owned by OPI V as set forth in footnote (1). Dr. Bonita disclaims beneficial ownership of the shares listed in footnote (1), except to the extent of his proportionate pecuniary interest therein, if any. The business address for Dr. Bonita is 601 Lexington Avenue, New York, NY 10022.
(9) Consists of (a) 850,000 shares of common stock held by Dr. Coufal, (b) 100,000 shares held by the Coufal Irrevocable Trust, of which the spouse of Dr. Coufal is the sole trustee, and (c) 26,617,375 shares beneficially owned by entities affiliated with Sibling Capital, as set forth in footnote (2). Dr. Coufal disclaims beneficial ownership of the shares listed in footnote (2), except to the extent of her proportionate pecuniary interest therein, if any. Dr. Coufal disclaims beneficial ownership of the shares held by the Coufal Irrevocable Trust, as to which Dr. Coufal does not exercise voting or dispositive power. The business address for Dr. Coufal is 18313 Calle La Serra, Rancho Santa Fe, CA 92091-0119.
(10) Consists of 210,000 shares of common stock issuable upon exercise of stock options held by Kathryn Falberg that are exercisable as of May 31, 2018 or will become exercisable within 60 days of such date, 17,500 of which are vested, the remainder vest in 1/36th increments for each month of continuous service and are eligible for early exercise as described in footnote (15) below.
(11) Consists of 11,494,866 shares beneficially owned by Longitude II as set forth in footnote (3). Dr. Hirsch disclaims beneficial ownership of the shares listed in footnote (3), except to the extent of his proportionate pecuniary interest therein, if any. The business address for Dr. Hirsch is 2740 Sand Hill Road, Menlo Park, CA 94025.
(12) Consists of 1,260,000 shares of common stock issuable upon exercise of stock options held by Geoffrey M. Parker that are exercisable as of May 31, 2018 or will become exercisable within 60 days of such date, 312,500 of which are vested, the remainder of which are eligible for early exercise as described in footnote (15) below.
(13) Consists of 1,180,000 shares of common stock issuable upon exercise of stock options held by Wilhelm Stahl, Ph.D. that are exercisable as of May 31, 2018 or will become exercisable within 60 days of such date, 384,791 of which are vested, the remainder of which are eligible for early exercise as described in footnote (15) below.
(14) Consists of (a) 142,500 shares of common stock held by Dr. Veitinger, (b) 590,000 shares of common stock issuable upon exercise of stock options held by Dr. Veitinger that are exercisable as of May 31, 2018 or will become exercisable within 60 days of such date, 291,041 of which are vested, the remainder of which are eligible for early exercise as described in footnote (15) below, (c) 403,750 shares of common stock held by the Sigrun R. Veitinger 2016 Irrevocable Trust, or the SRV Trust, for which a third-party serves as trustee, and (d) 403,750 shares of common stock held by Klaus R. Veitinger 2016 Children’s Trust, or the KRV Children’s Trust, for which a third-party serves as trustee. Dr. Veitinger disclaims beneficial ownership of the shares held by the SRV Trust and the KRV Children’s Trust, except to the extent of his proportionate pecuniary interest therein, if any.
(15)

Consists of (a) all shares of common stock held by our directors and seven current executive officers and (b) all shares of common stock issuable upon exercise of stock options held by our directors and seven current executive officers that are exercisable as of May 31, 2018 or will become exercisable within 60 days of such date, 3,214,295 of which are vested, the remainder of which are unvested but may be exercised prior to vesting subject to a repurchase arrangement

 

164


Table of Contents
  with us, as described further below. Except as noted in footnote (10) above, 25% of the shares issuable upon exercise of options granted to our directors and executive officers vest on the first anniversary of the applicable vesting commencement date and in subsequent 1/48th increments for each subsequent month of continuous service. Our directors and executive officers may elect to early exercise their options at any time prior to vesting, provided that the shares issued upon exercise of the unvested options will be shares of restricted stock subject to our right to repurchase the shares, should the applicable director or executive officer cease to serve as a director or employee of us prior to the full vesting of such shares of restricted stock. In addition, vesting of an executive officer’s then outstanding and unvested option will accelerate upon termination of service in connection with a change in control, as provided in our executive severance benefit plan.

 

165


Table of Contents

DESCRIPTION OF CAPITAL STOCK

The following summary describes our capital stock and the material provisions of our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective immediately prior to the completion of this offering, the investor rights agreement to which we and certain of our stockholders are parties and of the General Corporation Law of the State of Delaware. Because the following is only a summary, it does not contain all of the information that may be important to you. For a complete description, you should refer to our amended and restated certificate of incorporation, amended and restated bylaws and amended and restated investor rights agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus is part.

General

Immediately prior to the completion of this offering, we will file our amended and restated certificate of incorporation that authorizes                  shares of common stock, $0.001 par value per share, and                  shares of convertible preferred stock, $0.001 par value per share. As of March 31, 2018, there were outstanding:

 

                     shares of our common stock held by approximately 46 stockholders of record assuming the conversion of all of our outstanding shares of convertible preferred stock outstanding as of March 31, 2018, into shares of our common stock and the conversion into common stock of preferred stock issuable upon the net exercise of an outstanding warrant; and

 

    17,447,456 shares of our common stock issuable upon exercise of outstanding stock options.

In connection with this offering, we will consummate a reverse stock split of our outstanding capital stock at a ratio to be determined.

Common Stock

Voting Rights

Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. In the election of directors, a plurality of the votes cast at a meeting of stockholders is sufficient to elect a director. Our stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are able to elect all of the directors. In all other matters, except as noted below under “Anti-Takeover Effects of Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and Delaware Law” a majority vote of common stockholders is generally required to take action under our amended and restated certificate of incorporation and amended and restated bylaws.

Dividends

Subject to preferences that may be applicable to any then outstanding convertible preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future.

Liquidation

In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the

 

166


Table of Contents

payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of convertible preferred stock.

Rights and Preferences

Holders of our common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of our convertible preferred stock that we may designate in the future.

Fully Paid and Nonassessable

All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering, upon payment and delivery in accordance with the underwriting agreement, will be, fully paid and nonassessable.

Convertible Preferred Stock

As of March 31, 2018, there were 11,302,758 shares of our Series A convertible preferred stock, 32,526,878 shares of our Series B convertible preferred stock, 35,806,451 shares of our Series C convertible preferred stock and 24,493,615 shares of our Series D convertible preferred stock outstanding, as well as                  shares of our Series A convertible preferred stock issuable upon net exercise of an outstanding warrant. Upon the completion of this offering, all outstanding shares of our convertible preferred stock, including any shares of convertible preferred stock issuable upon conversion of our outstanding warrant, will be converted into shares of our common stock on a one-for-one basis.

Upon the closing of this offering, our board of directors will be authorized, without action by the stockholders, to designate and issue up to an aggregate of                  shares of convertible preferred stock in one or more series. The board of directors can fix the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations or restrictions. Our board of directors may authorize the issuance of convertible preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of convertible preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate purposes could, under certain circumstances, have the effect of delaying or preventing a change in control of our company and might harm the market price of our common stock. Upon the completion of this offering, no shares of convertible preferred stock will be outstanding, and we have no present plan to issue any shares of convertible preferred stock.

Options

As of March 31, 2018, we had outstanding options to purchase 17,447,456 shares of our common stock, with a per share weighted-average exercise price of $0.67, under our 2013 Equity Incentive Plan.

Warrants

As of March 31, 2018, a warrant to purchase 95,936 shares of our Series A convertible preferred stock with a per share exercise price of $0.886 was outstanding. Immediately prior to the completion of this offering, the warrant will be net exercised, resulting in the issuance of an aggregate of              shares of our common stock.

 

167


Table of Contents

On February 28, 2018, we entered into a warrant agreement with each of Hercules Capital, Inc., or Hercules, and Hercules Technology III, L.P. Pursuant to the terms of the warrant agreement, Hercules and Hercules Technology III, L.P., have the right to purchase an aggregate number of 212,765 shares of our common stock equal to the quotient derived by dividing (a) $500,000, by (b) the lower of (x) the offering price of the shares of our common stock under this offering and (y) and the effective price at which the shares of our Series D convertible preferred stock converted into common stock; provided however that in no event shall (x) or (y) be less than $0.20 per share.

Registration Rights

We are party to an amended and restated investor rights agreement, dated as of November 7, 2017, as amended, pursuant to which certain of our stockholders, including certain holders of five percent or more of our capital stock and entities affiliated with certain of our directors, have the right to demand that we file a registration statement for their shares of our common stock or request that their shares of our common stock be covered by a registration statement that we are otherwise filing, including, in each case, shares of our common stock that were issued upon conversion of convertible preferred stock. These shares are referred to as registrable securities. Such stockholders have agreed not to exercise their registration rights during the lock-up period for this offering. See “Shares Eligible for Future Sale—Lock-Up Agreements.”

Demand Registration Rights

At any time after 180 days following the completion of this offering, the holders of at least a majority of the registrable securities have the right to demand that we file, on no more than two occasions, a registration statement on Form S-1 to register all or a portion of their registrable securities, provided that the anticipated aggregate offering price of the registrable securities to be sold under the registration statement on Form S-1 exceeds $10.0 million.

Piggyback Registration Rights

If we propose to file a registration statement under the Securities Act for the purposes of a public offering of our securities (including, but not limited to, registration statements relating to secondary offering of our securities but excluding (i) a registration statement relating to any employee benefit plan or (ii) with respect to any corporate reorganization or transaction under Rule 145 of the Securities Act, any registration statements related to the issuance or resale of securities issued in such a transaction or (iii) a registration related to stock issued upon conversion of debt securities), the holders of registrable securities are entitled to receive notice of such registration and to request that we include their registrable securities for resale in the registration statement. The underwriters of the offering will have the right to limit the number of shares to be included in such registration. In connection with this offering, the holders of registrable securities were entitled to, and the necessary percentage of holders waived, their rights to notice of this offering and to include their shares of registrable securities in this offering.

Form S-3 Registration Rights

After the completion of this offering, a holder of at least 2,000,000 shares of convertible preferred stock (or common stock issued upon conversion of convertible preferred stock) (as adjusted for any stock dividend, combinations, splits, recapitalizations and the like) shall have the right to demand, subject to certain exceptions, that we file an unlimited number of registration statements on Form S-3 with respect to all of a part of the registrable securities owned by such holder provided that the anticipated aggregate offering price of the registrable securities to be sold under any such registration statement exceeds $5 million.

 

168


Table of Contents

Termination of Registration Rights

The demand, Form S-3 and piggyback registration rights described above will terminate five years after the completion of this offering. In addition, the registration rights of a holder of registrable securities will expire if all of the holder’s registrable securities may be sold without limitation (and without the requirement for us to be in compliance with the current public information requirement) under Rule 144 of the Securities Act.

Expenses of Registration; Indemnification

We are generally required to bear all registration expenses incurred in connection with any offerings pursuant to the demand, Form S-3 and piggyback registration rights described above, other than underwriting commissions and discounts. The amended and restated investor rights agreement contains customary indemnification provisions with respect to registration rights.

Anti-Takeover Effects of Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and Delaware Law

Some provisions of Delaware law and our amended and restated certificate of incorporation and our amended and restated bylaws that will be in effect immediately prior to the completion of this offering contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Delaware Anti-Takeover Statute

We are subject to Section 203 of the General Corporation Law of the State of Delaware, which prohibits persons deemed “interested stockholders” from engaging in a “business combination” with a publicly-held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. 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. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, such as discouraging takeover attempts that might result in a premium over the market price of our common stock.

Undesignated Preferred Stock

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any

 

169


Table of Contents

attempt to change control of us. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.

Special Stockholder Meetings

Our amended and restated certificate of incorporation and our amended and restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board of directors, Chief Executive Officer or President, in the absence of a Chief Executive Officer, or our board of directors.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.

Elimination of Stockholder Action by Written Consent

Our amended and restated certificate of incorporation and our amended and restated bylaws eliminate the right of stockholders to act by written consent without a meeting.

Choice of Forum

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws; any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine of the State of Delaware, or any other action asserting an “internal corporate claim,” as defined in Section 115 of the DGCL. Although our amended and restated certificate of incorporation contains the choice of forum provision described above, it is possible that a court could find that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable.

Amendment of Charter Provisions

The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock, would require approval by holders of at least 66 2/3% of the voting power of our then outstanding voting stock.

The provisions of the DGCL, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our Common Stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Limitations of Liability and Indemnification Matters

For a discussion of liability and indemnification, please see “Management—Limitation on Liability and Indemnification Matters.”

 

170


Table of Contents

The Nasdaq Global Select Market Listing

We have applied to list our common stock on The Nasdaq Global Select Market under the symbol “TCDA.”

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Computershare Trust Company, N.A. The transfer agent and registrar’s address is 250 Royall Street, Canton, MA 02021.

 

171


Table of Contents

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock. Future sales of our common stock, including shares issued upon the exercise of outstanding options or warrants, in the public market after this offering, or the perception that those sales may occur, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future. As described below, only a limited number of shares of our common stock will be available for sale in the public market for a period of several months after the completion of this offering due to contractual and legal restrictions on resale described below. Future sales of our common stock in the public market either before (to the extent permitted) or after restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock at such time and our ability to raise equity capital at a time and price we deem appropriate.

Sale of Restricted Shares

Based on the number of shares of our common stock outstanding as of                     , 2018, upon the completion of this offering, we will have outstanding an aggregate of approximately              shares of common stock. Of these shares, all of the shares of common stock to be sold in this offering other than any shares purchased by our existing investors will be freely tradable in the public market without restriction or further registration under the Securities Act, unless the shares are held by any of our “affiliates” as such term is defined in Rule 144 of the Securities Act. All remaining shares of common stock held by existing stockholders immediately prior to the completion of this offering will be “restricted securities” as such term is defined in Rule 144. These restricted securities were issued and sold by us, or will be issued and sold by us, in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act, including the exemptions provided by Rule 144 or Rule 701, which rules are summarized below.

As a result of the lock-up agreements referred to below and the provisions of Rule 144 and Rule 701 under the Securities Act, based on the number of shares of our common stock outstanding as of                     , 2018, the shares of our common stock (excluding the shares sold in this offering) that will be available for sale in the public market are as follows:

 

Approximate Number of

Shares

  

First Date Available for Sale into Public Market

shares

   180 days after the date of this prospectus upon expiration of the lock-up agreements referred to below, subject in some cases to applicable volume limitations under Rule 144

Lock-Up Agreements

In connection with this offering, we, our directors, our executive officers and the holders of substantially all of our capital stock, warrants and options have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of the lock-up agreement continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Cowen and Company, LLC. These agreements are subject to certain customary exceptions. See the section titled “Underwriting” for additional information.

Prior to the completion of the offering, certain of our employees, including our executive officers, and/or directors may enter into written trading plans that are intended to comply with Rule 10b5-1 under the Exchange Act. Sales under these trading plans would not be permitted until the expiration of the lock-up agreements relating to the offering described above.

 

172


Table of Contents

Following the lock-up periods set forth in the agreements described above, and assuming that the representatives of the underwriters do not release any parties from these agreements, all of the shares of our common stock that are restricted securities or are held by our affiliates as of the date of this prospectus will be eligible for sale in the public market in compliance with Rule 144 under the Securities Act.

Rule 144

In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for at least 90 days, a person (or persons whose shares are required to be aggregated) who is not deemed to have been one of our “affiliates” for purposes of Rule 144 at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months, including the holding period of any prior owner other than one of our “affiliates,” is entitled to sell those shares in the public market (subject to the lock-up agreement referred to above, if applicable) without complying with the manner of sale, volume limitations or notice provisions of Rule 144, but subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than “affiliates,” then such person is entitled to sell such shares in the public market without complying with any of the requirements of Rule 144 (subject to the lock-up agreement referred to above, if applicable). In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Exchange Act for at least 90 days, our “affiliates,” as defined in Rule 144, who have beneficially owned the shares proposed to be sold for at least six months are entitled to sell in the public market, upon expiration of any applicable lock-up agreements and within any three-month period, a number of those shares of our common stock that does not exceed the greater of:

 

    1% of the number of common shares then outstanding, which will equal approximately              shares of common stock immediately after this offering (calculated as of                     , 2018); or

 

    the average weekly trading volume of our common stock on The Nasdaq Global Select Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Such sales under Rule 144 by our “affiliates” or persons selling shares on behalf of our “affiliates” are also subject to certain manner of sale provisions, notice requirements and to the availability of current public information about us. Notwithstanding the availability of Rule 144, the holders of substantially all of our capital stock, warrants and options have entered into lock-up agreements as referenced above and their restricted securities will become eligible for sale (subject to the above limitations under Rule 144) upon the expiration of the restrictions set forth in those agreements.

Rule 701

In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who acquired common stock from us in connection with a written compensatory stock or option plan or other written agreement in compliance with Rule 701 under the Securities Act before the effective date of the registration statement of which this prospectus is a part (to the extent such common stock is not subject to a lock-up agreement) is entitled to rely on Rule 701 to resell such shares beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act in reliance on Rule 144, but without compliance with the holding period requirements contained in Rule 144. Accordingly, subject to any applicable lock-up agreements,

 

173


Table of Contents

beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act, under Rule 701 persons who are not our “affiliates,” as defined in Rule 144, may resell those shares without complying with the minimum holding period or public information requirements of Rule 144, and persons who are our “affiliates” may resell those shares without compliance with Rule 144’s minimum holding period requirements (subject to the terms of the lock-up agreement referred to below, if applicable).

Registration Rights

Based on the number of shares outstanding as of                     , 2018, after the completion of this offering, the holders of approximately                 million shares of our common stock, including shares issuable upon exercise of warrants, or their transferees, will, subject to any lock-up agreements they have entered into, be entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act. For a description of these registration rights, please see the section titled “Description of Capital Stock—Registration Rights.” If the offer and sale of these shares are registered, they will be freely tradable without restriction under the Securities Act.

Stock Plans

We intend to file with the Securities and Exchange Commission a registration statement under the Securities Act covering the shares of common stock that we may issue upon exercise of outstanding awards under our 2013 Incentive Plan, as well as shares reserved for issuance under our 2018 Incentive Plan. Such registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. Accordingly, shares registered under such registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the lock-up agreements described above, if applicable.

 

174


Table of Contents

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a summary of material U.S. federal income tax consequences of the purchase, ownership and disposition of shares of our common stock as of the date hereof. Except where noted, this summary deals only with common stock that is held as a capital asset by a non-U.S. holder (as defined below).

A “non-U.S. holder” means a beneficial owner of shares of our common stock (other than an entity treated as a partnership for U.S. federal income tax purposes) that is not, for U.S. federal income tax purposes, any of the following:

 

    an individual citizen or resident of the United States;

 

    a corporation (or any other entity treated 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 it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons as defined under the Code have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income consequences different from those summarized below. This summary does not address all aspects of U.S. federal income taxes and does not deal with foreign, state, local or other tax considerations that may be relevant to non-U.S. holders in light of their particular circumstances. In addition, it does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws (including if you are a U.S. expatriate, foreign pension fund, “controlled foreign corporation,” “passive foreign investment company” or a partnership or other pass-through entity for U.S. federal income tax purposes). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common stock, you should consult your tax advisors.

If you are considering the purchase of our common stock, you should consult your own tax advisors concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of our common stock, as well as the consequences to you arising under other U.S. federal tax laws and the laws of any other taxing jurisdiction.

Dividends

We have never paid cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. See “Dividend Policy.” If we make a distribution of cash or other property (other than certain pro rata distributions of our stock) in respect of shares of our common stock, the distribution generally will be treated as a dividend for U.S. federal income tax

 

175


Table of Contents

purposes to the extent it is paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Any portion of a distribution that exceeds our current and accumulated earnings and profits generally will be treated first as a tax-free return of capital, causing a reduction in the adjusted tax basis of a non-U.S. holder’s common stock, and to the extent the amount of the distribution exceeds a non-U.S. holder’s adjusted tax basis in shares of our common stock, the excess will be treated as gain from the disposition of shares of our common stock (the tax treatment of which is discussed below under “—Gain on Disposition of Common Stock”).

Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment) are not subject to the withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner as if the non-U.S. holder were a U.S. person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

A non-U.S. holder who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required (a) to provide the applicable withholding agent with a properly executed IRS Form W-BEN or Form W-8BEN-E (or other applicable form) certifying under penalty of perjury that such holder is not a U.S. person as defined under the Code and is eligible for treaty benefits or (b) if our common stock is held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable U.S. Treasury regulations. Special certification and other requirements apply to certain non-U.S. holders that are pass-through entities rather than corporations or individuals.

A non-U.S. holder eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

Gain on Disposition of Common Stock

Subject to the discussion of backup withholding and FATCA below, any gain realized by a non-U.S. holder on the sale or other disposition of our common stock generally will not be subject to U.S. federal income tax unless:

 

    the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of the non-U.S. holder);

 

    the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or

 

    we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes and certain other conditions are met.

A non-U.S. holder described in the first bullet point immediately above will be subject to tax on the gain derived from the sale or other disposition in the same manner as if the non-U.S. holder were a U.S. person as defined under the Code. In addition, if any non-U.S. holder described in the first bullet point immediately above is a foreign corporation, the gain realized by such non-U.S. holder may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an

 

176


Table of Contents

applicable income tax treaty. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a 30% (or such lower rate as may be specified by an applicable income tax treaty) tax on the gain derived from the sale or other disposition, which gain may be offset by U.S. source capital losses even though the individual is not considered a resident of the United States.

Generally, a corporation is a “United States real property holding corporation” if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). We have not determined whether we are a “United States real property holding corporation” for U.S. federal income tax purposes. If we are or become a “United States real property holding corporation,” however, so long as our common stock is regularly traded on an established securities market during the calendar year in which the sale or other disposition occurs, only a non-U.S. holder who holds or held (at any time during the shorter of the five-year period preceding the date of disposition or the holder’s holding period) more than 5% of our common stock will be subject to U.S. federal income tax on the sale or other disposition of our common stock.

Information Reporting and Backup Withholding

Distributions paid to a non-U.S. holder and the amount of any tax withheld with respect to such distributions generally will be reported to the IRS. Copies of the information returns reporting such distributions and any withholding may also be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty.

A non-U.S. holder will not be subject to backup withholding on dividends received if such holder certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person as defined under the Code), or such holder otherwise establishes an exemption.

Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale or other disposition of our common stock made within the United States or conducted through certain U.S.-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person as defined under the Code), or such owner otherwise establishes an exemption.

Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.

Additional Withholding Requirements under FATCA

Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), a 30% U.S. federal withholding tax may apply to any dividends paid on our common stock and, for a disposition of our common stock occurring after December 31, 2018, the gross proceeds from such disposition, in each case paid to (i) a “foreign financial institution” (as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA or (y) its compliance (or deemed compliance) with FATCA (which may alternatively be in the form of compliance with an intergovernmental agreement with the United States) in a manner which avoids withholding, or (ii) a “non-financial foreign entity” (as

 

177


Table of Contents

specifically defined in the Code) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA or (y) adequate information regarding certain substantial U.S. beneficial owners of such entity (if any). If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under “—Dividends,” the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax. You should consult your own tax advisors regarding these requirements and whether they may be relevant to your ownership and disposition of our common stock.

 

178


Table of Contents

UNDERWRITING

We and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Cowen and Company, LLC are the representatives of the underwriters.

 

Underwriters

   Number of
Shares
 

Goldman Sachs & Co. LLC

  

J.P. Morgan Securities LLC

  

Cowen and Company, LLC

  
  

 

 

 

Total

  
  

 

 

 

The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.

The underwriters have an option to buy up to an additional              shares from us to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to             additional shares from us.

 

     No Exercise      Full Exercise  

Per Share

   $                   $               

Total

   $      $  

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $        per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.

We and our executive officers, directors, and holders of substantially all of our capital stock, warrants and options have agreed or will agree with the underwriters, subject to certain exceptions, not to dispose of or hedge any of our or their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Cowen and Company, LLC. This agreement does not apply to any existing employee benefit plans. See the section of this prospectus titled “Shares Eligible for Future Sale” for a discussion of certain transfer restrictions.

In connection with the offering, the underwriters may purchase and sell shares of our common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of

 

179


Table of Contents

a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A “covered short position” is a short position that is not greater than the amount of additional shares for which the underwriters’ option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. “Naked” short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on the The Nasdaq Global Select Market, in the over-the-counter market or otherwise.

We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $        million. We have agreed to reimburse the underwriters for certain of their expenses in an amount up to $        .

We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities or instruments of the issuer (directly, as collateral securing other obligations or otherwise) or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate independent

 

180


Table of Contents

investment recommendations, market color or trading ideas or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each, a “Relevant Member State,” an offer to the public of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of our common stock may be made at any time under the following exemptions under the Prospectus Directive:

 

    To any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

    To fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the Representatives for any such offer; or

 

    In any other circumstances falling within Article 3(2) of the Prospectus Directive;

provided  that no such offer or shares of our common stock shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to public” in relation to our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and our common stock to be offered so as to enable an investor to decide to purchase our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression “Prospectus Directive” means Directive 2003/71/EC (as amended), including by Directive 2010/73/EU and includes any relevant implementing measure in the Relevant Member State.

This European Economic Area selling restriction is in addition to any other selling restrictions set out below.

United Kingdom

In the United Kingdom, this prospectus is only addressed to and directed at qualified investors who are (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order); or (ii) high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). Any investment or investment activity to which this prospectus relates is available only to relevant persons and will only be engaged in with relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.

Canada

The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

 

181


Table of Contents

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

Hong Kong

The securities may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong), or the Companies (Winding Up and Miscellaneous Provisions Ordinance, or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong), or the Securities and Futures Ordinance, or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the securities may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore, or the “SFA”) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for six months after that corporation has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation’s securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where

 

182


Table of Contents

the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore, or Regulation 32.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for six months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.

Japan

The securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. The securities may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.

Australia

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to the offering. This offering document does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the shares may only be made to persons, or the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.

The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.

This offering document contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment

 

183


Table of Contents

decision, investors need to consider whether the information in this offering document is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Dubai International Financial Centre

This offering document relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or the DFSA. This offering document is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth in this prospectus and has no responsibility for the offering document. The securities to which this offering document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this offering document you should consult an authorized financial advisor.

Switzerland

We have not and will not register with the Swiss Financial Market Supervisory Authority, or the FINMA, as a foreign collective investment scheme pursuant to Article 119 of the Federal Act on Collective Investment Scheme of 23 June 2006, as amended, or CISA, and accordingly the securities being offered pursuant to this prospectus have not and will not be approved, and may not be licenseable, with FINMA. Therefore, the securities have not been authorized for distribution by FINMA as a foreign collective investment scheme pursuant to Article 119 CISA and the securities offered hereby may not be offered to the public (as this term is defined in Article 3 CISA) in or from Switzerland. The securities may solely be offered to “qualified investors,” as this term is defined in Article 10 CISA, and in the circumstances set out in Article 3 of the Ordinance on Collective Investment Scheme of 22 November 2006, as amended, or CISO, such that there is no public offer. Investors, however, do not benefit from protection under CISA or CISO or supervision by FINMA. This prospectus and any other materials relating to the securities are strictly personal and confidential to each offeree and do not constitute an offer to any other person. This prospectus may only be used by those qualified investors to whom it has been handed out in connection with the offer described in this prospectus and may neither directly or indirectly be distributed or made available to any person or entity other than its recipients. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in Switzerland or from Switzerland. This prospectus does not constitute an issue prospectus as that term is understood pursuant to Article 652a and/or 1156 of the Swiss Federal Code of Obligations. We have not applied for a listing of the securities on the SIX Swiss Exchange or any other regulated securities market in Switzerland, and consequently, the information presented in this prospectus does not necessarily comply with the information standards set out in the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange.

 

184


Table of Contents

LEGAL MATTERS

The validity of the issuance of our common stock offered in this prospectus will be passed upon for us by Sidley Austin LLP, New York, New York. Cooley LLP, San Francisco, California, is acting as counsel for the underwriters in connection with this offering.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our financial statements at December 31, 2016 and 2017 and for each of the two years in the period ended December 31, 2017, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about the Company’s ability to continue as a going concern as described in Note 1 to the financial statements). We have included our financial statements in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information with respect to Tricida, Inc. and the common stock offered hereby, reference is made to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address is www.sec.gov.

Upon the completion of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at Tricida.com. Upon the completion of this offering, you may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The reference to our website address does not constitute incorporation by reference of the information contained on our website, and you should not consider the contents of our website in making an investment decision with respect to our common stock.

 

185


Table of Contents

TRICIDA, INC.

INDEX TO FINANCIAL STATEMENTS

 

     Page  

Audited Financial Statements

  

Report of Independent Registered Public Accounting Firm

     F-2  

Balance Sheets as of December 31, 2016 and 2017

     F-3  

Statements of Operations and Comprehensive Loss for the years ended December  31, 2016 and 2017

     F-4  

Statements of Convertible Preferred Stock and Stockholders’ (Deficit) for the period from December 31, 2015 through December 31, 2017

     F-5  

Statements of Cash Flows for the years ended December 31, 2016 and 2017

     F-6  

Notes to Financial Statements

     F-7  

 

F-1


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Tricida, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Tricida, Inc. (the Company) as of December 31, 2016 and 2017, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ deficit, and cash flows for the years then ended, and the related notes, (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2016 and 2017, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017

Redwood City, California

February 28, 2018

 

F-2


Table of Contents

Tricida, Inc.

Balance Sheets

(In thousands, except share and per share amounts)

 

     December 31,     Pro Forma
Stockholders’
Equity as of
December 31,
 
     2016     2017     2017  
                 (Unaudited)  

Assets

 

 

Current assets:

      

Cash and cash equivalents

   $ 5,682     $ 9,774    

Short-term marketable securities

     20,768       57,740    

Prepaid expenses and other current assets

     753       1,910    
  

 

 

   

 

 

   

Total current assets

     27,203       69,424    

Property and equipment, net

     481       1,150    
  

 

 

   

 

 

   

Total assets

   $ 27,684     $ 70,574    
  

 

 

   

 

 

   

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

      

Current liabilities:

      

Accounts payable

   $ 2,104     $ 3,861    

Accrued expenses

     2,765       7,361    

Preferred stock tranche obligation

     3,371          
  

 

 

   

 

 

   

Total current liabilities

     8,240       11,222    

Long-term liabilities

      

Other long-term liabilities

     189       323    
  

 

 

   

 

 

   

Total long-term liabilities

     189       323       217  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     8,429       11,545       11,439  
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies (Note 7)

      

Series A convertible preferred stock, $0.001 par value; 11,398,694 shares authorized as of December 31, 2016 and 2017; 11,302,758 shares issued and outstanding as of December 31, 2016 and 2017; aggregate liquidation preference of $10,014 as of December 31, 2016 and 2017; no shares issued and outstanding, pro forma (unaudited)

     9,800       9,800    

Series B convertible preferred stock, $0.001 par value; 32,526,878 shares authorized as of December 31, 2016 and 2017; 32,526,878 shares issued and outstanding as of December 31, 2016 and 2017; aggregate liquidation preference of $30,250 as of December 31, 2016 and 2017; no shares issued and outstanding, pro forma (unaudited)

     29,618       29,618    

Series C convertible preferred stock, $0.001 par value; 36,074,428 and 35,806,451 shares authorized as of December 31, 2016 and 2017; 19,532,259 and 35,806,451 shares issued and outstanding as of December 31, 2016 and 2017, respectively; aggregate liquidation preference of $30,275 and $55,500 as of December 31, 2016 and 2017; no shares issued and outstanding, pro forma (unaudited)

     27,465       50,347    

Series D convertible preferred stock, $0.001 par value; 24,500,000 shares authorized as of December 31, 2017; zero and 24,493,615 shares issued and outstanding as of December 31, 2016 and 2017; aggregate liquidation preference of zero and $57,560 as of December 31, 2016 and 2017; no shares issued and outstanding, pro forma (unaudited)

           57,305    

Stockholders’ equity (deficit):

      

Common stock, $0.001 par value; 120,000,000 and 134,000,000 shares authorized as of December 31, 2016 and 2017; 9,016,041 and 9,045,044, shares issued and outstanding, as of December 31, 2016 and 2017, respectively;                  shares issued and outstanding, pro forma (unaudited)

     9       9    

Additional paid-in capital

     459       1,349    

Accumulated other comprehensive loss

           (13     (13

Accumulated deficit

     (48,096     (89,386     (89,386
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (47,628     (88,041     59,135  
  

 

 

   

 

 

   

 

 

 

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

   $ 27,684     $ 70,574     $ 70,574  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements

 

F-3


Table of Contents

Tricida, Inc.

Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

 

     Year ended
December 31,
 
     2016     2017  

Operating expenses:

    

Research and development

   $ 21,820     $ 35,906  

General and administrative

     5,363       11,216  
  

 

 

   

 

 

 

Total operating expenses

     27,183       47,122  
  

 

 

   

 

 

 

Loss from operations

     (27,183     (47,122

Change in fair value—preferred stock tranche obligation

     (1,571     5,649  

Interest income (expense) and other, net

     103       183  
  

 

 

   

 

 

 

Net loss

     (28,651     (41,290

Other comprehensive loss:

    

Net unrealized loss on marketable securities, net of tax

           (13
  

 

 

   

 

 

 

Comprehensive loss

   $ (28,651   $ (41,303
  

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (3.94   $ (4.85
  

 

 

   

 

 

 

Weighted-average number of shares outstanding, basic and diluted

     7,267,641       8,508,008  
  

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (unaudited)

     $  
    

 

 

 

Pro forma weighted-average number of shares, basic and diluted (unaudited)

    
    

 

 

 

See accompanying notes to financial statements.

 

F-4


Table of Contents

Tricida, Inc.

Statements of Convertible Preferred Stock and Stockholders’ (Deficit)

(In thousands, except share amounts)

 

    Convertible
Preferred Stock
    Common Stock     Additional
Paid-in
Capital
    Accumulated
Other
Comprehensive
Loss
    Accumulated
Deficit
    Total
Stockholders’
(Deficit)
 
    Shares     Amount     Shares     Amount          

Balance at December 31, 2015

    29,734,656   $ 25,023       8,934,375     $ 9     $ 179     $     $ (19,445   $ (19,257

Series B financing—subsequent closing, issued at $0.93 per share net of issuance costs of $37 and including the settlement of the preferred stock obligation of $1,324

    14,094,980       14,395                                

Series C financing—initial closing, issued at $1.55 per share net of issuance costs of $339 and fair value of the preferred stock tranche obligation of $2,471 which has been classified as a liability (see Note 4)

    19,532,259     27,465          

 

 

                   

Vested/exercised employee stock options

                46,666             8                   8  

Stock-based compensation—employees

                            231                   231  

Stock-based compensation—consultants

                            41                   41  

Unrealized loss on investments

                                       

Net loss

                                        (28,651     (28,651
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

    63,361,895       66,883       8,981,041       9       459             (48,096     (47,628

Series C financing—subsequent closing, issued at $1.55 per share net of issuance costs of $65 and including the settlement of the preferred stock obligation of $2,278

    16,274,192       22,882                                      

Series D financing—initial closing, issued at $2.35 per share net of issuance costs of $255

    24,493,615       57,305                                      

Vested/exercised employee stock options

                64,003             14                   14  

Stock-based compensation—employees

                            667                   667  

Stock-based compensation—consultants

                            209                   209  

Unrealized loss on investments

                                  (13           (13

Net loss

                                        (41,290     (41,290
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

    104,129,702     $ 147,070       9,045,044     $ 9     $ 1,349     $ (13   $ (89,386   $ (88,041
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

F-5


Table of Contents

Tricida, Inc.

Statements of Cash Flows

(In thousands)

 

     Year ended December 31,  
           2016                 2017        

Operating activities

    

Net loss

   $ (28,651   $ (41,290

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     424       335  

Net amortization of premiums and discounts on marketable securities

     14       (42

Stock-based compensation

     272       876  

Changes in fair value of preferred stock tranche obligation

     1,571       (5,649

Changes in operating assets and liabilities:

    

Prepaid expenses and other assets

     (69     (1,157

Accounts payable

     1,636       1,757  

Accrued expenses and other

     1,655       4,769  
  

 

 

   

 

 

 

Net cash used in operating activities

     (23,115     (40,401
  

 

 

   

 

 

 

Investing activities

    

Purchase of marketable securities

     (39,064     (76,846

Maturities of marketable securities

     18,533       39,903  

Proceeds from sale of marketable securities

     499        

Purchase of property and equipment

     (249     (1,004
  

 

 

   

 

 

 

Net cash used in investing activities

     (20,281     (37,947
  

 

 

   

 

 

 

Financing activities

    

Loan repayments

     (42     (39

Proceeds from exercise of common stock options

     8       14  

Proceeds from issuance of convertible preferred stock for cash, net of issuance costs

     43,007       82,465  
  

 

 

   

 

 

 

Net cash provided by financing activities

     42,973       82,440  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (423     4,092  

Cash and cash equivalents at beginning of year

     6,105       5,682  
  

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 5,682     $ 9,774  
  

 

 

   

 

 

 

Supplemental disclosures of non-cash financing activities

    

Series B fair value of preferred stock obligation upon closing

   $ 1,324     $  
  

 

 

   

 

 

 

Series C fair value of preferred stock obligation upon closing

   $ 2,471     $ 2,278  
  

 

 

   

 

 

 

See accompanying notes to financial statements.

 

F-6


Table of Contents

Tricidia, Inc.

Notes to Financial Statements

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization —Tricida, Inc., or the Company, was incorporated in the state of Delaware on May 22, 2013 and was granted its certification of qualification in the state of California on August 5, 2013 (inception). The Company is engaged in the development of novel therapeutics to address renal, metabolic and cardiovascular disease.

As of December 31, 2017, the Company has devoted substantially all of its efforts to the formation and financing of the Company, as well as product development, and has not realized revenues from its planned principal operations. The Company has no manufacturing facilities and all manufacturing related activities are contracted out to third-party service providers.

Basis of presentation —These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.

Unaudited Pro Forma Information —Immediately prior to the completion of this offering, all outstanding shares of convertible preferred stock will automatically convert into common stock. In addition, the convertible preferred stock warrants would be exercised into shares of convertible preferred stock which would automatically convert into shares of common stock and the related warrant liability would be reclassified to additional paid-in capital in stockholders’ equity. Unaudited pro forma balance sheet information as of December 31, 2017 assumes the net exercise of the preferred stock warrant and the conversion of all outstanding convertible preferred stock into shares of common stock. The shares of common stock issuable and the proceeds expected to be received in the initial public offering are excluded from such pro forma financial information. Unaudited pro forma basic and diluted net loss per share has been computed to give effect to the conversion of all outstanding convertible preferred stock into shares of common stock. The unaudited pro forma net loss per share does not include the shares expected to be sold and related proceeds to be received from the initial public offering.

Need for Additional Capital —The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $89.4 million at December 31, 2017 and does not expect to experience positive cash flows in the foreseeable future.

As of December 31, 2017, the Company had $67.5 million in cash and cash equivalents and short-term marketable securities and working capital of $58.2 million. Management expects to incur additional losses in the future to conduct product research and development and to conduct pre-commercialization activities and recognizes the need to raise additional capital to fully implement its business plan. The Company intends to raise such capital through the sale of additional equity, debt financings or strategic alliances with third parties. However, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms acceptable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of the issuance of these financial statements. If the Company is unsuccessful in its efforts to raise additional financing, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of its development programs or its future commercialization efforts, out-license intellectual property rights to its product candidates and sell unsecured assets, or a combination of the above, any of which may have a material adverse effect on the Company’s business, results of operations, financial condition and/or its ability to fund its scheduled obligations on a timely basis or at all. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

 

F-7


Table of Contents

Use of Estimates —The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents —The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents.

Marketable Securities —All highly liquid investments with original maturities of greater than three months from the date of purchase are classified as marketable securities. Management has classified the Company’s marketable securities as available-for-sale securities in the accompanying financial statements. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive loss. Realized gains and losses on the sale of all such securities are reported in interest and other income (expense), net and computed using the specific identification method. For the year ended December 31, 2016 and 2017, there were no realized gains or losses on these securities. The Company’s investments are in commercial paper, asset-backed securities and corporate debt securities. Pursuant to the Company’s investment policy, all purchased securities have a minimum short-term rating of A1 (Moody’s) or P1 (Standard & Poor’s) or equivalent. If there is no short-term rating, a purchased security is required to have a long-term rating no lower than A3/A- or equivalent.

Concentration of Credit Risk —Financial instruments that potentially subject the Company to a concentration of credit risk, consist primarily of cash and cash equivalents and marketable securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that these financial institutions are financially sound, and, accordingly, minimal credit risk exists with respect to those financial institutions. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash, cash equivalents and marketable securities and issuers of marketable securities to the extent recorded in the balance sheet.

Property and Equipment —Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, which is three years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful economic lives of the related assets.

Impairment of Long-Lived Assets —Long-lived assets consist of property and equipment. The Company assesses potential impairment losses on long-lived assets used in operations when events and circumstances indicate that assets might be impaired. If such events or changes in circumstances arise, the Company compares the carrying amount of the long-lived assets to the estimated future undiscounted cash flows expected to be generated by the long-lived assets. If the estimated aggregate undiscounted cash flows are less than the carrying amount of the long-lived assets, an impairment charge, calculated as the amount by which the carrying amount of the assets exceeds the fair value of the assets, is recorded. The fair value of the long-lived assets is determined based on the estimated discounted cash flows expected to be generated from the long-lived assets. The Company has not recognized any impairment losses through December 31, 2016 and 2017.

Clinical and Manufacturing Accruals —The Company records accruals for estimated costs of research, preclinical and clinical studies, and manufacturing development, which are a significant component of research and development expenses. A substantial portion of the Company’s ongoing research and development activities is conducted by third-party service providers, including clinical research organizations (CROs) and contract manufacturing organizations (CMOs). The Company’s contracts with CROs generally include pass-through fees such as regulatory expenses, investigator

 

F-8


Table of Contents

fees, travel costs and other miscellaneous costs, including shipping and printing fees. 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 to the Company under such contracts. The Company accrues the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. The Company determines the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.

The Company makes significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, the Company adjusts its accruals. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in the Company reporting amounts that are too high or too low in any particular period. The Company’s accrual is dependent, in part, upon the receipt of timely and accurate reporting from information provided as part of its clinical and non-clinical studies and other third-party vendors. Through December 31, 2017, there have been no material differences from the Company’s accrued estimated expenses to the actual clinical trial expenses. However, variations in the assumptions used to estimate accruals, including, but not limited to the number of patients enrolled, the rate of patient enrollment, and the actual services performed, and related costs may vary from the Company’s estimates, resulting in adjustments to clinical trial expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect its financial position and results of operations.

Convertible preferred stock —The Company records all shares of convertible preferred stock at their respective fair values, net of issuance costs, on the dates of issuance. In the event of a change of control of the Company, proceeds will be distributed in accordance with the liquidation preferences set forth in its Amended and Restated Certificate of Incorporation unless the holders of convertible preferred stock have converted their convertible preferred shares into common shares. Therefore, convertible preferred stock is classified outside of stockholders’ deficit on the accompanying balance sheets as events triggering the liquidation preferences are not solely within the Company’s control. The Company has elected not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because of the uncertainty of whether or when such an event would occur.

Warrant Liability —The Company has issued freestanding warrants to purchase shares of its Series A convertible preferred stock. Freestanding warrants for shares of the Company’s convertible preferred stock that are classified outside of permanent equity, and other similar instruments related to shares that are classified as liabilities, are recorded at fair value, and are subject to remeasurement at each balance sheet date until the earlier of the exercise of the warrants or the completion of a liquidation event, including the completion of an initial public offering. Upon exercise, the warrant liability would be reclassified to additional paid-in capital, with any change in fair value recognized as a component of other interest income (expense) and other, net.

Preferred Stock Tranche Obligation —From time to time, the Company enters into convertible preferred stock financings where, in addition to the initial closing, investors agree to buy, and the Company agrees to sell, additional shares of that convertible preferred stock at a set price in the event that certain agreed milestones are achieved (a tranched financing). The Company evaluates this tranche obligation and assesses whether it meets the definition of a freestanding instrument, and if so, determines the fair value of this obligation and records it on the balance sheet with the residual of the proceeds raised being allocated to convertible preferred stock. The preferred stock tranche obligation is revalued each reporting period with changes in the fair value of the obligation recorded as a

 

F-9


Table of Contents

component of interest income (expense) and other, net in the statement of operations and comprehensive loss. The preferred stock tranche obligation is revalued at settlement and the resultant fair value is then reclassified to convertible preferred stock at that time.

Research and Development Costs —Research and development costs are charged to the statements of operations and comprehensive loss in the year in which they are incurred. Research and development expenses consist primarily of:

 

    salaries and related costs, including stock-based compensation expense, for personnel and consultants in our research and development functions;

 

    fees paid to clinical consultants, clinical trial sites and vendors, including CROs;

 

    costs related to pre-commercialization manufacturing activities including payments to CMOs and other vendors and consultants;

 

    costs related to regulatory activities;

 

    expenses related to lab supplies and services; and

 

    depreciation and other allocated facility-related and overhead expenses

Stock-Based Compensation —The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all share-based payments made to employees and directors based on estimated grant-date fair values. The Company uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the fair value of share-based awards to employees and directors using the Black-Scholes option-valuation model. The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return, and the estimated fair value of the underlying common stock on the date of grant. Stock-based compensation expense is recorded net of estimated forfeitures of unvested awards as they occur.

The Company records the expense attributed to nonemployee services paid with share-based awards based on the estimated fair value of the awards determined using the Black-Scholes option pricing model. The measurement of stock-based compensation for nonemployees is subject to re-measurement as the options vest, and the expense is recognized over the period during which services are received.

Income Taxes —The Company accounts for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance when it is more likely than not that some portion, or all of our deferred tax assets will not be realized.

The Company accounts for income tax contingencies using a benefit recognition model. If it considers that a tax position is more likely than not to be sustained upon audit, based solely on the technical merits of the position, it recognized the benefit. The Company measures the benefit by determining the amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

 

F-10


Table of Contents

Comprehensive Loss —Comprehensive loss includes net loss and certain changes in stockholders’ deficit that are excluded from net loss, primarily unrealized losses on the Company’s marketable securities.

Segment reporting —The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. All of the Company’s assets are maintained in the United States.

Foreign currency transactions —All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate prevailing on the balance sheet date. Expenses are translated at the transaction spot rate. Foreign currency transaction gains and losses are included in the statement of operations for the period in other expense, net, and comprised of net loss of $1.6 million and $0.2 million for the years ended December 31, 2016 and 2017, respectively.

Net Loss per Share —Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.

Recent Accounting Pronouncements —From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new standard is effective for annual periods and interim periods beginning after December 15, 2018 and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which for operating leases requires the lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The guidance also requires a lessee to recognize single lease costs, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The accounting standard is effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance.

In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting”, which amends ASC Topic 718, “Compensation—Stock Compensation”. The ASU includes provisions intended to (1) provide clarity and (2) reduce diversity in practice and reduce cost and complexity when calculate stock compensation, on a change to the terms or conditions of a share-based payment award. ASU 2017-09 is effective for public business entities for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption will be permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements.

 

F-11


Table of Contents

2. FAIR VALUE OF FINANCIAL INSTRUMENTS —The fair value of the Company’s financial assets and liabilities are determined in accordance with the fair value hierarchy established in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 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. The fair value hierarchy of ASC Topic 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:

Level  1 —Observable inputs, such as quoted prices in active markets

Level  2 —Inputs, other than the quoted prices in active markets, which 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 instrument’s anticipated life

Level  3 —Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

The Company’s financial assets and liabilities include cash equivalents, marketable securities, a warrant liability and prior to April 2017, a preferred stock tranche obligation. Cash equivalents in the form of money market funds are stated at cost, which approximates their fair values.

The Company issued a freestanding preferred stock tranche obligation in connection with the initial closing of the Series C financing in July 2016. The investors in the Series C financing committed to the purchase of 16,274,192 shares of Series C convertible preferred stock at $1.55 per share upon achievement of a specified milestone. This milestone was met and the Series C investors purchased the shares in April 2017.

The fair value of the Series C preferred stock and the corresponding tranche obligation was determined using an Option Pricing Model, calibrating to a recent transaction, which considers the risk of failure of clinical trials embedded in the cash flows and utilizes a series of unobservable inputs, and accordingly, the liability was classified as a Level 3 measurement. On the July 2016 issuance date, the Series C preferred stock tranche obligation was modeled as a warrant within the Option Pricing Model framework. The assumptions used to determine the fair value of the Series C preferred stock in the option pricing model were time to liquidity of 1 year, volatility of 68.0%, risk-free interest rate of 0.6% and equity value of $91.2 million. The Series C preferred stock tranche obligation was recorded as a liability of $2.5 million on the July 2016 issuance date.

As of December 31, 2016, the tranche obligation was remeasured, and the various assumptions used to determine the fair value of the Series C preferred stock and the corresponding tranche obligation in the option pricing model were time to liquidity of 2.4 years, volatility of 54.0%, risk-free interest rate of 1.3% and equity value of $91.4 million. The fair value of the tranche obligation was determined to be a liability and recorded at $3.4 million as of December 31, 2016.

On April 25, 2017, the tranche obligation was settled, and the obligation was valued at intrinsic value, using the fair value of the Series C preferred stock from the Option Pricing Model. The various assumptions used to determine the fair value of the Series C preferred stock in the option pricing model were time to liquidity of 2.4 years, volatility of 54.0%, risk-free interest rate of 1.4% and equity value of $118.5 million. Since the per share value was lower than the contractual purchase price, the fair value of the tranche obligation was determined to be an asset and recorded at $2.3 million at settlement on April 25, 2017.

 

F-12


Table of Contents

The Company issued a freestanding preferred stock tranche obligation in connection with the initial closing of the Series B financing in 2015 whereby the investors committed to purchase additional shares of Series B preferred stock upon the achievement of a specified milestone. The milestone was achieved in 2016, which precipitated the closing of the second tranche of the Series B financing (see Note 4). The fair value of the Series B preferred stock and the corresponding tranche obligation was determined using the Option Pricing Method, calibrating to a recent transaction, which considers the risk of failure of clinical trials embedded in the cash flows and utilizes a series of unobservable inputs, and accordingly, the liability was classified as a Level 3 measurement. On the settlement date of the obligation in February 2016, the milestones had been met, and the obligation was valued at intrinsic value, using the fair value of the Series B preferred stock from the Option Pricing Model. The various assumptions used to determine the fair value of the Series B preferred stock in the option-pricing model were time to liquidity of 1 year, volatility of 61.0%, risk-free interest rate of 0.5% and equity value of $40.6 million. The fair value of the tranche obligation was determined to be an asset and recorded at $1.3 million at settlement in February 2016.

During 2016 and 2017, the Company had detachable warrants that were recorded as liabilities and adjusted to fair value on a recurring basis. The fair value of the warrant liability was determined using an option-pricing model, which utilizes a series of unobservable inputs, and accordingly, the liabilities were classified as Level 3 measurements.

The following table sets forth the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

     As of December 31, 2016  
     Level 1      Level 2      Level 3      Fair Value  

Financial Assets

           

Cash equivalents

           

Money Market fund

   $ 4,923      $      $      $ 4,923  

Corporate debt securities

            575               575  

Marketable securities

           

Commercial paper

            10,336               10,336  

Corporate debt securities

            7,431               7,431  

Asset backed securities

            3,001               3,001  

Financial liabilities

           

Current liabilities

           

Preferred Stock Tranche Obligation

                   3,371        3,371  

Long term liabilities

           

Preferred Stock Warrant Liability

                   38        38  

 

F-13


Table of Contents
     As of December 31, 2017  
     Level 1      Level 2      Level 3      Fair Value  

Financial Assets

           

Cash equivalents

           

Money Market fund

   $ 6,758      $      $      $ 6,758  

Corporate debt securities

            2,930               2,930  

Marketable securities

           

Commercial paper

        25,773           25,773  

Corporate debt securities

            17,613               17,613  

Asset backed securities

            14,354               14,354  

Financial Liabilities

           

Long term liabilities

           

Preferred Stock Warrant Liability

                   106        106  

The following tables are a reconciliation of all liabilities measured at fair value using Level 3 unobservable inputs (in thousands):

 

     Tranche
Obligation
 

Opening Balance, January 1, 2016

   $ 653  

Amounts reclassified to convertible preferred stock upon Series B closing

     (1,324

Amounts reclassified to convertible preferred stock upon Series C closing

      

Issuance of Series C Tranche 2 obligation at Series C Tranche 1 close

     2,471  

Change in market value

     1,571  
  

 

 

 

Balance as of December 31, 2016

     3,371  

Amounts reclassified to convertible preferred stock upon closing of second tranche of Series C

     2,278  

Change in market value

     (5,649
  

 

 

 

Balance as of December 31, 2017

   $  
  

 

 

 

 

     Warrant
Liability
 

Opening Balance, January 1, 2016

   $ 5  

Change in market value

     33  
  

 

 

 

Balance as of December 31, 2016

     38  

Change in market value

     68  
  

 

 

 

Balance as of December 31, 2017

   $ 106  
  

 

 

 

Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, reported trades and broker/dealer quotes. Where applicable the market approach utilizes prices and information from market transactions for similar or identical assets. The Company classifies corporate debt securities,

 

F-14


Table of Contents

commercial paper and asset backed securities as Level 2. In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. Level 3 liabilities that are measured at fair value on a recurring basis consist of convertible preferred stock warrant liabilities and the preferred stock tranche obligation.

There were no transfers of assets of liabilities between the fair value measurement levels during the years ended December 31, 2016 and 2017.

The carrying values of the Company’s financial instruments, such as accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items.

All marketable securities were considered available-for-sale at December 31, 2016 and 2017. The amortized cost, unrealized holding gains or losses, and fair value of the Company’s marketable securities by major security type at December 31, 2016 and 2017 are summarized in the table below (in thousands):

 

     Amortized
Cost
     Unrealized
Holding
Gains
     Unrealized
Holding
Losses
    Aggregate
Fair Value at
December 31,
2016
 

Commercial paper

   $ 10,333      $ 3      $     $ 10,336  

Corporate debt securities

     7,433               (2     7,431  

Asset backed securities

     3,002               (1     3,001  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 20,768      $ 3      $ (3   $ 20,768  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     Amortized
Cost
     Unrealized
Holding
Gains
     Unrealized
Holding
Losses
    Aggregate
Fair Value at
December 31,
2017
 

Commercial paper

   $ 25,780      $      $ (7   $ 25,773  

Corporate debt securities

     17,615        3        (5     17,613  

Asset backed securities

     14,358               (4     14,354  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 57,753      $ 3      $ (16   $ 57,740  
  

 

 

    

 

 

    

 

 

   

 

 

 

All marketable securities as of December 31, 2016 and 2017 have contractual maturities of one year or less.

As of December 31, 2016, and 2017, unrealized losses on available-for-sale investments are not attributable to credit risk and are considered to be temporary. The Company believes that it is more-likely-than-not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value. All marketable securities with unrealized losses as of December 31, 2017 have been in a loss position for less than twelve months or the loss is not material.

 

F-15


Table of Contents

3. BALANCE SHEET COMPONENTS:

Property and Equipment, Net

 

     December 31,  
     2016     2017  
     (in thousands)  

Furniture and fixtures

   $ 172     $ 193  

Computer and lab equipment

     1,071       1,382  

Leasehold improvements

     206       878  
  

 

 

   

 

 

 
     1,449       2,453  

Less: accumulated depreciation and amortization

     (968     (1,303
  

 

 

   

 

 

 

Total property and equipment, net

   $ 481     $ 1,150  
  

 

 

   

 

 

 

Depreciation and amortization expense was approximately $0.4 million and $0.3 million for the years ended December 31, 2016 and 2017, respectively.

Accrued Expenses

 

     December 31,  
     2016      2017  
     (in thousands)  

Accrued clinical and nonclinical study costs

   $ 967      $ 2,235  

Accrued contract manufacturing

     679        4,157  

Accrued compensation

     1,119         

Accrued professional fees and other

            969  
  

 

 

    

 

 

 

Total accrued expenses

   $ 2,765      $ 7,361  
  

 

 

    

 

 

 

4. CAPITAL STRUCTURE

Common Stock —In 2013, in conjunction with the founding of the Company, 9,050,000 shares of common stock were issued to the founders, Founders’ Stock, at a price of $0.001 per share. These shares are subject to repurchase at the option of the Company at a price that is the lower of i) the original issuance price or ii) the fair market value as of the date of repurchase, in the event that the founders’ employment is terminated either voluntarily or involuntarily. Such repurchase rights lapse over a period of four years from the date the founders stock was issued. As of December 31, 2016 and 2017, 1,090,833 and zero founders shares were subject to repurchase.

Common stock reserved for future issuance, on an as if converted basis, as of December 31, 2016 and 2017, consists of the following:

 

     2016      2017  

Preferred stock, issued and outstanding

     63,361,895        104,129,702  

Stock options issued and outstanding

     8,991,082        14,283,228  

Stock options authorized for future issuance

     2,392,877        3,521,728  
  

 

 

    

 

 

 

Total

     74,745,854        121,934,658  
  

 

 

    

 

 

 

 

F-16


Table of Contents

Convertible Preferred Stock —As of December 31, 2016 and 2017, convertible preferred stock consisted of the following (in thousands, except share amounts):

 

            December 31, 2016         
     Authorized
Shares
     Shares Issued
and Outstanding
     Net
Proceeds(1)
     Aggregate
Liquidation
Preference
 

Shares designated as:

           

Series A convertible preferred stock

     11,398,694        11,302,758      $ 9,800      $ 10,014  

Series B convertible preferred stock

     32,526,878        32,526,878        29,618        30,250  

Series C convertible preferred stock

     36,074,428        19,532,259        27,465        30,275  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     80,000,000        63,361,895      $ 66,883      $ 70,539  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            December 31, 2017         
     Authorized
Shares
     Shares Issued
and Outstanding
     Net
Proceeds(1)
     Aggregate
Liquidation
Preference
 

Shares designated as:

           

Series A convertible preferred stock

     11,398,694        11,302,758      $ 9,800      $ 10,014  

Series B convertible preferred stock

     32,526,878        32,526,878        29,618        30,250  

Series C convertible preferred stock

     35,806,451        35,806,451        50,347        55,500  

Series D convertible preferred stock

     24,500,000        24,493,615        57,305        57,560  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     104,232,023        104,129,702      $ 147,070      $ 153,324  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Net proceeds are proceeds from the offerings net of issuance costs and as adjusted for allocations to and reclassifications from preferred stock tranche obligation.

In 2016, in connection with the achievement of certain milestones which precipitated the closing of the second tranche of the Series B financing, the Company issued 14,094,980 shares of Series B convertible preferred stock at $0.93 per share for cash proceeds of $13.0 million, net of issuance costs of approximately $37,000. The Company also reclassified the fair value of the series B preferred stock tranche obligation of $1.3 million to Series B preferred stock at this time.

In 2016, the Company also issued 19,532,259 shares of Series C convertible preferred stock at $1.55 per share for cash proceeds of $30.0 million, net of issuance costs of $0.3 million. The Series C convertible preferred stock financing contained a provision that obligated the investors to purchase additional shares, or Series C convertible preferred stock tranche obligation, at the same price as the initial closing upon the achievement of a milestone triggered based on the Company’s ability to deliver to the purchasers (a) successful topline data from the Phase IIa study of TRC 101, the Company’s lead product candidate, enrolling 100 patients and (b) positive minutes from the End-of-Phase IIa meeting between the Company and the U.S. Food and Drug Administration, or Milestone. This Series C preferred stock tranche obligation was considered to be a freestanding financial instrument for accounting purposes and accordingly the Company recorded a liability of $2.5 million representing the fair value of this Series C convertible preferred stock tranche obligation at the time of issuance. The proceeds from the initial closing of the Series C financing were allocated between the Series C preferred stock tranche obligation and convertible preferred stock by first allocating the proceeds to the preferred stock tranche obligation based on its fair value at inception ($2.5 million) and then allocating the residual proceeds ($27.8 million) to the convertible preferred stock. The preferred stock tranche obligation is recorded as a liability in the balance sheet as of December 31, 2016, and changes in the fair value of the obligation are recorded as a component of interest income (expense) and other, net, in the statement of operations and comprehensive loss.

 

F-17


Table of Contents

In 2017, in connection with the closing of the second tranche of the Series C financing, the Company issued 16,274,192 shares of Series C convertible preferred stock at $1.55 per share for cash proceeds of $25.2 million, net of issuance costs of approximately $65,000. The Company also reclassified the fair value of the Series C preferred stock tranche obligation of $2.3 million to Series C preferred stock at this time.

In 2017, the Company issued 24,493,615 shares of Series D convertible preferred stock at $2.35 per share for cash proceeds of $57.3 million, net of issuance costs of approximately $255,000. There were no tranches associated with the Series D convertible preferred stock for the year ended December 31, 2017.

The rights, preferences and privileges of the Series A, Series B, Series C and Series D Convertible Preferred Stock (Series Preferred) are as follows:

Voting —Each holder of shares of Series Preferred shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series Preferred could be converted immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent and shall have voting rights and powers equal to the voting rights and powers of the Common Stock and shall be entitled to notice of any stockholders’ meeting in accordance with the amended and restated bylaws of the Company. The Series Preferred shall vote together with the Common Stock at any annual or special meeting of the stockholders and not as a separate class and may act by written consent in the same manner as the Common Stock.

For so long as any shares of Series Preferred remain outstanding, in addition to any other vote or consent required by law, the vote or written consent of the holders of at least 58% of the outstanding Series Preferred shall be necessary for effecting or validating certain actions as defined in the Company’s certificate of incorporation.

For so long as any shares of Series D Preferred remain outstanding, in addition to any other vote or consent required by law, the vote or written consent of the holders of at least 60% of the outstanding Series D Preferred shall be necessary for effecting or validating certain actions as defined in the Company’s certificate of incorporation.

For so long as shares of convertible preferred stock remain outstanding, the holders of the convertible preferred stock, voting together as a single class on an as converted to common stock basis, shall be entitled to elect three directors of the Company. The holders of the common stock, voting as a separate class, are entitled to elect two directors of the Company. The holders of the convertible preferred stock and common stock, voting together as a single class, are entitled to elect all remaining directors of the Company.

Dividends —Holders of Series Preferred stock, in preference to the holders of Common Stock, shall be entitled to receive, but only out of funds that are legally available therefor, cash dividends at the rate of 8% of the original issue price per annum on each outstanding share of Series Preferred. Such dividends shall be payable only when, as and if declared by the Board of Directors of the Company and shall be non-cumulative. No dividends have been declared or paid since the issuance of preferred stock through December 31, 2017. In the event dividends are paid on any share of common stock, the company shall pay an additional dividend on all outstanding shares of preferred stock in a per share amount equal (on an as-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock.

Conversion —Any shares of Series Preferred may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of Common Stock initially at a one-for-one ratio. The conversion price for each series of preferred stock is subject to an adjustment in the event of stock

 

F-18


Table of Contents

split, combination, common stock dividend or distribution, reclassification, exchange, substitution, or reorganization.

Each share of Preferred Stock shall automatically be converted into shares of Common Stock, based on the then—effective Preferred Stock Conversion Price for the applicable series, (A) at any time upon (i) the affirmative election of the Requisite Holders by vote or written consent, voting together as a single class on an as-converted basis and (ii) the affirmative election of the Requisite Series D Holders, voting separately by vote or written consent, or (B) immediately prior to the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of Common Stock for the account of the Company in which (i) the per share price is at least 1.2 times the Series D Original Issue Price (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof) and (ii) the gross cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least $50,000,000.

Liquidation —Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Common Stock, the holders of Series Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution for each share of Series Preferred held by them, an amount per share of Series Preferred equal to the original issue price plus all declared and unpaid dividends on the Series Preferred. If, upon any such liquidation event, the assets of the Company shall be insufficient to make payment in full to all holders of Series Preferred of the liquidation preference, then such assets shall be distributed among the holders of Series Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. After the payment of the full liquidation preference of the Series Preferred, the remaining assets of the Company legally available for distribution, if any, shall be distributed ratably to the holders of the Common Stock. As of December 31, 2017, the holders of Series A Preferred are entitled to receive an amount equal to $0.886 per share, the holders of Series B Preferred are entitled to receive an amount equal to $0.930 per share, the holders of Series C Preferred are entitled to receive an amount equal to $1.55 per share and the holders of Series D Preferred are entitled to receive an amount equal to $2.35 per share.

5. STOCK-BASED COMPENSATION

During 2013, the Company adopted an equity compensation plan, the 2013 Equity Incentive Plan, or the Plan, for eligible employees, officers, directors, advisors, and consultants. The Plan provided for the grant of incentive and non-statutory stock options. In the year ending December 31, 2016, in conjunction with the closing of the Company’s Series C financing, the number of shares of common stock reserved for issuance under the Plan was increased to 11,590,000. In the year ending December 31, 2017, in conjunction with the closing of the Company’s Series D financing, the number of shares of common stock reserved for issuance under the Plan was increased to 18,040,000. The terms of the stock option agreements, including vesting requirements, are determined by the Board of Directors, subject to the provisions of the Plan. Options granted by the Company vest over a period of one to four years and are exercisable after they have been granted for up to 10 years from the date of grant. Per the company’s equity incentive plan, the term of the option expires, upon the earliest of 1) termination of continuous service for cause 2) three months after the termination of continuous service for reasons other than cause, death or disability 3) twelve months after the termination of continuous service due to disability 4) eighteen months after the employee’s death if the employee died during the period of continuous service 5) expiration date in the grant notice or 6) the day before the tenth anniversary of the date of grant. The exercise price of the incentive stock options must equal at least the fair market value of the stock on the date of grant.

The Plan allows for early exercise where the option holders may exercise their options prior to vesting. Common stock that is issued upon the early exercise of options is subject to repurchase by the

 

F-19


Table of Contents

Company at the original exercise price at the option of the Company. As of December 31, 2016, and 2017, there were 35,000 and 1,459 shares of common stock that were subject to repurchase with an aggregate purchase price of approximately $8,400 and $350 at an individual repurchase price of $0.24 per share.

The following table summarizes stock option activity under the Plan:

 

           Outstanding Options  
     Shares
Available to
Grant
    Number
of Options
    Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term (Years)
     Aggregate
Intrinsic
Value

(Thousands)
 

Balance at December 31, 2015

     791,114       4,547,844     $ 0.19        9.3   

Addition—Option pool

     6,126,667                

Granted

     (4,791,208     4,791,208       0.36        

Exercised

           (81,666     0.21        

Forfeited

     266,304       (266,304     0.19        
  

 

 

   

 

 

         

Balance at December 31, 2016

     2,392,877       8,991,082       0.28        9.2     

Addition—Option pool

     6,450,000                

Granted

     (5,390,000     5,390,000       0.56        

Exercised

           (29,003     0.19        

Forfeited

     68,851       (68,851     0.21        
  

 

 

   

 

 

         

Balance at December 31, 2017

     3,521,728       14,283,228     $ 0.39        8.5      $ 12,053  
  

 

 

   

 

 

         

Vested and expected to vest at December 31, 2017

       13,254,678     $ 0.38        8.5      $ 11,266  
    

 

 

         

All outstanding options can be early exercised.

As of December 31, 2016 and 2017, there was approximately $1.2 million and $2.7 million, respectively, for unrecognized stock-based compensation, which the Company expects to recognize over a weighted-average period of 3.1 and 2.8 years.

The aggregate intrinsic values of options outstanding, vested, and vested and expected to vest were calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock as determined by the Company’s Board of Directors as of December 31, 2017. The total intrinsic value of options exercised during the year ended December 31, 2016 and 2017 was approximately $17,000 and $30,000.

Compensation cost for stock options granted to employees is based on the grant-date fair value estimated and is recognized over the vesting period of the applicable option on a straight-line basis. For the year ended December 31, 2016 and 2017, the weighted-average fair value of options granted was $0.28 and $0.42 per share. The total fair value of options that vested during the year ended December 31, 2016 and 2017 was approximately $191,000 and $729,000.

Stock-based compensation expense includes stock options granted to employees and nonemployees and has been reported in the Company’s statement of operations and comprehensive loss as follows:

 

     Year Ended December 31,  
         2016              2017      

Research and development

   $ 185      $ 379  

General and administrative

     87        497  
  

 

 

    

 

 

 

Total

   $ 272      $ 876  
  

 

 

    

 

 

 

 

F-20


Table of Contents

As stock-based compensation expense recognized is based on options ultimately expected to vest, the expense has been reduced for estimated forfeitures. The fair value of each employee option grant during the years ended December 31, 2016 and 2017 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

     Year Ended December 31,  
     2016      2017  

Risk-free interest rate

     1.7% – 1.8%        1.7%  

Expected volatility

     76.3% – 78.4%        72.7% – 78.5%  

Expected term (in years)

     6.2 – 6.3        6.2 – 6.3  

Expected dividends

     0%        0%

Expected Term:     The expected term of the options represents the average period the stock options are expected to remain outstanding. As the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term of options granted is derived from the average midpoint between the weighted average vesting and the contractual term, also known as the simplified method.

Expected Volatility:     Since the Company is private and does not have any trading history for its common stock, the expected volatility is based on the historical volatilities of the common stock of comparable publicly traded companies. The Company selected companies with comparable characteristics, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of Tricia’s stock-based awards.

Risk-Free Interest Rate:     The risk-free interest rate is based on the yield of U.S. Treasury notes as of the grant date with terms commensurate with the expected term of the option.

Expected Dividends:     The expected dividends assumption is based on the Company’s expectation of not paying dividends in the foreseeable future.

The Company records the expense attributed to nonemployee services paid with share-based awards based on the estimated fair value of the awards determined using the Black-Scholes option pricing model. The measurement of stock-based compensation for nonemployees is subject to re-measurement as the options vest, and the expense is recognized over the period during which services are received.

The fair value of the stock options granted to non-employees was calculated using the Black-Scholes option pricing model using the following assumptions

 

     Year Ended December 31,  
     2016      2017  

Risk-free interest rate

     2.1%–2.2%        1.7%–2.2%  

Expected volatility

     80.1–80.4%        70.8%–73.1%  

Expected term (in years)

     8.6–8.7        6.5–8.9  

Expected dividends

     0%        0%

6. INCOME TAXES

The Company did not record a provision or benefit for income taxes during the year ended December 31, 2016 and 2017. Significant components of the Company’s deferred tax assets at December 31, 2016 and 2017 are shown below. As of December 31, 2016 and 2017, a valuation allowance of $20.0 million and $ 28.1 million, respectively, has been established when it is more likely

 

F-21


Table of Contents

than not that some portion, or all, of the deferred tax assets will not be realized. The components of the Company’s deferred tax assets are as follows (in thousands):

 

     December 31,  
     2016     2017  

Deferred tax assets

    

Net operating loss (“NOL”) carryforwards

   $ 17,040     $ 24,939  

Research and development credits

     2,005       2,807  

Capitalized assets

     219       79  

Accruals and reserves

     678       149  

Other—net

     39       90  
  

 

 

   

 

 

 

Gross deferred tax assets

     19,981       28,064  
  

 

 

   

 

 

 

Valuation allowance

     (19,981     (28,064
  

 

 

   

 

 

 

Net deferred tax assets

   $ —       $ —    
  

 

 

   

 

 

 

The following is a reconciliation of income tax expense at the statutory federal income tax rate to income tax expense at the Company’s effective tax rate:

 

     Year Ended December 31,  
         2016             2017      

U.S. Federal (tax benefit) provision at statutory rate

     34.0     34.0

State income taxes, net of federal benefit

     5.8       5.8  

Stock-based compensation

     (0.3     (0.7

Permanent adjustments

     (3.4     4.2  

Change to valuation allowance

     (39.3     (19.6

Tax cuts and Jobs Act Impact

     0.0       (25.4

Research and development credits

     3.2       1.6  

Other

     0.0       0.0  
  

 

 

   

 

 

 

Total provision for income taxes

     0.0     0.0
  

 

 

   

 

 

 

As of December 31, 2016 and 2017, the Company has federal and state net operating loss carryforwards of approximately $42.7 million and $43.1 million, and $88.9 million and $89.6 million, respectively. The federal and state net operating loss carryforwards as of December 31, 2017, begin to expire in 2033, unless previously utilized.

The Company’s valuation allowance increased by $8.0 million for the year ended December 31, 2017. The change in the 2017 valuation allowance was primarily due to the addition of current year loss carryforwards and deferred tax remeasurement.

On December 22, 2017, the Tax Cuts and Jobs Act (P.L. 115-97) (Act) was signed into law. Among other changes is a permanent reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the reduction in the corporate income tax rate, the Company revalued its net deferred tax asset at December 31, 2017. The reduction in the value of our net deferred tax asset of approximately $ 10.5 million, was offset by a $10.5 million change in valuation allowance. Many of the Act’s provisions become effective in 2018, the Company does not expect that the Act will have a significant impact on the results of operations.

As of December 31, 2016 and 2017, the Company has federal and state research credits carryforwards of approximately $1.8 million and $1.1 million, and $2.5 million and $1.3 million, respectively. The federal research credit carryforwards will begin expiring in 2033, unless previously utilized. The state research credit carryforwards do not expire.

 

F-22


Table of Contents

Utilization of the NOL and research 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 Sections 382 and 383 of the Internal Revenue Code of 1986, or the Code, as amended, as well as similar state and foreign provisions.

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 research credit carryforwards would be subject to an annual limitation under Section 382 of the Code. Such limitation is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term and 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 research credit carryforwards before utilization. Further, until a study is 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.

ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a tax return. As of December 31, 2016 and 2017, the Company had unrecognized tax benefits of $ 0.6 million and $ 0.8 million. The amount of unrecognized tax benefits is not expected to significantly change over the next twelve months. No amounts, outside of valuation allowance, would impact the effective tax rate on continuing operations. The beginning and ending unrecognized tax benefits amounts is as follows:

 

     December 31,  
         2016             2017      

Beginning balance

   $ 390     $ 574  

Additions for tax positions related to prior year

     19       2  

Decrease related to prior year tax provisions

     (101     (92

Additions for tax positions related to current year

     266       335  
  

 

 

   

 

 

 

Gross unrecognized tax benefits at December 31

   $ 574     $ 819  
  

 

 

   

 

 

 

It is the Company’s policy to include penalties and interest expense related to income taxes as a component of income tax expense as necessary. Management determined that no accrual for interest and penalties was required as of December 31, 2017.

The Company’s tax jurisdictions are the United States and California. The Company’s tax years from 2013—2017 will remain open for examination by the federal and state authorities for three and four years respectively, from the date of utilization of any net operating loss or tax credits. The Company is not currently subject to income tax examinations by any authority.

7. COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not

 

F-23


Table of Contents

paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. The Company also has indemnification obligations to its officers and directors for specified events or occurrences, subject to some limits, while they are serving at the Company’s request in such capacities. There have been no claims to date and the Company has director and officer insurance that may enable the Company to recover a portion of any amounts paid for future potential claims. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2016 and 2017.

In July 2014, the Company entered into a five-year noncancelable operating lease that expires in June 2019, with an option for the Company to extend the lease for an additional three years. Under the terms of the lease the Company received a tenant improvement loan of $0.2 million and an allowance for leasehold improvements of approximately $549,160. The tenant improvement loan balances are $120,000 and $81,000 for the year ended December 31, 2016 and 2017. The total amount of the allowance has been recognized as a liability and is being amortized over the non-cancelable portion of the lease term as an offset to rent expense.

In August 2017, the Company entered into an amendment which extended the existing operating lease to June 2021 and added 13,258 square feet of additional lease space resulting in a total of 26,897 square feet being leased in the aggregate under the amended lease. The agreement included a tenant improvement allowance of $0.5 million comprised of $0.3 million in tenant improvement loan, in addition to a maximum incentive of $0.2 million. The $0.2 million of incentive has been recorded as a liability and is being amortized over the non-cancellable portion of the lease term as an offset to rent expense. Rent expense for the years ended December 31, 2016 and 2017, totaled $0.5 million and $0.7 million, respectively. Rent expense is recognized on a straight-line basis over the term of the lease.

As of December 31, 2017, future minimum payments under the noncancelable operating lease were as follows (in thousands):

 

Year Ended December 31:

  

2018

   $ 1,128  

2019

     1,160  

2020

     1,192  

2021

     605  
  

 

 

 

Total

   $ 4,085  
  

 

 

 

8. PREFERRED STOCK WARRANT LIABILITY

The Company entered into a Note and Warrant Purchase Agreement with Sibling Co—Investment LLC in 2013, the principal and interest of which was subsequently converted into the Company’s Series A Preferred stock in the same year. In accordance with the agreement a warrant to purchase 95,936 shares of Series A Preferred stock was established in conjunction with the Series A financing round and remains outstanding as of December 31, 2017. The warrant has a contractual life of 7 years and an exercise price of $0.886. The fair value of the warrant liability was determined using the Option Pricing Method. As of December 31, 2016 and 2017, the various assumptions used in the option-pricing model were time to liquidity of 2.4/1.7 years, volatility of 54.0%/64.0%, risk-free rate of 1.3%/1.6% and equity value of $91.4 million and $237.9 million. It was recorded at its fair value at inception and is being remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense) in the accompanying statement of operations and comprehensive loss. As of December 31, 2016 and 2017, the fair value of the warrant is approximately $38,000 and $106,000 and is classified as a long-term liability on the balance sheet.

 

F-24


Table of Contents

9. RELATED PARTY TRANSACTIONS

In April 2015, the Company entered into a Transition and Consulting agreement approved by the board of directors, with Melissa J. Miksch, spouse of Chief Executive Officer (CEO) and President, Gerrit Klaerner. The agreement was a transition agreement to retain Melissa J. Miksch, as a consultant upon her voluntary resignation from her position as the Company’s Vice President, Legal and Corporate Affairs effective April 30, 2015. Pursuant to this agreement the Company paid Ms. Miksch approximately $0.1 million and $0.1 million in 2016 and 2017. In addition, while she was an employee of the Company, Ms. Miksch was granted founders’ shares that were subject to repurchase at the Company’s option in the event Ms. Miksch ceased to be an employee. These repurchase rights were to lapse ratably over a period of four years as long as Ms. Miksch continued providing service to the Company as an employee or consultant. Per the terms of the Transition and Consulting agreement, Ms. Miksch retained these founders shares and the Company’s repurchase rights continued to lapse over the same duration as when the shares were initially issued. Subsequent to her transition from employee to consultant, the Company recorded as stock-based compensation the fair value for the shares as the repurchase rights lapsed. The Company’s repurchase rights on all shares held by Ms. Miksch has lapsed as of August 2017. Stock-based compensation recorded by the Company in 2017 in connection with these shares was $77,000.

The Company is a party to an amended and restated consultant services agreement, or the Veitinger CSA, dated March 31, 2014, with Klaus Veitinger Consulting LLC, an entity that is owned by Klaus Veitinger, M.D., Ph.D., a member of the Company’s board of directors. Pursuant to the Veitinger CSA, Klaus Veitinger Consulting LLC will assist the Company with corporate, commercial, reimbursement, medical and regulatory strategy in the area of polymer-based therapeutics for the treatment and/or prevention of metabolic acidosis. As compensation for these services, the Company is obligated to pay Klaus Veitinger Consulting LLC a fee of $6,666.67 per month for up to and including four days of work per month and an additional amount of $2,500 per day for any additional days of work beyond four days in a given month. Pursuant to an amendment to the Veitinger CSA which the Company entered into on November 15, 2016, the Company has agreed to certain indemnification obligations in favor of Klaus Veitinger Consulting LLC. During the years ending December 31, 2016 and 2017, the Company recorded consulting expense under the Veitinger CSA of $80,000 and $80,000.

10. NET LOSS AND UNAUDITED PRO FORMA NET LOSS PER SHARE

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share data):

 

     Year Ended December 31,  
     2016     2017  
     (in thousands, except share
and per share amounts
 

Numerator:

    

Net loss

   $ (28,651   $ (41,290

Denominator:

    

Weighted average common shares outstanding

     8,978,474       9,025,577  

Less: weighted average shares subject to repurchase

     (1,710,833     (517,569
  

 

 

   

 

 

 

Weighted average number of shares used in basic and diluted net loss per share

     7,267,641       8,508,008  
  

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (3.94   $ (4.85
  

 

 

   

 

 

 

 

F-25


Table of Contents

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

 

     December 31,  
     2016      2017  

Series A convertible preferred stock

     11,302,758        11,302,758  

Series B convertible preferred stock

     32,526,878        32,526,878  

Series C convertible preferred stock

     19,532,259        35,806,451  

Series D convertible preferred stock

            24,493,615  

Warrants to purchase preferred stock

     95,936        95,936  

Common stock subject to repurchase

     35,000        1,459  

Options issued and outstanding

     8,991,082        14,283,228  
  

 

 

    

 

 

 

Total

     72,483,913        118,510,325  
  

 

 

    

 

 

 

The following table sets forth the computation of the Company’s unaudited pro forma basic and diluted net loss per share:

 

     Year Ended
December 31,
 
     2017  
     (in
thousands,
except share
and per
share
amounts
 

Net loss

   $ (41,290
  

 

 

 

Pro forma adjustment to reflect change in fair value of convertible preferred stock warrant liability

     68  
  

 

 

 

Pro forma net loss attributable to common stockholders

   $ (41,222
  

 

 

 

Shares used in computing net loss per share, basic and diluted

     8,508,008  

Pro forma adjustment to reflect assumed conversion of preferred stock allocable to common stockholders, basic and diluted

  
  

 

 

 
  
  

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted

   $  
  

 

 

 

11. SUBSEQUENT EVENTS

Management has evaluated subsequent events through February 28, 2018, the date the financial statements were issued. The following subsequent events were noted:

The Company closed a $100.0 million loan and security agreement with Hercules Capital on February 28, 2018. The loan and security agreement has tranched availability based on certain milestones. At close, the Company drew down the first tranche for cash proceeds of $24.3 million, net of transaction costs of $0.7 million.

 

F-26


Table of Contents


Table of Contents

Tricida, Inc.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

 

    December 31,     March 31,     Pro Forma
Stockholders’
Equity as of
March 31,
 
    2017     2018     2018  
    (Note 1)     (Unaudited)     (Unaudited)  

Assets

     

Current assets:

     

Cash and cash equivalents

  $ 9,774     $ 12,482    

Short-term marketable securities

    57,740       62,746    

Prepaid expenses and other current assets

    1,910       669    
 

 

 

   

 

 

   

Total current assets

    69,424       75,897    

Property and equipment, net

    1,150       1,358    

Deferred offering costs

          2,309    
 

 

 

   

 

 

   

Total assets

  $ 70,574     $ 79,564    
 

 

 

   

 

 

   

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

     

Current liabilities:

     

Accounts payable

  $ 3,861     $ 9,641    

Accrued expenses and other current liabilities

    7,361       7,390    

Term loan

          22,941    
 

 

 

   

 

 

   

Total current liabilities

    11,222       39,972    

Other long-term liabilities

    323       744       575  
 

 

 

   

 

 

   

 

 

 

Total liabilities

    11,545       40,716       40,547  
 

 

 

   

 

 

   

 

 

 

Commitments and contingencies

     

Series A convertible preferred stock, $0.001 par value; 11,398,694 shares authorized as of December 31, 2017 and March 31, 2018 (unaudited); 11,302,758 shares issued and outstanding as of December 31, 2017 and March 31, 2018 (unaudited); aggregate liquidation preference of $10,014 as of March 31, 2018 (unaudited); no shares issued and outstanding, pro forma (unaudited)

    9,800       9,800    

Series B convertible preferred stock, $0.001 par value; 32,526,878 shares authorized as of December 31, 2017 and March 31, 2018 (unaudited); 32,526,878 shares issued and outstanding as of December 31, 2017 and March 31, 2018 (unaudited); aggregate liquidation preference of $30,250 as of March 31, 2018 (unaudited); no shares issued and outstanding, pro forma (unaudited)

    29,618       29,618    

Series C convertible preferred stock, $0.001 par value; 35,806,451 shares authorized as of December 31, 2017 and March 31, 2018 (unaudited); 35,806,451 shares issued and outstanding as of December 31, 2017 and March 31, 2018 (unaudited); aggregate liquidation preference of $55,500 as of March 31, 2018 (unaudited); no shares issued and outstanding, pro forma (unaudited)

    50,347       50,347    

Series D convertible preferred stock, $0.001 par value; 24,500,000 shares authorized as of December 31, 2017 and March 31, 2018 (unaudited); 24,493,615 shares issued and outstanding as of December 31, 2017 and March 31, 2018 (unaudited); aggregate liquidation preference of $57,560 as of March 31, 2018 (unaudited); no shares issued and outstanding, pro forma (unaudited)

    57,305       57,305    

Stockholders’ equity (deficit):

     

Common stock, $0.001 par value; 134,000,000 shares authorized as of December 31, 2017 and March 31, 2018 (unaudited); 9,045,044 and 9,162,544 shares issued and outstanding, as of December 31, 2017 and March 31, 2018 (unaudited);                  shares issued and outstanding, pro forma (unaudited)

    9       9    

Additional paid-in capital

    1,349       1,726    

Accumulated other comprehensive loss

    (13     (67     (67

Accumulated deficit

    (89,386     (109,890     (109,890
 

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

    (88,041     (108,222     39,017  
 

 

 

   

 

 

   

 

 

 

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

  $ 70,574     $ 79,564     $ 79,564  
 

 

 

   

 

 

   

 

 

 

See accompanying notes to these condensed financial statements

 

F-28


Table of Contents

Tricida, Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

     Three Months Ended
March 31,
 
     2017     2018  

Operating expenses:

    

Research and development

   $ 5,844     $ 16,633  

General and administrative

     2,825       3,465  
  

 

 

   

 

 

 

Total operating expenses

     8,669       20,098  
  

 

 

   

 

 

 

Loss from operations

     (8,669     (20,098

Change in fair value—preferred stock tranche obligation

     6,462        

Other income (expense), net

     (2     (87

Interest expense

           (319
  

 

 

   

 

 

 

Net loss

     (2,209     (20,504

Other comprehensive loss:

    

Net unrealized loss on marketable securities, net of tax

     (1     (54
  

 

 

   

 

 

 

Comprehensive loss

   $ (2,210   $ (20,558
  

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (0.27   $ (2.26
  

 

 

   

 

 

 

Weighted-average number of shares outstanding, basic and diluted

     8,116,997       9,067,544  
  

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (unaudited)

     $  
 

 

 

 

Pro forma weighted-average number of shares, basic and diluted (unaudited)

    
 

 

 

 

See accompanying notes to these condensed financial statements

 

F-29


Table of Contents

Tricida, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

     Three Months Ended
March 31,
 
     2017     2018  

Operating activities:

    

Net loss

   $ (2,209   $ (20,504

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     97       138  

Amortization of term loan discount and issuance costs

           128  

Net amortization of premiums and discounts on marketable securities

     (6     (123

Stock-based compensation

     182       353  

Changes in fair value of warrants and compound derivative liabilities

           136  

Changes in fair value of preferred stock tranche obligation

     (6,463      

Changes in operating assets and liabilities:

    

Prepaid expenses and other assets

     407       1,110  

Accounts payable

     (721     4,699  

Accrued expenses and other liabilities

     543       (1,033
  

 

 

   

 

 

 

Net cash used in operating activities

     (8,170     (15,096
  

 

 

   

 

 

 

Investing activities:

    

Purchase of marketable securities

     (3,241     (16,802

Maturities of marketable securities

     13,265       11,865  

Purchase of property and equipment

     (12     (494
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     10,012       (5,431
  

 

 

   

 

 

 

Financing activities:

    

Proceeds (repayments) relating to tenant improvement loan

     (11     250  

Proceeds from exercise of common stock options

     5       77  

Deferred initial public offering costs

           (726

Net proceeds from issuance of term loan

           23,634  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (6     23,235  
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     1,836       2,708  

Cash and cash equivalents at beginning of period

     5,682       9,774  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 7,518     $ 12,482  
  

 

 

   

 

 

 

Supplemental disclosures of non-cash investing and financing activities

    

Deferred initial public offering costs incurred but not paid

   $     $ 1,452  
  

 

 

   

 

 

 

Compound derivative and warrant related to the term loan

   $     $ 810  
  

 

 

   

 

 

 

Purchase of property and equipment included in accrued expenses and accounts payable

   $     $ 51  
  

 

 

   

 

 

 

See accompanying notes to these condensed financial statements.

 

F-30


Table of Contents

Tricida, Inc.

Notes to Unaudited Condensed Financial Statements

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization —Tricida, Inc., or the Company, was incorporated in the state of Delaware on May 22, 2013 and was granted its certification of qualification in the state of California on August 5, 2013 (inception). The Company is engaged in the development of novel therapeutics to address renal, metabolic and cardiovascular disease.

As of March 31, 2018, the Company has devoted substantially all of its efforts to the formation and financing of the Company, as well as product development, and has not realized revenues from its planned principal operations. The Company has no manufacturing facilities and all manufacturing related activities are contracted out to third-party service providers.

Basis of Presentation —These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.

Unaudited Interim Financial Statements —The condensed balance sheet as of March 31, 2018 and the condensed statements of operations and comprehensive loss and cash flows for the three months ended March 31, 2017 and 2018 are unaudited. These unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2018 and its results of operations and cash flows for the three months ended March 31, 2017 and 2018. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for any other future annual or interim period. The condensed balance sheet as of December 31, 2017 included herein was derived from the audited financial statements as of that date. These financial statements should be read in conjunction with the Company’s audited financial statements included elsewhere in this prospectus.

Unaudited Pro Forma Information —Immediately prior to the completion of this offering, all outstanding shares of convertible preferred stock will automatically convert into common stock. In addition, the convertible preferred stock warrants would be exercised into shares of convertible preferred stock which would automatically convert into shares of common stock and the related warrant liability would be reclassified to additional paid-in capital in stockholders’ equity. Unaudited pro forma balance sheet information as of March 31, 2018 assumes the net exercise of the preferred stock warrant and the conversion of all outstanding convertible preferred stock into shares of common stock. The shares of common stock issuable and the proceeds expected to be received in the initial public offering are excluded from such pro forma financial information. Unaudited pro forma basic and diluted net loss per share has been computed to give effect to the conversion of all outstanding convertible preferred stock into shares of common stock. The unaudited pro forma net loss per share does not include the shares expected to be sold and related proceeds to be received from the initial public offering.

Need for Additional Capital —The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $109.9 million at March 31, 2018 and does not expect to experience positive cash flows in the foreseeable future. As of December 31, 2017, and March 31, 2018, the Company had $67.5 million and $75.2 million in cash, cash equivalents and short-term marketable securities and working capital of $58.2 million and $35.9 million, respectively. Management expects to incur additional losses in the future to conduct

 

F-31


Table of Contents

product research and development and to conduct pre-commercialization activities and recognizes the need to raise additional capital to fully implement its business plan. The Company intends to raise such capital through the sale of additional equity, debt financings or strategic alliances with third parties. However, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms acceptable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of the issuance of these financial statements. If the Company is unsuccessful in its efforts to raise additional financing, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of its development programs or its future commercialization efforts, out-license intellectual property rights to its product candidates and sell unsecured assets, or a combination of the above, any of which may have a material adverse effect on the Company’s business, results of operations, financial condition and/or its ability to fund its scheduled obligations on a timely basis or at all. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

Use of Estimates —The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents —The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents.

Marketable Securities —All highly liquid investments with original maturities of greater than three months from the date of purchase are classified as marketable securities. Management has classified the Company’s marketable securities as available-for-sale securities in the accompanying financial statements. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive loss. Realized gains and losses on the sale of all such securities are reported in other income (expense), net and computed using the specific identification method. For the period ended December 31, 2017 and March 31, 2018, there were no realized gains or losses on these securities. The Company’s investments are in commercial paper, asset backed securities and corporate debt securities. Pursuant to the Company’s investment policy, all purchased securities have a minimum short-term rating of A1 (Moody’s) or P1 (Standard & Poor’s) or equivalent. If there is no short-term rating, a purchased security is required to have a long-term rating no lower than A3/A- or equivalent.

Concentration of Credit Risk —Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents and marketable securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that these financial institutions are financially sound, and, accordingly, minimal credit risk exists with respect to those financial institutions. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash, cash equivalents and marketable securities and issuers of marketable securities to the extent recorded in the balance sheet.

Property and Equipment —Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, which is three years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful economic lives of the related assets.

 

F-32


Table of Contents

Deferred Offering Costs —The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations and comprehensive loss. As of March 31, 2018, $2.3 million of deferred offering costs were capitalized on the balance sheet.

Clinical and Manufacturing Accruals —The Company records accruals for estimated costs of research, preclinical and clinical studies, and manufacturing development, which are a significant component of research and development expenses. A substantial portion of the Company’s ongoing research and development activities is conducted by third-party service providers, including clinical research organizations, or CROs, and contract manufacturing organizations, or CMOs. The Company’s contracts with CROs generally include pass-through fees such as regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. 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 to the Company under such contracts. The Company accrues the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. The Company determines the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.

The Company makes significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, the Company adjusts its accruals. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in the Company reporting amounts that are too high or too low in any particular period. The Company’s accrual is dependent, in part, upon the receipt of timely and accurate reporting from information provided as part of its clinical and non-clinical studies and other third-party vendors. Through March 31, 2018, there have been no material differences from the Company’s accrued estimated expenses to the actual clinical trial and manufacturing expenses. However, variations in the assumptions used to estimate accruals, including, but not limited to the number of patients enrolled, the rate of patient enrollment, the actual services performed, and the amount of manufactured drug substance and/or drug product, and related costs may vary from the Company’s estimates, resulting in adjustments to research and development expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect its financial position and results of operations.

Warrant Liability —The Company has issued freestanding warrants to purchase shares of its Series A convertible preferred stock. Freestanding warrants for shares of the Company’s convertible preferred stock that are classified outside of permanent equity, and other similar instruments related to shares that are classified as liabilities, are recorded at fair value, and are subject to remeasurement at each balance sheet date until the earlier of the exercise of the warrants or the completion of a liquidation event, including the completion of an initial public offering. Upon exercise, the warrant liability would be reclassified to additional paid-in capital, with any change in fair value recognized as a component of other income (expense), net.

In addition, the Company issued warrants to purchase shares of its common stock, exercisable at the earlier of (i) seven years from February 28, 2018; (ii) one year after the Initial Public Offering; and (iii) immediately prior to the closing of a Merger Event. Those warrants do not meet the requirements of

 

F-33


Table of Contents

the equity indexation guidance and were therefore recorded as a derivative liability that is subsequently remeasured to fair value at each reporting period through earnings.

Net Loss per Share —Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are anti-dilutive given the net loss for each period presented.

Recent Accounting Pronouncements —From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share; Distinguishing Liabilities from Equity; Derivatives and Hedging, (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception . The guidance in ASU 2017-11 allows for the exclusion of a down round feature, when evaluating whether or not an instrument or embedded feature requires derivative classification. The Company early adopted this guidance beginning January 1, 2018. The adoption of this standard had no material impact on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new standard is effective for annual periods and interim periods beginning after December 15, 2018 and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) , which for operating leases requires the lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The guidance also requires a lessee to recognize single lease costs, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The accounting standard is effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. Early adoption is permitted. The Company expects the implementation of ASC 842 to have an impact on its financial statements and related disclosures as it had aggregate future minimum lease payments of approximately $3.5 million as of March 31, 2018. The Company anticipates recognition of additional assets and corresponding liabilities related to these leases on its balance sheet.

2. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company’s financial assets and liabilities are determined in accordance with the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures . ASC Topic 820 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. The fair value hierarchy

 

F-34


Table of Contents

of ASC Topic 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:

Level 1 —Observable inputs, such as quoted prices in active markets

Level 2 —Inputs, other than the quoted prices in active markets, which 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 instrument’s anticipated life

Level 3 —Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

The Company’s financial assets and liabilities include cash equivalents, marketable securities, warrant liabilities and, prior to April 2017, a preferred stock tranche obligation. Cash equivalents in the form of money market funds are stated at cost, which approximates their fair values.

The Company has detachable warrants and compound derivatives that were recorded as liabilities and adjusted to fair value on a recurring basis. The fair value of the warrant liability was determined using an option-pricing model, which utilizes a series of unobservable inputs, and accordingly, the liabilities were classified as Level 3 measurements.

The following table sets forth the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

     As of December 31, 2017  
     Level 1      Level 2      Level 3      Fair Value  

Financial Assets

           

Cash equivalents

           

Money market funds

   $ 6,758      $      $      $ 6,758  

Corporate debt securities

            2,930               2,930  

Marketable securities

           

Commercial paper

            25,773               25,773  

Corporate debt securities

            17,613               17,613  

Asset backed securities

            14,354               14,354  

Financial Liabilities

           

Long term liabilities

           

Warrant liability

                   106        106  

 

F-35


Table of Contents
     As of March 31, 2018  
     Level 1      Level 2      Level 3      Fair Value  

Financial Assets

           

Cash equivalents

           

Money market funds

   $ 9,817      $      $      $ 9,817  

Commercial paper

            499               499  

Corporate debt securities

            2,997               2,997  

Marketable securities

           

Commercial paper

            29,998               29,999  

Corporate debt securities

            24,260               24,260  

Asset backed securities

            8,487               8,487  

Financial Liabilities

           

Short term liabilities

           

Compound derivative liability

                   689        689  

Long term liabilities

           

Warrant liabilities

                   363        363  

The following tables are a reconciliation of all liabilities measured at fair value using Level 3 unobservable inputs (in thousands):

 

     Compound
Derivative
     Warrant
Liability
 

Opening Balance, January 1, 2018

   $      $ 106  

Addition

     654        156  

Change in fair value

     35        101  
  

 

 

    

 

 

 

Balance as of March 31, 2018

   $ 689      $ 363  
  

 

 

    

 

 

 

Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, reported trades and broker/dealer quotes. Where applicable the market approach utilizes prices and information from market transactions for similar or identical assets. The Company classifies corporate debt securities, commercial paper and asset backed securities as Level 2. In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. Level 3 liabilities that are measured at fair value on a recurring basis consist of convertible preferred stock warrant liabilities, common stock warrant liabilities and compound derivative liability. There were no transfers of assets of liabilities between the fair value measurement levels during the periods presented.

The carrying values of the Company’s financial instruments, such as accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items.

All marketable securities were considered available-for-sale at December 31, 2017 and March 31, 2018. The amortized cost, unrealized holding gains or losses, and fair value of the Company’s

 

F-36


Table of Contents

marketable securities by major security type at December 31, 2017 and March 31, 2018 are summarized in the table below (in thousands):

 

     Amortized
Cost
     Unrealized
Holding
Gains
     Unrealized
Holding
Losses
    Aggregate
Fair Value at

December 31
2017
 

Commercial paper

   $ 25,780      $      $ (7   $ 25,773  

Corporate debt securities

     17,615        3        (5     17,613  

Asset backed securities

     14,358               (4     14,354  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 57,753      $ 3      $ (16   $ 57,740  
  

 

 

    

 

 

    

 

 

   

 

 

 
     Amortized
Cost
     Unrealized
Holding
Gains
     Unrealized
Holding
Losses
    Aggregate
Fair Value at
March 31
2018
 

Commercial paper

   $ 30,019      $ 4      $ (24   $ 29,999  

Corporate debt securities

     24,297        3        (40     24,260  

Asset backed securities

     8,497               (10     8,487  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 62,813      $ 7      $ (74   $ 62,746  
  

 

 

    

 

 

    

 

 

   

 

 

 

All marketable securities as of March 31, 2018 have contractual maturities of one year or less.

As of March 31, 2018, unrealized losses on available-for-sale investments are not attributable to credit risk and are considered to be temporary. The Company believes that it is more- likely-than-not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value. All marketable securities with unrealized losses as of March 31, 2018 have been in a loss position for less than twelve months or the loss is not material.

The estimated fair value of the Term Loan was $25.1 million as of March 31, 2018, which approximates the carrying value and is classified as Level 3.

3. BALANCE SHEET COMPONENTS

Property and Equipment, Net

 

     December 31
2017
    March 31
2018
 
     (in thousands)  

Furniture and fixtures

   $ 193     $ 214  

Computer and lab equipment

     1,382       1,707  

Leasehold improvements

     878       878  
  

 

 

   

 

 

 
     2,453       2,799  

Less accumulated depreciation and amortization

     (1,303     (1,441
  

 

 

   

 

 

 

Property and equipment, net

   $ 1,150     $ 1,358  
  

 

 

   

 

 

 

Depreciation and amortization expense was approximately $0.1 million for the three months ended March 31, 2017 and 2018.

 

F-37


Table of Contents

4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

     December 31
2017
     March 31
2018
 
     (in thousands)  

Accrued clinical and nonclinical study costs

   $ 2,235      $ 2,103  

Accrued contract manufacturing

     4,157        2,349  

Accrued compensation

            919  

Accrued professional fees and other

     969        1,330  

Compound derivative liability

            689  
  

 

 

    

 

 

 

Total accrued expenses and other current liabilities

   $ 7,361      $ 7,390  
  

 

 

    

 

 

 

5. TERM LOAN

On February 28, 2018, the Company entered into a Loan and Security Agreement, or the Term Loan, with Hercules Capital, Inc., or Hercules. The Term Loan provides for a loan in an aggregate principal amount of up to $100.0 million to be funded in five tranches subject to certain performance—based milestones. The first tranche, in the amount of $25.0 million, was funded on the closing date of the Term Loan. A second tranche of $25.0 million may be available on or before December 31, 2018, based on the Company’s achievement of positive clinical data from the pivotal Phase 3 clinical trial, TRCA-301, before December 15, 2018. A third tranche of $15.0 million will be available on or before December 31, 2019, on the condition that the Company submits a New Drug Application, or NDA, to the United States Food and Drug Administration, or FDA, which the FDA accepts for review, on or before December 31, 2019. A fourth tranche of $10.0 million will be available on or before December 15, 2020, provided that the Company obtains product approval from the FDA for the NDA for TRC101 on or before December 15, 2020. The fifth tranche of $25.0 million will be available on or before December 31, 2020, upon request by the Company and the approval of Hercules’ investment committee.

The Term Loan bears interest at a floating per annum interest rate equal to the greater of either (i) 8.35% or (ii) the lesser of (x) 8.35% plus the prime rate as reported in The Wall Street Journal minus 5.00% and (y) 9.85%.

The Term Loan repayment schedule provides for interest only payments for the first 16 months, followed by consecutive equal monthly payments of principal and interest commencing on July 1, 2019 and continuing through the maturity date of March 1, 2022. The Term Loan also provides for a $650,000 facility fee that was paid at closing and an additional payment equal to 6.55% multiplied by the greater of (i) the aggregate term loans funded and (ii)(a) the aggregate term loans funded plus (b) one half of (x) $60.0 million minus (y) the aggregate term loans funded, which is due when the Term Loan becomes due or upon prepayment of the facility. If the Company elects to prepay the Term Loan, there is also a prepayment fee of between 1% and 2% of the principal amount being prepaid depending on the timing and circumstances of prepayment.

In conjunction with the Term Loan, the Company have issued warrants to purchase 212,765 shares of common stock with an exercise price of $2.35 per share. The estimated fair value of the warrants at the date of issuance was approximately $156,000. The fair value of the common stock warrant liability was determined using the probability weighted expected return method. As of March 31, 2018, the various assumptions used in the option-pricing model were time to liquidity of 0.25 to 1.7 years, volatility of 72%, risk-free rate of 2.4% and equity value of $306 million to $420 million. It was recorded at its fair value at inception and is being remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the accompanying condensed statement of operations and comprehensive loss. As of March 31, 2018, the

 

F-38


Table of Contents

fair value of the common stock warrant was approximately $194,000 and was classified as a long-term liability on the balance sheet.

In connection with any subsequent draw down under tranches two through five, the Company is obligated to issue additional common stock warrants equal to the quotient derived by dividing (a) 2.0% of the amount(s) funded under such tranche and (b) the lower of (x) the offering price of the shares of our common stock under this offering and (y) and the effective price at which the shares of our Series D convertible preferred stock converted into common stock; provided however that in no event shall (x) or (y) be less than $0.20 per share.

The Term Loan is secured by substantially all of the Company’s assets, except the Company’s intellectual property, which is the subject of a negative pledge.

The Company determined that certain loan features were embedded derivatives requiring bifurcation and separate accounting. Those embedded derivatives were bundled together as a single, compound embedded derivative and then bifurcated and accounted for separately from the host contract. The Company recorded a compound derivative liability of $654,000, which will be marked to market in future periods. The Company calculated the fair values of the compound derivative by computing the difference between the fair value of the Term Loan with the compound derivative using the “with and without” method under the income approach, and the fair value of the Term Loan without the compound derivative. The Company calculated the fair values using a probability weighted discounted cash flow analysis. The key valuation assumptions used consist of the discount rate and the probability of the occurrence of certain events. The compound derivative liability is being remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the condensed statements of operations and comprehensive loss. As of March 31, 2018, the fair value of the compound derivative liability was approximately $689,000 and was classified as accrued expenses and other current liabilities on the condensed balance sheet.

The facility fee, fair value of warrants at issuance, fair value of embedded derivatives which were bifurcated, and other debt issuance costs have been treated as debt discounts on the Company’s balance sheet and together with the additional payment are being amortized to interest expense throughout the life of the Term Loan using the effective interest rate method.

As of March 31, 2018, there were unamortized issuance costs and debt discounts of $2.1 million, which were recorded as a direct deduction from the Term Loan on the condensed balance sheet.

Future payments of principal and interest (in thousands) as of March 31, 2018 are as follows:

 

Years ending December 31:

  

2018 (remaining nine months)

   $ 1,600  

2019

     6,158  

2020

     10,206  

2021

     10,206  

2022

     5,393  
  

 

 

 
     33,563  

Less: amount representing interest

     (8,563
  

 

 

 

Present value of notes payable

     25,000  

Less: current portion

     (25,000
  

 

 

 

Long-term portion of notes payable

   $  
  

 

 

 

 

F-39


Table of Contents

6. CAPITAL STRUCTURE

Common Stock —Common stock reserved for future issuance, on an as if converted basis consisted of the following:

 

     December 31,
2017
     March 31,
2018
 

Preferred stock, issued and outstanding

     104,129,702        104,129,702  

Stock options issued and outstanding

     14,283,228        17,447,456  

Stock options authorized for future issuance

     3,521,728        240,000  
  

 

 

    

 

 

 

Total

     121,934,658        121,817,158  
  

 

 

    

 

 

 

Convertible Preferred Stock —As of December 31, 2017 and March 31, 2018, convertible preferred stock consisted of the following (in thousands, except share amounts):

 

     Authorized
Shares
     Shares Issued
and Outstanding
     Net
Proceeds
     Aggregate
Liquidation
Preference
 

Shares designated as

           

Series A convertible preferred stock

     11,398,694        11,302,758      $ 9,800      $ 10,014  

Series B convertible preferred stock

     32,526,878        32,526,878        29,618        30,250  

Series C convertible preferred stock

     35,806,451        35,806,451        50,347        55,500  

Series D convertible preferred stock

     24,500,000        24,493,615        57,305        57,560  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     104,232,023        104,129,702      $ 147,070      $ 153,324  
  

 

 

    

 

 

    

 

 

    

 

 

 

7. PREFERRED STOCK WARRANT LIABILITY

The Company entered into a Note and Warrant Purchase Agreement with Sibling Co— Investment LLC in 2013, the principal and interest of which was subsequently converted into the Company’s Series A Preferred stock in the same year. In accordance with the agreement a warrant to purchase 95,936 shares of Series A Preferred stock was established in conjunction with the Series A financing round and remains outstanding as of March 31, 2018. The warrant has a contractual life of 7 years and an exercise price of $0.886. The fair value of the warrant liability was determined using the probability weighted expected return method. As of March 31, 2018, the various assumptions used in the option-pricing model were time to liquidity of 0.25 to 1.7 years, volatility of 72.0%, risk-free rate of 2.4% and equity value of $306 million to $420 million. It was recorded at its fair value at inception and is being remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the accompanying condensed statement of operations and comprehensive loss. As of December 31, 2017, and March 31, 2018, the fair value of the warrant is approximately $106,000 and $169,000 and is classified as a long-term liability on the balance sheet.

 

F-40


Table of Contents

8. NET LOSS AND UNAUDITED PRO FORMA NET LOSS PER SHARE

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share data):

 

     Three Months Ended March 31,  
     2017     2018  

Numerator:

    

Net loss

   $ (2,209   $ (20,504

Denominator:

    

Weighted-average shares outstanding

     9,016,041       9,116,627  

Less: weighted-average shares subject to repurchase

     (899,044     (49,083
  

 

 

   

 

 

 

Weighted-average number of shares used in basic and diluted net loss per share

     8,116,997       9,067,544  
  

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (0.27   $ (2.26
  

 

 

   

 

 

 

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

 

     March 31,  
     2017      2018  

Series A convertible preferred stock

     11,302,758        11,302,758  

Series B convertible preferred stock

     32,526,878        32,526,878  

Series C convertible preferred stock

     19,532,259        35,806,451  

Series D convertible preferred stock

            24,493,615  

Warrants to purchase preferred and common stock

     95,936        308,701  

Common stock subject to repurchase

     730,859        67,500  

Options issued and outstanding

     10,090,302        17,447,456  
  

 

 

    

 

 

 

Total

     74,278,992        121,953,359  
  

 

 

    

 

 

 

The following table sets forth the computation of the Company’s unaudited pro forma basic and diluted net loss per share (in thousands, except share and per share data):

 

     Three Months Ended
March 31, 2018
 

Net loss

   $ (20,504
  

 

 

 

Pro forma adjustment to reflect change in fair value of convertible preferred stock warrant liability

     63  
  

 

 

 

Pro forma net loss attributable to common stockholders

   $ (20,441
  

 

 

 

Shares used in computing net loss per share, basic and diluted

     113,293,182  

Pro forma adjustment to reflect assumed conversion of preferred stock allocable to common stockholders, basic and diluted

  
  

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted

   $  
  

 

 

 

 

F-41


Table of Contents

9. SUBSEQUENT EVENTS

On May 8, 2018, the Company and Patheon Austria GmbH & Co KG, or Patheon, entered into a master development/validation services and clinical/launch supply agreement, or MDS, pursuant to which Patheon will manufacture and supply to the Company drug substances. Statements of work under the MDS commit the Company to certain purchase obligations of approximately $43.0 million over the next 36 months, with approximately one-third of this amount occurring in each of the three successive 12-month periods.

 

F-42


Table of Contents

 

 

             Shares

Tricida, Inc.

Common Stock

 

 

 

LOGO

 

 

 

 

 

Goldman Sachs & Co. LLC   J.P. Morgan    Cowen

 

 

 

 


Table of Contents

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth all expenses to be paid by us, other than estimated underwriting discounts and commissions, in connection with our initial public offering. All amounts shown are estimates except for the Securities and Exchange Commission registration fee and the FINRA filing fee.

 

     AMOUNT
PAID OR
TO BE
PAID
 

SEC registration fee

   $ 18,675  

FINRA filing fee

     23,000  

Nasdaq listing fee

     25,000  

Printing and engraving expenses

                 

Legal fees and expenses

                 

Accounting fees and expenses

                 

Transfer agent and registrar fees and expenses

                 

Miscellaneous expenses (including road show expenses)

                 
  

 

 

 

Total

     $            *  
  

 

 

 

 

* To be completed by amendment

Item 14. Indemnification of Directors and Officers

Tricida, Inc. is incorporated under the laws of the State of Delaware. Reference is made to Section 102(b)(7) of the General Corporation Law of the State of Delaware, as amended, or the DGCL, which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the director’s fiduciary duty, except (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends or unlawful stock purchase or redemptions or (4) for any transaction from which the director derived an improper personal benefit.

Section 145(a) of the DGCL provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Section 145(b) of the DGCL provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor because the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint

 

II-1


Table of Contents

venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made with respect to any claim, issue or matter as to which he or she shall have been adjudged to be liable to the corporation unless and only to the extent that the adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such expenses which the adjudicating court shall deem proper.

Section 145(g) of the DGCL provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify the person against such liability under Section 145 of the DGCL.

We expect that the amended and restated certificate of incorporation adopted by us prior to the completion of this offering will provide that no director of our company shall be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to us or our stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) in respect of unlawful dividend payments or stock redemptions or repurchases or other distributions pursuant to Section 174 of the DGCL, or (4) for any transaction from which the director derived an improper personal benefit. In addition, our charter will provide that if the DGCL is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of our company shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

We also expect our charter will further provide that any amendment, repeal or modification of such article unless otherwise required by law will not adversely affect any right or protection existing at the time of such repeal or modification with respect to any acts or omissions occurring before such repeal or amendment of a director serving at the time of such repeal or modification.

We expect that our amended and restated certificate of incorporation adopted by us prior to the completion of this offering, or the amended and restated certificate of incorporation, will provide that we shall indemnify each of our directors and executive officers, and shall have power to indemnify our other officers, employees and agents, to the fullest extent permitted by the DGCL as the same may be amended (except that in the case of an amendment, only to the extent that the amendment permits us to provide broader indemnification rights than the DGCL permitted us to provide prior to such the amendment) against any and all expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by the director, officer or such employee or on the director’s, officer’s or employee’s behalf in connection with any threatened, pending or completed proceeding or any claim, issue or matter therein, to which he or she is or is threatened to be made a party because he or she is or was serving as a director, officer or employee of our company, or at our request as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of our company and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. We expect the amended and restated certificate of incorporation will further provide for the advancement of expenses to each of our directors and, in the discretion of the board of directors, to certain officers and employees, in advance of the final disposition of such action, suit or proceeding only upon receipt of an undertaking by such person to repay all amounts advanced if it shall ultimately be determined by final

 

II-2


Table of Contents

judicial decision from which there is no further right to appeal that such person is not entitled to be indemnified for such expenses.

In addition, we expect the amended and restated certificate of incorporation will provide that the right of each of our directors and officers to indemnification and advancement of expenses shall not be exclusive of any other right now possessed or hereafter acquired under any statute, provision of the charter or amended and restated bylaws, agreement, vote of stockholders or otherwise. Furthermore, our amended and restated certificate of incorporation will authorize us to provide insurance for our directors, officers, employees, and agents against any liability, whether or not we would have the power to indemnify such person against such liability under the DGCL or the amended and restated bylaws.

In connection with the sale of the common stock being registered hereby, we intend to enter into indemnification agreements with each of our directors and our executive officers. These agreements will provide that we will indemnify each of our directors and such officers to the fullest extent permitted by law and our amended and restated certificate of incorporation.

We also maintain a general liability insurance policy which covers certain liabilities of directors and officers of our company arising out of claims based on acts or omissions in their capacities as directors or officers.

In any underwriting agreement we will enter into in connection with the sale of the common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, or the Securities Act, against certain liabilities.

Item 15. Recent Sales of Unregistered Securities.

The following list sets forth information regarding all securities sold or granted by us since January 1, 2015, which were not registered under the Securities Act, and the consideration, if any, received by us for such securities:

 

(1) In February 2015 and February 2016, we issued and sold an aggregate of 32,526,878 shares of our Series B convertible preferred stock to four accredited investors at a purchase price of $0.930 per share for aggregate proceeds of approximately $30.2 million in cash.

 

(2) In July 2016, August 2016 and April 2017, we issued and sold an aggregate of 35,806,451 shares of our Series C convertible preferred stock to nine accredited investors at a purchase price of $1.55 per share for aggregate proceeds of approximately $55.5 million in cash.

 

(3) In November 2017, we issued and sold 24,493,615 shares of our Series D convertible preferred stock to thirteen accredited investors at a purchase price of $2.35 per share for aggregate proceeds of approximately $57.5 million in cash.

 

(4) On February 28, 2018, we entered into a warrant agreement with each of Hercules Capital, Inc., or Hercules, and Hercules Technology III, L.P. Pursuant to the terms of the warrant agreement, Hercules and Hercules Technology III, L.P., have the right to purchase an aggregate number of shares of our common stock equal to the quotient derived by dividing (a) $500,000, by (b) the lower of (x) the offering price of the shares of our common stock under this offering and (y) and the effective price at which the shares of our Series D convertible preferred stock converted into common stock; provided however that in no event shall (x) or (y) be less than $0.20 per share.

 

(5)

Since January 1, 2015, we have granted stock options to purchase an aggregate of 13,816,109 shares of our common stock with exercise prices of $0.20, $0.24, $0.42, $0.46, $0.60, $0.87 per

 

II-3


Table of Contents
  share, to our employees, directors and consultants pursuant to our 2013 Equity Incentive Plan, or the 2013 Plan. Since January 1, 2015, we have issued an aggregate of 235,044 shares of our common stock upon exercise of stock options granted pursuant to our 2013 Plan, for an aggregate consideration of $44,854.62 in cash.

The offers, sales and issuances of the securities described in Items 15(1) through 15(4) were exempt from registration under the Securities Act under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited person and had adequate access, through employment, business or other relationships, to information about the registrant.

The offers, sales and issuances of the securities described in Item 15(5) were exempt from registration under the Securities Act under either (1) Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701 or (2) Section 4(a)(2) of the Securities Act as transactions by an issuer not involving any public offering. The recipients of such securities were the registrant’s employees, consultants or directors and received the securities under the registrant’s 2013 Incentive Plan. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions.

Item 16. Exhibits.

 

(a) Exhibits.

The following exhibits are filed as part of this Registration Statement:

EXHIBIT INDEX

 

EXHIBIT
NUMBER

  

EXHIBIT DESCRIPTION

  1.1*    Form of Underwriting Agreement, including form of lock-up agreement.
  3.1    Amended and Restated Certificate of Incorporation of Registrant, as currently in effect.
  3.2    Bylaws of Registrant, as currently in effect.
  3.3*    Form of Amended and Restated Certificate of Incorporation, effecting a stock split, to be in effect prior to the effectiveness of this registration statement.
  3.4*    Form of Amended and Restated Certificate of Incorporation of Registrant, to be in effect upon completion of this offering.
  3.5*    Form of Amended and Restated Bylaws of Registrant, to be in effect upon the completion of this offering.
  4.1    Amended and Restated Investor Rights Agreement among the Registrant and certain of its stockholders, dated November 7, 2017, as amended.
  4.2    Amendment No. 1 to Amended and Restated Investor Rights Agreement among the Registrant and certain of its stockholder, dated February 28, 2018.
  4.3*    Specimen common stock certificate of the Registrant.

 

II-4


Table of Contents

EXHIBIT
NUMBER

  

EXHIBIT DESCRIPTION

  4.4    Warrant to Purchase Series A Preferred Stock, dated August 9, 2013.
  4.5    Warrant Agreement to Purchase Shares of Common Stock, dated February 28, 2018, between the Registrant and Hercules Capital, Inc.
  4.6    Warrant Agreement to Purchase Shares of Common Stock, dated February 28, 2018, between the Registrant and Hercules Technology III, L.P.
  5.1*    Opinion of Sidley Austin LLP.
10.1+*    Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.
10.2+*    2013 Stock Incentive Plan, as amended, and form of agreements thereunder.
10.3+*    2018 Stock Incentive Plan and form of agreements thereunder, to be effective upon completion of this offering.
10.4+*    2018 Employee Stock Purchase Plan and form of agreements thereunder, to be effective upon completion of this offering.
10.5+*    Tricida, Inc. Executive Severance Benefit Plan, as amended.
10.6    Loan and Security Agreement, dated February 28, 2018, among the Registrant, Hercules Capital, Inc. and the several banks and other financial institutions or entities from time to time parties thereto.
10.7    First Amendment to Loan and Security Agreement and First Amendment to Warrants, dated as of April 10, 2018, among the Registrant, Hercules Capital, Inc. and the several banks and other financial institutions or entities from time to time parties thereto.
10.8    Lease Agreement, dated April 4, 2014, between the Registrant and ARE-San Francisco No. 17, LLC.
10.9    First Amendment to Lease, dated August 2, 2017, between the Registrant and ARE-San Francisco No. 17, LLC.
10.10#    Master Development/Validation Services and Clinical/Launch Supply Agreement, dated as of May 8, 2018, between the Registrant and Patheon Austria GmbH & Co KG.
23.1    Consent of Independent Registered Accounting Firm.
23.2*    Consent of Sidley Austin LLP (included in Exhibit 5.1).
24.1    Power of Attorney (included on the signature page to this registration statement).

 

* To be filed with an amendment.
+ Indicates a management contract or compensatory plan.
# Portions of this exhibit have been omitted pursuant to a request for confidential treatment and this exhibit has been filed separately with the SEC.

 

(b) No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.

Item 17. Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

 

II-5


Table of Contents

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 public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

 

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

II-6


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in South San Francisco, State of California on June 4, 2018.

 

TRICIDA, INC.
By:  

/s/ Gerrit Klaerner

 

Name:

Title:

 

  Gerrit Klaerner, Ph.D.

  President and Chief Executive Officer

 

II-7


Table of Contents

SIGNATURES AND POWER OF ATTORNEY

We, the undersigned directors and officers of Tricida, Inc., or the Company, hereby severally constitute and appoint Gerrit Klaerner and Geoffrey M. Parker, and each of them singly, our true and lawful attorneys, with full power to them, and to each of them singly, to sign for us and in our names in the capacities indicated below, the registration statement on Form S-1 filed herewith, and any and all pre-effective and post-effective amendments to said registration statement, and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of equity securities of the Company, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney. This Power of Attorney does not revoke any power of attorney previously granted by the undersigned, or any of them.

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated on the date indicated:

 

SIGNATURE

      

DATE

/s/ Gerrit Klaerner

Gerrit Klaerner, Ph.D.

   Chief Executive Officer, President and Director (principal executive officer)   June 4, 2018

/s/ Geoffrey M. Parker

Geoffrey M. Parker

  

Chief Financial Officer

(principal financial officer)

  June 4, 2018

/s/ Steffen Pietzke

Steffen Pietzke

   Vice President of Finance and Chief Accounting Officer (principal accounting officer)   June 4, 2018

/s/ Klaus Veitinger

Klaus Veitinger, M.D., Ph.D., M.B.A.

   Chairman of the Board of Directors   June 4, 2018

/s/ Robert J. Alpern

Robert J. Alpern, M.D.

   Director   June 4, 2018

/s/ David Bonita

David Bonita, M.D.

   Director   June 4, 2018

/s/ Sandra I. Coufal

Sandra I. Coufal, M.D.

   Director   June 4, 2018

/s/ Kathryn Falberg

Kathryn Falberg

   Director   June 4, 2018

/s/ David Hirsch

David Hirsch, M.D., Ph.D.

   Director   June 4, 2018

 

II-8

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

TRICIDA, INC.

Gerrit Klaerner hereby certifies that:

ONE:     The original name of this corporation is Trilypsa, Inc. and the date of filing the original Certificate of Incorporation of this corporation with the Secretary of State of the State of Delaware was May 22, 2013, which was amended and restated on December 16, 2013, February 13, 2015, and July 12, 2016.

TWO:     He is the duly elected and acting President and Chief Executive Officer of Tricida, Inc., a Delaware corporation.

THREE:     The Certificate of Incorporation of this corporation is hereby amended and restated to read as follows:

I.

The name of this corporation is T RICIDA , I NC . (the “ Company ”).

II.

The address of the registered office of this Company in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, Zip Code 19801, and the name of the registered agent of this corporation in the State of Delaware at such address is The Corporation Trust Company.

III.

The purpose of the Company is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law (“ DGCL ”).

IV.

A.     The Company is authorized to issue two classes of capital stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares that the Company is authorized to issue is 238,232,023 shares, 134,000,000 shares of which shall be Common Stock (the “ Common Stock ”) and 104,232,023 shares of which shall be Preferred Stock (the “ Preferred Stock ”). The Preferred Stock shall have a par value of $0.001 per share and the Common Stock shall have a par value of $0.001 per share.

B.     The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by the affirmative vote of the holders of a majority of the shares of capital stock of the Company entitled to vote (voting together as a single class on an as-converted basis), irrespective of the provisions of Section 242(b)(2) of the DGCL.

 

1


C.     The Preferred Stock shall consist of:

1.     11,398,694 of the authorized shares of Preferred Stock are hereby designated “Series A Preferred Stock” (the “ Series A Preferred ”).

2.     32,526,878 of the authorized shares of Preferred Stock are hereby designated “Series B Preferred Stock” (the “ Series B Preferred ”).

3.     35,806,451 of the authorized shares of Preferred Stock are hereby designated “Series C Preferred Stock” (the “ Series C Preferred ”).

4.     24,500,000 of the authorized shares of Preferred Stock are hereby designated “Series D Preferred Stock” (the “ Series D Preferred ”).

D.     The rights, preferences, privileges, restrictions and other matters relating to the Preferred Stock are as follows:

1.    D IVIDEND R IGHTS .

(a)     Holders of Preferred Stock, in preference to the holders of Common Stock, shall be entitled to receive, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the applicable Original Issue Price (as defined below) per annum on each outstanding share of Preferred Stock. Such dividends shall be payable only when, as and if declared by the Board of Directors of the Company (the “ Board ”) and shall be non-cumulative.

(b)     The “ Original Issue Price ” of the Series D Preferred shall be $2.35 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof) (the “ Series D Original Issue Price ”). The “ Original Issue Price ” of the Series C Preferred shall be $1.55 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof) (the “ Series C Original Issue Price ”). The “ Original Issue Price ” of the Series B Preferred shall be $0.930 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof) (the “ Series B Original Issue Price ”). The “ Original Issue Price ” of the Series A Preferred shall be $0.886 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof) (the “ Series A Original Issue Price ”).

 

2


(c)     So long as any shares of Preferred Stock are outstanding, the Company shall not pay or declare any dividend (whether in cash or property), or make any other distribution on the Common Stock, or purchase, redeem or otherwise acquire for value any shares of Common Stock, until all dividends as set forth in Section  1(a) above on the Preferred Stock shall have been paid or declared and set apart, except for:

(i)     acquisitions of Common Stock by the Company pursuant to agreements with former employees or consultants of the Company that permit the Company to repurchase such shares at no more than the lower of cost or fair market value upon termination of their employment/services to the Company; provided that such acquisitions are pursuant to the agreements approved by the Board, including the Requisite Directors (as defined below); or

(ii)     acquisitions of Common Stock in exercise of the Company’s right of first refusal to repurchase such shares; provided that such acquisitions are approved by the Board, including the Requisite Directors.

(d)     In the event dividends are paid on any share of Common Stock, the Company shall pay an additional dividend on all outstanding shares of Preferred Stock in a per share amount equal (on an as-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock.

(e)     The provisions of Sections 1(c) and 1(d) shall not apply to a dividend payable solely in Common Stock to which the provisions of Section  4(f) hereof are applicable, or any repurchase of any outstanding securities of the Company that is approved by (i)  the Board (including the Requisite Directors) and (ii) the holders of the Preferred Stock as may be required by this Amended and Restated Certificate of Incorporation (this “ Restated Certificate ”).

2.    V OTING R IGHTS .

(a)      General Rights. Each holder of shares of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Preferred Stock could be converted (pursuant to Section 4 hereof) immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent and shall have voting rights and powers equal to the voting rights and powers of the Common Stock and shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Company (the “ Bylaws ”). Except as otherwise provided herein or as required by law, Preferred Stock shall vote together with Common Stock at any annual or special meeting of the stockholders and not as a separate class, and may act by written consent in the same manner as Common Stock.

(b)      Separate Vote of Preferred Stock. For so long as any shares of Preferred Stock remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least 58% of the outstanding shares of Preferred Stock (the “ Requisite Holders ”), voting together as a single class on an as-converted basis, shall be necessary for effecting or validating the following actions (whether by merger, recapitalization or otherwise):

(i)     Any amendment, alteration, or repeal of any provision of this Restated Certificate or the Bylaws of the Company (including any filing of a Certificate of Designation) that alters or changes the voting or other powers, preferences, or other special rights, privileges or restrictions of any series of Preferred Stock so as to affect such series adversely (any change to the definition of “ Requisite Holders ” shall be deemed to adversely affect any series of Preferred Stock);

 

3


(ii)     Any increase or decrease in the authorized number of shares of any series of Preferred Stock or Common Stock;

(iii)     Any authorization, issuance or any designation, whether by reclassification or otherwise, of any new class or series of stock or any other securities convertible into equity securities of the Company ranking on a parity with or senior to any series of Preferred Stock in right of redemption, liquidation preference, voting or dividend rights or any increase in the authorized or designated number of shares of any such class or series;

(iv)     Any redemption, repurchase, payment or declaration of dividends or other distributions with respect to Common Stock (except for (x) dividends payable solely in shares of Common Stock pursuant to which the provisions of Section  4(f) hereof are applicable, (y) acquisitions of Common Stock by the Company permitted by Sections 1(c)(i) and (ii)  hereof and (z) distributions to the holders of Common Stock in accordance with Section 3 hereof);

(v)     Any agreement by the Company or its stockholders regarding, or the consummation of, an Asset Transfer or Acquisition (each as defined in Section 3 hereof);

(vi)     The sale or license of all or substantially all of the Company’s assets, technology or intellectual property;

(vii)     (y) Any increase in the number of shares reserved for issuance under (other than as a result of an equitable adjustment for any stock dividends, combinations, splits, recapitalizations and the like) any equity incentive plans, option plans or similar service provider incentive plans (collectively, “ Incentive Plans ”) for issuance of rights exercisable for or convertible into the Company’s capital stock or (z) the establishment of any new Incentive Plans;

(viii)     The liquidation or dissolution of the Company;

(ix)     Any change in the authorized size of the Board;

(x)     The consummation of the initial public offering of the Common Stock (other than a Qualified Public Offering (as defined below));

(xi)     The incurrence of indebtedness for borrowed money in an amount greater than $1,000,000 in the aggregate;

(xii)     The granting of any lien or security interest on the assets of the Company; or

(xiii)     Entering into or becoming a party to any transaction with any director, officer or employee of the Company or any affiliate or immediate family member of any such person, other than for transactions made in the ordinary course of business and approved by the Board (including the approval of the Requisite Directors).

 

4


(c)      Separate Vote of Series D Preferred Stock. For so long as any shares of Series D Preferred Stock remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least 60% of the outstanding shares of Series D Preferred Stock (the “ Series D Requisite Holders ”), consenting or voting (as the case may be) separately as a class, shall be necessary for effecting or validating the following actions (whether by merger, recapitalization or otherwise):

(i)     Any amendment, alteration, or repeal of any provision of this Restated Certificate or the Bylaws of the Company (including any filing of a Certificate of Designation) that alters or changes the voting or other powers, preferences, or other special rights, privileges or restrictions of the Series D Preferred Stock so as to affect the Series D Preferred Stock adversely (any change to the voting threshold in Section  2(c) above shall be deemed to adversely affect the Series D Preferred Stock) (it being understood for the avoidance of doubt that neither (i) the effectuation of a Liquidation Event, an Asset Transfer or Acquisition in accordance with the provisions of Section 3 below nor (ii) the creation, issuance or authorization of any Common Stock or new series of Preferred Stock is such an alteration or change); or

(ii)     Any increase or decrease in the authorized number of shares of Series D Preferred Stock.

(d)    Election of Board of Directors.

(i)     For so long as any shares of Preferred Stock remain outstanding, the holders of Preferred Stock, voting together as a single class on an as-converted basis, shall be entitled to elect three (3) members of the Board (the “ Preferred Directors ”) at each meeting or pursuant to each consent of the Company’s stockholders for the election of directors, remove from office such directors in accordance with applicable law and fill any vacancy caused by the resignation, death or removal of such directors. For purposes of this Restated Certificate, (A) one Preferred Director designated or appointed pursuant to Section 1.3(a)(ii) of that certain Voting Agreement dated on or about the date hereof, by and among the Company and other parties thereto, as amended and/or restated from time to time (the “ Voting Agreement ”), and (B) one Preferred Director designated or appointed pursuant to Section 1.3(a)(i) or 1.3(a)(iii) of the Voting Agreement shall together be referred to as the “ Requisite Directors .”

(ii)     The holders of Common Stock, voting as a separate class, shall be entitled to elect two (2) members of the Board at each meeting or pursuant to each consent of the Company’s stockholders for the election of directors, remove from office such directors in accordance with applicable law and fill any vacancy caused by the resignation, death or removal of such directors.

(iii)     The holders of Common Stock and Preferred Stock, voting together as a single class on an as-converted basis, shall be entitled to elect all remaining members of the Board at each meeting or pursuant to each consent of the Company’s stockholders for the election of directors, remove from office such directors in accordance with applicable law and fill any vacancy caused by the resignation, death or removal of such directors.

 

5


(iv)     Notwithstanding the provisions of Sections 223(a)(1) and 223(a)(2) of the DGCL, any vacancy, including newly created directorships resulting from any increase in the authorized number of directors or amendment of this Restated Certificate, and vacancies created by removal or resignation of a director, may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced; provided, however , that where such vacancy occurs among the directors elected by the holders of a class or series of stock, the holders of shares of such class or series may override the Board’s action to fill such vacancy by (i) voting for their own designee to fill such vacancy at a meeting of the Company’s stockholders or (ii) written consent, if the consenting stockholders hold a sufficient number of shares to elect their designee at a meeting of the stockholders in which all members of such class or series are present and voted. Any director may be removed during his or her term of office with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or series of stock represented at the meeting or pursuant to written consent. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director.

(v)     No person entitled to vote at an election for directors may cumulate votes to which such person is entitled unless required by applicable law at the time of such election. During such time or times that applicable law requires cumulative voting, 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 desires. No stockholder, however, shall be entitled to so cumulate such stockholder’s votes unless (A) the names of such candidate or candidates have been placed in nomination prior to the voting and (B) 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.

3.    L IQUIDATION R IGHTS .

(a)     Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary (a “ Liquidation Event ”), before any distribution or payment shall be made to the holders of Common Stock, the holders of Preferred Stock shall be entitled to be paid, on an equal priority, pari passu basis, out of the assets of the Company legally available for distribution (or the consideration received by the Company or its stockholders in an Acquisition or Asset Transfer) for each share of Preferred Stock held by them, an amount per share of Preferred Stock equal to the applicable Original Issue Price plus all declared and unpaid dividends on each share of the applicable series of Preferred Stock. If, upon any such Liquidation Event, the assets

 

6


of the Company shall be insufficient to make payment in full to all holders of Preferred Stock of the liquidation preference set forth in this Section  3(a) , then such assets (or consideration) shall be distributed among the holders of Preferred Stock at the time outstanding, on an equal priority, pari passu basis, ratably in proportion to the full amounts to which they would otherwise be respectively entitled pursuant to this Section  3(a) .

(b)     After the payment of the full liquidation preference in respect of all outstanding shares of Preferred Stock as set forth in Section  3(a) above, the remaining assets of the Company legally available for distribution (or the consideration received by the Company or its stockholders in an Acquisition or Asset Transfer), if any, shall be distributed ratably to the holders of Common Stock.

(c)     An Asset Transfer or Acquisition shall be deemed a Liquidation Event for purposes of this Section  3 , unless the Requisite Holders elect otherwise by vote or written consent, voting together as a single class on an as-converted basis.

(i)     For the purposes of this Section  3 : (i) “ Acquisition ” shall mean (A) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the shares of capital stock of the Company immediately prior to such consolidation, merger or reorganization, continue to represent a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization ( provided that, for the purpose of this Section 3(c), all shares of Common Stock issuable upon exercise of options outstanding immediately prior to such consolidation or merger or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged); or (B) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred; provided that an Acquisition shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof; and (ii) “ Asset Transfer ” shall mean a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company.

(ii)     In any Acquisition or Asset Transfer, if the consideration to be received is securities of a corporation or other property other than cash, its value will be deemed its fair market value as determined in good faith by the Board on the date such determination is made.

(iii)     The Company shall not have the power to effect an Acquisition or Asset Transfer unless the definitive agreement for such transaction (the “ Agreement ”) provides that the consideration payable to the stockholders of the Company in connection therewith shall be allocated among the holders of capital stock of the Company in accordance with this Section 3.

 

7


(d)     Notwithstanding the foregoing, upon any Liquidation Event, (including an Acquisition or Asset Transfer that constitutes a Liquidation Event), each holder of Preferred Stock shall be entitled to receive, for each share of each series of Preferred Stock then held, out of the proceeds available for distribution, the greater of (i) the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares in a Liquidation Event pursuant to Section  3(a) (without giving effect to this Section  3(d) ) or (ii) the amount of cash, securities or other property to which such holder would be entitled to receive in a Liquidation Event with respect to such shares if such shares had been converted to Common Stock immediately prior to such Liquidation Event or Acquisition or Asset Transfer, giving effect to this Section  3(d) with respect to all series of Preferred Stock simultaneously.

(e)     In the event of an Acquisition or Asset Transfer pursuant to Section  3(c) , if any portion of the consideration payable to the stockholders of the Company is payable only upon satisfaction of contingencies (the “ Additional Consideration ”), the agreement or plan of merger or consolidation for such transaction shall provide that (i) the portion of such consideration that is not Additional Consideration (such portion, the “ Initial Consideration ”) shall be allocated among the holders of capital stock of the Company in accordance with Sections 3(a) and 3(b) (or 3(d) if applicable) as if the Initial Consideration were the only consideration payable in connection with such transaction; and (ii) any Additional Consideration which becomes payable to the stockholders of the Company upon satisfaction of such contingencies (at each such time as any Additional Consideration becomes payable) shall be allocated among the holders of capital stock of the Company in accordance with Sections 3(a) and 3(b) and giving effect to Section  3(d) after taking into account the previous payment of the Initial Consideration as part of the same transaction. For purposes of this Section  3(e) , consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Acquisition or Asset Transfer shall be deemed to be Additional Consideration.

4.    C ONVERSION R IGHTS .

The holders of the Preferred Stock shall have the following rights with respect to the conversion of the Preferred Stock into shares of Common Stock (the “ Conversion Rights ”):

(a)      Optional Conversion. Subject to and in compliance with the provisions of this Section  4 , any shares of Preferred Stock may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the applicable Preferred Stock Conversion Rate, as defined below, then in effect (determined as provided in Section  4(b) ) by the number of shares of Preferred Stock being converted.

(b)    Preferred Stock Conversion Rate.

(i)      Series A Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series A Preferred (the “ Series A Conversion Rate ”) shall be the quotient obtained by dividing the Series A Original Issue Price of the Series A Preferred by the Series A Conversion Price, as defined below, calculated as provided in Section  4(c)(i) .

 

8


(ii)      Series B Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series B Preferred (the “ Series B Conversion Rate ”) shall be the quotient obtained by dividing the Series B Original Issue Price of the Series B Preferred by the Series B Conversion Price, as defined below, calculated as provided in Section  4(c)(ii) .

(iii)      Series C Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series C Preferred (the “ Series C Conversion Rate ”) shall be the quotient obtained by dividing the Series C Original Issue Price of the Series C Preferred by the Series C Conversion Price, as defined below, calculated as provided in Section  4(c)(iii).

(iv)      Series D Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series D Preferred (the “ Series D Conversion Rate ”) shall be the quotient obtained by dividing the Series D Original Issue Price of the Series D Preferred by the Series D Conversion Price, as defined below, calculated as provided in Section  4(c)(iv) .

(c)    Preferred Stock Conversion Price.

(i)      Series A Conversion Price. The conversion price for the Series A Preferred shall initially be the Series A Original Issue Price (the “ Series A Conversion Price ”). Such Series A Conversion Price shall be subject to further adjustment from time to time in accordance with this Section  4 . All references to the Series A Conversion Price herein shall mean the Series A Conversion Price as so adjusted.

(ii)      Series B Conversion Price. The conversion price for the Series B Preferred shall initially be the Series B Original Issue Price (the “ Series B Conversion Price ”). Such Series B Conversion Price shall be subject to further adjustment from time to time in accordance with this Section  4 . All references to the Series B Conversion Price herein shall mean the Series B Conversion Price as so adjusted.

(iii)      Series C Conversion Price. The conversion price for the Series C Preferred shall initially be the Series C Original Issue Price (the “ Series C Conversion Price ”). Such Series C Conversion Price shall be subject to further adjustment from time to time in accordance with this Section  4 . All references to the Series C Conversion Price herein shall mean the Series C Conversion Price as so adjusted.

(iv)      Series D Conversion Price. The conversion price for the Series D Preferred shall initially be the Series D Original Issue Price (the “ Series D Conversion Price ”). Such Series D Conversion Price shall be subject to further adjustment from time to time in accordance with this Section  4 . All references to the Series D Conversion Price herein shall mean the Series D Conversion Price as so adjusted.

(v)      References to Conversion Price. The Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, and the Series D Conversion Price are each referred to herein as a “ Preferred Stock Conversion Price .”

 

9


(d)      Mechanics of Optional Conversion. Each holder of Preferred Stock who desires to convert the same into shares of Common Stock pursuant to this Section  4 shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for Preferred Stock, and shall give written notice to the Company at such office that such holder elects to convert the same. Such notice shall state the number of shares of Preferred Stock being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled and shall promptly pay (i) in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Common Stock’s fair market value determined by the Board as of the date of such conversion), any declared and unpaid dividends on the shares of Preferred Stock being converted and (ii) in cash (at the Common Stock’s fair market value determined by the Board as of the date of conversion) the value of any fractional share of Common Stock otherwise issuable to any holder of Preferred Stock. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares of Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date.

(e)      Adjustment for Stock Splits and Combinations. If at any time or from time to time on or after the date that the first share of Series D Preferred is issued (the “ Original Issue Date ”) the Company effects a subdivision of the outstanding Common Stock, the applicable Preferred Stock Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if at any time or from time to time after the Original Issue Date the Company combines the outstanding shares of Common Stock into a smaller number of shares, the applicable Preferred Stock Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section  4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(f)      Adjustment for Common Stock Dividends and Distributions. If at any time or from time to time on or after the Original Issue Date the Company pays to holders of Common Stock a dividend or other distribution in additional shares of Common Stock, the applicable Preferred Stock Conversion Price then in effect shall be decreased as of the time of such issuance, as provided below:

(i)     The Preferred Stock Conversion Price shall be adjusted by multiplying the applicable Preferred Stock Conversion Price then in effect by a fraction equal to:

(A)     the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance; and

(B)     the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution;

(ii)     If the Company fixes a record date to determine which holders of Common Stock are entitled to receive such dividend or other distribution, the Preferred Stock Conversion Price for each series of Preferred Stock shall be fixed as of the close of business on such record date and the number of shares of Common Stock shall be calculated immediately prior to the close of business on such record date; and

 

10


(iii)     If such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Preferred Stock Conversion Price for each series of Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Preferred Stock Conversion Price for each series of Preferred Stock shall be adjusted pursuant to this Section  4(f) to reflect the actual payment of such dividend or distribution.

(g)      Adjustment for Reclassification, Exchange, Substitution, Reorganization, Merger or Consolidation. If at any time or from time to time on or after the Original Issue Date the Common Stock issuable upon the conversion of a series of the Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, merger, consolidation or otherwise (other than an Acquisition or a subdivision or combination of shares or stock dividend provided for elsewhere in this Section  4 ), in any such event each share of such series of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property that a holder of the number of shares of Common Stock issuable upon conversion of one share of Preferred Stock immediately prior to such recapitalization, reclassification, merger, consolidation or other transaction would have been entitled to receive pursuant to such transaction, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. 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 of Preferred Stock after the capital reorganization to the end that the provisions of this Section  4 (including adjustment of the Preferred Stock Conversion Price for such series of Preferred Stock then in effect and the number of shares issuable upon conversion of such series of Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable.

(h)    Sale of Shares Below Preferred Stock Conversion Price.

(i)     If at any time or from time to time on or after the Original Issue Date the Company issues or sells, or is deemed by the express provisions of this Section  4(h) to have issued or sold, Additional Shares of Common Stock (as defined below), other than as provided in Section  4(e) , 4(f) or 4(g) above, for an Effective Price (as defined below) less than the then-effective Preferred Stock Conversion Price for any series of Preferred Stock (a “ Qualifying Dilutive Issuance ”), then and in each such case, the then-effective Preferred Stock Conversion Price for such series of Preferred Stock shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the then-effective Preferred Stock Conversion Price for such series in effect immediately prior to such issuance or sale by a fraction:

(A)     the numerator of which shall be (1) the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale, plus (2) the number of shares of Common Stock that the Aggregate Consideration (as defined below) received or deemed received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such then-effective Preferred Stock Conversion Price, and

 

11


(B)     the denominator of which shall be the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued.

For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock outstanding, (B) the number of shares of Common Stock into which the then-outstanding shares of Preferred Stock could be converted if fully converted on the day immediately preceding the given date, and (C) the number of shares of Common Stock that are issuable upon the exercise or conversion of all other rights, options and convertible securities outstanding on the day immediately preceding the given date.

(ii)     No adjustment shall be made to the Preferred Stock Conversion Price for any series of Preferred Stock in an amount less than one percent of the Preferred Stock Conversion Price then in effect. Any adjustment otherwise required by this Section  4(h) that is not required to be made due to the first sentence of this subsection (ii)  shall be included in any subsequent adjustment to the Preferred Stock Conversion Price. Any adjustment required by this Section  4(h) shall be rounded to the first decimal for which such rounding represents less than one percent of the Preferred Stock Conversion Price in effect after such adjustment.

(iii)     For the purpose of making any adjustment required under this Section  4(h) , the aggregate consideration received by the Company for any issue or sale of securities (the “ Aggregate Consideration ”) shall be defined as: (A) to the extent it consists of cash, the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and without deduction of any expenses payable by the Company, (B) to the extent it consists of property other than cash, the fair market value of that property as determined in good faith by the Board (including the Requisite Directors), and (C) if Additional Shares of Common Stock, Convertible Securities or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration that covers both, the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options.

(iv)     For the purpose of the adjustment required under this Section  4(h) , if the Company issues or sells (A) Preferred Stock or other stock, options, warrants, purchase rights or other securities exercisable for or convertible into, Additional Shares of Common Stock (such convertible stock or securities being herein referred to as “ Convertible Securities ”) or (B) rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities and if the Effective Price of such Additional Shares of Common Stock is less than the Preferred Stock Conversion Price for any series of Preferred Stock, in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable

 

12


upon exercise or conversion thereof (assuming the satisfaction of any conditions to exercisability, including, without limitation, the passage of time) and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities plus:

(A)     in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options; and

(B)     in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company upon the conversion thereof (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses.

(C)     If the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided, further, that if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities.

(D)     No further adjustment of the Preferred Stock Conversion Price for a series of Preferred Stock, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock or the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Preferred Stock Conversion Price for such series as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Preferred Stock Conversion Price for such series that would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities; provided that such readjustment shall not apply to prior conversions of Preferred Stock.

 

13


(v)     For the purpose of making any adjustment to the Conversion Price of the Preferred Stock required under this Section  4(h) , “ Additional Shares of Common Stock ” shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section  4(h) (including shares of Common Stock subsequently reacquired or retired by the Company), other than:

(A)     shares of Common Stock issued upon conversion of the Series A Preferred, Series B Preferred, Series C Preferred, or Series D Preferred;

(B)     shares of Common Stock or Convertible Securities issued after the Original Issue Date to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary of the Company pursuant to stock purchase or stock option plans or other arrangements approved by the Board;

(C)     shares of Common Stock issued pursuant to the exercise or conversion of Convertible Securities outstanding as of the Original Issue Date;

(D)     shares of Common Stock or Convertible Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition, strategic alliance or similar business combination approved by the Board (including the Requisite Directors);

(E)     shares of Common Stock or Convertible Securities issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or non-convertible debt financing from a bank or similar financial or lending institution approved by the Board (including the Requisite Directors);

(F)     shares of Common Stock or Convertible Securities issued in connection with strategic transactions involving the Company and other entities approved by the Board (including the Requisite Directors), including, without limitation, joint ventures, manufacturing, marketing, distribution, technology transfer or development arrangements;

(G)     shares of Common Stock or Convertible Securities issued by the Company in connection with a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “ Securities Act ”); and

(H)     shares of Common Stock or Convertible Securities that the Requisite Holders elect by vote or written consent, to exclude from the definition of “Additional Shares of Common Stock” for purposes of this Section  4 ; provided however, that such shares of Common Stock or Convertible Securities shall continue to be included in the definition of “Additional Shares of Common Stock” for the purposes of this Section 4 with respect to the Series D Preferred Stock only, unless the Series D Requisite Holders also elect, by vote or written consent, to exclude such securities from the definition of “Additional Shares of Common Stock” for purposes of this Section  4.

References to Common Stock in the subsections of this clause (v) above shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this

 

14


Section  4(h) . The “ Effective Price ” of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Section  4(h) , into the Aggregate Consideration received, or deemed to have been received by the Company for such issue under this Section  4(h) , for such Additional Shares of Common Stock. In the event that the number of shares of Additional Shares of Common Stock or the Effective Price cannot be ascertained at the time of issuance, such Additional Shares of Common Stock shall be deemed issued immediately upon the occurrence of the first event that makes such number of shares or the Effective Price, as applicable, ascertainable.

(vi)     In the event that the Company issues or sells, or is deemed to have issued or sold, Additional Shares of Common Stock in a Qualifying Dilutive Issuance (the “ First Dilutive Issuance ”), then in the event that the Company issues or sells, or is deemed to have issued or sold, Additional Shares of Common Stock in a Qualifying Dilutive Issuance other than the First Dilutive Issuance as a part of the same transaction or series of related transactions as the First Dilutive Issuance (a “ Subsequent Dilutive Issuance ”), then and in each such case upon a Subsequent Dilutive Issuance the applicable Preferred Stock Conversion Price shall be reduced to the Preferred Stock Conversion Price that would have been in effect had the First Dilutive Issuance and each Subsequent Dilutive Issuance all occurred on the closing date of the First Dilutive Issuance.

(i)      Certificate of Adjustment. In each case of an adjustment or readjustment of the Preferred Stock Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Preferred Stock, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and shall prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of such Preferred Stock so requesting at the holder’s address as shown in the Company’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (ii) the Preferred Stock Conversion Price for such series at the time in effect, (iii) the number of Additional Shares of Common Stock and (iv) the type and amount, if any, of other property that at the time would be received upon conversion of such series of Preferred Stock. Failure to request or provide such notice shall have no effect on any such adjustment.

(j)      Notices of Record Date. Upon (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Acquisition or other capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company with or into any other corporation, or any Asset Transfer, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of Preferred Stock, at least ten (10) days prior to (x) the record date, if any, specified therein, or (y) if no record date is specified, the date upon which such action is to take effect ( provided, however , that, in either case of (x) or (y), such 10-day notice period may be shortened upon approval by the Requisite Holders by vote or written

 

15


consent, voting together as a single class on an as-converted basis), a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up.

(k)    Automatic Conversion.

(i)     Each share of Preferred Stock shall automatically be converted into shares of Common Stock, based on the then-effective Preferred Stock Conversion Price for the applicable series, (A) at any time upon (i) the affirmative election of the Requisite Holders by vote or written consent, voting together as a single class on an as-converted basis and (ii) the affirmative election of the Requisite Series D Holders, voting separately by vote or written consent, or (B) immediately prior to the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of Common Stock for the account of the Company in which (i) the per share price is at least 1.2 times the Series D Original Issue Price (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof) and (ii) the gross cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least $50,000,000 (a “ Qualified Public Offering ”). Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section  4(d) .

(ii)     Upon the occurrence of either of the events specified in Section  4(k)(i) above, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however , that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent in writing that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Preferred Stock, the holders of Preferred Stock shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Preferred Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends on such shares of Preferred Stock surrendered shall be paid in accordance with the provisions of Section  4(d) .

(l)      Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. All shares of Common Stock (including fractions

 

16


thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If after the aforementioned aggregation the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock (as determined in good faith by the Board) on the date of conversion.

(m)      Reservation of Stock Issuable Upon Conversion. The Company 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 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 the Preferred Stock. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(n)      Notices. Any notice required by the provisions of this Section  4 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by electronic transmission in compliance with the provisions of the DGCL if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company.

(o)      Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Preferred Stock, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered.

5.      N O R EDEMPTION R IGHTS . The Preferred Stock shall not be redeemable.

6.      N O R EISSUANCE O F P REFERRED S TOCK . Any share or shares of Preferred Stock redeemed, purchased, converted or exchanged by the Company shall be cancelled and retired and shall not be reissued or transferred.

V.

A.     The liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent under applicable law.

B.     To the fullest extent permitted by applicable law, the Company is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Company (and any other persons to which applicable law permits the Company to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of

 

17


stockholders or disinterested directors or otherwise in excess of the indemnification and advancement otherwise permitted by such applicable law. If applicable law is amended after approval by the stockholders of this Article V to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director to the Company shall be eliminated or limited to the fullest extent permitted by applicable law as so amended.

C.     Any repeal or modification of this Article V shall only be prospective and shall not affect the rights or protections or increase the liability of any director under this Article V in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.

D.     The Company renounces any interest or expectancy of the Company in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “ Excluded Opportunity ” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, any director of the Company who is not an employee of the Company or any of its subsidiaries (collectively, “ Covered Persons ”), unless in either case such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Company.

VI.

For the management of the business and for the conduct of the affairs of the Company, and in further definition, limitation and regulation of the powers of the Company, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:

A.     The management of the business and the conduct of the affairs of the Company shall be vested in its Board. The number of directors that shall constitute the whole Board shall be fixed by the Board in the manner provided in the Bylaws, subject to any restrictions which may be set forth in this Restated Certificate.

B.     The Board is expressly empowered to adopt, amend or repeal the Bylaws of the Company, subject to any restrictions that may be set forth in this Restated Certificate. The stockholders shall also have the power to adopt, amend or repeal the Bylaws, subject to any restrictions that may be set forth in this Restated Certificate.

C.     The directors of the Company need not be elected by written ballot unless the Bylaws so provide.

* * * *

FOUR:     This Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors of the Company.

FIVE:      This Amended and Restated Certificate of Incorporation was approved by the holders of the requisite number of shares of said corporation in accordance with Section 228 of the DGCL. This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the DGCL by the stockholders of the Company.

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

18


I N W ITNESS W HEREOF , T RICIDA , I NC . has caused this Amended and Restated Certificate of Incorporation to be signed by its President and Chief Executive Officer this 6th day of November, 2017.

 

T RICIDA , I NC .
Signature:   /s/ Gerrit Klaerner
Print Name: Gerrit Klaerner
Title: President and Chief Executive Officer

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED C ERTIFICATE OF I NCORPORATION ]

Table of Contents

Exhibit 3.2

CERTIFICATE OF SECRETARY

I H EREBY C ERTIFY T HAT :

I am the duly elected and acting Secretary of T RILYPSA , I NC . , a Delaware corporation (the “ Company ”) ; and

Attached hereto is a complete and accurate copy of the Bylaws of the Company as duly adopted by the Board of Directors by Unanimous Written Consent dated August 5 th , 2013 and said Bylaws are presently in effect.

I N W ITNESS W HEREOF , I have hereunto subscribed my name and affixed the seal of the Company effective as of the 5 th day of August, 2013.

 

/s/ Thomas A. Coll
T HOMAS A. C OLL
Secretary


Table of Contents

BYLAWS

OF

TRILYPSA, 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      5  
   Section 10.    Voting Rights      5  
   Section 11.    Joint Owners of Stock      5  
   Section 12.    List of Stockholders      6  
   Section 13.    Action Without Meeting      6  
   Section 14.    Organization      7  

ARTICLE IV

   DIRECTORS      8  
   Section 15.    Number and Term of Office      8  
   Section 16.    Powers      8  
   Section 17.    Term of Directors      8  
   Section 18.    Vacancies      8  
   Section 19.    Resignation      9  
   Section 20.    Removal      9  
   Section 21.    Meetings      10  
   Section 22.    Quorum and Voting      11  
   Section 23.    Action Without Meeting      11  
   Section 24.    Fees and Compensation      11  
   Section 25.    Committees      11  
   Section 26.    Organization      12  

 

i


Table of Contents
               Page  

ARTICLE V

   OFFICERS      13  
   Section 27.    Officers Designated      13  
   Section 28.    Tenure and Duties of Officers      13  
   Section 29.    Delegation of Authority      14  
   Section 30.    Resignations      14  
   Section 31.    Removal      14  

ARTICLE VI

   EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION      15  
   Section 32.    Execution of Corporate Instruments      15  
   Section 33.    Voting of Securities Owned by the Corporation      15  

ARTICLE VII

   SHARES OF STOCK      15  
   Section 34.    Form and Execution of Certificates      15  
   Section 35.    Lost Certificates      15  
   Section 36.    Restrictions on Transfer      16  
   Section 37.    Fixing Record Dates      17  
   Section 38.    Registered Stockholders      18  

ARTICLE VIII

   OTHER SECURITIES OF THE CORPORATION      18  
   Section 39.    Execution of Other Securities      18  

ARTICLE IX

   DIVIDENDS      18  
   Section 40.    Declaration of Dividends      18  
   Section 41.    Dividend Reserve      19  

ARTICLE X

   FISCAL YEAR      19  
   Section 42.    Fiscal Year      19  

ARTICLE XI

   INDEMNIFICATION      19  
   Section 43.    Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents      19  

ARTICLE XII

   NOTICES      22  
   Section 44.    Notices      22  

ARTICLE XIII

   AMENDMENTS      23  
   Section 45.    Amendments      23  

ARTICLE XIV

   RIGHT OF FIRST REFUSAL      24  
   Section 46.    Right of First Refusal      24  

ARTICLE XV

   LOANS TO OFFICERS      26  
   Section 47.    Loans to Officers      26  

ARTICLE XVI

   MISCELLANEOUS      26  
   Section 48.    Annual Report      26  

 

ii


Table of Contents

BYLAWS

OF

TRILYPSA, 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.

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.

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.

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 ”).

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.

 

1


Table of Contents

(b)    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(b)), 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

 

2


Table of Contents

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 ”).

(c)    Notwithstanding anything in the second sentence of Section 5(b) 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.

(d)    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.

(e)    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.

(f)    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 or (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), and shall be held at such place, on such date, and at such time as the Board of Directors shall fix.

 

3


Table of Contents

At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law (“ CGCL ”), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders as set forth in Section 18(b) herein.

(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 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.

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

 

4


Table of Contents

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.

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 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.

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.

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.

 

5


Table of Contents

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.

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.

(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 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.

(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.

 

6


Table of Contents

(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.

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.

(b)    The 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.

 

7


Table of Contents

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 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.

Section  16.      Powers . The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.

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 to serve until the next annual meeting of stockholders and 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.

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

 

8


Table of Contents

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, or by a sole remaining director, provided , however , that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. 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.

(b)    At any time or times that the corporation is subject to §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 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.

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 at the pleasure of the Board of Directors. 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.

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 elect such director.

 

9


Table of Contents

(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 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.

Section 21.     Meetings

(a)     Regular Meetings . Unless otherwise restricted by the Certificate of Incorporation, 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.

(b)     Special Meetings . Unless otherwise restricted by the Certificate of Incorporation, 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, the President or any director.

(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.

(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.

(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 corporate records or made a part of the minutes of the meeting.

 

10


Table of Contents

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 from time to time by the Board of Directors 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.

(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.

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.

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.

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 expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation.

(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.

 

11


Table of Contents

(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 Bylaw 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.

(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.

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.

 

12


Table of Contents

ARTICLE V

OFFICERS

Section  27.      Officers Designated . The officers of the corporation shall include, if and when designated by 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 the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.

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.

(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.

(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.

(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.

 

13


Table of Contents

(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.

(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 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.

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.

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 or electronic consent of the directors in office at the time, or by any committee or superior officers.

 

14


Table of Contents

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING

OF SECURITIES OWNED BY THE CORPORATION

Section  32.      Execution of Corporate Instruments . 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.

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.

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.

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 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.

ARTICLE  VII

SHARES OF STOCK

Section  34.      Form and Execution of Certificates . The shares of the corporation shall be represented by certificates, or shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation represented by certificate 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 with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

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,

 

15


Table of Contents

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.

Section 36.     Restrictions on Transfer.

(a)    No holder of any of the shares of stock of the corporation may sell, transfer, assign, pledge, or otherwise dispose of or encumber any of the shares of stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise (each, a “ Transfer ”) without the prior written consent of the corporation, upon duly authorized action of its Board of Directors. The corporation may withhold consent for any legitimate corporate purpose, as determined by the Board of Directors. Examples of the basis for the corporation to withhold its consent include, without limitation, (i) if such Transfer to individuals, companies or any other form of entity identified by the corporation as a potential competitor or considered by the corporation to be unfriendly; or (ii) if such Transfer increases the risk of the corporation having a class of security held of record by two thousand (2,000) or more persons, or five hundred (500) or more persons who are not accredited investors (as such term is defined by the SEC), as described in Section 12(g) of the 1934 Act and any related regulations, or otherwise requiring the corporation to register any class of securities under the 1934 Act; or (iii) if such Transfer would result in the loss of any federal or state securities law exemption relied upon by the corporation in connection with the initial issuance of such shares or the issuance of any other securities; or (iv) if such Transfer is facilitated in any manner by any public posting, message board, trading portal, internet site, or similar method of communication, including without limitation any trading portal or internet site intended to facilitate secondary transfers of securities; or (v) if such Transfer is to be effected in a brokered transaction; or (vi) if such Transfer represents a Transfer of less than all of the shares then held by the stockholder and its affiliates or is to be made to more than a single transferee.

(b)    If a stockholder desires to Transfer any shares, then the stockholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. Any shares proposed to be transferred to which Transfer the corporation has consented pursuant to Section 36(a) will first be subject to the corporation’s right of first refusal located in Section 46 hereof.

(c)    Any Transfer, or purported Transfer, of shares not made in strict compliance with this Section 36 shall be null and void, shall not be recorded on the books of the corporation and shall not be recognized by the corporation.

(d)    The foregoing restriction on Transfer shall terminate upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended.

 

16


Table of Contents

(e)    The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing Transfer restrictions are in effect:

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A TRANSFER RESTRICTION, AS PROVIDED IN THE BYLAWS OF THE CORPORATION.”

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.

(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.

(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

 

17


Table of Contents

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.

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.

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.

 

18


Table of Contents

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.

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, Executive Officers, Other 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).

(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.

(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

 

19


Table of Contents

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 43 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, or (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 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 and 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 as 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.

 

20


Table of Contents

(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 or officer 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 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 43 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:

(1)     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.

(2)     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.

(3)     The term the “corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a

 

21


Table of Contents

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 he would have with respect to such constituent corporation if its separate existence had continued.

(4)     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.

(5)     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 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.

(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.

 

22


Table of Contents

(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 Communication 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.

(f)     Notice to Stockholders Sharing an Address . Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the corporation within 60 days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the corporation.

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, such action by stockholders shall require 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.

 

23


Table of Contents

ARTICLE XIV

RIGHT OF FIRST REFUSAL

Section  46.      Right of First Refusal . No stockholder shall Transfer any of the shares of stock of the corporation, except by a Transfer which meets the requirements set forth in Section 36 and below:

(a)    If the stockholder desires to Transfer any of his shares of stock, then the stockholder shall first give the notice specified in Section 36(b) hereof and comply with the provisions therein.

(b)    For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided , however , that, with the consent of the stockholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other Transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section 46, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for said shares shall be made as provided below in paragraph (d).

(c)    The corporation may assign its rights hereunder.

(d)    In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in said transferring stockholder’s notice, the Secretary of the corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring stockholder’s notice; provided that if the terms of payment set forth in said transferring stockholder’s notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring stockholder’s notice.

(e)    In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholder’s notice, said transferring stockholder may, subject to the corporation’s approval and all other restrictions on Transfer located in Section 36 hereof, within the sixty-day period following the expiration or waiver of the option rights granted to the corporation and/or its assignees(s) herein, Transfer the shares specified in said transferring stockholder’s notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring stockholder’s notice. All shares so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said Transfer.

 

24


Table of Contents

(f)    Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the right of first refusal in Section 46(a):

(1)     A stockholder’s Transfer of any or all shares held either during such stockholder’s lifetime or on death by will or intestacy to such stockholder’s immediate family or to any custodian or trustee for the account of such stockholder or such stockholder’s immediate family or to any limited partnership of which the stockholder, members of such stockholder’s immediate family or any trust for the account of such stockholder or such stockholder’s immediate family will be the general or limited partner(s) of such partnership. “Immediate family” as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such Transfer;

(2)     A stockholder’s bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent Transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw;

(3)     A stockholder’s Transfer of any or all of such stockholder’s shares to the corporation or to any other stockholder of the corporation;

(4)     A stockholder’s Transfer of any or all of such stockholder’s shares to a person who, at the time of such Transfer, is an officer or director of the corporation;

(5)     A corporate stockholder’s Transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder;

(6)     A corporate stockholder’s Transfer of any or all of its shares to any or all of its stockholders; or

(7)     A Transfer by a stockholder which is a limited or general partnership to any or all of its partners or former partners in accordance with partnership interests.

In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this Section 46 and the transfer restrictions in Section 36, and there shall be no further Transfer of such stock except in accord with this bylaw and the transfer restrictions in Section 36.

(g)    The provisions of this bylaw may be waived with respect to any Transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation.

 

25


Table of Contents

(h)    Any Transfer, or purported Transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed.

(i)    The foregoing right of first refusal shall terminate upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended.

(j)    The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect:

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.”

ARTICLE  XV

LOANS TO OFFICERS

Section  47.      Loans to Officers . Except as otherwise prohibited under applicable law, the corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.

ARTICLE XVI

MISCELLANEOUS

Section 48.     Annual Report.

(a)    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 accountants 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.

 

26


Table of Contents

(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.

 

27

Exhibit 4.1

TRICIDA, INC.

AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

T HIS A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT (the “ Agreement ”) is entered into as of the 7th day of November, 2017, by and among T RICIDA , I NC . , a Delaware corporation (the “ Company ”), and the entities listed on E XHIBIT  A hereto (each, an “ Investor ” and together, the “ Investors ”).

R ECITALS

W HEREAS , certain of the Investors are purchasing shares of the Company’s Series D preferred stock, par value $0.001 per share (the “ Series  D Preferred ”), pursuant to that certain Series D Preferred Stock Purchase Agreement (as the same may be amended from time to time, the “ Purchase Agreement ”) of even date herewith (the “ Financing ”);

W HEREAS , the obligations in the Purchase Agreement are conditioned upon the execution and delivery of this Agreement;

W HEREAS , certain of the Investors (the “ Prior Investors ”) are holders of the Company’s Series A preferred stock, par value $0.001 per share (the “ Series A Preferred ”), Series B preferred stock, par value $0.001 per share (“ Series B Preferred ”), or Series C preferred stock, par value $0.001 per share (“ Series C Preferred ” and collectively with the Series A Preferred, the Series B Preferred, and the Series D Preferred, the “ Preferred Stock ”);

W HEREAS , the Prior Investors and the Company are parties to an Amended and Restated Investor Rights Agreement dated July 12, 2016 (the “ Prior Agreement ”);

W HEREAS , Section 5.5 of the Prior Agreement provides that the Prior Agreement may be amended or modified, and the obligations of the Company and the rights of the Holders under the Prior Agreement may be waived, upon the prior written consent of the Company and the Requisite Holders (as defined in the Prior Agreement) (together, the “ Required Signatories ”);

W HEREAS , the undersigned Prior Investors and the Company, constituting the Required Signatories, desire to amend and restate the Prior Agreement and accept on behalf of all of the parties hereto the rights and covenants hereof in lieu of such parties’ rights and covenants under the Prior Agreement; and

W HEREAS , in connection with the consummation of the Financing, the parties desire to enter into this Agreement in order to grant registration rights, information rights and other rights to the Investors as set forth below;

 

1


N OW , T HEREFORE , in consideration of these premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. GENERAL.

1.1      Amendment and Restatement of Prior Agreement. The Prior Agreement is hereby amended in its entirety and restated herein. Such amendment and restatement is effective upon the execution of this Agreement by the Company and the Requisite Holders (as defined in the Prior Agreement) as of the date of this Agreement. Upon such execution, all provisions of, rights granted and covenants made in the Prior Agreement are hereby waived, released and superseded in their entirety and shall have no further force or effect, including, without limitation, all rights of first refusal and any notice period associated therewith otherwise applicable to the Financing.

1.2      Definitions. As used in this Agreement the following terms shall have the following respective meanings:

(a)      “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(b)      “Form S-3” means such form under the Securities Act as in effect on the date hereof or any successor or similar registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

(c)      “Holder” means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section  2.9 hereof.

(d)      “Initial Offering” means the Company’s first firm commitment underwritten public offering of its Common Stock registered under the Securities Act.

(e)      “Qualified Public Offering” means a firm commitment underwritten public offering of the Common Stock registered under the Securities Act that results in the automatic conversion of the Preferred Stock in accordance with Article IV D, Section  4(k)(i)(B) of the Company’s Amended and Restated Certificate of Incorporation (as the same may be amended from time to time, the “ Restated Charter ”).

(f)      “Register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

(g)      “Registrable Securities” means (a) Common Stock of the Company issuable or issued upon conversion of the Shares, (b) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities and (c) any other Common Stock of the Company that may be held from time to time by the Investors. Notwithstanding the foregoing, Registrable Securities shall not include any securities (i) sold by a person to the public either pursuant to a registration statement or Rule 144 or (ii) sold in a private transaction in which the transferor’s rights under Section  2 of this Agreement are not assigned.

 

2


(h)      “Registrable Securities then outstanding” shall be the number of shares of the Company’s Common Stock that are Registrable Securities and either (a) are then issued and outstanding or (b) are issuable pursuant to then exercisable or convertible securities.

(i)      “Registration Expenses” shall mean all expenses incurred by the Company in complying with Sections  2.2 , 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed $25,000 of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company).

(j)      “SEC” or “Commission” means the Securities and Exchange Commission.

(k)      “Securities Act” shall mean the Securities Act of 1933, as amended.

(l)      “Selling Expenses” shall mean all underwriting discounts and selling commissions applicable to the sale.

(m)      “Shares” shall mean the Preferred Stock held from time to time by the Investors listed on Exhibit A hereto and their permitted assigns.

(n)      “Special Registration Statement” shall mean (i) a registration statement relating to any employee benefit plan or (ii) with respect to any corporate reorganization or transaction under Rule 145 of the Securities Act, any registration statements related to the issuance or resale of securities issued in such a transaction or (iii) a registration related to stock issued upon conversion of debt securities.

(o)     “ Voting Agreement ” shall mean that certain Amended and Restated Voting Agreement of even date herewith.

SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.

2.1    Restrictions on Transfer.

(a)     Each Holder agrees not to make any disposition of all or any portion of the Shares or Registrable Securities unless and until:

(i)     there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(ii)     (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to

 

3


the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144. After its Initial Offering, the Company will not require any transferee pursuant to Rule 144 to be bound by the terms of this Agreement if the shares so transferred do not remain Registrable Securities hereunder following such transfer.

(b)     Notwithstanding the provisions of subsection (a) above, no such restriction shall apply to a transfer by a Holder that is (A) a partnership transferring to its partners or former partners in accordance with their interest in the partnership, (B) a partnership transferring to one or more affiliated partnerships or funds managed by it or any of its respective directors, officers or partners, (C) a corporation transferring to a wholly-owned subsidiary or a parent corporation that owns all of the capital stock of the Holder, (D) a limited liability company transferring to its members or former members in accordance with their interest in the limited liability company, or (E) an individual transferring to the Holder’s family member or trust for the benefit of an individual Holder; provided that in each case the transferee will agree in writing to be subject to the terms of this Agreement to the same extent as if such transferee were an original Holder hereunder.

(c)     Each certificate representing Shares or Registrable Securities shall be stamped or otherwise imprinted with legends substantially similar to the following (in addition to any legend required under applicable state securities laws):

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ ACT ”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED (I) UNLESS AND UNTIL REGISTERED UNDER THE ACT OR (II) EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AS EVIDENCED BY, TO THE EXTENT REQUESTED BY THE COMPANY, A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY.

THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND BETWEEN THE STOCKHOLDER AND THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

(d)     The Company shall be obligated to reissue promptly unlegended certificates at the request of any Holder thereof if the Company has completed its Initial Offering and the Holder shall have obtained an opinion of counsel (which counsel may be counsel to the

 

4


Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification and legend, provided that the second legend listed above shall be removed only at such time as the Holder of such certificate is no longer subject to any restrictions hereunder.

(e)     Any legend that is required to be endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal or at such time as such legend is no longer required to be endorsed on such instrument pursuant to applicable state securities laws.

2.2    Demand Registration.

(a)     Subject to the conditions of this Section  2.2 , if the Company shall receive a written request from the Holders of a majority of the Registrable Securities (the “ Initiating Holders ”) that the Company file a registration statement under the Securities Act covering the registration of at least 50% of the Registrable Securities then outstanding, then the Company shall, within 30 days of the receipt thereof, give written notice of such request to all Holders, and, subject to the limitations of this Section  2.2 , effect, as expeditiously as reasonably possible, the registration under the Securities Act of all Registrable Securities that all Holders request to be registered.

(b)     If 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 this Section  2.2 or any request pursuant to Section  2.4 and the Company shall include such information in the written notice referred to in Section  2.2(a) or Section  2.4(a) , as applicable. In such event, the right of any Holder to include its 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 enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Holders of at least a majority of the Registrable Securities held by all Initiating Holders (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section  2.2 or Section  2.4 , if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders ) ; provided, however , that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities of the Company are first entirely excluded from the underwriting and registration. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.

 

5


(c)     The Company shall not be required to effect a registration pursuant to this Section  2.2 :

(i)     if the anticipated minimum aggregate offering price to the public is less than $10,000,000;

(ii)     prior to the earlier of (A) the fifth anniversary of the date of this Agreement or (B) the expiration of the restrictions on transfer set forth in Section  2.11 following the Initial Offering (but in no event to exceed 214 days following the Initial Offering);

(iii)     after the Company has effected two registrations pursuant to this Section  2.2 , and such registrations have been declared or ordered effective;

(iv)     during the period that is 60 days before the Company’s good faith estimate of the filing or submission, as applicable, of a Company-initiated registration statement (other than a Special Registration Statement) pertaining to a public offering and ending on the date 180 days following the effective date of such Company-initiated registration statement; provided that the Company makes reasonable good faith efforts to cause such registration statement to become effective;

(v)     if the Company shall furnish to Holders requesting a registration statement pursuant to this Section  2.2 a certificate signed by the Chairman of the Board of Directors of the Company (the “ Board ”) stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than 90 days after receipt of the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company not more than once in any 12 month period;

(vi)     if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section  2.4 below; or

(vii)     in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

2.3      Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least 15 days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding Special Registration Statements) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within 15 days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.

 

6


(a)      Underwriting. If the registration statement of which the Company gives notice under this Section  2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to include Registrable Securities in a registration pursuant to this Section  2.3 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 Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Agreement, if the Company determines in good faith, based on consultation with the underwriter, that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any stockholder of the Company (other than a Holder) on a pro rata basis; provided, however, that no such reduction shall reduce the amount of securities of the selling Holders included in the registration below 30% of the total amount of securities included in such registration, unless such offering is the Initial Offering and such registration does not include shares of any other selling stockholders, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding clause. In no event will shares of any other selling stockholder be included in such registration that would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than a majority of the Registrable Securities proposed to be sold in the offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least 10 business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership, limited liability company or corporation, the partners, retired partners, members, retired members and stockholders of such Holder, or the estates and family members of any such partners, retired partners, members and retired members and any trusts for the benefit of any of the foregoing person shall be deemed to be a single “Holder,” and any pro rata reduction with respect to such “Holder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “Holder,” as defined in this sentence.

(b)      Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section  2.3 whether or not any Holder has elected to include securities in such registration, and shall promptly notify any Holder that has elected to include shares in such registration of such termination or withdrawal. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section  2.5 hereof.

 

7


2.4      Form S-3 Registration. In case the Company shall receive from a Major Investor (as defined below) a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Major Investor, the Company will:

(a)     promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and

(b)     as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Major Investor’s Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section  2.4 :

(i)     if Form S-3 is not available for such offering by the Holders;

(ii)     if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $5,000,000;

(iii)     during the period that is 30 days before the Company’s good faith estimate of the filing of a Company-initiated registration statement (other than a Special Registration Statement) pertaining to a public offering and ending on the date 90 days following the effective date of such Company-initiated registration statement; provided that the Company makes reasonable good faith efforts to cause such registration statement to become effective;

(iv)     if the Company shall furnish to the Major Investor a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 90 days after receipt of the request of such Major Investor under this Section  2.4 ; provided that such right to delay a request shall be exercised by the Company not more than once in any 12 month period;

(v)     if the Company has, within the 12 month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section  2.4 ; or

(vi)     in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

(c)     Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the requests of the Holders. Registrations effected pursuant to this Section  2.4 shall not be counted as demands for registration or registrations effected pursuant to Section  2.2 . All Registration Expenses incurred in connection with registrations requested pursuant to this Section  2.4 after the first two registrations have been declared effective shall be paid by the selling Holders pro rata in proportion to the number of shares to be sold by each such Holder in any such registration.

 

8


2.5      Expenses of Registration. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section  2.2 , 2.3 or 2.4 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section  2.2 or 2.4 , the request of which has been subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is based upon material adverse information concerning the condition, business or prospects of the Company of which the Initiating Holders were not aware at the time of such request (and the Holders shall not forfeit their right to one registration due to a withdrawal pursuant to this clause (a)) or (b) the Holders of a majority of Registrable Securities agree to deem such registration to have been effected as of the date of such withdrawal for purposes of determining whether the Company shall be obligated pursuant to Section  2.2(c)(iii) or 2.4(b)(v) , as applicable, to undertake any subsequent registration, in which event such right shall be forfeited by all Holders). If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) above, then such registration shall not be deemed to have been effected for purposes of determining whether the Company shall be obligated pursuant to Section  2.2(c)(ii) or 2.4(b)(v) , as applicable, to undertake any subsequent registration.

2.6      Obligations of the Company. Whenever required 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 all 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 up to (y) 120 days or, if earlier, until the Holder or Holders have completed the distribution related thereto and (z) 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 SEC rules and regulations, the 120 day period specified in clause (y) shall be extended for up to an additional 180 days, if necessary, to keep the registration statement effective until all Registrable Securities are sold; provided, however, that at any time, upon written notice to the participating Holders and for a period not to exceed 30 days thereafter (the “ Suspension Period ”), the Company may suspend the use or effectiveness of any registration statement (and the Initiating Holders hereby agree not to offer or sell any Registrable Securities pursuant to such registration statement during the Suspension Period) if the Company reasonably believes that there is or may be in existence material nonpublic information or events involving the Company, the failure of which to be disclosed in the prospectus included in the registration statement could result in a Violation (as defined below). In the event that the Company shall exercise its right to delay or suspend the

 

9


effectiveness of a registration hereunder, the applicable time period during which the registration statement is to remain effective shall be extended by a period of time equal to the duration of the Suspension Period. The Company may extend the Suspension Period for an additional consecutive 30 days with the consent of the holders of a majority of the Registrable Securities registered under the applicable registration statement. No more than two such Suspension Periods shall occur in any 12 month period. In no event shall any Suspension Period, when taken together with all prior Suspension Periods, exceed 90 days in the aggregate. If so directed by the Company, all Holders registering shares under such registration statement shall (i) not offer to sell any Registrable Securities pursuant to the registration statement during the period in which the delay or suspension is in effect after receiving written notice of such delay or suspension from the Company; and (ii) use their reasonable efforts to deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holders’ possession, of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. Notwithstanding the foregoing, the Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement (other than a registration statement on Form S-3) that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.

(b)     Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in subsection (a) above.

(c)     Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

(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 Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(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 managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

(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)     Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the

 

10


Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include 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 in the light of the circumstances then existing.

(h)     Use its reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter, dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters.

(i)     Notify each Holder of Registrable Securities covered by such registration statement, 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.

(j)     Promptly make available for inspection by the Holders of Registrable Securities covered by such registration statement, 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 such Holders of Registrable Securities, 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 and subject to the execution by such Holders and other persons of a reasonable and customary non-disclosure and non-use agreement with respect to such records, corporate documents and properties.

2.7    Delay of Registration; Furnishing Information.

(a)     No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section  2 .

(b)     It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section  2.2 , 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities.

 

11


(c)     The Company shall have no obligation with respect to any registration requested pursuant to Section  2.2 or Section  2.4 if the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company’s obligation to initiate such registration as specified in Section  2.2 or Section  2.4 , whichever is applicable.

2.8      Indemnification. In the event any Registrable Securities are included in a registration statement under Sections  2.2 , 2.3 or 2.4 :

(a)     To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “ Violation ”) by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement or incorporated reference therein, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company 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 in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, partner, member, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section  2.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, member, officer, director, underwriter or controlling person of such Holder.

(b)     To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration statement is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder’s partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act,

 

12


the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any of the following statements: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement or incorporated reference therein, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act (collectively, a “ Holder Violation ”), in each case to the extent (and only to the extent) that such Holder Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Holder Violation; provided, however, that the indemnity agreement contained in this Section  2.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further , that in no event shall any amounts payable by such Holder by way of indemnity or contribution under this Section  2.8 exceed the net proceeds from the offering received by such Holder.

(c)     Promptly after receipt by an indemnified party under this Section  2.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section  2.8 , deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses thereof 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 proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section  2.8 to the extent, and only to the extent, prejudicial to its ability to defend such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section  2.8 .

(d)     If the indemnification provided for in this Section  2.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage 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 party on the other in connection with the Violation(s) or

 

13


Holder Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party 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 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 that in no event shall any contribution by a Holder hereunder, when combined with any amounts paid or payable by such Holder pursuant to Section  2.8(b) , exceed the net proceeds from the offering received by such Holder.

(e)     The obligations of the Company and Holders under this Section  2.8 shall survive completion of any offering of Registrable Securities in a registration statement, and otherwise shall survive the termination of this Agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.

2.9      Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section  2 may be assigned by a Holder to a transferee or assignee of Registrable Securities (for so long as such shares remain Registrable Securities) that (a) is a subsidiary, parent, general partner, limited partner, retired partner, member or retired member, or stockholder of a Holder that is a corporation, partnership or limited liability company, (b) is a Holder’s family member or trust for the benefit of an individual Holder, (c) acquires at least 50,000 shares of Registrable Securities (as adjusted for stock splits and combinations), or (d) is an entity affiliated by common control (or other related entity) with such Holder; provided, however, (i) the transferor shall, within 10 days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement.

2.10      Limitation on Subsequent Registration Rights. Other than as provided in Section  5.10 , after the date of this Agreement, the Company shall not enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder rights to demand the registration of shares of the Company’s capital stock, or to include such shares in a registration statement that would reduce the number of shares includable by the Holders.

2.11      Market Stand-Off Agreement. Each Holder hereby agrees that such Holder shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale of, any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) during the 180-day period following the effective date of the Initial Offering (or such longer period, not to exceed 34 days after the expiration of the 180-day period, as required under applicable law or regulation to facilitate compliance with NASD Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation to the extent applicable); provided that , all officers and directors of the Company and holders of at least one percent (1%)

 

14


of the Company’s voting securities are bound by and have entered into similar agreements. Notwithstanding the foregoing, if an officer or director of the Company and any holder of at least one percent (1%) of the Company’s voting securities is released (whether by release, termination or waiver) from the obligations of the lock-up period prior to the termination of the lock-up period (including any extension thereof) then all Holders shall also be released from the lock-up period to the same extent on a pro rata basis.

2.12      Agreement to Furnish Information. Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriters that are consistent with the Holder’s obligations under Section  2.11 or that are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within 10 days of such request, such information as may be reasonably required by the Company or such representative in connection with the completion of any public offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations described in Section  2.11 and this Section  2.12 shall not apply to a Special Registration Statement. In order to enforce the foregoing covenant in Section  2.11 , the Company may impose stop-transfer instructions with respect to such shares of Common Stock (or other securities) subject to the foregoing restriction until the end of such period. Each Holder agrees that any transferee of any shares of Registrable Securities shall be bound by Sections  2.11 and 2.12 . The underwriters of the Company’s stock are intended third party beneficiaries of Sections 2.11 and 2.12 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.

2.13      Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to:

(a)     Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public;

(b)     File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and

(c)     So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company filed with the Commission; and such other reports and documents as a Holder may reasonably request in connection with availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.

2.14      Termination of Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section  2.2 , Section  2.3 , or Section  2.4 hereof shall terminate upon the earlier of: (i) the date five years

 

15


following an initial public offering that results in the conversion of all outstanding shares of Preferred Stock; or (ii) such time as such Holder, as reflected on the Company’s list of stockholders, holds less than one percent (1%) of the Company’s outstanding Common Stock (treating all shares of Preferred Stock on an as converted basis), the Company has completed its Initial Offering and all Registrable Securities issuable or issued upon conversion of the Shares held by and issuable to such Holder (and its affiliates) may be sold pursuant to Rule 144 during any 90 day period. Upon such termination, such shares shall cease to be “Registrable Securities” hereunder for all purposes.

SECTION 3. COVENANTS OF THE COMPANY.

3.1    Basic Financial Information and Reporting.

(a)     The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied (except as noted therein or as disclosed to the recipients thereof), and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied.

(b)     So long as any Shares remain outstanding, as soon as practicable after the end of each fiscal year of the Company, and in any event within 180 days thereafter, the Company will furnish any Investor holding together with its affiliates at least 2,000,000 shares of Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the date hereof) (each, a “ Major Investor ”) an audited balance sheet of the Company, as at the end of such fiscal year, and an audited statement of income and an audited statement of cash flows of the Company, for such year, all prepared in accordance with generally accepted accounting principles consistently applied (except as noted therein or as disclosed to the recipients thereof), and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants selected by the Board.

(c)     The Company will furnish each Major Investor, as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within 45 days thereafter, an unaudited balance sheet of the Company as of the end of each such quarterly period and an unaudited statement of income and statement of cash flows of the Company for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied (except as noted therein or as disclosed to the recipients thereof), with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made.

(d)     The Company will furnish each Major Investor, as soon as practicable after the end of each month in each fiscal year of the Company, and in any event within 30 days thereafter, an unaudited balance sheet of the Company as of the end of such month and an unaudited statement of income and statement of cash flows of the Company for such monthly period, prepared in accordance with generally accepted accounting principles consistently applied (except as noted therein or as disclosed to the recipients thereof), with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made.

 

16


(e)     The Company will furnish each Major Investor at least 30 days prior to the beginning of each fiscal year an annual budget and operating plans for such fiscal year that each have been approved by the Board (and as soon as available, any subsequent written revisions thereto).

3.2      Inspection Rights. Each Major Investor shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, and to review such information as is reasonably requested all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company shall not be obligated under this Section  3.2 with respect to a competitor of the Company or with respect to information which the Board reasonably determines in good faith is confidential (unless covered by an enforceable confidentiality agreement, in form reasonably acceptable to the Company) or attorney-client privileged and should not, therefore, be disclosed.

3.3      Confidentiality of Records. Each Investor agrees to use the same degree of care, but no less than a commercially reasonable degree of care, as such Investor uses to protect confidential information of a similar nature about other companies in which such Investor invests, to keep confidential any information furnished to such Investor pursuant to Sections  3.1 and 3.2 hereof that the Company identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Investor may disclose such proprietary or confidential information (i) to any former partners who retained an economic interest in such Investor, current or prospective partner of the partnership or any subsequent partnership under common investment management, limited partner, general partner, partner of a partner, member or management company of such Investor, employee or representative of such Investor having a need to know the contents of such information, such Investor’s legal counsel, accountants or other professional advisors, subsidiary or parent of such Investor, in each case as long as such party is advised of and agrees or has agreed to be bound by the confidentiality provisions of this Section  3.3 or comparable restrictions, (ii) at such time as it enters the public domain through no fault of such Investor, (iii) that is communicated to it free of any obligation of confidentiality, (iv) that is developed by such Investor or its agents independently of and without reference to any confidential information communicated by the Company, or (v) as required by applicable law.

3.4      Reservation of Common Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of the Preferred Stock, all Common Stock issuable from time to time upon such conversion.

3.5      Stock Vesting; Repurchase of Stock. Unless otherwise approved by the Board (including the Requisite Directors (as defined in the Restated Charter)) or approved by the Compensation Committee (as defined below), all stock options and other stock equivalents issued after the date of this Agreement to employees, directors, consultants and other service providers shall (a) be subject to vesting as follows: (i) 25% of such stock shall vest at the end of the first year following the date of issuance, and (ii) 75% of such stock shall vest monthly over

 

17


the remaining three (3) years (subject to the recipient’s continued employment with, or provision of services to, the Company) and (b) contain a market stand-off provision substantially similar to that in Section  2.11 . Any amendment to the vesting terms of any such stock option grants shall also be subject to the approval of the Board (including the Requisite Directors) or approval of the Compensation Committee. The consent of the Board (including the Requisite Directors) or the Compensation Committee shall be required for the (y) acquisition of Common Stock by the Company pursuant to agreements with former employees or consultants that permit the Company to repurchase such shares or (z) acquisition of Common Stock in exercise of the Company’s right of first refusal to purchase shares.

3.6      Observation Rights. The Company shall allow (a) one representative designated by Limulus Venture Partners Limited Partnership and (b) to the extent that Longitude Venture Partners II, L.P. (together with its affiliated entities, “ Longitude ”) does not have a representative on the Board, one representative designated by Longitude, to attend all meetings of the Board in a nonvoting capacity, and in connection therewith, the Company shall give each such representative copies of all notices, minutes, consents and other materials, financial or otherwise, which the Company provides to its Board; provided, however, that the Company reserves the right to exclude any such representative from access to any material or meeting or portion thereof if the Company believes upon advice of counsel that such exclusion is reasonably necessary to preserve the attorney-client privilege, to protect highly confidential information or for other similar reasons. The decision of the Board with respect to the privileged or confidential nature of such information shall be final and binding.

3.7      Compensation Committee. The Board will maintain a compensation committee to approve the compensation of management and the hiring or termination of executive officers of the Company (the “ Compensation Committee ”). All decisions regarding such matters shall require the approval of the Compensation Committee, including the approval of any Preferred Director then serving on such Compensation Committee. The Compensation Committee shall include each director elected pursuant to Section  1.3(a) of the Voting Agreement (collectively, the “ Preferred Directors ”), unless any such Preferred Director elects to not serve on such Compensation Committee.

3.8      Proprietary Information and Inventions Agreement. The Company shall require all employees and consultants to execute and deliver a Proprietary Information and Inventions Agreement substantially in a form approved by the Company’s counsel or Board.

3.9      Directors Liability and Indemnification. The Company’s Certificate of Incorporation and Bylaws shall provide (a) for elimination of the liability of director to the maximum extent permitted by law and (b) for indemnification of directors for acts on behalf of the Company to the maximum extent permitted by law.

3.10      Insurance . The Company currently maintains directors and officers liability insurance in the amount of $3,000,000. The Company shall use commercially reasonable efforts to maintain, from financially sound and reputable insurers, directors and officers liability insurance in an amount consistent with industry standards. So long as OrbiMed Advisors, LLC has the right to appoint a director pursuant to Section  1.3(a)(ii) of the Voting Agreement, the Company will maintain directors and officers liability insurance in the amount not less than $3,000,000.

 

18


3.11      Termination of Covenants. All covenants of the Company contained in Section  3 of this Agreement (other than the provisions of Sections 3.3 and 3.9 ) shall expire and terminate upon the earlier of (i) the effective date of the registration statement pertaining to a Qualified Public Offering, or (ii) an “ Acquisition ” (as defined in the Restated Charter) that is approved by the “ Requisite Holders ” (as defined in the Restated Charter); provided, that the consideration received pursuant to such Acquisition shall be cash or marketable securities.

SECTION 4. RIGHTS OF FIRST REFUSAL.

4.1      Subsequent Offerings. Subject to applicable securities laws, each Major Investor (each, a “ ROFR Investor ”) shall have a right of first refusal to purchase its pro rata share of all Equity Securities (as defined below) that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section  4.6 hereof. Each ROFR Investor’s pro rata share is equal to the ratio of (a) the number of shares of the Company’s Common Stock (including all shares of Common Stock issuable or issued upon conversion of the Shares or upon the exercise of outstanding warrants or options) of which such ROFR Investor is deemed to be a holder immediately prior to the issuance of such Equity Securities to (b) the total number of shares of the Company’s outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares or upon the exercise of any outstanding warrants or options) immediately prior to the issuance of the Equity Securities. The term “ Equity Securities ” shall mean (i) any Common Stock, Preferred Stock or other security of the Company, (ii) any security convertible into or exercisable or exchangeable for, with or without consideration, any Common Stock, Preferred Stock or other security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, Preferred Stock or other security, or (iv) any such warrant or right.

4.2      Exercise of Rights. If the Company proposes to issue any Equity Securities, it shall give each ROFR Investor written notice of its intention, describing the Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each ROFR Investor shall have 30 days from the giving of such notice to agree to purchase up to its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any ROFR Investor if such offer or sale would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale.

4.3      Issuance of Equity Securities to Other Persons . If not all of the ROFR Investors elect to purchase their pro rata share of the Equity Securities, then the Company shall promptly notify in writing the ROFR Investors who do so elect and shall offer such ROFR Investors the right to acquire such unsubscribed shares on a pro rata basis. The ROFR Investors shall have 10 days after receipt of such notice to notify the Company of its election to purchase all or a portion thereof of the unsubscribed shares. The Company shall have 90 days thereafter to

 

19


sell the Equity Securities in respect of which the ROFR Investor’s rights were not exercised, at a price not lower and upon terms and conditions not materially more favorable to the purchasers thereof than specified in the Company’s notice to the ROFR Investors pursuant to Section  4.2 hereof. If the Company has not sold such Equity Securities within 90 days of the notice provided pursuant to Section  4.2 , the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the ROFR Investors in the manner provided above.

4.4      Termination of Rights of First Refusal. The rights of first refusal for all ROFR Investors established by this Section  4 shall not apply to, and shall terminate upon the earlier of (i) the effective date of the registration statement pertaining to the Company’s Qualified Public Offering or (ii) an Acquisition approved by the Requisite Holders.

4.5      Assignment of Rights of First Refusal. The rights of first refusal of ROFR Investors under this Section  4 may be assigned to the same parties and subject to the same restrictions as any transfer of registration rights pursuant to Section  2.9 .

4.6      Excluded Securities. The rights of first refusal established by this Section  4 shall have no application to any of the following Equity Securities:

(a)     shares of Common Stock issued upon conversion of any shares of Preferred Stock of the Company or as a dividend or other distribution on any shares of Preferred Stock of the Company;

(b)     shares of Common Stock and/or options, warrants or other Common Stock purchase rights and the Common Stock issued pursuant to such options, warrants or other rights (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the date hereof) issued or to be issued after the date hereof to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board;

(c)     any Equity Securities issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or non-convertible debt financing from a bank or similar financial or lending institution approved by the Board (including the Requisite Directors);

(d)     any Equity Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition, strategic alliance or similar business combination approved by the Board (including the Requisite Directors);

(e)     stock issued or issuable pursuant to any rights or agreements, options, warrants or convertible securities outstanding as of the date of this Agreement; and stock issued pursuant to any such rights or agreements granted after the date of this Agreement, so long as the rights of first refusal established by this Section  4 were complied with, waived, or were inapplicable pursuant to any provision of this Section  4.6 with respect to the initial sale or grant by the Company of such rights or agreements;

(f)     any Equity Securities issued in connection with any stock split, stock dividend or recapitalization by the Company;

 

20


(g)     any Equity Securities issued in connection with strategic transactions involving the Company and other entities approved by the Board (including the Requisite Directors), including without limitation joint ventures, manufacturing, marketing, distribution, technology transfer or development arrangements;

(h)     any Equity Securities that are issued by the Company in connection with a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act; and

(i)     any Equity Securities that the Requisite Holders elect, by vote or written consent, voting together as a single class on an as-converted basis, to exclude from the rights of first refusal established by this Section  4 .

SECTION 5. MISCELLANEOUS.

5.1      Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware in all respects as such laws are applied to agreements among Delaware residents entered into and to be performed entirely within Delaware, without reference to conflicts of laws or principles thereof. The parties agree that any action brought by either party under or in relation to this Agreement, including without limitation to interpret or enforce any provision of this Agreement, shall be brought in, and each party agrees to and does hereby submit to the jurisdiction and venue of, any state or federal court located in the State of Delaware.

5.2      Successors and Assigns. Except as otherwise expressly provided herein, 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 shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however , that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price.

5.3      Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof 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.

5.4      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.

 

21


5.5    Amendment and Waiver.

(a)     Except as otherwise expressly provided, this Agreement may be amended or modified, and the obligations of the Company and the rights of the Holders under this Agreement may be waived, only upon the prior written consent of the Company and the Requisite Holders; provided, however, that Section 3.6 may not be amended, waived or terminated without the prior written consent of Limulus as to Limulus’s rights, and without the prior written consent of Longitude as to Longitude’s rights, and Section 2.11 may not be amended, waived or terminated without the prior written consent of the Requisite Series D Holders (as defined in the Restated Charter).

(b)     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 5.5 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.

(c)     For the purposes of determining the number of Holders or Investors entitled to vote or exercise any rights hereunder, the Company shall be entitled to rely solely on the list of record holders of its stock as maintained by or on behalf of the Company.

5.6      Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any party’s part of any breach, default or noncompliance under this Agreement or any waiver on such party’s part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be cumulative and not alternative.

5.7      Notices. All notices required or permitted hereunder 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 days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or E XHIBIT A hereto or at such other address or electronic mail address as such party may designate by 10 days advance written notice to the other parties hereto.

5.8      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

 

22


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.

5.9      Titles 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.

5.10      Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company shall issue Equity Securities in accordance with Section  4.6(c) or (g)  of this Agreement, any purchaser of such Equity Securities may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an “ Investor ,” a “ Holder ” and a party hereunder.

5.11      Counterparts; Electronic or Facsimile Signatures. 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. This Agreement may be executed and delivered electronically or by facsimile and upon such delivery such electronic or facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.

5.12      Aggregation of Stock. All Shares or Registrable Securities held or acquired by affiliated entities or persons or persons or entities under common management or control shall be aggregated together for the purpose of determining the availability of any rights under this Agreement, including the rights set forth in Section 4 hereof.

5.13      Pronouns. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as to the identity of the parties hereto may require.

5.14      Termination. This Agreement shall terminate and be of no further force or effect upon the earlier of (i) an Acquisition, or (ii) the date five years following the closing of the Qualified Public Offering.

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

23


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

COMPANY:
T RICIDA , I NC .

 

By:

 

 

/s/ Gerrit Klaerner

 

Name:

 

 

Gerrit Klaerner

 

Title:

 

 

President and Chief Executive Officer

Address: 7000 Shoreline Court, Suite 201

South San Francisco, CA

94080

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

INVESTOR:

S IBLING C APITAL F UND II-B L.P.

B Y : S IBLING C APITAL V ENTURES II LLC

I TS : S OLE G ENERAL P ARTNER

 

By:

 

 

/s/ Brian M. Isern

 

Name:

 

 

Brian M. Isern

 

Title:

 

 

President

Address:

 

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

INVESTOR:

S IBLING C APITAL F UND II-A L.P.

B Y : S IBLING C APITAL V ENTURES LLC

I TS : S OLE G ENERAL P ARTNER

 

By:

 

 

/s/ Brian M. Isern

 

Name:

 

 

Brian M. Isern

 

Title:

 

 

President

Address:

 

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

INVESTOR:

S IBLING C O -I NVESTMENT LLC

B Y : S IBLING C APITAL V ENTURES LLC

I TS : S OLE M ANAGER

 

By:

 

 

/s/ Brian M. Isern

 

Name:

 

 

Brian M. Isern

 

Title:

 

 

Manager

Address:

 

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

INVESTOR:

S IBLING C APITAL F UND II-C L.P.

B Y : S IBLING C APITAL V ENTURES III LLC

I TS : S OLE G ENERAL P ARTNER

 

By:

 

 

/s/ Brian M. Isern

 

Name:

 

 

Brian M. Isern

 

Title:

 

 

President

 

Date:

 

 

10/31/17

Address:

 

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

INVESTOR:

S IBLING C APITAL F UND II-D L.P.

B Y : S IBLING C APITAL V ENTURES IV LLC

I TS : S OLE G ENERAL P ARTNER

 

By:

 

 

/s/ Brian M. Isern

Name:   Brian M. Isern
Title:   President
Date:   10/31/17

Address:

 

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

INVESTOR:

L IMULUS  V ENTURE  P ARTNERS  L IMITED  P ARTNERSHIP

B Y : L IMULUS LLC

I TS : G ENERAL P ARTNER

 

By:

 

 

/s/ Paul A. Howard

 

Name:

 

 

Paul A. Howard

 

Title:

 

 

Manager

Address: c/o Mediphase Venture Partners

One Gateway Center, Suite 407

Newton, MA 02458

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

INVESTOR:

O RBI M ED P RIVATE I NVESTMENTS V, LP

B Y : O RBI M ED C APITAL GP V LLC,

ITS G ENERAL P ARTNER

 

B Y : O RBI M ED A DVISORS LLC,

ITS M ANAGING M EMBER

 

By:

 

 

/s/ Jonathan Silverstein

 

Name:

 

 

Jonathan Silverstein

 

Title:

 

 

Member

Address: c/o OrbiMed Advisors, LLC

601 Lexington Avenue, 54th Floor

New York, NY 10022

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

INVESTOR:

L ONGITUDE V ENTURE P ARTNERS II, L.P.

B Y : L ONGITUDE C APITAL P ARTNERS II, LLC, ITS G ENERAL P ARTNER

 

By:   /s/ Patrick Enright
Name:   Patrick Enright
Title:   Managing Member

Address:

Longitude Venture Partners II, L.P.

c/o Longitude Capital Partners II, LLC

2740 Sand Hill Road, 2nd Floor

Menlo Park, California 94025

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

INVESTOR:

V IVO C APITAL F UND VIII, L.P.

By: Vivo Capital VIII, LLC

Its: General Partner

 

By:

 

 

/s/ Albert Cha

Name:   Albert Cha
Title:   Managing Member

 

Address: 505 Hamilton Avenue, Suite 207
     Palo Alto, CA 94301

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

INVESTOR:

V IVO C APITAL S URPLUS F UND VIII, L.P.

By: Vivo Capital VIII, LLC

Its: General Partner

 

By:

 

 

/s/ Albert Cha

Name:   Albert Cha
Title:   Managing Member

 

Address: 505 Hamilton Avenue, Suite 207
     Palo Alto, CA 94301

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

INVESTOR:

VENROCK HEALTHCARE CAPITAL PARTNERS II, L.P.

By: VHCP Management II, LLC

Its: General Partner

VHCP CO-INVESTMENT HOLDINGS II, LLC

By: VHCP Management II, LLC

Its: Manager

 

By:

 

 

/s/ David L. Stepp

 

Name:

 

 

David L. Stepp

 

Title:

 

 

Authorized Signatory

Address:

3340 Hillview Avenue

Palo Alto, CA 94304

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

INVESTOR:

HADLEY HARBOR MASTER INVESTORS (CAYMAN) II L.P.

By: Wellington Management Company LLP, as investment adviser

 

By:

 

 

/s/ Emily Babalas

Name:   Emily Babalas
Title:   Managing Director and Counsel

Address:

c/o Wellington Management Company LLP

Legal and Compliance

280 Congress Street

Boston, MA 02210

Attn: Emily Babalas

Email: seclaw@wellington.com

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

INVESTOR:

C ORMORANT G LOBAL H EALTHCARE M ASTER F UND , LP

B Y : C ORMORANT G LOBAL H EALTHCARE GP, LLC

 

By:   /s/ Bihua Chen
Name:   Bihua Chen
Title:   Managing Member of the GP

Address:

200 Clarendon Street, 52nd Floor

Boston, MA 02116

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

INVESTOR:

C ORMORANT P RIVATE H EALTHCARE F UND I, LP

B Y : C ORMORANT P RIVATE H EALTHCARE GP, LLC

 

By:   /s/ Bihua Chen
Name:   Bihua Chen
Title:   Managing Member of the GP

Address:

200 Clarendon Street, 52nd Floor

Boston, MA 02116

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

INVESTOR:

CRMA SPV, L.P.

B Y : C ORMORANT A SSET M ANAGEMENT , LLC

 

By:   /s/ Bihua Chen
Name:   Bihua Chen, CEO / CIO
Its: Attorney-in-Fact

Address:

PO Box 309

Ugland House

Grand Cayman

KY1-1104 Cayman Islands

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


I N W ITNESS W HEREOF , the parties hereto have executed this A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

INVESTOR:

PEAF V, L.P.

 

By:

 

 

/s/ Kenneth M. Lehman

Name:   Kenneth M. Lehman
Title:   Managing Member of General Partner

Address:

6 University Road

Cambridge, MA 02138

 

[S IGNATURE P AGE TO A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT ]


E XHIBIT A

INVESTORS

O RBI M ED P RIVATE I NVESTMENTS V, LP

S IBLING C APITAL F UND II-A L.P.

S IBLING C O -I NVESTMENT LLC

S IBLING C APITAL F UND II-B L.P.

S IBLING C APITAL F UND II-C L.P.

S IBLING C APITAL F UND II-D L.P.

L IMULUS V ENTURE P ARTNERS L IMITED P ARTNERSHIP

A LEXANDRIA V ENTURE I NVESTMENTS , LLC

L ONGITUDE V ENTURE P ARTNERS II, L.P.

V IVO C APITAL F UND VIII, L.P.

V IVO C APITAL S URPLUS F UND VIII, L.P.

L EERINK H OLDINGS LLC

L EERINK S WANN C O -I NVESTMENT F UND , LLC

H ADLEY H ARBOR M ASTER I NVESTORS (C AYMAN ) II L.P.

V ENROCK H EALTHCARE C APITAL P ARTNERS II, L.P.

VHCP C O -I NVESTMENT H OLDINGS II, LLC

C ORMORANT P RIVATE H EALTHCARE F UND I, LP

C ORMORANT G LOBAL H EALTHCARE M ASTER F UND , LP

CRMA SPV, L.P.

PEAF V, L.P.

Exhibit 4.2

TRICIDA, INC.

AMENDMENT NO. 1 TO THE AMENDED AND RESTATED INVESTOR RIGHTS

AGREEMENT

This Amendment No. 1 to the Amended and Restated Investor Rights Agreement (this “ Amendment ”), is made and entered into dated as of February 28, 2018, and amends that certain Amended and Restated Investor Rights Agreement, dated as of November 7, 2017 by and among Tricida, Inc., a Delaware corporation (the “ Company ”), and the entities set forth on Exhibit A thereto (the “ Agreement ”). Capitalized terms not defined in this Amendment have the meanings set forth in the Agreement.

RECITALS

WHEREAS , pursuant to the terms of a Loan and Security Agreement of even date herewith, the Company shall issue warrants to Hercules Capital, Inc., a Maryland corporation, and Hercules Technology III, L.P., a Delaware limited partnership (collectively, the “ Warrantholders ”).

WHEREAS , the Company and the undersigned Investors desire to amend the Agreement to (i) grant the Warrantholders certain rights under the Agreement and (ii) make certain other changes to the Agreement.

WHEREAS , Section 5.5 of the Agreement provides that in most instances the Agreement may be amended with the prior written consent of the Company and the Requisite Holders.

WHEREAS , the undersigned stockholders, constituting the Requisite Holders, and the Company desire to amend the Agreement as set forth below pursuant to its terms.

NOW THEREFORE , in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

AMENDMENT OF AGREEMENT

 

1. Amendment of Section  1.2(g) . Section 1.2(g) of the Agreement is hereby amended and restated in its entirety as follows:

 

  “(g)

Registrable Securities means (a) Common Stock of the Company issuable or issued upon conversion of the Shares, (b) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities, (c) any other Common Stock of the Company that may be held from time to time by the Investors and (d) for purposes of Section  2 of the Agreement, except for


  Section  2.2 (Demand Registration) and Section  2.13 (Rule 144 Reporting), Common Stock issued upon exercise of the warrants, each dated February 28, 2018, issued to Hercules Capital, Inc. and Hercules Technology III, L.P. (collectively, the “ Hercules Warrants ”). Notwithstanding the foregoing, Registrable Securities shall not include any securities (i) sold by a person to the public either pursuant to a registration statement or Rule 144 or (ii) sold in a private transaction in which the transferor’s rights under Section  2 of this Agreement are not assigned.

 

2. Amendment of Section  2.4 . The first sentence of Section 2.4 of the Agreement is hereby amended and restated in its entirety as follows:

 

  “2.4 Form S -3 Registration. In case the Company shall receive from a holder of at least 2,000,000 shares of Preferred Stock (or Common Stock issued upon conversion of Preferred Stock) (as adjusted for any stock dividend, combinations, splits, recapitalizations and the like) a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Investor, the Company will:”

 

3. Amendment of Section  2.10 . Section 2.10 of the Agreement is hereby amended and restated in its entirety as follows:

 

  “2.10 Limitation on Subsequent Registration Rights. Other than (a) as provided in Section  5.10 or (b) as may be provided in or in connection with the original issuance of the Hercules Warrants, after the date of this Agreement, as amended, the Company shall not enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder rights to demand the registration of shares of the Company’s capital stock, or to include such shares in a registration statement that would reduce the number of shares includable by the Holders.”

 

4. Amendment of Section  4.6 . Subsections (h) and (i) of Section 4.6 of the Agreement are hereby amended and restated in their entirety as set forth below and a new subsection (j) is added to Section 4.6 of the Agreement as follows:

“(h)    any Equity Securities that are issued by the Company in connection with a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act;

(i)    any Equity Securities that the Requisite Holders elect, by vote or written consent, voting together as a single class on an as-converted basis, to exclude from the rights of first refusal established by this Section  4 ; and

(j)    any Equity Securities (a) issued pursuant to the Hercules Warrants, or (b) to the Lender (as defined in the Loan Agreement) or its assignee or nominee pursuant to Section 8.1 of the Loan Agreement by and between the Company and

 

2


each of its Qualified Subsidiaries (as defined in the Loan Agreement), the several banks and other financial institutions or entities from time to time parties to the Loan Agreement and Hercules Capital, Inc., a Maryland corporation, in its capacity as administrative agent and collateral agent for itself and the Lender (as defined in the Loan Agreement), dated as of February 28, 2018 (the “ Loan Agreement ”).”

 

5. Amendment of Section  5.5 . Subsection (a) of Section 5.5 of the Agreement is hereby amended and restated in its entirety as follows:

“(a)    Except as otherwise expressly provided, this Agreement may be amended or modified, and the obligations of the Company and the rights of the Holders under this Agreement may be waived, only upon the prior written consent of the Company and the Requisite Holders; provided, however, that Section  3.6 may not be amended, waived or terminated without the prior written consent of Limulus as to Limulus’s rights, and without the prior written consent of Longitude as to Longitude’s rights, and Section  2.11 may not be amended, waived or terminated without the prior written consent of the Requisite Series D Holders (as defined in the Restated Charter); provided further, that Section  2 (with the exception of Section  2.2 (Demand Registration) and Section  2.13 (Rule 144 Reporting)) may not be amended, waived or terminated so as to adversely affect Hercules Capital, Inc. and Hercules Technology III, L.P. without the prior written consent of Hercules Capital, Inc. and Hercules Technology III, L.P., unless such amendment, waiver or termination affects the rights and obligations associated with the shares of Common Stock issued or issuable under each of the Hercules Warrants in the same manner as such amendment, waiver or termination affects the rights and obligations associated with the shares of Common Stock issuable upon conversion of all shares of Preferred Stock held by the Holders hereto.”

ARTICLE II

MISCELLANEOUS

 

1. Reference to and Effect on the Agreements . On or after the date hereof, each reference in the Agreement to “this Agreement,” “hereunder,” “herein” or words of like import shall mean and be a reference to the Agreement as amended hereby. No reference to this Amendment need be made in any instrument or document at any time referring to the Agreement, a reference to the Agreement in any of such to be deemed a reference to the Agreement as amended hereby.

 

2. No Other Amendments . Except as set forth herein, the Agreement shall remain in full force and effect in accordance with their terms.

 

3. Counterparts; Electronic or Facsimile Signatures . This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. This Amendment may be executed and delivered electronically or by facsimile and upon such delivery such electronic or facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.

 

3


4. Governing Law, Amendment . This Amendment shall be governed by and construed under the laws of the State of Delaware in all respects as such laws are applied to agreements among Delaware residents entered into and to be performed entirely within Delaware, without reference to conflicts of laws or principles thereof. The parties agree that any action brought by either party under or in relation to this Amendment, including without limitation to interpret or enforce any provision of this Amendment, shall be brought in, and each party agrees to and does hereby submit to the jurisdiction and venue of, any state or federal court located in the State of Delaware. This Amendment may only be amended in accordance with the terms of Section 5.5 of the Agreement.

[ signature pages follow ]

 

4


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

COMPANY:
T RICIDA , I NC .
By: /s/ Gerrit Klaerner
Name: Gerrit Klaerner
Title: President and Chief Executive Officer
Address: 7000 Shoreline Court, Suite 201 South San Francisco, CA 94080

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:
O RBIMED P RIVATE I NVESTMENTS V, LP

B Y : O RBI M ED C APITAL GP V LLC,

ITS G ENERAL P ARTNER

B Y : O RBI M ED A DVISORS LLC,
I TS M ANAGING M EMBER
By:   /s/ Jonathan Silverstein

Name:

 

Jonathan Silverstein

Title:

 

Member

Address: c/o OrbiMed Advisors, LLC

601 Lexington Avenue, 54th Floor

New York, NY 10022

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:

S IBLING C O -I NVESTMENT LLC

B Y : S IBLING C APITAL V ENTURES LLC

I TS : S OLE M ANAGER
By:   /s/ Brian M. Isern

Name:

 

Brian M. Isern

Title:

 

Manager

Address:

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:
S IBLING C APITAL F UND II- A L . P .

B Y : S IBLING C APITAL V ENTURES LLC

I TS : S OLE G ENERAL P ARTNER
By:   /s/ Brian M. Isern

Name:

 

Brian M. Isern

Title:

 

President

Address:

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:
S IBLING C APITAL F UND II-B L.P.

B Y : S IBLING C APITAL V ENTURES II LLC

I TS : S OLE G ENERAL P ARTNER
By:   /s/ Brian M. Isern

Name:

 

Brian M. Isern

Title:

 

President

Address:

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:
S IBLING C APITAL F UND II-C L.P.

B Y : S IBLING C APITAL V ENTURES III LLC

I TS : S OLE G ENERAL P ARTNER
By:   /s/ Brian M. Isern

Name:

 

Brian M. Isern

Title:

 

President

Date:   2/28/18

Address:

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:
S IBLING C APITAL F UND II-D L.P.

B Y : S IBLING C APITAL V ENTURES IV LLC

I TS : S OLE G ENERAL P ARTNER
By:   /s/ Brian M. Isern

Name:

 

Brian M. Isern

Title:

 

President

Date:   2/28/18

Address:

Attn: Brian M. Isern

702 San Antonio Street

Austin, Texas 78701

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:
VENROCK HEALTHCARE CAPITAL PARTNERS II, L.P.

By: VHCP Management II, LLC

Its: General Partner

VHCP CO-INVESTMENT HOLDINGS II, LLC

By: VHCP Management II, LLC

Its: Manager

By:   /s/ David L. Stepp

Name:

 

David L. Stepp

Title:

 

Authorized Signatory

Address:

3340 Hillview Avenue

Palo Alto, CA 94304

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:
L IMULUS V ENTURE P ARTNERS L IMITED P ARTNERSHIP

B Y : L IMULUS LLC

I TS : G ENERAL P ARTNER

By:   /s/ Paul A. Howard

Name:

 

Paul A. Howard

Title:

 

Manager

Address: c/o Mediphase Venture Partners

One Gateway Center, Suite 407

Newton, MA 02458

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:
V IVO C APITAL F UND VIII, L.P.

By: Vivo Capital VIII, LLC

Its: General Partner

By:   /s/ Albert Cha

Name:

 

Albert Cha

Title:

 

Managing Member

Address: 505 Hamilton Ave., Suite 207

Palo Alto, CA 94301

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Amended and Restated Investor Rights Agreement as of the date first written above.

 

INVESTOR:
V IVO C APITAL S URPLUS F UND VIII, L.P.

By: Vivo Capital VIII, LLC

Its: General Partner

By:   /s/ Albert Cha

Name:

 

Albert Cha

Title:

 

Managing Member

Address: 505 Hamilton Ave., Suite 207

Palo Alto, CA 94301

 

Signature Page to Tricida, Inc.

Amendment No. 1 to the Amended and Restated Investor Rights Agreement

Exhibit 4.4

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

Trilypsa, Inc.

WARRANT TO PURCHASE SERIES A PREFERRED STOCK

 

No. PCW-1   August 9, 2013

Void After August 9, 2020

THIS CERTIFIES THAT , for value received, SIBLING CO-INVESTMENT LLC , or its assigns (the “Holder”), is entitled to subscribe for and purchase at the Exercise Price (defined below) from TRILYPSA, INC. , a Delaware corporation, with its principal office at 400 East Jamie Court, Suite 201, South San Francisco, California, 94080 (the “Company”), shares of the equity securities of the Company of the same class and series as are issued and sold by the Company pursuant to the Qualified Financing (as defined below) (the “Series A Preferred Stock”) as set forth below and subject to adjustment provided herein.

This Warrant is being issued pursuant to the terms of the Note and Warrant Purchase Agreement, dated August 9, 2013, by and among the Company and the Holder (the “Note and Warrant Purchase Agreement”). Unless indicated otherwise, the number of shares of Series A Preferred Stock that Holder may purchase by exercising this warrant is equal to the quotient of (A) seventeen percent (17%) multiplied by $500,000.00 divided by (B) the per share price of the Series A Preferred Stock sold in the Qualified Financing.

1.      Definitions . As used herein, the following terms shall have the following respective meanings:

(a)     “Exercise Period” shall mean the period commencing with the date hereof and ending seven (7) years later, unless sooner terminated as provided below.

(b)     “Exercise Price” shall mean the share price of the Series A Preferred Stock sold in the Qualified Financing, subject to adjustment pursuant to Section 5 below.

(c)     “Exercise Shares” shall mean the shares of the Company’s Series A Preferred Stock issuable upon exercise of this Warrant, subject to adjustment pursuant to the terms herein, including but not limited to adjustment pursuant to Section 5 below.

(d)     “Note” shall mean the Convertible Promissory Note issued by the Company pursuant to the Note and Warrant Purchase Agreement, as amended from time to time.

 

1

CONFIDENTIAL


1.2     “Qualified Financing” shall mean the sale and issuance of the Company’s Series A Preferred Stock occurring prior to May 9, 2014 (the “Demand Date”) and following the date of the Note (the “Seed Closing Date”) which results in aggregate gross proceeds of at least $8,000,000.00 (not including the aggregate principal amount and all accrued interest of the Note) (or such other lesser amount as is approved by at least seventy-five percent (75%) of the Company’s board of directors) to the Company from all sales and issuances of its Series A Preferred Stock in financings after the Seed Closing Date.

2.      Exercise of Warrant . The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder):

(a)     An executed Notice of Exercise in the form attached hereto;

(b)     Payment of the Exercise Price either (i) in cash or by check, or (ii) by cancellation of indebtedness; and

(c)     This Warrant.

Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised.

The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.

2.1      Net Exercise . Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company’s Series A Preferred Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Series A Preferred Stock computed using the following formula:

X = Y (A-B)

            A

Where X = the number of shares of Series A Preferred Stock to be issued to the

Holder

 

2

CONFIDENTIAL


  Y = the number of shares of Series A Preferred Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation)

 

  A = the fair market value of one share of the Company’s Series A Preferred Stock (at the date of such calculation)

 

  B = Exercise Price (as adjusted to the date of such calculation)

For purposes of the above calculation, the fair market value of one share of Series A Preferred Stock shall be determined by the Company’s board of directors; provided, however, that in the event that this Warrant is exercised pursuant to this Section 2.1 in connection with the Company’s initial public offering of its Common Stock, the fair market value per share shall be the product of (i) the per share offering price to the public of the Company’s initial public offering, and (ii) the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible at the time of such exercise.

3.    Covenants of the Company.

3.1      Covenants as to Exercise Shares . The Company 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. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Preferred Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Preferred Stock to such number of shares as shall be sufficient for such purposes.

3.2      No Impairment . Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.

3.3      Notices of Record Date . In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.

 

3

CONFIDENTIAL


4.    Representations of Holder.

4.1    Acquisition of Warrant for Personal Account and Accredited Investor Status.

(a)     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.

(b)     The Holder is an “accredited investor” as such term is defined in Rule 501 under the Act (as defined below).

4.2      Securities Are Not Registered .

(a)     The Holder understands that the Warrant and the Exercise Shares have not been registered under the Act on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. The Holder has no such present intention.

(b)     The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or the Exercise Shares of the Company, or to comply with any exemption from such registration.

(c)     The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. Holder is aware that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company presently has no plans to satisfy these conditions in the foreseeable future.

4.3      Disposition of Warrant and Exercise Shares .

(a)     The Holder further agrees not to make any disposition of all or any part of the Warrant or Exercise Shares in any event unless and until:

(i)     The Company shall have received a letter secured by the Holder from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition;

 

4

CONFIDENTIAL


(ii)     There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or

(iii)     The Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, for the Holder to the effect that such disposition will not require registration of such Warrant or Exercise Shares under the Act or any applicable state securities laws.

(b)     The Holder understands and agrees that all certificates evidencing the shares to be issued to the Holder may bear the following legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

5.      Adjustment of Exercise Price . In the event of changes in the outstanding Series A Preferred Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of 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; provided, however, that such adjustment shall not be made with respect to, and this Warrant shall terminate if not exercised prior to, the events set forth in Section 7 below. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant.

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) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company 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 an Exercise Share by such fraction.

7.      Early Termination .

7.1     In the event of, at any time during the Exercise Period, an initial public offering of securities of the Company registered under the Act, or any capital reorganization, or

 

5

CONFIDENTIAL


any reclassification of the capital stock of the Company (other than a change in par value or from par value to no par value or no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another corporation (other than a merger solely to effect a reincorporation of the Company into another state), or the sale or other disposition of all or substantially all the properties and assets of the Company in its entirety to any other person, the Company shall provide to the Holder twenty (20) days advance written notice of such public offering, reorganization, reclassification, consolidation, merger or sale or other disposition of the Company’s assets, and this Warrant shall terminate unless exercised prior to the date such public offering is closed or the occurrence of such reorganization, reclassification, consolidation, merger or sale or other disposition of the Company’s assets.

7.2     In the event a Qualified Financing does not occur on or before May 9, 2014, this Warrant shall automatically terminate effective as of such date.

8.      Market Stand-Off Agreement . Holder hereby agrees that Holder shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock (or other securities) of the Company held by Holder (other than those included in the registration) (i) during the 180-day period following the effective date of the initial public offering (or such longer period as the underwriters or the Company shall request in order to facilitate compliance with NASD Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation), and (ii) during the 90-day period following the effective date of a registration statement of the Company filed under the Act (or such longer period as the underwriters or the Company shall request in order to facilitate compliance with NASD Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation); provided, that, with respect to (i) and (ii) above, all officers and directors of the Company are bound by and have entered into similar agreements. Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the managing underwriters that are consistent with the foregoing or that are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, Holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company’s securities pursuant to a registration statement filed under the Act. The obligations described in this Section 8 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to such Common Stock (or other securities) until the end of such period. Holder agrees that any transferee of any of the Common Stock (or other securities) of the Company held by Holder shall be bound by this Section 8. The underwriters of the Company’s stock are intended third party beneficiaries of this Section 8 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.

9.      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 the Company.

 

6

CONFIDENTIAL


10.      Transfer of Warrant . Subject to applicable laws and the restriction on transfer set forth on the first page of this Warrant, this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and 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 the Company.

11.      Lost, Stolen, Mutilated or Destroyed Warrant . If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.

12.      Waiver and Amendment . Any term of this Warrant may be amended or waived with the written consent of the Company and Holder, as provided in the Note and Warrant Purchase Agreement.

13.      Notices, etc. All notices required or permitted hereunder 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 telex, facsimile or electronic mail 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 verification of receipt. All communications shall be sent to the Company at the address listed on the signature page and to Holder at 18313 Calle La Serra, Rancho Santa Fe, California, 92091 or at such other address as the Company or Holder may designate by ten (10) days advance written notice to the other parties hereto.

14.      Acceptance . Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

15.      Governing Law . This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of California without giving effect to conflict of laws principles.

16.      Counterparts . This Warrant may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

7

CONFIDENTIAL


IN WITNESS WHEREOF , the Company has caused this Warrant to be executed by its duly authorized officer as of the date first written above.

 

TRILYPSA, INC.
By:   /s/ Gerrit Klaerner
  Gerrit Klaerner
  Chief Executive Officer
Address:   400 East Jamie Court, Suite 201
  South San Francisco, CA 94080

 

AGREED TO AND ACCEPTED:

SIBLING CO-INVESTMENT LLC
/s/ Sandra I. Coufal, M.D.

Signature

Sandra I. Coufal, M.D.

Name (please print)

Manager

Title (if applicable)

Signature Page to Warrant


NOTICE OF EXERCISE

TO: TRILYPSA, INC.

(1)     ☐    The undersigned hereby elects to purchase                      shares of the Series A Preferred Stock of TRILYPSA, INC. (the “Company”) pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

         ☐    The undersigned hereby elects to purchase shares of the Series A Preferred Stock of TRILYPSA, INC. (the “Company”) pursuant to the terms of the net exercise provisions set forth in Section 2.1 of the attached Warrant, and shall tender payment of all applicable transfer taxes, if any.

(2)     Please issue a certificate or certificates representing said shares of Series A Preferred Stock in the name of the undersigned or in such other name as is specified below:

 

 

(Name)

 

 

 

 

(Address)

(3)     The undersigned represents that (i) the aforesaid shares of Series A Preferred Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own interests; (iv) the undersigned is an “accredited investor” as defined in Rule 501 under the Securities Act; (v) the undersigned understands that the shares of Series A Preferred Stock issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; (vi) the undersigned is aware that the aforesaid shares of Series A Preferred Stock may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until the undersigned has held the shares for the number of years prescribed by Rule 144, that among the conditions for use of the Rule is the availability of current information to the public about the Company and the


Company has not made such information available and has no present plans to do so; and (vii) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Series A Preferred Stock unless and until there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.

 

 

 

     

 

(Date)     (Signature)

 

     

 

    (Print name)


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 4.5

Execution Version

THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT AGREEMENT

To Purchase Shares of Common Stock of

Tricida, Inc.

Dated as of February 28, 2018 (the “ Effective Date ”)

WHEREAS, Tricida, Inc., a Delaware corporation, has entered into a Loan and Security Agreement of even date herewith (the “ Loan Agreement ”) with Hercules Capital, Inc., a Maryland corporation, in its capacity as administrative and collateral agent, Hercules Capital, Inc. (the “ Warrantholder ”) and the other lender parties thereto;

WHEREAS, the Company (as defined below) desires to grant to the Warrantholder, in consideration for, among other things, the financial accommodations provided for in the Loan Agreement, the right to purchase shares of Common Stock (as defined below) pursuant to this Warrant Agreement (the “ Agreement ”);

NOW, THEREFORE, in consideration of the Warrantholder executing and delivering the Loan Agreement and providing the financial accommodations contemplated therein, and in consideration of the mutual covenants and agreements contained herein, the Company and the Warrantholder agree as follows:

SECTION 1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.

For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, an aggregate number of fully paid and non-assessable shares of Common Stock equal to the quotient derived by dividing (a) the Warrant Coverage (as defined below) by (b) the Exercise Price (as defined below). The Exercise Price of such shares are subject to adjustment as provided in Section 8. As used herein, the following terms shall have the following meanings:

Act ” means the Securities Act of 1933, as amended.

Charter ” means the Company’s Certificate of Incorporation, as may be amended from time to time.

Common Stock ” means the Company’s common stock, $0.001 par value per share.

Company ” means Tricida, Inc., a Delaware corporation.

Exercise Price ” means the lesser of (a) if the Company achieves the IPO Milestone, the initial price to the public per share of Common Stock specified in the final prospectus filed with the SEC with respect to the Company’s Initial Public Offering, or (b) the Series D Conversion Price.

Initial Public Offering ” means the initial underwritten public offering of the Common Stock pursuant to a registration statement under the Act, which registration statement has been declared effective by the Securities and Exchange Commission (“ SEC ”).

IPO Milestone ” means receipt by the Company, prior to December 15, 2018, of at least One Hundred Million Dollars ($100,000,000.00) in aggregate proceeds (net of underwriting discounts and commissions) from an Initial Public Offering.

 

 

1


Execution Version

 

Merger Event ” means any sale, lease, exclusive license or other transfer of all or substantially all assets of the Company or any merger or consolidation involving the Company in which the Company is not the surviving entity, or in which the outstanding shares of the Company’s capital stock are otherwise converted into or exchanged for shares of common stock, preferred stock, other securities or property of another entity; other than any such consolidation, merger or reorganization in which the shares of capital stock of the Company immediately prior to such consolidation, merger or reorganization, continue to represent a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization (provided that, all shares of Common Stock issuable upon exercise of options or warrants outstanding immediately prior to such consolidation or merger or upon conversion of convertible securities outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged).

Preferred Stock ” means the Company’s Series D preferred stock, $0.001 par value per share, as presently constituted, and, to the extent provided in Section 8(b), any other stock into or for which such Preferred Stock may be converted or exchanged.

Purchase Price ” means, with respect to any exercise of this Agreement, an amount equal to the Exercise Price as of the relevant time multiplied by the number of shares of Common Stock requested to be exercised under this Agreement pursuant to such exercise.

Series D Conversion Price ” has the meaning set forth in the Charter.

Warrant Coverage ” means Three Hundred Thousand Dollars ($300,000.00), plus , in the event all or part of Tranche 2, Tranche 3, Tranche 4 and/or Tranche 5 (as defined in the Loan Agreement) are advanced pursuant to the Loan Agreement, 1.20% of such amount(s) advanced under Tranche 2, Tranche 3, Tranche 4 and/or Tranche 5, as applicable.

SECTION 2. TERM OF THE AGREEMENT.

Except as otherwise provided for herein, the term of this Agreement and the right to purchase Common Stock as granted herein (the “ Warrant ”) shall commence on the Effective Date and shall be exercisable for a period ending upon the earliest to occur of (i) seven (7) years from the Effective Date; (ii) one (1) year after the Initial Public Offering; and (iii) immediately prior to the closing of a Merger Event (the “ Exercise Period ”).

SECTION 3. EXERCISE OF THE PURCHASE RIGHTS.

(a) Exercise . The purchase rights set forth in this Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the Exercise Period, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the “ Notice of Exercise ”), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the Purchase Price in accordance with the terms set forth below, and in no event later than five (5) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Common Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the “ Acknowledgment of Exercise ”) indicating the number of shares which remain subject to future purchases under this Warrant, if any.

The Purchase Price may be paid at the Warrantholder’s election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant for shares of Common Stock to be exercised under this Agreement and, if applicable, an amended Agreement representing the remaining number of shares purchasable hereunder, as determined below (“ Net Issuance ”). If the Warrantholder elects the Net Issuance method, the Company will issue shares of Common Stock in accordance with the following formula:

X = Y(A-B)

A

 

Where:    X =    the number of shares of Common Stock to be issued to the Warrantholder.
   Y =    the number of shares of Common Stock requested to be purchased under this Agreement.
   A =    the fair market value of one (1) share of Common Stock at the time of issuance of such shares of Common Stock.
   B =    the Exercise Price.

 

2


Execution Version

 

For purposes of the above calculation, current fair market value of Common Stock shall mean with respect to each share of Common Stock:

(i) if the exercise is in connection with an Initial Public Offering, and if the Company’s Registration Statement relating to such Initial Public Offering has been declared effective by the SEC, then the fair market value per share shall be the initial “Price to Public” of the Common Stock specified in the final prospectus with respect to the offering;

(ii) if the exercise is after, and not in connection with an Initial Public Offering, and:

(A) if the Common Stock is traded on a securities exchange, the fair market value shall be deemed to be the average of the closing prices over a five (5) trading day period ending three (3) days before the day the current fair market value of the securities is being determined; or

(B) if the Common Stock is traded over-the-counter, the fair market value shall be deemed to be the average of the closing bid and asked price quoted on the NASDAQ system (or similar system) over the five (5) trading day period ended three (3) days before the day the current fair market value of the securities is being determined;

(iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ National Market or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could reasonably expect to obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors (provided that if the Company is then in possession of a recent valuation of the Company’s Common Stock, the Board of Directors may rely on such valuation), unless the Notice of Exercise is delivered in connection with a Merger Event, in which case the fair market value of Common Stock shall be deemed to be the per share value received by the holders of the Company’s Common Stock on a common equivalent basis pursuant to such Merger Event.

Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof and Exercise Period.

(b) Exercise Prior to Expiration . To the extent this Agreement is not previously exercised as to all shares of Common Stock subject hereto, and if the fair market value of one share of the Common Stock is greater than the Exercise Price then in effect, this Agreement shall be deemed automatically exercised pursuant to Section 3(a) (even if not surrendered) as of the last day of the Exercise Period. For purposes of such automatic exercise, the fair market value of one share of the Common Stock upon such expiration shall be determined pursuant to Section 3(a). To the extent this Agreement or any portion thereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify the Warrantholder of the number of shares of Common Stock, if any, the Warrantholder is to receive by reason of such automatic exercise.

 

3


Execution Version

 

SECTION 4. RESERVATION OF SHARES.

During the term of this Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein.

SECTION 5. NO FRACTIONAL SHARES OR SCRIP.

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, but in lieu of such fractional shares, the Company shall make a cash payment therefor equal to such fraction multiplied by the then fair market value of one share of Common Stock.

SECTION 6. NO RIGHTS AS STOCKHOLDER.

This Agreement does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the exercise of this Agreement.

SECTION 7. WARRANTHOLDER REGISTRY.

The Company shall maintain a registry showing the name and address of the registered holder of this Agreement. The Warrantholder’s initial address, for purposes of such registry, is set forth below the Warrantholder’s signature on this Agreement. The Warrantholder may change such address by giving written notice of such changed address to the Company.

SECTION 8. ADJUSTMENT RIGHTS.

The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment, as follows:

(a) Merger Event . If at any time there shall be a Merger Event, then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall be entitled to receive, concurrently with the closing of such Merger Event, the number of shares of Common Stock or other securities or property, if any, (collectively, “ Reference Property ”) that the Warrantholder would have received in connection with such Merger Event if Warrantholder had exercised this Agreement immediately prior to the Merger Event pursuant to the Net Issuance provisions of this Warrant Agreement without actually exercising such right.

(b) Reclassification of Shares . Except for Merger Events subject to Section 8(a), if the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Agreement exist into the same or a different number of securities of any other class or classes, this Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. The provisions of this Section 8(b) shall similarly apply to any successive combination, reclassification, exchange, subdivision or other change.

(c) Subdivision or Combination of Shares . If the Company at any time shall combine or subdivide its Common Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased and the number of shares of Common Stock issuable hereunder shall be proportionately increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased and the number of shares of Common Stock issuable hereunder shall be proportionately decreased.

(d) Dividends . If the Company at any time prior to the Initial Public Offering and while this Agreement is outstanding and unexpired shall:

 

4


Execution Version

 

(i) pay a dividend with respect to the Common Stock payable in Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution; or

(ii) make any other dividend or distribution with respect to Common Stock, except any dividend or distribution specifically provided for in any other clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder shall receive upon exercise or conversion of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Common Stock as of the record date fixed for the determination of the stockholders of the Company entitled to receive such dividend or distribution.

(e) [Intentionally omitted] .

(f) Notice of Adjustments . If prior to Initial Public Offering: (i) the Company shall declare any dividend or distribution upon its stock, whether in stock, cash, property or other securities; (ii) there shall be any Merger Event; or (iii) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least fifteen (15) days’ prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; and (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least fifteen (15) days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up).

Each such written notice shall be given in accordance with Section 12(g) below and shall set forth, in reasonable detail, (i) the event requiring the notice, and (ii) if any adjustment is required to be made pursuant to this Section 8, (A) the amount of such adjustment, (B) the method by which such adjustment was calculated, (C) the adjusted Exercise Price (if the Exercise Price has been adjusted), and (D) the number of shares subject to purchase hereunder after giving effect to such adjustment.

(g) Timely Notice . Notwithstanding the failure to timely provide any such notice required by Section 8(f) above, the Warrantholder shall retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by the Warrantholder.

SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

(a) Reservation of Common Stock . The Common Stock issuable upon exercise of this Agreement has been duly and validly reserved and, when issued in accordance with the provisions of this Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances created by the Company; provided , that the Common Stock issuable pursuant to this Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and current bylaws as of the Effective Date. The issuance of certificates for shares of Common Stock upon exercise of this Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock; provided , that the Company shall not be required to pay any tax which may be payable in respect of any transfer and the issuance and delivery of any certificate in a name other than that of the Warrantholder.

 

5


Execution Version

 

(b) Due Authority . The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company hereunder, including the issuance to the Warrantholder of the right to acquire the shares of Common Stock, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement: (i) does not violate the Charter or the Company’s current bylaws; (ii) does not contravene any law or governmental rule, regulation or order applicable to the Company; and (iii) does not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which the Company is a party or by which it is bound. This Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (b) as limited by general principles of equity that restrict the availability of equitable remedies.

(c) Consents and Approvals . No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Agreement, except for the filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

(d) Issued Securities . All issued and outstanding shares of Common Stock, preferred stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, preferred stock and any other securities were issued in full compliance with all federal and state securities laws. In addition, as of the date immediately preceding the date of this Agreement:

(i) The authorized capital of the Company consists of (A) 134,000,000 shares of Common Stock, of which 9,152,544 shares are issued and outstanding; (B) 11,398,694 shares of Series A preferred stock, $0.001 par value per share, of which 11,302,758 shares are issued and outstanding and are convertible into an aggregate of 11,302,758 shares of Common Stock at $0.886 per share; (C) 32,526,878 shares of Series B preferred stock, $0.001 par value per share, of which 32,526,878 shares are issued and outstanding and are convertible into an aggregate of 32,526,878 shares of Common Stock at $0.93 per share; (D) 35,806,451 shares of Series C preferred stock, $0.001 par value per share, of which 35,806,451 shares are issued and outstanding and are convertible into an aggregate of 35,806,451 shares of Common Stock at $1.55 per share; and (E) 24,500,000 shares of Series D preferred stock, $0.001 par value per share, of which 24,493,615 shares are issued and outstanding and are convertible into an aggregate of 24,493,615 shares of Common Stock at $2.35 per share.

(ii) The Company issued a warrant dated August 9, 2013 exercisable for 95,936 shares of Series A preferred stock.

(iii) The Company has reserved 18,040,000 shares of Common Stock for issuance under its stock option plan(s), under which options to purchase 14,115,728 shares of Common Stock are outstanding. Except as noted in clause (i) above, there are no other options, warrants, or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company’s capital stock of the Company.

(iv) No stockholder of the Company has preemptive rights to purchase new issuances of the Company’s capital stock, other than pursuant to the Investor Rights Agreement (as defined below) and the Loan Agreement.

(e) Registration Rights . The Company agrees that the shares of Common Stock issued upon exercise of this Warrant shall have the “Piggyback” and S-3 registration rights pursuant to and as set forth in the Company’s Amended and Restated Investor Rights Agreement, dated November 7, 2017, as amended from time to time (the “ Investor Rights Agreement ”) on a pari passu basis with the holders of outstanding shares of Preferred Stock who are parties thereto. The provisions set forth in the Company’s Investor Rights Agreement or similar agreement relating to such registration rights in effect as of the Effective Date may not be amended, modified or waived without the prior written consent of the

 

6


Execution Version

 

Warrantholder unless such amendment, modification or waiver affects the rights associated with the shares of Common Stock issued and issuable upon exercise hereof in the same manner as such amendment, modification or waiver affects the rights associated with the shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock whose holders are parties thereto.

(f) Other Commitments to Register Securities . Except as set forth in this Agreement or the Investor Rights Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the Act any of its presently outstanding securities or any of its securities which may hereafter be issued.

(g) Exempt Transaction . Subject to the accuracy of the Warrantholder’s representations in Section 10, the issuance of the Common Stock upon exercise of this Agreement will constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

(h) Compliance with Rule 144 . If the Warrantholder proposes to sell Common Stock issuable upon the exercise of this Agreement in compliance with Rule 144 promulgated by the SEC, then, upon the Warrantholder’s written request to the Company, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the status of the Company’s compliance with the filing requirements of the SEC as set forth in such Rule, as such Rule may be amended from time to time.

(i) Information Rights . During the term of this Warrant, and only if the Initial Public Offering has not occurred, the Warrantholder will receive the Company’s audited financial statements in the manner and within the time period provided for with respect to the Major Investors (as defined in the Investor Rights Agreement) pursuant to Section 3.1(b) of the Investor Rights Agreement; provided , however , that any waiver of such information rights by the Major Investors pursuant to the Investor Rights Agreement shall not act as a waiver of the Warrantholder’s information rights provided for under this Section 9(i).

SECTION 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

This Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder:

(a) Investment Purpose . The right to acquire Common Stock is being acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of such rights or the Common Stock except pursuant to an effective registration statement or an exemption from the registration requirements of the Act.

(b) Private Issue . The Warrantholder understands (i) that the Common Stock issuable upon exercise of this Agreement is not registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on the representations set forth in this Section 10.

(c) Financial Risk . The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

(d) Risk of No Registration . The Warrantholder understands that if the Company does not register with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 (the “ 1934 Act ”), or file reports pursuant to Section 15(d) of the 1934 Act, or if a registration statement covering the securities under the Act is not in effect when it desires to sell (i) the rights to purchase Common Stock pursuant to this Agreement or (ii) the Common Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of (A) its rights hereunder to purchase Common Stock or (B) Common Stock issued or issuable hereunder which might be made by it in reliance upon Rule 144 under the Act may be made only in accordance with the terms and conditions of that Rule.

 

7


Execution Version

 

(e) Accredited Investor . The Warrantholder is an “accredited investor” within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect.

(f) For purposes of the rights contemplated by Section 9(e) of this Agreement, upon exercise of the Warrant, the Warrantholder hereby agrees to be bound by and subject to the terms and provisions of the Investor Rights Agreement as if the Warrantholder was an “Investor” (as defined in the Investor Rights Agreement) party thereto.

(g) Upon exercise of the Warrant, the Warrantholder hereby agrees to be bound by and subject to the terms and provisions of Section 1.8, Section 2 and Section 3 of the Company’s Amended and Restated Voting Agreement, dated November 7, 2017, as amended from time to time (the “Voting Agreement”), as if the Warrantholder were a “Stockholder” (as defined in the Voting Agreement) party thereto.

SECTION 11. TRANSFERS.

Subject to compliance with applicable federal and state securities laws, this Agreement and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Agreement properly endorsed; provided , however , that if there is not then any ongoing Event of Default (as defined in the Loan Agreement), then such transfer shall be subject to the prior written consent of the Company; provided further , that notwithstanding the foregoing, any such transfer to an Affiliate (as defined in the Loan Agreement) of the Warrantholder shall be allowed at any time without the prior written consent of the Company. Each taker and holder of this Agreement, by taking or holding the same, consents and agrees that this Agreement, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Agreement shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Agreement. The transfer of this Agreement shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the “ Transfer Notice ”), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes. The Warrantholder may not transfer this Warrant to a competitor of the Company, as reasonably determined by the Board of Directors.

SECTION 12. MISCELLANEOUS.

(a) Effective Date . The provisions of this Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Agreement shall be binding upon any successors or assigns of the Company.

(b) Remedies . In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where the Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement.

(c) No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.

 

8


Execution Version

 

(d) Additional Documents . The Company, upon execution of this Agreement, shall provide the Warrantholder with a certified copy of resolutions of the Company’s board of directors evidencing approval of this Agreement and the reservation of the shares of Common Stock issuable upon exercise of the Warrant. Prior to the Initial Public Offering, the Company shall also supply documentation reasonably requested by the Warrantholder to evaluate whether to exercise this Warrant, including without limitation, (i) any merger/purchase/asset sale agreement and related documents and estimated payout allocations to each of the respective stockholders, warrant and option holders in connection with a Merger Event, (ii) the most recent capitalization tables, 409A valuations (if any), and board determination of share value (including any waterfall or per share allocations provided to the stockholders), and (iii) most recent Charter.

(e) Attorney’s Fees . In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement. For the purposes of this Section 12(e), attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.

(f) Severability . In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

(g) Notices . Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication that is required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by electronic mail or hand delivery if transmission or delivery occurs on a business day at or before 5:00 pm in the time zone of the recipient, or, if transmission or delivery occurs on a non-business day or after such time, the first business day thereafter, or the first business day after deposit with an overnight express service or overnight mail delivery service; or (ii) the third (3 rd ) calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows:

If to the Warrantholder:

HERCULES CAPITAL, INC.

Legal Department

Attention: Chief Legal Officer and Himani Bhalla

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Telephone: 650-289-3060

with a copy to (which shall not constitute notice):

LATHAM & WATKINS LLP

Attention: Haim Zaltzman

140 Scott Drive

Menlo Park, CA 94025

Telephone: 650-328-4600

 

9


Execution Version

 

If to the Company:

TRICIDA, INC.

Attention: Legal Department

7000 Shoreline Court, Suite 201

South San Francisco, CA 94080

Telephone: (415) 988-2420

with a copy to (which shall not constitute notice):

SIDLEY AUSTIN LLP

Attention: Geoffrey W. Levin

787 Seventh Avenue

New York, NY 10019

Telephone: 212-839-5776

or to such other address as each party may designate for itself by like notice.

(h) Entire Agreement; Amendments . This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof (including the Warrantholder’s proposal letter dated January 19, 2018). None of the terms of this Agreement may be amended except by an instrument executed by each of the parties hereto.

(i) Headings . The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.

(j) No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

(k) No Waiver . No omission or delay by the Warrantholder at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the Company at any time designated, shall be a waiver of any such right or remedy to which the Warrantholder is entitled, nor shall it in any way affect the right of the Warrantholder to enforce such provisions thereafter.

(l) Survival . All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be for the benefit of the Warrantholder or Company, as applicable, and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

(m) Governing Law . This Agreement has been negotiated and delivered to Warrantholder in the State of California, and shall have been accepted by the Warrantholder in the State of California. Delivery of Common Stock to the Warrantholder by the Company under this Agreement is due in the State of California. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

 

10


Execution Version

 

(n) Consent to Jurisdiction and Venue . All judicial proceedings arising in or under or related to this Agreement may be brought in any state or federal court of competent jurisdiction located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in San Mateo County, State of California; (b) waives any objection as to jurisdiction or venue in San Mateo County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement or the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 12(g), and shall be deemed effective and received as set forth in Section 12(g). Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

(o) Mutual Waiver of Jury Trial/ Judicial Reference .

(i) Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert Person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND THE WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “ CLAIMS ”) ASSERTED BY THE COMPANY AGAINST THE WARRANTHOLDER OR ITS ASSIGNEE OR BY THE WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all such Claims, including Claims that involve Persons other than Company and Warrantholder; Claims that arise out of or are in any way connected to the relationship between the Company and the Warrantholder; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement.

(ii) If the waiver of jury trial set forth in Section 12(o)(i) above is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to California Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of San Mateo County, California. Such proceeding shall be conducted in San Mateo County, California, with California rules of evidence and discovery applicable to such proceeding.

(iii) In the event Claims are to be resolved by judicial reference, either party may seek from a court of competent jurisdiction identified in Section 12(n), any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

(p) Counterparts . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank]

 

11


Execution Version

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its officers thereunto duly authorized as of the Effective Date.

 

COMPANY:   TRICIDA, INC.
  By:   

/s/ Geoffrey Parker

  Name:    Geoffrey Parker
  Title:    Chief Financial Officer
WARRANTHOLDER:   HERCULES CAPITAL, INC.
  By:   

/s/ Zhuo Huang

  Name:    Zhou Huang
  Title:    Associate General Counsel

 

12


Execution Version

 

EXHIBIT I

NOTICE OF EXERCISE

To: Tricida, Inc.

 

(1) The undersigned Warrantholder hereby elects to purchase [                    ] shares of the Common Stock of Tricida, Inc., pursuant to the terms of the Warrant Agreement dated the 28th day of February, 2018 (the “ Agreement ”) between Tricida, Inc. and the Warrantholder, and [CASH PAYMENT: tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any.] [NET ISSUANCE: elects pursuant to Section 3(a) of the Agreement to effect a Net Issuance.]

 

(2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below.

 

  

 

(Name)

  

 

(Address)

WARRANTHOLDER:    HERCULES CAPITAL, INC.
   By:                                                                           
   Name:                                                                           
   Title:                                                                           
   Date:                                                                           

 

13


Execution Version

 

EXHIBIT II

ACKNOWLEDGMENT OF EXERCISE

The undersigned Tricida, Inc., hereby acknowledge receipt of the “Notice of Exercise” from Hercules Capital, Inc., to purchase [            ] shares of the Common Stock of Tricida, Inc., pursuant to the terms of the Warrant Agreement by and between Tricida, Inc. and Hercules Capital, Inc., dated February 28, 2018 (the “ Agreement ”), and further acknowledges that [                ] shares of Common Stock remain subject to purchase under the terms of the Agreement.

 

COMPANY:

   Tricida, Inc.
   By:                                                                           
   Title:                                                                           
   Date:                                                                           

 

14


EXHIBIT III

TRANSFER NOTICE

(To transfer or assign the foregoing Agreement execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Agreement and all rights evidenced thereby are hereby transferred and assigned to

 

 

(Please Print)

whose address is                                                      

 

 

Dated:                                                                                             
Holder’s Signature:                                                                   
Holder’s Address:                                                                      

 

Signature Guaranteed:                                                                                     

NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Agreement.

 

15

Exhibit 4.6

Execution Version

THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT AGREEMENT

To Purchase Shares of Common Stock of

Tricida, Inc.

Dated as of February 28, 2018 (the “ Effective Date ”)

WHEREAS, Tricida, Inc., a Delaware corporation, has entered into a Loan and Security Agreement of even date herewith (the “ Loan Agreement ”) with Hercules Capital, Inc., a Maryland corporation, in its capacity as administrative and collateral agent, Hercules Technology III, L.P., a Delaware limited partnership (the “ Warrantholder ”) and the other lender parties thereto;

WHEREAS, the Company (as defined below) desires to grant to the Warrantholder, in consideration for, among other things, the financial accommodations provided for in the Loan Agreement, the right to purchase shares of Common Stock (as defined below) pursuant to this Warrant Agreement (the “ Agreement ”);

NOW, THEREFORE, in consideration of the Warrantholder executing and delivering the Loan Agreement and providing the financial accommodations contemplated therein, and in consideration of the mutual covenants and agreements contained herein, the Company and the Warrantholder agree as follows:

SECTION 1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.

For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, an aggregate number of fully paid and non-assessable shares of Common Stock equal to the quotient derived by dividing (a) the Warrant Coverage (as defined below) by (b) the Exercise Price (as defined below). The Exercise Price of such shares are subject to adjustment as provided in Section 8. As used herein, the following terms shall have the following meanings:

Act ” means the Securities Act of 1933, as amended.

Charter ” means the Company’s Certificate of Incorporation, as may be amended from time to time.

Common Stock ” means the Company’s common stock, $0.001 par value per share.

Company ” means Tricida, Inc., a Delaware corporation.

Exercise Price ” means the lesser of (a) if the Company achieves the IPO Milestone, the initial price to the public per share of Common Stock specified in the final prospectus filed with the SEC with respect to the Company’s Initial Public Offering, or (b) the Series D Conversion Price.

Initial Public Offering ” means the initial underwritten public offering of the Common Stock pursuant to a registration statement under the Act, which registration statement has been declared effective by the Securities and Exchange Commission (“ SEC ”).

IPO Milestone ” means receipt by the Company, prior to December 15, 2018, of at least One Hundred Million Dollars ($100,000,000.00) in aggregate proceeds (net of underwriting discounts and commissions) from an Initial Public Offering.

 

 

1


Execution Version

 

Merger Event ” means any sale, lease, exclusive license or other transfer of all or substantially all assets of the Company or any merger or consolidation involving the Company in which the Company is not the surviving entity, or in which the outstanding shares of the Company’s capital stock are otherwise converted into or exchanged for shares of common stock, preferred stock, other securities or property of another entity; other than any such consolidation, merger or reorganization in which the shares of capital stock of the Company immediately prior to such consolidation, merger or reorganization, continue to represent a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization (provided that, all shares of Common Stock issuable upon exercise of options or warrants outstanding immediately prior to such consolidation or merger or upon conversion of convertible securities outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged).

Preferred Stock ” means the Company’s Series D preferred stock, $0.001 par value per share, as presently constituted, and, to the extent provided in Section 8(b), any other stock into or for which such Preferred Stock may be converted or exchanged.

Purchase Price ” means, with respect to any exercise of this Agreement, an amount equal to the Exercise Price as of the relevant time multiplied by the number of shares of Common Stock requested to be exercised under this Agreement pursuant to such exercise.

Series D Conversion Price ” has the meaning set forth in the Charter.

Warrant Coverage ” means Two Hundred Thousand Dollars ($200,000.00), plus , in the event all or part of Tranche 2, Tranche 3, Tranche 4 and/or Tranche 5 (as defined in the Loan Agreement) are advanced pursuant to the Loan Agreement, 0.80% of such amount(s) advanced under Tranche 2, Tranche 3, Tranche 4 and/or Tranche 5, as applicable.

SECTION 2. TERM OF THE AGREEMENT.

Except as otherwise provided for herein, the term of this Agreement and the right to purchase Common Stock as granted herein (the “ Warrant ”) shall commence on the Effective Date and shall be exercisable for a period ending upon the earliest to occur of (i) seven (7) years from the Effective Date; (ii) one (1) year after the Initial Public Offering; and (iii) immediately prior to the closing of a Merger Event (the “ Exercise Period ”).

SECTION 3. EXERCISE OF THE PURCHASE RIGHTS.

(a) Exercise . The purchase rights set forth in this Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the Exercise Period, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the “ Notice of Exercise ”), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the Purchase Price in accordance with the terms set forth below, and in no event later than five (5) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Common Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the “ Acknowledgment of Exercise ”) indicating the number of shares which remain subject to future purchases under this Warrant, if any.

The Purchase Price may be paid at the Warrantholder’s election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant for shares of Common Stock to be exercised under this Agreement and, if applicable, an amended Agreement representing the remaining number of shares purchasable hereunder, as determined below (“ Net Issuance ”). If the Warrantholder elects the Net Issuance method, the Company will issue shares of Common Stock in accordance with the following formula:

 

     

X = Y(A-B)

             A

Where:    X =    the number of shares of Common Stock to be issued to the Warrantholder.
   Y =    the number of shares of Common Stock requested to be purchased under this Agreement.
   A =    the fair market value of one (1) share of Common Stock at the time of issuance of such shares of Common Stock.
   B =    the Exercise Price.

 

2


Execution Version

 

For purposes of the above calculation, current fair market value of Common Stock shall mean with respect to each share of Common Stock:

(i) if the exercise is in connection with an Initial Public Offering, and if the Company’s Registration Statement relating to such Initial Public Offering has been declared effective by the SEC, then the fair market value per share shall be the initial “Price to Public” of the Common Stock specified in the final prospectus with respect to the offering;

(ii) if the exercise is after, and not in connection with an Initial Public Offering, and:

(A) if the Common Stock is traded on a securities exchange, the fair market value shall be deemed to be the average of the closing prices over a five (5) trading day period ending three (3) days before the day the current fair market value of the securities is being determined; or

(B) if the Common Stock is traded over-the-counter, the fair market value shall be deemed to be the average of the closing bid and asked price quoted on the NASDAQ system (or similar system) over the five (5) trading day period ended three (3) days before the day the current fair market value of the securities is being determined;

(iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ National Market or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could reasonably expect to obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors (provided that if the Company is then in possession of a recent valuation of the Company’s Common Stock, the Board of Directors may rely on such valuation), unless the Notice of Exercise is delivered in connection with a Merger Event, in which case the fair market value of Common Stock shall be deemed to be the per share value received by the holders of the Company’s Common Stock on a common equivalent basis pursuant to such Merger Event.

Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof and Exercise Period.

(b) Exercise Prior to Expiration . To the extent this Agreement is not previously exercised as to all shares of Common Stock subject hereto, and if the fair market value of one share of the Common Stock is greater than the Exercise Price then in effect, this Agreement shall be deemed automatically exercised pursuant to Section 3(a) (even if not surrendered) as of the last day of the Exercise Period. For purposes of such automatic exercise, the fair market value of one share of the Common Stock upon such expiration shall be determined pursuant to Section 3(a). To the extent this Agreement or any portion thereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify the Warrantholder of the number of shares of Common Stock, if any, the Warrantholder is to receive by reason of such automatic exercise.

 

3


Execution Version

 

SECTION 4. RESERVATION OF SHARES.

During the term of this Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein.

SECTION 5. NO FRACTIONAL SHARES OR SCRIP.

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, but in lieu of such fractional shares, the Company shall make a cash payment therefor equal to such fraction multiplied by the then fair market value of one share of Common Stock.

SECTION 6. NO RIGHTS AS STOCKHOLDER.

This Agreement does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the exercise of this Agreement.

SECTION 7. WARRANTHOLDER REGISTRY.

The Company shall maintain a registry showing the name and address of the registered holder of this Agreement. The Warrantholder’s initial address, for purposes of such registry, is set forth below the Warrantholder’s signature on this Agreement. The Warrantholder may change such address by giving written notice of such changed address to the Company.

SECTION 8. ADJUSTMENT RIGHTS.

The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment, as follows:

(a) Merger Event . If at any time there shall be a Merger Event, then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall be entitled to receive, concurrently with the closing of such Merger Event, the number of shares of Common Stock or other securities or property, if any, (collectively, “ Reference Property ”) that the Warrantholder would have received in connection with such Merger Event if Warrantholder had exercised this Agreement immediately prior to the Merger Event pursuant to the Net Issuance provisions of this Warrant Agreement without actually exercising such right.

(b) Reclassification of Shares . Except for Merger Events subject to Section 8(a), if the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Agreement exist into the same or a different number of securities of any other class or classes, this Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. The provisions of this Section 8(b) shall similarly apply to any successive combination, reclassification, exchange, subdivision or other change.

(c) Subdivision or Combination of Shares . If the Company at any time shall combine or subdivide its Common Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased and the number of shares of Common Stock issuable hereunder shall be proportionately increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased and the number of shares of Common Stock issuable hereunder shall be proportionately decreased.

(d) Dividends . If the Company at any time prior to the Initial Public Offering and while this Agreement is outstanding and unexpired shall:

 

4


Execution Version

 

(i) pay a dividend with respect to the Common Stock payable in Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution; or

(ii) make any other dividend or distribution with respect to Common Stock, except any dividend or distribution specifically provided for in any other clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder shall receive upon exercise or conversion of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Common Stock as of the record date fixed for the determination of the stockholders of the Company entitled to receive such dividend or distribution.

(e) [Intentionally omitted] .

(f) Notice of Adjustments . If prior to Initial Public Offering: (i) the Company shall declare any dividend or distribution upon its stock, whether in stock, cash, property or other securities; (ii) there shall be any Merger Event; or (iii) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least fifteen (15) days’ prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; and (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least fifteen (15) days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up).

Each such written notice shall be given in accordance with Section 12(g) below and shall set forth, in reasonable detail, (i) the event requiring the notice, and (ii) if any adjustment is required to be made pursuant to this Section 8, (A) the amount of such adjustment, (B) the method by which such adjustment was calculated, (C) the adjusted Exercise Price (if the Exercise Price has been adjusted), and (D) the number of shares subject to purchase hereunder after giving effect to such adjustment.

(g) Timely Notice . Notwithstanding the failure to timely provide any such notice required by Section 8(f) above, the Warrantholder shall retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by the Warrantholder.

SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

(a) Reservation of Common Stock . The Common Stock issuable upon exercise of this Agreement has been duly and validly reserved and, when issued in accordance with the provisions of this Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances created by the Company; provided , that the Common Stock issuable pursuant to this Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and current bylaws as of the Effective Date. The issuance of certificates for shares of Common Stock upon exercise of this Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock; provided , that the Company shall not be required to pay any tax which may be payable in respect of any transfer and the issuance and delivery of any certificate in a name other than that of the Warrantholder.

 

5


Execution Version

 

(b) Due Authority . The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company hereunder, including the issuance to the Warrantholder of the right to acquire the shares of Common Stock, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement: (i) does not violate the Charter or the Company’s current bylaws; (ii) does not contravene any law or governmental rule, regulation or order applicable to the Company; and (iii) does not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which the Company is a party or by which it is bound. This Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (b) as limited by general principles of equity that restrict the availability of equitable remedies.

(c) Consents and Approvals . No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Agreement, except for the filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

(d) Issued Securities . All issued and outstanding shares of Common Stock, preferred stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, preferred stock and any other securities were issued in full compliance with all federal and state securities laws. In addition, as of the date immediately preceding the date of this Agreement:

(i) The authorized capital of the Company consists of (A) 134,000,000 shares of Common Stock, of which 9,152,544 shares are issued and outstanding; (B) 11,398,694 shares of Series A preferred stock, $0.001 par value per share, of which 11,302,758 shares are issued and outstanding and are convertible into an aggregate of 11,302,758 shares of Common Stock at $0.886 per share; (C) 32,526,878 shares of Series B preferred stock, $0.001 par value per share, of which 32,526,878 shares are issued and outstanding and are convertible into an aggregate of 32,526,878 shares of Common Stock at $0.93 per share; (D) 35,806,451 shares of Series C preferred stock, $0.001 par value per share, of which 35,806,451 shares are issued and outstanding and are convertible into an aggregate of 35,806,451 shares of Common Stock at $1.55 per share; and (E) 24,500,000 shares of Series D preferred stock, $0.001 par value per share, of which 24,493,615 shares are issued and outstanding and are convertible into an aggregate of 24,493,615 shares of Common Stock at $2.35 per share.

(ii) The Company issued a warrant dated August 9, 2013 exercisable for 95,936 shares of Series A preferred stock.

(iii) The Company has reserved 18,040,000 shares of Common Stock for issuance under its stock option plan(s), under which options to purchase 14,115,728 shares of Common Stock are outstanding. Except as noted in clause (i) above, there are no other options, warrants, or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company’s capital stock of the Company.

(iv) No stockholder of the Company has preemptive rights to purchase new issuances of the Company’s capital stock, other than pursuant to the Investor Rights Agreement (as defined below) and the Loan Agreement.

(e) Registration Rights . The Company agrees that the shares of Common Stock issued upon exercise of this Warrant shall have the “Piggyback” and S-3 registration rights pursuant to and as set forth in the Company’s Amended and Restated Investor Rights Agreement, dated November 7, 2017, as amended from time to time (the “ Investor Rights Agreement ”) on a pari passu basis with the holders of outstanding shares of Preferred Stock who are parties thereto. The provisions set forth in the Company’s Investor Rights Agreement or similar agreement relating to such registration rights in effect as of the Effective Date may not be amended, modified or waived without the prior written consent of the

 

6


Execution Version

 

Warrantholder unless such amendment, modification or waiver affects the rights associated with the shares of Common Stock issued and issuable upon exercise hereof in the same manner as such amendment, modification or waiver affects the rights associated with the shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock whose holders are parties thereto.

(f) Other Commitments to Register Securities . Except as set forth in this Agreement or the Investor Rights Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the Act any of its presently outstanding securities or any of its securities which may hereafter be issued.

(g) Exempt Transaction . Subject to the accuracy of the Warrantholder’s representations in Section 10, the issuance of the Common Stock upon exercise of this Agreement will constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

(h) Compliance with Rule 144 . If the Warrantholder proposes to sell Common Stock issuable upon the exercise of this Agreement in compliance with Rule 144 promulgated by the SEC, then, upon the Warrantholder’s written request to the Company, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the status of the Company’s compliance with the filing requirements of the SEC as set forth in such Rule, as such Rule may be amended from time to time.

(i) Information Rights . During the term of this Warrant, and only if the Initial Public Offering has not occurred, the Warrantholder will receive the Company’s audited financial statements in the manner and within the time period provided for with respect to the Major Investors (as defined in the Investor Rights Agreement) pursuant to Section 3.1(b) of the Investor Rights Agreement; provided , however , that any waiver of such information rights by the Major Investors pursuant to the Investor Rights Agreement shall not act as a waiver of the Warrantholder’s information rights provided for under this Section 9(i).

SECTION 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

This Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder:

(a) Investment Purpose . The right to acquire Common Stock is being acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of such rights or the Common Stock except pursuant to an effective registration statement or an exemption from the registration requirements of the Act.

(b) Private Issue . The Warrantholder understands (i) that the Common Stock issuable upon exercise of this Agreement is not registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on the representations set forth in this Section 10.

(c) Financial Risk . The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

(d) Risk of No Registration . The Warrantholder understands that if the Company does not register with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 (the “ 1934 Act ”), or file reports pursuant to Section 15(d) of the 1934 Act, or if a registration statement covering the securities under the Act is not in effect when it desires to sell (i) the rights to purchase Common Stock pursuant to this Agreement or (ii) the Common Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of (A) its rights hereunder to purchase Common Stock or (B) Common Stock issued or issuable hereunder which might be made by it in reliance upon Rule 144 under the Act may be made only in accordance with the terms and conditions of that Rule.

 

7


Execution Version

 

(e) Accredited Investor . The Warrantholder is an “accredited investor” within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect.

(f) For purposes of the rights contemplated by Section 9(e) of this Agreement, upon exercise of the Warrant, the Warrantholder hereby agrees to be bound by and subject to the terms and provisions of the Investor Rights Agreement as if the Warrantholder was an “Investor” (as defined in the Investor Rights Agreement) party thereto.

(g) Upon exercise of the Warrant, the Warrantholder hereby agrees to be bound by and subject to the terms and provisions of Section 1.8, Section 2 and Section 3 of the Company’s Amended and Restated Voting Agreement, dated November 7, 2017, as amended from time to time (the “Voting Agreement”), as if the Warrantholder were a “Stockholder” (as defined in the Voting Agreement) party thereto.

SECTION 11. TRANSFERS.

Subject to compliance with applicable federal and state securities laws, this Agreement and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Agreement properly endorsed; provided , however , that if there is not then any ongoing Event of Default (as defined in the Loan Agreement), then such transfer shall be subject to the prior written consent of the Company; provided further , that notwithstanding the foregoing, any such transfer to an Affiliate (as defined in the Loan Agreement) of the Warrantholder shall be allowed at any time without the prior written consent of the Company. Each taker and holder of this Agreement, by taking or holding the same, consents and agrees that this Agreement, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Agreement shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Agreement. The transfer of this Agreement shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the “ Transfer Notice ”), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes. The Warrantholder may not transfer this Warrant to a competitor of the Company, as reasonably determined by the Board of Directors.

SECTION 12. MISCELLANEOUS.

(a) Effective Date . The provisions of this Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Agreement shall be binding upon any successors or assigns of the Company.

(b) Remedies . In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where the Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement.

(c) No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.

 

8


Execution Version

 

(d) Additional Documents . The Company, upon execution of this Agreement, shall provide the Warrantholder with a certified copy of resolutions of the Company’s board of directors evidencing approval of this Agreement and the reservation of the shares of Common Stock issuable upon exercise of the Warrant. Prior to the Initial Public Offering, the Company shall also supply documentation reasonably requested by the Warrantholder to evaluate whether to exercise this Warrant, including without limitation, (i) any merger/purchase/asset sale agreement and related documents and estimated payout allocations to each of the respective stockholders, warrant and option holders in connection with a Merger Event, (ii) the most recent capitalization tables, 409A valuations (if any), and board determination of share value (including any waterfall or per share allocations provided to the stockholders), and (iii) most recent Charter.

(e) Attorney’s Fees . In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement. For the purposes of this Section 12(e), attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.

(f) Severability . In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

(g) Notices . Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication that is required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by electronic mail or hand delivery if transmission or delivery occurs on a business day at or before 5:00 pm in the time zone of the recipient, or, if transmission or delivery occurs on a non-business day or after such time, the first business day thereafter, or the first business day after deposit with an overnight express service or overnight mail delivery service; or (ii) the third (3 rd ) calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows:

If to the Warrantholder:

HERCULES TECHNOLOGY III, L.P.

Legal Department

Attention: Chief Legal Officer and Himani Bhalla

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Telephone: 650-289-3060

with a copy to (which shall not constitute notice):

LATHAM & WATKINS LLP

Attention: Haim Zaltzman

140 Scott Drive

Menlo Park, CA 94025

Telephone: 650-328-4600

 

9


Execution Version

 

If to the Company:

TRICIDA, INC.

Attention: Legal Department

7000 Shoreline Court, Suite 201

South San Francisco, CA 94080

Telephone: (415) 988-2420

with a copy to (which shall not constitute notice):

SIDLEY AUSTIN LLP

Attention: Geoffrey W. Levin

787 Seventh Avenue

New York, NY 10019

Telephone: 212-839-5776

or to such other address as each party may designate for itself by like notice.

(h) Entire Agreement; Amendments . This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof (including the Warrantholder’s proposal letter dated January 19, 2018). None of the terms of this Agreement may be amended except by an instrument executed by each of the parties hereto.

(i) Headings . The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.

(j) No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

(k) No Waiver . No omission or delay by the Warrantholder at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the Company at any time designated, shall be a waiver of any such right or remedy to which the Warrantholder is entitled, nor shall it in any way affect the right of the Warrantholder to enforce such provisions thereafter.

(l) Survival . All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be for the benefit of the Warrantholder or Company, as applicable, and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

(m) Governing Law . This Agreement has been negotiated and delivered to Warrantholder in the State of California, and shall have been accepted by the Warrantholder in the State of California. Delivery of Common Stock to the Warrantholder by the Company under this Agreement is due in the State of California. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

 

10


Execution Version

 

(n) Consent to Jurisdiction and Venue . All judicial proceedings arising in or under or related to this Agreement may be brought in any state or federal court of competent jurisdiction located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in San Mateo County, State of California; (b) waives any objection as to jurisdiction or venue in San Mateo County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement or the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 12(g), and shall be deemed effective and received as set forth in Section 12(g). Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

(o) Mutual Waiver of Jury Trial/ Judicial Reference .

(i) Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert Person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND THE WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “ CLAIMS ”) ASSERTED BY THE COMPANY AGAINST THE WARRANTHOLDER OR ITS ASSIGNEE OR BY THE WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all such Claims, including Claims that involve Persons other than Company and Warrantholder; Claims that arise out of or are in any way connected to the relationship between the Company and the Warrantholder; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement.

(ii) If the waiver of jury trial set forth in Section 12(o)(i) above is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to California Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of San Mateo County, California. Such proceeding shall be conducted in San Mateo County, California, with California rules of evidence and discovery applicable to such proceeding.

(iii) In the event Claims are to be resolved by judicial reference, either party may seek from a court of competent jurisdiction identified in Section 12(n), any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

(p) Counterparts . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank]

 

11


Execution Version

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its officers thereunto duly authorized as of the Effective Date.

 

  COMPANY:   TRICIDA, INC.
    By:   

/s/ Geoffrey Parker

    Name:    Geoffrey Parker
    Title:    Chief Financial Officer
  WARRANTHOLDER:   HERCULES TECHNOLOGY III, L.P.,
    a Delaware limited partnership
    By:    Hercules Technology SBIC Management, LLC,
       its General Partner
    By:    Hercules Capital, Inc.,
       its Manager
    By:   

/s/ Zhuo Huang

    Name:    Zhuo Huang
    Title:    Associate General Counsel

 

12


Execution Version

 

EXHIBIT I

NOTICE OF EXERCISE

 

To:    Tricida, Inc.
(1)    The undersigned Warrantholder hereby elects to purchase [                ] shares of the Common Stock of Tricida, Inc., pursuant to the terms of the Warrant Agreement dated the 28th day of February, 2018 (the “ Agreement ”) between Tricida, Inc. and the Warrantholder, and [CASH PAYMENT: tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any.] [NET ISSUANCE: elects pursuant to Section 3(a) of the Agreement to effect a Net Issuance.]
(2)    Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below.

 

   

 

    (Name)
   

 

   

(Address)

WARRANTHOLDER:     HERCULES TECHNOLOGY III, L.P.,
    a Delaware limited partnership
    By:   Hercules Technology SBIC Management, LLC,
      its General Partner
    By:   Hercules Capital, Inc.,
      its Manager
   

By:

 

 

   

Name:

 

 

   

Title:

 

 

   

Date:

 

 

 

 

13


Execution Version

 

EXHIBIT II

ACKNOWLEDGMENT OF EXERCISE

The undersigned Tricida, Inc., hereby acknowledge receipt of the “Notice of Exercise” from Hercules Technology III, L.P., to purchase [            ] shares of the Common Stock of Tricida, Inc., pursuant to the terms of the Warrant Agreement by and between Tricida, Inc. and Hercules Technology III, L.P., dated February 28, 2018 (the “ Agreement ”), and further acknowledges that [            ] shares of Common Stock remain subject to purchase under the terms of the Agreement.

 

  COMPANY:   Tricida, Inc.
    By:  

 

    Title:  

 

    Date:  

 

 

14


EXHIBIT III

TRANSFER NOTICE

(To transfer or assign the foregoing Agreement execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Agreement and all rights evidenced thereby are hereby transferred and assigned to

 

                                                                                                                                                                            

(Please Print)

whose address is                                                                                                                                                

 

                                                                                                                                                                            

 

 

Dated:                                                                                                                                        

 

Holder’s Signature:                                                                                                                   

 

Holder’s Address:                                                                                                                     

 

                                                                                                                                                 

Signature Guaranteed:                                                                                                                                                                     

NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Agreement.

 

15

Exhibit 10.6

Execution Version

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT is made and dated as of February 28, 2018 and is entered into by and between Tricida, Inc., a Delaware corporation, and each of its Qualified Subsidiaries (hereinafter collectively referred to as the “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (collectively, referred to as “Lender”) and HERCULES CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent and collateral agent for itself and the Lender (in such capacity, the “Agent”).

RECITALS

A. Borrower has requested Lender to make available to Borrower a loan in an aggregate principal amount of up to One Hundred Million Dollars ($100,000,000) (the “Term Loan”); and

B. Lender is willing to make the Term Loan on the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, Borrower, Agent and Lender agree as follows:

SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION

1.1 Unless otherwise defined herein, the following capitalized terms shall have the following meanings:

“Account Control Agreement(s)” means any agreement entered into by and among the Agent, Borrower and a third party Bank or other institution (including a Securities Intermediary) in which Borrower maintains a Deposit Account or an account holding Investment Property and which perfects Agent’s first priority security interest in the subject account or accounts.

“ACH Authorization” means the ACH Debit Authorization Agreement in substantially the form of Exhibit H, which account numbers shall be redacted for security purposes if and when filed publicly by the Borrower.

“Advance(s)” means a Term Loan Advance.

“Advance Date” means the funding date of any Advance.

“Advance Request” means a request for an Advance submitted by Borrower to Agent in substantially the form of Exhibit A, which account numbers shall be redacted for security purposes if and when filed publicly by the Borrower.

“Affiliate” means (a) any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question, (b) any Person directly or indirectly owning, controlling or holding with power to vote ten percent (10%) or more of the outstanding voting securities


of another Person, (c) any Person ten percent (10%) or more of whose outstanding voting securities are directly or indirectly owned, controlled or held by another Person with power to vote such securities, or (d) any Person related by blood or marriage to any Person described in subsection (a), (b) or (c) of this paragraph. As used in the definition of “Affiliate,” the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

“Agent” has the meaning given to it in the preamble to this Agreement.

“Agreement” means this Loan and Security Agreement, as amended from time to time.

“Amortization Date” means the applicable date as set forth below, contingent on satisfaction of the applicable interest only extension conditions set forth below:

 

Satisfaction of Interest Only Extension Conditions:

  

Amortization Date:

None

  

July 1, 2019

Interest Only Extension Conditions 1

  

April 1, 2020

Interest Only Extension Conditions 2

  

October 1, 2020

Interest Only Extension Conditions 3

  

April 1, 2021

“Anti-Corruption Laws” shall mean all laws, rules, and regulations of any jurisdiction applicable to Borrower or any of its Affiliates from time to time concerning or relating to bribery or corruption, including without limitation the United States Foreign Corrupt Practices Act of 1977, as amended, the UK Bribery Act 2010 and other similar legislation in any other jurisdictions.

“Anti-Terrorism Laws” means any laws, rules, regulations or orders relating to terrorism or money laundering, including without limitation Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the laws comprising or implementing the Bank Secrecy Act, and the laws administered by OFAC.

“Approval Milestone” means satisfaction of each of the following events: (a) no Event of Default shall have occurred and be continuing and (b) on or before December 15, 2020, Borrower shall have obtained final approval for the NDA for TRC101 from the FDA, subject to verification by Agent (including supporting documentation requested by Agent).

“Assignee” has the meaning given to it in Section 11.13.

“Blocked Person” means any Person: (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) a Person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, or (e) a Person that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list.

 

2


“Borrower Products” means all products, software, service offerings, technical data or technology currently being designed, manufactured or sold by Borrower or which Borrower intends to sell, license, or distribute in the future including any products or service offerings under development, collectively, together with all products, software, service offerings, technical data or technology that have been sold, licensed or distributed by Borrower since its incorporation.

“Business Day” means any day other than Saturday, Sunday and any other day on which banking institutions in the State of California are closed for business.

“Cash” means all cash, cash equivalents and liquid funds.

“Change in Control” means any reorganization, recapitalization, consolidation or merger (or similar transaction or series of related transactions) of Borrower, sale or exchange of outstanding shares (or similar transaction or series of related transactions (other than by the sale of Borrower’s equity securities in a public offering)) of Borrower in which the holders of Borrower’s outstanding shares immediately before consummation of such transaction or series of related transactions do not, immediately after consummation of such transaction or series of related transactions, retain shares representing more than fifty percent (50%) of the voting power of the surviving entity of such transaction or series of related transactions (or the parent of such surviving entity if such surviving entity is wholly owned by such parent), in each case without regard to whether Borrower is the surviving entity, provided that , if Borrower’s shares are publicly traded, “Change in Control” instead means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Borrower, representing thirty percent (30%) or more of the combined voting power of Borrower’s then outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of Borrower (together with any new directors whose election by the board of directors of Borrower was approved by a vote of not less than two-thirds of the directors then still in office who either were directions at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office.

“Claims” has the meaning given to it in Section 11.10.

“Closing Date” means the date of this Agreement.

“Collateral” means the property described in Section 3.

“Confidential Information” has the meaning given to it in Section 11.12.

 

3


“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any Indebtedness, lease, dividend, letter of credit or other obligation of another, including any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

“Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Copyrights” means all copyrights, whether registered or unregistered, held pursuant to the laws of the United States of America, any State thereof, or of any other country.

“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit.

“Domestic Subsidiary” means any Subsidiary that is not a Foreign Subsidiary.

“Due Diligence Fee” means $25,000, which fee has been paid to Lender prior to the Closing Date, and shall be deemed fully earned on such date regardless of the early termination of this Agreement.

“Eligible Foreign Subsidiary” means any Foreign Subsidiary whose execution of a Joinder Agreement could not result in a material adverse tax consequence to Borrower.

“Equity Interests” means, with respect to any Person, the capital stock, partnership or limited liability company interest, or other equity securities or equity ownership interests of such Person.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“Event of Default” has the meaning given to it in Section 9.

“Excluded Accounts” means any Deposit Account that is used solely as a payroll account for the employees of Borrower or any of its Subsidiaries or the funds in which consist solely of funds held in trust for any director, officer or employee of Borrower or such Subsidiary or any employee benefit plan maintained by Borrower or such Subsidiary or funds representing deferred compensation for the directors and employees of Borrower or such Subsidiary, collectively not to exceed the amount to be paid in the ordinary course of business in the then-next payroll cycle.

 

4


“FDA” means the United States Food and Drug Administration.

“Financial Statements” has the meaning given to it in Section 7.1.

“Foreign Subsidiary” means any Subsidiary other than a Subsidiary organized under the laws of any state within the United States of America.

“GAAP” means generally accepted accounting principles in the United States of America, as in effect from time to time.

“Indebtedness” means indebtedness of any kind, including (a) all indebtedness for borrowed money or the deferred purchase price of property or services (excluding trade credit entered into in the ordinary course of business due within ninety (90) days), including reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.

“Initial Public Offering” means the initial firm commitment underwritten offering of Borrower’s common stock pursuant to a registration statement under the Securities Act of 1933, as amended, filed with and declared effective by the Securities and Exchange Commission.

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

“Intellectual Property” means all of Borrower’s Copyrights; Trademarks; Patents; Licenses; trade secrets and inventions; mask works; Borrower’s applications therefor and reissues, extensions, or renewals thereof; and Borrower’s goodwill associated with any of the foregoing, together with Borrower’s rights to sue for past, present and future infringement of Intellectual Property and the goodwill associated therewith.

“Interest Only Extension Conditions 1” shall mean satisfaction of each of the following events: (a) no default or Event of Default shall have occurred; and (b) Borrower shall have drawn Tranche 2 on or before December 31, 2018.

“Interest Only Extension Conditions 2” shall mean satisfaction of each of the following events: (a) no default or Event of Default shall have occurred; and (b) Borrower shall have drawn Tranche 3 on or before December 31, 2019.

“Interest Only Extension Conditions 3” shall mean satisfaction of each of the following events: (a) no default or Event of Default shall have occurred; and (b) Borrower shall have achieved the Approval Milestone on or before December 15, 2020.

 

5


“Investment” means any beneficial ownership (including stock, partnership or limited liability company interests) of or in any Person, or any loan, advance or capital contribution to any Person or the acquisition of any asset of another Person.

“IPO Milestone” means receipt by Borrower, prior to December 15, 2018, of at least One Hundred Million Dollars ($100,000,000.00) in aggregate proceeds (net of underwriting discounts and commissions) from an Initial Public Offering.

“Joinder Agreements” means for each Qualified Subsidiary, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit G.

“Lender” has the meaning given to it in the preamble to this Agreement.

“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, and any lease in the nature of a security interest.

“Loan” means the Advances made under this Agreement.

“Loan Documents” means this Agreement, the Notes (if any), the ACH Authorization, the Account Control Agreements, the Joinder Agreements, all UCC Financing Statements, the Warrant and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated.

“Material Adverse Effect” means a material adverse effect upon: (i) the business, operations, properties, assets or financial condition of Borrower and its Subsidiaries taken as a whole; (ii) the ability of Borrower to perform or pay the Secured Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or Lender to enforce any of its rights or remedies with respect to the Secured Obligations; or (iii) the Collateral or Agent’s Liens on the Collateral or the priority of such Liens.

“Maximum Rate” shall have the meaning assigned to such term in Section 2.3.

“Maximum Term Loan Amount” means One Hundred Million and No/100 Dollars ($100,000,000).

“NDA” means a new drug application filed with the FDA.

“NDA Milestone” means satisfaction of each of the following events: (a) no Event of Default shall have occurred and be continuing and (b) on or before December 31, 2019, Borrower has submitted an NDA and the FDA has accepted such NDA for review, in each case, subject to verification by Agent (including supporting documentation requested by Agent).

 

6


“Non-Disclosure Agreement” means that certain Mutual Confidential Disclosure Agreement by and between Borrower and Hercules Capital, Inc. dated as of May 3, 2017.

“Note(s)” means a Term Note.

“OFAC” is the U.S. Department of Treasury Office of Foreign Assets Control.

“OFAC Lists” are, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders.

“Patent License” means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application is pending, in which agreement Borrower now holds or hereafter acquires any interest.

“Patents” means all letters patent of, or rights corresponding thereto, in the United States of America or in any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto, in the United States of America or any other country.

“Performance Milestone” means, satisfaction of each of the following events: (a) no Event of Default shall have occurred and be continuing and (b) on or before December 15, 2018, or such later date as Agent agrees in writing in its sole discretion, Borrower shall have achieved positive clinical data from the Phase 3 trial of TRC101 and shall provide supporting documentation relating to the results of the trial as and when reasonably requested by Agent.

“Permitted Indebtedness” means: (i) Indebtedness of Borrower in favor of Lender or Agent arising under this Agreement or any other Loan Document; (ii) Indebtedness existing on the Closing Date which is disclosed in Schedule 1A; (iii) Indebtedness of up to $500,000 outstanding at any time secured by a Lien described in clause (vii) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the cost of the Equipment financed with such Indebtedness; (iv) Indebtedness to trade creditors incurred in the ordinary course of business, including Indebtedness incurred in the ordinary course of business with corporate credit cards; (v) Indebtedness that also constitutes a Permitted Investment; (vi) Subordinated Indebtedness; (vii) reimbursement obligations in connection with letters of credit that are secured by Cash and issued on behalf of the Borrower or a Subsidiary thereof in an amount not to exceed $500,000 at any time outstanding; (viii) other unsecured Indebtedness in an amount not to exceed $500,000 at any time outstanding; (ix) intercompany Indebtedness as long as each of the Subsidiary obligor and the Subsidiary obligee under such Indebtedness is a Qualified Subsidiary that has executed a Joinder Agreement; and (x) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose materially more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investment” means: (i) Investments existing on the Closing Date which are disclosed in Schedule 1B; (ii) (a) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof currently having a rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Services, (b) commercial paper maturing no more than one year from

 

7


the date of creation thereof and currently having a rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (c) certificates of deposit issued by any bank with assets of at least $250,000,000 maturing no more than one year from the date of investment therein, and (d) money market accounts; (iii) repurchases of stock from former employees, directors, or consultants of Borrower under the terms of applicable repurchase agreements at the original issuance price of such securities in an aggregate amount not to exceed $500,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or could exist after giving effect to the repurchases; (iv) Investments accepted in connection with Permitted Transfers; (v) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business; (vi) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (vi) shall not apply to Investments of Borrower in any Subsidiary; (vii) Investments consisting of loans not involving the net transfer on a substantially contemporaneous basis of cash proceeds to employees, officers or directors relating to the purchase of capital stock of Borrower pursuant to employee stock purchase plans or other similar agreements approved by Borrower’s board of directors; (viii) Investments consisting of travel advances in the ordinary course of business; (ix) Investments in newly-formed Domestic Subsidiaries, provided that each such Domestic Subsidiary enters into a Joinder Agreement promptly after its formation by Borrower and execute such other documents as shall be reasonably requested by Agent; (x) Investments in Foreign Subsidiaries approved in advance in writing by Agent; (xi) joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the nonexclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $500,000 in the aggregate in any fiscal year; and (xii) additional Investments that do not exceed $500,000 in the aggregate.

“Permitted Liens” means any and all of the following: (i) Liens in favor of Agent or Lender; (ii) Liens existing on the Closing Date which are disclosed in Schedule 1C; (iii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; provided, that Borrower maintains adequate reserves therefor in accordance with GAAP; (iv) Liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other like Persons arising in the ordinary course of Borrower’s business and imposed without action of such parties; provided, that the payment thereof is not yet required; (v) Liens arising from judgments, decrees or attachments in circumstances which do not constitute an Event of Default hereunder; (vi) the following deposits, to the extent made in the ordinary course of business: deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than Liens arising under ERISA or environmental Liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (vii) Liens on Equipment or software or other Intellectual Property constituting purchase money Liens and Liens in connection with capital leases securing Indebtedness permitted in clause (iii) of “Permitted Indebtedness”; (viii) Liens incurred in connection with Subordinated Indebtedness; (ix) leasehold interests in leases or subleases and licenses granted in the ordinary course of business and not interfering in any material respect with the business of the licensor; (x) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties that are promptly paid on or before the date they become due;

 

8


(xi) Liens on insurance proceeds securing the payment of financed insurance premiums that are promptly paid on or before the date they become due (provided that such Liens extend only to such insurance proceeds and not to any other property or assets); (xii) statutory and common law rights of set-off and other similar rights as to deposits of cash and securities in favor of banks, other depository institutions and brokerage firms; (xiii) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business so long as they do not materially impair the value or marketability of the related property; (xiv) (A) Liens on Cash securing obligations permitted under clause (vii) of the definition of Permitted Indebtedness and (B) security deposits in connection with real property leases, the combination of (A) and (B) in an aggregate amount not to exceed $500,000 at any time; and (xv) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clauses (i) through (xi) above; provided, that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced (as may have been reduced by any payment thereon) does not increase.

“Permitted Transfers” means (i) sales of Inventory in the ordinary course of business; (ii) non-exclusive licenses and similar arrangements for the use of Intellectual Property in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States of America in the ordinary course of business; (iii) dispositions of worn-out, obsolete or surplus Equipment at fair market value in the ordinary course of business; and (iv) other transfers of assets having a fair market value of not more than $500,000 in the aggregate in any fiscal year.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, other entity or government.

“Prepayment Charge” shall have the meaning assigned to such term in Section 2.5.

“Qualified Subsidiary” means any direct or indirect Domestic Subsidiary or Eligible Foreign Subsidiary.

“Receivables” means (i) all of Borrower’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, letters of credit, proceeds of any letter of credit, and Letter of Credit Rights, and (ii) all customer lists, software, and business records related thereto.

“Required Lenders” means at any time, the holders of more than 50% of the sum of the aggregate unpaid principal amount of the Term Loans then outstanding.

“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial Officer and General Counsel of Borrower.

“Sanctioned Country” shall mean, at any time, a country or territory which is the subject or target of any Sanctions.

 

9


“Sanctioned Person” shall mean, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or by the United Nations Security Council, the European Union or any EU member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person.

“Sanctions” shall mean economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom.

“SBA” shall have the meaning assigned to such term in Section 7.16.

“SBIC” shall have the meaning assigned to such term in Section 7.16.

“SBIC Act” shall have the meaning assigned to such term in Section 7.16.

“Secured Obligations” means Borrower’s obligations under this Agreement and any Loan Document (other than the Warrant), including any obligation to pay any amount now owing or later arising.

“Securities Act” means the Securities Act of 1933, as amended.

“Subordinated Indebtedness” means Indebtedness subordinated to the Secured Obligations in amounts and on terms and conditions satisfactory to Agent in its sole discretion and subject to a subordination agreement in form and substance satisfactory to Agent in its sole discretion.

“Subsequent Financing” means the closing, prior to the Initial Public Offering, of any Borrower financing marketed broadly to multiple investors which becomes effective after the Closing Date; provided that if the Borrower undertakes an Initial Public Offering, the Borrower will consider, in good faith, whether to ask the managing underwriter(s) of the IPO to designate for offer to the Lender or its Affiliate a number of shares equal to $2 million under a “directed shares” program, if any, or otherwise in the Initial Public Offering.

“Subsidiary” means an entity, whether corporate, partnership, limited liability company, joint venture or otherwise, in which Borrower owns or controls 50% or more of the outstanding voting securities, including each entity listed on Schedule 1 hereto.

“Term Commitment” means as to any Lender, the obligation of such Lender, if any, to make a Term Loan Advance to the Borrower in a principal amount not to exceed the amount set forth under the heading “Term Commitment” opposite such Lender’s name on Schedule 1.1.

“Term Loan Advance” means any Term Loan funds advanced under this Agreement.

“Term Loan Interest Rate” means for any day a per annum rate of interest equal to the greater of either (i) the lesser of (x) 8.35% plus the prime rate as reported in The Wall Street Journal minus 5.00% and (y) 9.85%, and (ii) 8.35%.

 

10


“Term Loan Maturity Date” means March 1, 2022; provided that if Borrower achieves the Approval Milestone on or before February 15, 2022, September 1, 2022.

“Term Note” means a Promissory Note in substantially the form of Exhibit B.

“Trademark License” means any written agreement granting any right to use any Trademark or Trademark registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Trademarks” means all trademarks (registered, common law or otherwise) and any applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States of America, any State thereof or any other country or any political subdivision thereof.

“Tranche 1” has the meaning set forth in Section 2.2(a)(i).

“Tranche 1-3 Facility Charge” means Six Hundred Fifty Thousand Dollars ($650,000).

“Tranche 2” has the meaning set forth in Section 2.2(a)(ii).

“Tranche 3” has the meaning set forth in Section 2.2(a)(iii).

“Tranche 4” has the meaning set forth in Section 2.2(a)(iv).

“Tranche 4 Facility Charge” means eight tenths of one percent (0.8%) of the principal amount of each Term Loan Advance funded under Tranche 4.

“Tranche 5” has the meaning set forth in Section 2.2(a)(v).

“Tranche 5 Facility Charge” means eight tenths of one percent (0.8%) of the principal amount of each Term Loan Advance funded under Tranche 5.

“UCC” means the Uniform Commercial Code as the same is, from time to time, in effect in the State of California; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect in a jurisdiction other than the State of California, then the term “UCC” shall mean the Uniform Commercial Code as in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

“Unrestricted Cash” means Cash held by Borrower subject to an Account Control Agreement.

“Warrant” means any warrant entered into in connection with the Loan, as may be amended, restated or modified from time to time.

 

11


Unless otherwise specified, all references in this Agreement or any Annex or Schedule hereto to a “Section,” “subsection,” “Exhibit,” “Annex,” or “Schedule” shall refer to the corresponding Section, subsection, Exhibit, Annex, or Schedule in or to this Agreement. Unless otherwise specifically provided herein, any accounting term used in this Agreement or the other Loan Documents shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP, consistently applied. Unless otherwise defined herein or in the other Loan Documents, terms that are used herein or in the other Loan Documents and defined in the UCC shall have the meanings given to them in the UCC. For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.

SECTION 2. THE LOAN

2.1 [Reserved].

2.2 Term Loan.

(a) Tranches.

(i) Tranche 1 . Subject to the terms and conditions of this Agreement, Lender will severally (and not jointly) make in an amount not to exceed its respective Term Commitment, and Borrower agrees to draw, a Term Loan Advance of Twenty-Five Million Dollars ($25,000,000) on the Closing Date (“Tranche 1”).

(ii) Tranche 2. Subject to the terms and conditions of this Agreement and conditioned on Borrower’s achievement of the Performance Milestone, on or before December 31, 2018, Borrower may request one additional Term Loan Advance in a principal amount of Twenty-Five Million Dollars ($25,000,000) (“Tranche 2”).

(iii) Tranche 3. Subject to the terms and conditions of this Agreement and conditioned on Borrower’s achievement of the NDA Milestone in accordance with the definition thereof, on or before December 31, 2019, Borrower may request one additional Term Loan Advance in a principal amount of Fifteen Million Dollars ($15,000,000) (“Tranche 3”).

(iv) Tranche 4. Subject to the terms and conditions of this Agreement and conditioned on Borrower’s achievement of the Approval Milestone on or before December 15, 2020 in accordance with the definition thereof, on or before December 31, 2020, Borrower may request one additional Term Loan Advance in a principal amount of Ten Million Dollars ($10,000,000) (“Tranche 4”).

(v) Tranche 5 . Subject to the terms and conditions of this Agreement and conditioned on approval by Lender’s investment committee in its sole and unfettered discretion, on or before December 31, 2020, Borrower may request one or additional Term Loan Advance in a principal amount of Twenty-Five Million Dollars ($25,000,000) (“Tranche 5”).

 

12


(b) The aggregate outstanding Term Loan Advances shall not exceed the Maximum Term Loan Amount.

(c) Advance Request. To obtain a Term Loan Advance, Borrower shall complete, sign and deliver an Advance Request (at least three (3) Business Days before the Advance Date other than the Closing Date, which shall be at least one (1) Business Day) to Agent. Lender shall fund the Term Loan Advance in the manner requested by the Advance Request provided that each of the conditions precedent to such Term Loan Advance is satisfied as of the requested Advance Date.

(d) Interest. Term Loan Interest Rate. The principal balance shall bear interest thereon from such Advance Date at the Term Loan Interest Rate based on a year consisting of 360 days, with interest computed daily based on the actual number of days elapsed. The Term Loan Interest Rate will float and change on the day the prime rate changes from time to time.

(e) Payment. Borrower will pay interest on each Term Loan Advance on the first (1st) day of each month, beginning the second month after the Advance Date (for the avoidance of doubt, the first interest payment shall be made on April 1, 2018). Borrower shall repay the aggregate Term Loan principal balance that is outstanding on the day immediately preceding the Amortization Date, in equal monthly installments of principal and interest (mortgage style) beginning on the Amortization Date and continuing on the first Business Day of each month thereafter until the Secured Obligations (other than inchoate indemnity obligations) are repaid. The entire Term Loan principal balance and all accrued but unpaid interest hereunder, shall be due and payable on Term Loan Maturity Date. Borrower shall make all payments under this Agreement without setoff, recoupment or deduction and regardless of any counterclaim or defense. Lender will initiate debit entries to the Borrower’s account as authorized on the ACH Authorization (i) on each payment date of all periodic obligations payable to Lender under each Term Loan Advance and (ii) out-of-pocket legal fees and costs incurred by Agent or Lender in connection with Section 11.11 of this Agreement; provided that, with respect to clause (i) above, in the event that Lender or Agent informs Borrower that Lender will not initiate a debit entry to Borrower’s account for a certain amount of the periodic obligations due on a specific payment date, Borrower shall pay to Lender such amount of periodic obligations in full in immediately available funds on such payment date; provided, further, that, with respect to clause (i) above, if Lender or Agent informs Borrower that Lender will not initiate a debit entry as described above later than the date that is three (3) Business Days prior to such payment date, Borrower shall pay to Lender such amount of periodic obligations in full in immediately available funds on the date that is three (3) Business Days after the date on which Lender or Agent notifies Borrower of such; provided, further, that, with respect to clause (ii) above, in the event that Lender or Agent informs Borrower that Lender will not initiate a debit entry to Borrower’s account for certain amount of such out-of-pocket legal fees and costs incurred by Agent or Lender, Borrower shall pay to Lender such amount in full in immediately available funds within three (3) Business Days.

2.3 Maximum Interest. Notwithstanding any provision in this Agreement or any other Loan Document, it is the parties’ intent not to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law that a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of California shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the

 

13


“Maximum Rate”). If a court of competent jurisdiction shall finally determine that Borrower has actually paid to Lender an amount of interest in excess of the amount that would have been payable if all of the Secured Obligations had at all times borne interest at the Maximum Rate, then such excess interest actually paid by Borrower shall be applied as follows: first, to the payment of the Secured Obligations consisting of the outstanding principal; second, after all principal is repaid, to the payment of Lender’s accrued interest, costs, expenses, professional fees and any other Secured Obligations; and third, after all Secured Obligations are repaid, the excess (if any) shall be refunded to Borrower.

2.4 Default Interest. Upon the occurrence and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest, and professional fees, shall bear interest at a rate per annum equal to the rate set forth in Section 2.2(d), plus three percent (3%) per annum. In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.2(d) or Section 2.4, as applicable.

2.5 Prepayment.

(a) At its option, Borrower may at any time prepay all or a portion of the outstanding Advances by paying the entire principal balance (or such portion thereof), all accrued and unpaid interest thereon, together with a prepayment charge equal to the following percentage of the Advance amount being prepaid: if such Advance amounts are prepaid in any of the first twelve (12) months following the Closing Date, 2.0%; after twelve (12) months but prior to twenty four (24) months, 1.5%; after twenty-four (24) months but prior to thirty-six (36) months, 1.0%; and thereafter, 0.0% (each, a “Prepayment Charge”). Borrower agrees that the Prepayment Charge is a reasonable calculation of Lender’s lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early repayment of the Advances. Borrower shall prepay the outstanding amount of all principal and accrued interest through the prepayment date and the Prepayment Charge upon the occurrence of a Change in Control.

(b) In the event Borrower has drawn Tranche 2 and fails to achieve the IPO Milestone, Borrower shall immediately prepay no less than $15,000,000 in principal, plus all accrued and unpaid interest with respect to such prepayment (for the avoidance of doubt, no Prepayment Charge shall apply with respect to such prepayment).

(c) Notwithstanding the foregoing, Agent and Lender agree to waive the Prepayment Charge (i) if Agent and Lender (in its sole and absolute discretion) agree in writing to refinance the Advances prior to the Term Loan Maturity Date and (ii) with respect to a prepayment made in accordance with Section 2.5(b) above; provided that such waiver of the Prepayment Charge shall only apply to the principal amount prepaid in accordance with Section 2.5(b).

2.6 End of Term Charge. On the earliest to occur of (i) the Term Loan Maturity Date, (ii) the date that Borrower prepays the outstanding Secured Obligations (other than any inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) in full, or (iii) the date that the Secured Obligations become due and payable, Borrower shall pay Lender a charge equal to 6.55% multiplied by the greater of: (a) the aggregate Term Loans funded and (b) (x) the aggregate Term Loans funded plus (y) one half of (I) $60,000,000 minus (II) the aggregate Term Loans funded. Notwithstanding the required payment date of such charge, it shall be deemed earned by Lender as of the Closing Date.

 

14


2.7 Notes. If so requested by Lender by written notice to Borrower, then Borrower shall execute and deliver to Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of Lender pursuant to Section 11.13) (promptly after the Borrower’s receipt of such notice) a Note or Notes to evidence Lender’s Loans.

2.8 Pro Rata Treatment. Each payment (including prepayment) on account of any fee and any reduction of the Term Loans shall be made pro rata according to the Term Commitments of the relevant Lender.

SECTION 3. SECURITY INTEREST

3.1 As security for the prompt and complete payment when due (whether on the payment dates or otherwise) of all the Secured Obligations, Borrower grants to Agent a security interest in all of Borrower’s right, title, and interest in, to and under all of Borrower’s personal property and other assets including without limitation the following (except as set forth herein) whether now owned or hereafter acquired (collectively, the “Collateral”): (a) Receivables; (b) Equipment; (c) Fixtures; (d) General Intangibles (other than Intellectual Property); (e) Inventory; (f) Investment Property; (g) Deposit Accounts; (h) Cash; (i) Goods; and all other tangible and intangible personal property of Borrower whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located, and any of Borrower’s property in the possession or under the control of Agent; and, to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing ; provided , however, that the Collateral shall include all Accounts and General Intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the Intellectual Property (the “Rights to Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the date of this Agreement, include the Intellectual Property to the extent necessary to permit perfection of Agent’s security interest in the Rights to Payment.

3.2 Notwithstanding the broad grant of the security interest set forth in Section 3.1, above, the Collateral shall not include (a) more than 65% of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by Borrower of any Foreign Subsidiary (other than an Eligible Foreign Subsidiary) which shares entitle the holder thereof to vote for directors or any other matter and (b) nonassignable licenses or contracts, which by their terms require the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406, 9407 and 9408 of the UCC).

 

15


SECTION 4. CONDITIONS PRECEDENT TO LOAN

The obligations of Lender to make the Loan hereunder are subject to the satisfaction by Borrower of the following conditions:

4.1 Initial Advance. On or prior to the Closing Date, Borrower shall have delivered to Agent the following:

(a) executed copies of the Loan Documents (other than the Warrant, which shall be an original), Account Control Agreements, a customary legal opinion of Borrower’s counsel, and all other documents and instruments reasonably required by Agent to effectuate the transactions contemplated hereby or to create and perfect the Liens of Agent with respect to all Collateral, in all cases in form and substance reasonably acceptable to Agent;

(b) certified copy of resolutions of Borrower’s board of directors evidencing approval of (i) the Loan and other transactions evidenced by the Loan Documents; and (ii) the Warrant and transactions evidenced thereby;

(c) certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower;

(d) a certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified could have a Material Adverse Effect;

(e) payment of the Tranche 1-3 Facility Charge and reimbursement of Agent’s and Lender’s current expenses reimbursable pursuant to this Agreement, which amounts may be deducted from the initial Advance;

(f) all certificates of insurance and copies of each insurance policy required hereunder; and

(g) such other documents as Agent may reasonably request.

4.2 All Advances. On each Advance Date:

(a) Agent shall have received (i) an Advance Request for the relevant Advance as required by Section 2.2(c) each duly executed by Borrower’s Chief Executive Officer or Chief Financial Officer, and (ii) any other documents Agent may reasonably request;

(b) the representations and warranties set forth in this Agreement shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date;

(c) Borrower shall be in compliance with all the terms and provisions set forth herein and in each other Loan Document on its part to be observed or performed, and at the time of and immediately after such Advance no Event of Default shall have occurred and be continuing;

 

16


(d) on the Advance Date for Tranche 4, Borrower shall have paid the Tranche 4 Facility Charge;

(e) on the Advance Date for Tranche 5, Borrower shall have paid the Tranche 5 Facility Charge; and

(f) each Advance Request shall be deemed to constitute a representation and warranty by Borrower on the relevant Advance Date as to the matters specified in paragraphs (b) and (c) of this Section 4.2 and as to the matters set forth in the Advance Request.

4.3 No Default. As of the Closing Date and each Advance Date, (i) no fact or condition exists that could (or could, with the passage of time, the giving of notice, or both) constitute an Event of Default and (ii) no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

4.4 Post-Closing Obligations. Notwithstanding any provision herein or in any other Loan Document to the contrary, to the extent not actually delivered on or prior to the Closing Date, Borrower shall deliver to Agent within ten (10) Business Days of the Closing Date (i) a fully executed copy of a landlord waiver, in form and substance satisfactory to Agent, for Borrower’s location at 7000 Shoreline Court, South San Francisco, California and (ii) appropriate evidence showing, as applicable, loss payable, waiver of subrogation, additional insured and notice of cancellation clauses or endorsements in favor of Agent as described in Section 6.2.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER

Borrower represents and warrants that:

5.1 Corporate Status. Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified could reasonably be expected to have a Material Adverse Effect. Borrower’s present name, former names (if any), locations, place of formation, tax identification number, organizational identification number and other information are correctly set forth in Exhibit C, as may be updated by Borrower in a written notice (including any Compliance Certificate) provided to Agent after the Closing Date.

5.2 Collateral. Borrower owns the Collateral and the Intellectual Property, free of all Liens, except for Permitted Liens. Borrower has the power and authority to grant to Agent a Lien in the Collateral as security for the Secured Obligations .

5.3 Consents. Borrower’s execution, delivery and performance of this Agreement and all other Loan Documents, and Borrower’s execution of the Warrant, (i) have been duly authorized by all necessary corporate action of Borrower, (ii) will not result in the creation or imposition of any Lien upon the Collateral, other than Permitted Liens and the Liens created by this Agreement and the other Loan Documents, (iii) do not violate any provisions of Borrower’s

 

17


Certificate of Incorporation, bylaws, or any, law, regulation, order, injunction, judgment, decree or writ to which Borrower is subject and (iv) except as described on Schedule 5.3, do not violate any contract or agreement or require the consent or approval of any other Person which has not already been obtained. The individual or individuals executing the Loan Documents and the Warrant are duly authorized to do so.

5.4 Material Adverse Effect. No event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

5.5 Actions Before Governmental Authorities. There are no actions, suits or proceedings at law or in equity or by or before any governmental authority now pending or, to the knowledge of Borrower, threatened against or affecting Borrower or its property, that is reasonably expected to result in a Material Adverse Effect.

5.6 Laws. Neither Borrower nor any of its Subsidiaries is in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any governmental authority, where such violation or default is reasonably expected to result in a Material Adverse Effect. Borrower is not in default in any manner under any provision of any agreement or instrument evidencing material Indebtedness, or any other material agreement to which it is a party or by which it is bound.

Neither Borrower nor any of its Subsidiaries is an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Neither Borrower nor any of its Subsidiaries is engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower and each of its Subsidiaries has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005. Neither Borrower’s nor any of its Subsidiaries’ properties or assets has been used by Borrower or such Subsidiary or, to Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than in material compliance with applicable laws. Borrower and each of its Subsidiaries has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary to continue their respective businesses as currently conducted.

None of Borrower, any of its Subsidiaries, or any of Borrower’s or its Subsidiaries’ Affiliates or any of their respective agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law, (ii) engaging in or conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person. None of Borrower, any of its Subsidiaries, or to the knowledge of Borrower and any of their Affiliates or agents, acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement, (x) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (y) deals in, or otherwise engages in any transaction relating to, any property or interest in property blocked pursuant to Executive Order No. 13224,

 

18


any similar executive order or other Anti-Terrorism Law. None of the funds to be provided under this Agreement will be used, directly or indirectly, (a) for any activities in violation of any applicable anti-money laundering, economic sanctions and anti-bribery laws and regulations laws and regulations or (b) for any payment to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

5.7 Information Correct and Current. No information, report, Advance Request, financial statement, exhibit or schedule furnished, by or on behalf of Borrower to Agent in connection with any Loan Document or included therein or delivered pursuant thereto contained, or, when taken as a whole, contains or will contain any material misstatement of fact or, when taken together with all other such information or documents, omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not materially misleading at the time such statement was made or deemed made. Additionally, any and all financial or business projections provided by Borrower to Agent, whether prior to or after the Closing Date, shall be (i) provided in good faith and based on the most current data and information available to Borrower, and (ii) the most current of such projections provided to Borrower’s board of directors.

5.8 Tax Matters. Except as described on Schedule 5.8 and except those being contested in good faith with adequate reserves under GAAP, (a) Borrower has filed all material federal, state and local tax returns that it is required to file, (b) Borrower has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns, and (c) Borrower has paid or fully reserved for any tax assessment received by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings).

5.9 Intellectual Property Claims. Borrower is the sole owner of, or otherwise has the right to use, the Intellectual Property material to Borrower’s business. Except as described on Schedule 5.9, (i) to Borrower’s knowledge, each of the material Copyrights, Trademarks and Patents is valid and enforceable, (ii) no material part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and (iii) no claim has been made to Borrower that any material part of the Intellectual Property violates the rights of any third party. Attached to the perfection certificate delivered to Agent on the Closing Date is a true, correct and complete list of each of Borrower’s published Patents, registered Trademarks, registered Copyrights, and material agreements under which Borrower licenses Intellectual Property from third parties (other than shrink-wrap software licenses), together with application or registration numbers, as applicable, owned by Borrower or any Subsidiary, in each case as of the Closing Date. Borrower is not in material breach of, nor has Borrower failed to perform any material obligations under, any of the foregoing contracts, licenses or agreements and, to Borrower’s knowledge, no third party to any such contract, license or agreement is in material breach thereof or has failed to perform any material obligations thereunder.

 

19


5.10 Intellectual Property. Except as described on Schedule 5.10, Borrower has all material rights with respect to Intellectual Property necessary or material in the operation or conduct of Borrower’s business as currently conducted and proposed to be conducted by Borrower. Without limiting the generality of the foregoing, and in the case of Licenses, except for restrictions that are unenforceable under Division 9 of the UCC, Borrower has the right, to the extent required to operate Borrower’s business, to freely transfer, license or assign Intellectual Property necessary or material in the operation or conduct of Borrower’s business as currently conducted and proposed to be conducted by Borrower, without condition, restriction or payment of any kind (other than license payments in the ordinary course of business) to any third party, and Borrower owns or has the right to use, pursuant to valid licenses, all software development tools, library functions, compilers and all other third-party software and other items that are material to Borrower’s business and used in the design, development, promotion, sale, license, manufacture, import, export, use or distribution of Borrower Products except customary covenants in inbound license agreements and equipment leases where Borrower is the licensee or lessee.

5.11 Borrower Products. Except as described on Schedule 5.11, no Intellectual Property owned by Borrower or Borrower Product has been or is subject to any actual or, to the knowledge of Borrower, threatened litigation, proceeding (including any proceeding in the United States Patent and Trademark Office or any corresponding foreign office or agency) or outstanding decree, order, judgment, settlement agreement or stipulation that restricts in any manner Borrower’s use, transfer or licensing thereof or that may affect the validity, use or enforceability thereof. There is no decree, order, judgment, agreement, stipulation, arbitral award or other provision entered into in connection with any litigation or proceeding that obligates Borrower to grant licenses or ownership interest in any future Intellectual Property related to the operation or conduct of the business of Borrower or Borrower Products. Borrower has not received any written notice or claim, or, to the knowledge of Borrower, oral notice or claim, challenging or questioning Borrower’s ownership in any Intellectual Property (or written notice of any claim challenging or questioning the ownership in any licensed Intellectual Property of the owner thereof) or suggesting that any third party has any claim of legal or beneficial ownership with respect thereto nor, to Borrower’s knowledge, is there a reasonable basis for any such claim. Neither Borrower’s use of its Intellectual Property nor the production and sale of Borrower Products infringes the Intellectual Property or other rights of others.

5.12 Financial Accounts. Exhibit E, as may be updated by the Borrower in a written notice provided to Agent after the Closing Date, is a true, correct and complete list of (a) all banks and other financial institutions at which Borrower or any Subsidiary maintains Deposit Accounts and (b) all institutions at which Borrower or any Subsidiary maintains an account holding Investment Property, and such exhibit correctly identifies the name, address and telephone number of each bank or other institution, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

5.13 Employee Loans. Borrower has no outstanding loans to any employee, officer or director of the Borrower nor has Borrower guaranteed the payment of any loan made to an employee, officer or director of the Borrower by a third party.

5.14 Capitalization and Subsidiaries. Borrower’s capitalization as of the Closing Date is set forth on Schedule 5.14 annexed hereto. Borrower does not own any stock, partnership interest or other securities of any Person, except for Permitted Investments. Attached as Schedule 5.14, as may be updated by Borrower in a written notice provided after the Closing Date, is a true, correct and complete list of each Subsidiary.

 

20


SECTION 6. INSURANCE; INDEMNIFICATION

6.1 Coverage. Borrower shall cause to be carried and maintained commercial general liability insurance, on an occurrence form, against risks customarily insured against in Borrower’s line of business. Such risks shall include the risks of bodily injury, including death, property damage, personal injury, advertising injury, and contractual liability per the terms of the indemnification agreement found in Section 6.3. Borrower must maintain a minimum of $2,000,000 of commercial general liability insurance for each occurrence. Borrower has and agrees to maintain a minimum of $2,000,000 of directors’ and officers’ insurance for each occurrence and $5,000,000 in the aggregate. So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral, insuring against all risks of physical loss or damage howsoever caused, in an amount not less than the full replacement cost of the Collateral, provided that such insurance may be subject to standard exceptions and deductibles.

6.2 Certificates. Borrower shall deliver to Agent certificates of insurance that evidence Borrower’s compliance with its insurance obligations in Section 6.1 and the obligations contained in this Section 6.2. Borrower’s insurance certificate shall state Agent (shown as “Hercules Capital, Inc., as Agent”) is an additional insured for commercial general liability, a loss payee for all risk property damage insurance, subject to the insurer’s approval, and a loss payee for property insurance and additional insured for liability insurance for any future insurance that Borrower may acquire from such insurer. Attached to the certificates of insurance will be additional insured endorsements for liability and lender’s loss payable endorsements for all risk property damage insurance. All certificates of insurance will provide for a minimum of thirty (30) days advance written notice to Agent of cancellation (other than cancellation for non-payment of premiums, for which ten (10) days’ advance written notice shall be sufficient) or any other change adverse to Agent’s interests. Any failure of Agent to scrutinize such insurance certificates for compliance is not a waiver of any of Agent’s rights, all of which are reserved. Borrower shall provide Agent with copies of each insurance policy, and upon entering or amending any insurance policy required hereunder, Borrower shall provide Agent with copies of such policies and shall promptly deliver to Agent updated insurance certificates with respect to such policies.

6.3 Indemnity. Borrower agrees to indemnify and hold Agent, Lender and their officers, directors, employees, agents, in-house attorneys, representatives and shareholders (each, an “Indemnified Person”) harmless from and against any and all claims, costs, expenses, damages and liabilities (including such claims, costs, expenses, damages and liabilities based on liability in tort, including strict liability in tort), including reasonable attorneys’ fees and disbursements and other costs of investigation or defense (including those incurred upon any appeal) (collectively, “Liabilities”), that may be instituted or asserted against or incurred by such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents or the administration of such credit, or in connection with or arising out of the transactions contemplated hereunder and thereunder, or any actions or failures to act in connection therewith, or arising out of the disposition or utilization of the Collateral, excluding in all cases Liabilities to the extent resulting from any Indemnified

 

21


Person’s gross negligence or willful misconduct. Borrower agrees to pay, and to save Agent and Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes (excluding taxes imposed on or measured by the net income of Agent or Lender) that may be payable or determined to be payable with respect to any of the Collateral or this Agreement. In no event shall any Indemnified Person be liable on any theory of liability for any special, indirect, consequential or punitive damages (including any loss of profits, business or anticipated savings). This Section 6.3 shall survive the repayment of indebtedness under, and otherwise shall survive the expiration or other termination of, the Loan Agreement.

SECTION 7. COVENANTS OF BORROWER

Borrower agrees as follows:

7.1 Financial Reports. Borrower shall furnish to Agent the financial statements and reports listed hereinafter (the “Financial Statements”):

(a) as soon as practicable (and in any event within 30 days) after the end of each month, unaudited interim and year-to-date financial statements as of the end of such month (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that could reasonably be expected to have a Material Adverse Effect, all certified by Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, (ii) that they are subject to normal year end adjustments, and (iii) they do not contain certain non-cash items that are customarily included in quarterly and annual financial statements;

(b) as soon as practicable (and in any event within 30 days) after the end of each calendar quarter, unaudited interim and year-to-date financial statements as of the end of such calendar quarter (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that could reasonably be expected to have a Material Adverse Effect, certified by Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, and (ii) that they are subject to normal year end adjustments; as well as the most recent capitalization table for Borrower, including the weighted average exercise price of employee stock options;

(c) as soon as practicable (and in any event within one hundred fifty (150) days) after the end of each fiscal year, unqualified audited financial statements as of the end of such year (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to Agent, accompanied by any management report from such accountants;

 

22


(d) as soon as practicable (and in any event within 30 days) after the end of each month, a Compliance Certificate in the form of Exhibit F;

(e) as soon as practicable (and in any event within 15 days) after the end of each month, a report showing agings of accounts receivable and accounts payable;

(f) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports that Borrower has made available to holders of its preferred stock and copies of any regular, periodic and special reports or registration statements that Borrower files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or any national securities exchange;

(g) [reserved];

(h) financial and business projections promptly following their approval by Borrower’s board of directors, and in any event, within 30 days prior to the end of Borrower’s fiscal year, as well as budgets, operating plans and other financial information reasonably requested by Agent; and

(i) immediate notice if Borrower or any Subsidiary has knowledge that Borrower, or any Subsidiary or Affiliate of Borrower, is listed on the OFAC Lists or (a) is convicted on, (b) pleads nolo contendere to, (c) is indicted on, or (d) is arraigned and held over on charges involving money laundering or predicate crimes to money laundering.

Borrower shall not make any change in its (a) accounting policies or reporting practices, or (b) fiscal years or fiscal quarters. The fiscal year of Borrower shall end on December 31.

The executed Compliance Certificate may be sent via email to Agent at legal@herculestech.com. All Financial Statements required to be delivered pursuant to clauses (a), (b) and (c) shall be sent via e-mail to financialstatements@herculestech.com with a copy to legal@herculestech.com provided, that if e-mail is not available or sending such Financial Statements via e-mail is not possible, they shall be faxed to Agent at: (650) 473-9194, attention Account Manager: Tricida, Inc.

7.2 Management Rights. Borrower shall permit any representative that Agent or Lender authorizes, including its attorneys and accountants, to inspect the Collateral and examine and make copies and abstracts of the books of account and records of Borrower at reasonable times and upon reasonable notice during normal business hours; provided , however, that so long as no Event of Default has occurred and is continuing, such examinations shall be limited to no more often than twice per fiscal year. In addition, any such representative shall have the right to meet with management and officers of Borrower to discuss such books of account and records as a part of such examinations. In addition, Agent or Lender shall be entitled at reasonable times and intervals to consult with and advise the management and officers of Borrower concerning significant business issues affecting Borrower. Such consultations shall not unreasonably interfere with Borrower’s business operations. The parties intend that the rights granted Agent and Lender shall constitute “management rights” within the meaning of 29 C.F.R. Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or participation by Agent or Lender with respect to any business issues shall not be deemed to give Agent or Lender, nor be deemed an exercise by Agent or Lender of, control over Borrower’s management or policies.

 

23


7.3 Further Assurances. Borrower shall from time to time execute, deliver and file, alone or with Agent, any financing statements, security agreements, collateral assignments, notices, control agreements, or other documents to perfect or give the highest priority to Agent’s Lien on the Collateral. Borrower shall from time to time procure any instruments or documents as may be reasonably requested by Agent, and take all further action that may be necessary, or that Agent may reasonably request, to perfect and protect the Liens granted hereby and thereby. In addition, and for such purposes only, Borrower hereby authorizes Agent to execute and deliver on behalf of Borrower and to file such financing statements (including an indication that the financing statement covers “all assets or all personal property” of Borrower in accordance with Section 9-504 of the UCC), collateral assignments, notices, control agreements, security agreements and other documents without the signature of Borrower either in Agent’s name or in the name of Agent as agent and attorney-in-fact for Borrower. Borrower shall protect and defend Borrower’s title to the Collateral and Agent’s Lien thereon against all Persons claiming any interest adverse to Borrower or Agent other than Permitted Liens.

7.4 Indebtedness. Borrower shall not create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except for (a) the conversion of Indebtedness into equity securities and the payment of cash in lieu of fractional shares in connection with such conversion, (b) purchase money Indebtedness pursuant to its then applicable payment schedule, (c) prepayment by any Subsidiary of (i) inter-company Indebtedness owed by such Subsidiary to any Borrower, or (ii) if such Subsidiary is not a Borrower, intercompany Indebtedness owed by such Subsidiary to another Subsidiary that is not a Borrower or (d) as otherwise permitted hereunder or approved in writing by Agent.

7.5 Collateral. Borrower shall at all times keep the Collateral, the Intellectual Property and all other property and assets used in Borrower’s business or in which Borrower now or hereafter holds any interest free and clear from any legal process or Liens whatsoever (except for Permitted Liens), and shall give Agent prompt written notice of any legal process affecting the Collateral, the Intellectual Property, such other property and assets, or any Liens thereon, provided however, that the Collateral and such other property and assets may be subject to Permitted Liens except that there shall be no Liens whatsoever on Intellectual Property. Borrower shall not agree with any Person other than Agent or Lender not to encumber its property. Borrower shall not enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of any Borrower to create, incur, assume or suffer to exist any Lien upon any of its Intellectual Property, whether now owned or hereafter acquired, to secure its obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents, (b) any agreements governing any purchase money Liens or capital lease obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby) and (c) customary restrictions on the assignment of leases, licenses and other agreements. Borrower shall cause its Subsidiaries to protect and defend such Subsidiary’s title to its assets from and against all Persons claiming any interest adverse to such Subsidiary, and Borrower shall cause its Subsidiaries at all times to keep

 

24


such Subsidiary’s property and assets free and clear from any legal process or Liens whatsoever (except for Permitted Liens, provided however, that there shall be no Liens whatsoever on Intellectual Property), and shall give Agent prompt written notice of any legal process affecting such Subsidiary’s assets.

7.6 Investments. Borrower shall not directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments.

7.7 Distributions. Borrower shall not, and shall not allow any Subsidiary to, (a) repurchase or redeem any class of stock or other Equity Interest other than pursuant to employee, director or consultant repurchase plans or other similar agreements, provided, however, in each case the repurchase or redemption price does not exceed the original consideration paid for such stock or Equity Interest, or (b) declare or pay any cash dividend or make a cash distribution on any class of stock or other Equity Interest, except that a Subsidiary may pay dividends or make distributions to Borrower, or (c) lend money to any employees, officers or directors or guarantee the payment of any such loans granted by a third party in excess of $500,000 in the aggregate or (d) waive, release or forgive any Indebtedness owed by any employees, officers or directors in excess of $500,000 in the aggregate.

7.8 Transfers. Except for Permitted Transfers, Borrower shall not, and shall not allow any Subsidiary to, voluntarily or involuntarily transfer, sell, lease, license, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of its assets.

7.9 Mergers or Acquisitions. Borrower shall not merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of (a) a Subsidiary which is not a Borrower into another Subsidiary or into Borrower or (b) a Borrower into another Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.

7.10 Taxes. Borrower and its Subsidiaries shall pay when due all material taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Agent, Lender or the Collateral or upon Borrower’s ownership, possession, use, operation or disposition thereof or upon Borrower’s rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor in accordance with GAAP.

7.11 Corporate Changes. Neither Borrower nor any Subsidiary shall change its corporate name, legal form or jurisdiction of formation without twenty (20) days’ prior written notice to Agent. Neither Borrower nor any Subsidiary shall suffer a Change in Control. Neither Borrower nor any Subsidiary shall relocate its chief executive office or its principal place of business unless: (i) it has provided prior written notice to Agent; and (ii) such relocation shall be within the continental United States of America. Neither Borrower nor any Qualified Subsidiary shall relocate any item of Collateral (other than (x) sales of Inventory in the ordinary course of

 

25


business, (y) relocations of Collateral having an aggregate value of up to $250,000 in any fiscal year, and (z) relocations of Collateral from a location described on Exhibit C to another location described on Exhibit C) unless (i) it has provided prompt written notice to Agent, (ii) such relocation is within the continental United States of America and, (iii) if such relocation is to a third party bailee, it has delivered a bailee agreement in form and substance reasonably acceptable to Agent.

7.12 Deposit Accounts. Other than Excluded Accounts, neither Borrower nor any Qualified Subsidiary shall maintain any Deposit Accounts, or accounts holding Investment Property, except with respect to which Agent has an Account Control Agreement.

7.13 Borrower shall notify Agent of each Domestic Subsidiary formed subsequent to the Closing Date and, within 15 days of formation, shall cause any such Qualified Subsidiary to execute and deliver to Agent a Joinder Agreement.

7.14 [Reserved].

7.15 Notification of Event of Default. Borrower shall notify Agent immediately of the occurrence of any Event of Default.

7.16 Agent and Lender have received a license from the U.S. Small Business Administration (“SBA”) to extend loans as a small business investment company (“SBIC”) pursuant to the Small Business Investment Act of 1958, as amended, and the associated regulations (collectively, the “SBIC Act”). Portions of the loan to Borrower will be made under the SBA license and the SBIC Act. Addendum 1 to this Agreement outlines various responsibilities of Agent, Lender and Borrower associated with an SBA loan, and such Addendum 1 is hereby incorporated in this Agreement.

7.17 Use of Proceeds. Borrower agrees that the proceeds of the Loans shall be used solely to pay related fees and expenses in connection with this Agreement and for working capital and general corporate purposes. The proceeds of the Loans will not be used in violation of Anti-Corruption Laws or applicable Sanctions.

7.18 Foreign Subsidiary Voting Rights. Borrower shall not, and shall not permit any Subsidiary, to amend or modify any governing document of any Foreign Subsidiary of Borrower (other than an Eligible Foreign Subsidiary) the effect of which is to require a vote of greater than 50.1% of the Equity Interests or voting rights of such entity for any decision or action of such entity.

7.19 [Reserved].

7.20 Compliance with Laws.

Borrower shall maintain, and shall cause its Subsidiaries to maintain, compliance in all material respect with all applicable laws, rules or regulations (including any law, rule or regulation with respect to the making or brokering of loans or financial accommodations), and shall, or cause its Subsidiaries to, obtain and maintain all required governmental authorizations, approvals, licenses, franchises, permits or registrations reasonably necessary in connection with the conduct of Borrower’s business.

 

26


Neither Borrower nor any of its Subsidiaries shall, nor shall Borrower or any of its Subsidiaries permit any Affiliate to, directly or indirectly, knowingly enter into any documents, instruments, agreements or contracts with any Person listed on the OFAC Lists. Neither Borrower nor any of its Subsidiaries shall, nor shall Borrower or any of its Subsidiaries, permit any Affiliate to, directly or indirectly, (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224 or any similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law.

Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and Borrower, its Subsidiaries and their respective officers and employees and to the knowledge of Borrower its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects.

None of Borrower, any of its Subsidiaries or any of their respective directors, officers or employees, or to the knowledge of Borrower, any agent for Borrower or its Subsidiaries that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Loan, use of proceeds or other transaction contemplated by this Agreement will violate Anti-Corruption Laws or applicable Sanctions.

7.21 Financial Covenants

(a) At all times prior to the occurrence of the Performance Milestone, Borrower shall maintain Unrestricted Cash in an amount greater than or equal to Ten Million Dollars ($10,000,000).

(b) Beginning on the Advance Date of Tranche 3, Borrower shall maintain Unrestricted Cash in an amount greater than or equal to Twenty-Five Million Dollars ($25,000,000); provided that this Section 7.21(b) shall cease to apply after achievement of each of (i) the Approval Milestone, (ii) the Initial Public Offering and (iii) Borrower’s continued maintenance of a public market capitalization of no less than Five Hundred Million Dollars ($500,000,000); provided further that if Borrower’s public market capitalization is, at any point in time following the Initial Public Offering, less than Five Hundred Million Dollars ($500,000,000), Borrower shall maintain Unrestricted Cash in an amount greater than or equal to Twenty-Five Million Dollars ($25,000,000).

(c) In the event Borrower has drawn Tranche 2 and fails to achieve the IPO Milestone, Borrower shall immediately make the prepayment required in Section 2.5(b).

 

27


7.22 Transactions with Affiliates. Borrower shall not and shall not permit any Subsidiary to, directly or indirectly, enter into or permit to exist any transaction of any kind with any Affiliate of Borrower or such Subsidiary on terms that are less favorable to Borrower or such Subsidiary, as the case may be, than those that might be obtained in an arm’s length transaction from a Person who is not an Affiliate of Borrower or such Subsidiary.

SECTION 8. RIGHT TO INVEST

8.1 Lender or its assignee or nominee shall have the right to participate, in its discretion, in one or more Subsequent Financings in an aggregate amount of up to $2,000,000 on the same terms, conditions and pricing afforded to others participating in any such Subsequent Financing. This Section 8.1, and all rights and obligations hereunder, shall survive the repayment of indebtedness under, and otherwise shall survive the expiration or other termination of, the Loan Agreement until the earlier to occur of (a) the Initial Public Offering and (b) termination of each Warrant in accordance with the terms therein.

SECTION 9. EVENTS OF DEFAULT

The occurrence of any one or more of the following events shall be an Event of Default:

9.1 Payments. Borrower fails to pay principal or interest on the due date therefor, or any other amount due under this Agreement or any of the other Loan Documents within three (3) Business Days of when due; provided, however, that an Event of Default shall not occur on account of a failure to pay when due solely to an administrative or operational error of Agent or Lender or Borrower’s bank if Borrower had the funds to make the payment when due and makes the payment within three (3) Business Days following Borrower’s knowledge of such failure to pay; or

9.2 Covenants. Borrower breaches or defaults in the performance of any covenant or Secured Obligation under this Agreement, or any of the other Loan Documents or any other agreement among Borrower, Agent and Lender, and (a) with respect to a default under any covenant under this Agreement (other than under Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.15, 7.16, 7.17, 7.18, 7.20, 7.21 and 7.22) any other Loan Document or any other agreement among Borrower, Agent and Lender, such default continues for more than fifteen (15) Business Days after the earlier of the date on which (i) Agent or Lender has given notice of such default to Borrower and (ii) Borrower has actual knowledge of such default or (b) with respect to a default under any of Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.15, 7.16, 7.17, 7.18, 7.20, 7.21 and 7.22, the occurrence of such default; or

9.3 Material Adverse Effect. A circumstance has occurred that could reasonably be expected to have a Material Adverse Effect; or

9.4 Representations. Any representation or warranty made by Borrower in any Loan Document or in the Warrant shall have been false or misleading in any material respect when made or when deemed made; or

 

28


9.5 Insolvency. Borrower (A) (i) shall make an assignment for the benefit of creditors; or (ii) shall be unable to pay its debts as they become due, or be unable to pay or perform under the Loan Documents, or shall become insolvent; or (iii) shall file a voluntary petition in bankruptcy; or (iv) shall file any petition, answer, or document seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances; or (v) shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower or of all or any substantial part (i.e., 33-1/3% or more) of the assets or property of Borrower; or (vi) shall cease operations of its business as its business has normally been conducted, or terminate substantially all of its employees; or (vii) Borrower or its directors or majority shareholders shall take any action initiating any of the foregoing actions described in clauses (i) through (vi); or (B) either (i) forty-five (45) days shall have expired after the commencement of an involuntary action against Borrower seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Borrower being stayed; or (ii) a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (iii) Borrower shall file any answer admitting or not contesting the material allegations of a petition filed against Borrower in any such proceedings; or (iv) the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or (v) forty-five (45) days shall have expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower without such appointment being vacated; or

9.6 Attachments; Judgments. Any portion of Borrower’s assets is attached or seized, or a levy is filed against any such assets, or a judgment or judgments is/are entered for the payment of money (not covered by independent third party insurance as to which liability has not been rejected by such insurance carrier), individually or in the aggregate, of at least $500,000, or Borrower is enjoined or in any way prevented by court order from developing or commercializing TRC101; or

9.7 Other Obligations. The occurrence of any default under any agreement or obligation of Borrower involving any Indebtedness in excess of $500,000.

SECTION 10. REMEDIES

10.1 General. Upon and during the continuance of any one or more Events of Default, (i) Agent may, and at the direction of the Required Lenders shall, accelerate and demand payment of all or any part of the Secured Obligations together with a Prepayment Charge and declare them to be immediately due and payable (provided, that upon the occurrence of an Event of Default of the type described in Section 9.5, all of the Secured Obligations shall automatically be accelerated and made due and payable, in each case without any further notice or act), (ii) Agent may, at its option, sign and file in Borrower’s name any and all collateral assignments, notices, control agreements, security agreements and other documents it deems necessary or appropriate to perfect or protect the repayment of the Secured Obligations, and in furtherance thereof, Borrower hereby grants Agent an irrevocable power of attorney coupled with an interest, and (iii) Agent may notify any of Borrower’s account debtors to make payment directly to Agent, compromise the amount of any such account on Borrower’s behalf and endorse Agent’s name without recourse on any such payment for deposit directly to Agent’s account.

 

29


Agent may, and at the direction of the Required Lenders shall, exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to it under the UCC and other applicable law, including the right to release, hold, sell, lease, liquidate, collect, realize upon, or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. All Agent’s rights and remedies shall be cumulative and not exclusive.

10.2 Collection; Foreclosure. Upon the occurrence and during the continuance of any Event of Default, Agent may, and at the direction of the Required Lenders shall, at any time or from time to time, apply, collect, liquidate, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Agent may elect. Any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon ten (10) calendar days’ prior written notice to Borrower. Agent may require Borrower to assemble the Collateral and make it available to Agent at a place designated by Agent that is reasonably convenient to Agent and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be applied by Agent in the following order of priorities:

First, to Agent and Lender in an amount sufficient to pay in full Agent’s and Lender’s reasonable costs and professionals’ and advisors’ fees and expenses as described in Section 11.11;

Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations (including principal, interest, and interest at the default rate), in such order and priority as Agent may choose in its sole discretion; and

Finally, after the full and final payment in Cash of all of the Secured Obligations (other than inchoate obligations), to any creditor holding a junior Lien on the Collateral, or to Borrower or its representatives or as a court of competent jurisdiction may direct.

Agent shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under the UCC.

10.3 No Waiver. Agent shall be under no obligation to marshal any of the Collateral for the benefit of Borrower or any other Person, and Borrower expressly waives all rights, if any, to require Agent to marshal any Collateral.

10.4 Cumulative Remedies. The rights, powers and remedies of Agent hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Agent.

SECTION 11. MISCELLANEOUS

11.1 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

 

30


11.2 Notice. Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication (including the delivery of Financial Statements) that is required, contemplated, or permitted under the Loan Documents or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by electronic mail or hand delivery or delivery by an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States of America mails, with proper first class postage prepaid, in each case addressed to the party to be notified as follows:

 

  (a) If to Agent:

HERCULES CAPITAL, INC.

Legal Department

Attention: Chief Legal Officer and Himani Bhalla

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Telephone: 650-289-3060

 

  (b) If to Lender:

HERCULES CAPITAL, INC. and

HERCULES TECHNOLOGY III, L.P.

Legal Department

Attention: Chief Legal Officer and Himani Bhalla

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Telephone: 650-289-3060

 

  (c) If to Borrower:

TRICIDA, INC.

Attention: Legal Department

7000 Shoreline Court, Suite 201

South San Francisco, CA 94080

Telephone: (415) 988-2420

or to such other address as each party may designate for itself by giving notice in conformity with this section 11.2.

11.3 Entire Agreement; Amendments.

 

31


(a) This Agreement and the other Loan Documents constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, non-disclosure or confidentiality agreements, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including Agent’s revised proposal letter dated January 19, 2018 and the Non-Disclosure Agreement).

(b) Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 11.3(b). The Required Lenders and Borrower party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Agent and the Borrower party to the relevant Loan Document may, from time to time, (i) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or (ii) waive, on such terms and conditions as the Required Lenders or the Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (A) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect of any Term Loan, or reduce the stated rate of any interest or fee payable hereunder, in each case without the written consent of each Lender directly affected thereby; (B) eliminate or reduce the voting rights of any Lender under this Section 11.3(b) without the written consent of such Lender; (C) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release a Borrower from its obligations under the Loan Documents, in each case without the written consent of all Lenders; or (D) amend, modify or waive any provision of Section 11.17 without the written consent of the Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each Lender and shall be binding upon Borrower, the Lender, the Agent and all future holders of the Loans.

11.4 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

11.5 No Waiver. The powers conferred upon Agent and Lender by this Agreement are solely to protect its rights hereunder and under the other Loan Documents and its interest in the Collateral and shall not impose any duty upon Agent or Lender to exercise any such powers. No omission or delay by Agent or Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Agent or Lender is entitled, nor shall it in any way affect the right of Agent or Lender to enforce such provisions thereafter.

 

32


11.6 Survival. All agreements, representations and warranties contained in this Agreement and the other Loan Documents or in any document delivered pursuant hereto or thereto shall be for the benefit of Agent and Lender and shall survive the execution and delivery of this Agreement. Sections 6.3 and 8.1 shall survive the termination of this Agreement.

11.7 Successors and Assigns. The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement or any of the other Loan Documents without Agent’s express prior written consent, and any such attempted assignment shall be void and of no effect. Agent and Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents with the consent of Borrower, and all of such rights shall inure to the benefit of Agent’s and Lender’s successors and assigns; provided that if an Event of Default has occurred and is continuing, Agent or any Lender may assign, transfer or endorse its rights hereunder or under the Loan Documents to any party without the consent of Borrower; provided further that (x) any such assignment, transfer or endorsement to an Affiliate of any Lender or Agent shall be allowed at any time without prior written consent of Borrower, and (y) any transfer in the form of an assignment of security interest in favor of Agent’s or any Lender shall be allowed at any time without prior written consent of Borrower.

11.8 Governing Law. This Agreement and the other Loan Documents have been negotiated and delivered to Agent and Lender in the State of California, and shall have been accepted by Agent and Lender in the State of California. Payment to Agent and Lender by Borrower of the Secured Obligations is due in the State of California. This Agreement and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

11.9 Consent to Jurisdiction and Venue. All judicial proceedings (to the extent that the reference requirement of Section 11.10 is not applicable) arising in or under or related to this Agreement or any of the other Loan Documents may be brought in any state or federal court located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in San Mateo County, State of California; (b) waives any objection as to jurisdiction or venue in San Mateo County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement or the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 11.2, and shall be deemed effective and received as set forth in Section 11.2. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

11.10 Mutual Waiver of Jury Trial / Judicial Reference.

(a) Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert Person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF

 

33


BORROWER, AGENT AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY BORROWER AGAINST AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE OR BY AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE AGAINST BORROWER. This waiver extends to all such Claims, including Claims that involve Persons other than Agent, Borrower and Lender; Claims that arise out of or are in any way connected to the relationship among Borrower, Agent and Lender; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement, any other Loan Document.

(b) If the waiver of jury trial set forth in Section 11.10(a) is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of the San Mateo County, California. Such proceeding shall be conducted in San Mateo County, California, with California rules of evidence and discovery applicable to such proceeding.

(c) In the event Claims are to be resolved by judicial reference, either party may seek from a court identified in Section 11.9, any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

11.11 Professional Fees. Borrower promises to pay Agent’s and Lender’s fees and expenses necessary to finalize the loan documentation, including but not limited to reasonable attorneys’ fees, UCC searches, filing costs, and other miscellaneous expenses. In addition, Borrower promises to pay any and all reasonable attorneys’ and other professionals’ fees and expenses incurred by Agent and Lender after the Closing Date in connection with or related to: (a) the Loan; (b) the administration, collection, or enforcement of the Loan; (c) the amendment or modification of the Loan Documents; (d) any waiver, consent, release, or termination under the Loan Documents; (e) the protection, preservation, audit, field exam, sale, lease, liquidation, or disposition of Collateral or the exercise of remedies with respect to the Collateral; (f) any legal, litigation, administrative, arbitration, or out of court proceeding in connection with or related to Borrower or the Collateral, and any appeal or review thereof; and (g) any bankruptcy, restructuring, reorganization, assignment for the benefit of creditors, workout, foreclosure, or other action related to Borrower, the Collateral, the Loan Documents, including representing Agent or Lender in any adversary proceeding or contested matter commenced or continued by or on behalf of Borrower’s estate, and any appeal or review thereof.

11.12 Confidentiality. Agent and Lender acknowledge that certain items of Collateral and information provided to Agent and Lender by Borrower are confidential and proprietary information of Borrower, if and to the extent such information either (x) is marked as confidential by Borrower at the time of disclosure, or (y) should reasonably be understood to be confidential (the “Confidential Information”). Accordingly, Agent and Lender agree that any Confidential Information it may obtain in the course of acquiring, administering, or perfecting Agent’s security interest in the Collateral or otherwise pursuant to the terms of this Agreement shall not be disclosed to any other Person or entity in any manner whatsoever, in whole or in part, without the prior written consent of Borrower, except that Agent and any Lender may

 

34


disclose any such information: (a) to its own directors, officers, employees, accountants, counsel and other professional advisors (collectively, “Representatives”) and to its Affiliates if Agent or Lender in their sole discretion determines that any such party should have access to such information in connection with such party’s responsibilities in connection with the Loan or this Agreement and, provided that such recipient of such Confidential Information either (i) agrees to be bound by the confidentiality provisions of this paragraph or (ii) is otherwise subject to confidentiality restrictions that reasonably protect against the disclosure of Confidential Information; (b) if such information is generally available to the public; (c) if required or appropriate in any report, statement or testimony submitted to any governmental authority having or claiming to have jurisdiction over Agent or Lender; (d) if required or appropriate in response to any summons or subpoena or in connection with any litigation, to the extent permitted or deemed advisable by Agent’s or Lender’s counsel; (e) to comply with any legal requirement or law applicable to Agent or Lender; (f) to the extent reasonably necessary in connection with the exercise of any right or remedy under any Loan Document, including Agent’s sale, lease, or other disposition of Collateral after default; (g) to any participant or assignee of Agent or Lender or any prospective participant or assignee; provided, that such participant or assignee or prospective participant or assignee agrees in writing to be bound by this Section prior to disclosure; or (h) otherwise with the prior consent of Borrower; provided, that any disclosure made in violation of this Agreement shall not affect the obligations of Borrower or any of its Affiliates or any guarantor under this Agreement or the other Loan Documents. Agent’s and Lender’s obligations under this Section 11.12 shall supersede all of their respective obligations under the Non-Disclosure Agreement and Agent and Lender shall be responsible for any breach of the terms of this paragraph by any of their respective Representatives or Affiliates.

11.13 Assignment of Rights. Borrower acknowledges and understands that Agent or Lender may, subject to Section 11.7, sell and assign all or part of its interest hereunder and under the Loan Documents to any Person or entity (an “Assignee”). After such assignment the term “Agent” or “Lender” as used in the Loan Documents shall mean and include such Assignee, and such Assignee shall be vested with all rights, powers and remedies of Agent and Lender hereunder with respect to the interest so assigned; but with respect to any such interest not so transferred, Agent and Lender shall retain all rights, powers and remedies hereby given. No such assignment by Agent or Lender shall relieve Borrower of any of its obligations hereunder. Lender agrees that in the event of any transfer by it of the Note(s)(if any), it will endorse thereon a notation as to the portion of the principal of the Note(s), which shall have been paid at the time of such transfer and as to the date to which interest shall have been last paid thereon.

11.14 Revival of Secured Obligations. This Agreement and the Loan Documents shall remain in full force and effect and continue to be effective if any petition is filed by or against Borrower for liquidation or reorganization, if Borrower becomes insolvent or makes an assignment for the benefit of creditors, if a receiver or trustee is appointed for all or any significant part of Borrower’s assets, or if any payment or transfer of Collateral is recovered from Agent or Lender. The Loan Documents and the Secured Obligations and Collateral security shall continue to be effective, or shall be revived or reinstated, as the case may be, if at any time payment and performance of the Secured Obligations or any transfer of Collateral to Agent, or any part thereof is rescinded, avoided or avoidable, reduced in amount, or must

 

35


otherwise be restored or returned by, or is recovered from, Agent, Lender or by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment, performance, or transfer of Collateral had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, avoided, avoidable, restored, returned, or recovered, the Loan Documents and the Secured Obligations shall be deemed, without any further action or documentation, to have been revived and reinstated except to the extent of the full, final, and indefeasible payment to Agent or Lender in Cash.

11.15 Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

11.16 No Third Party Beneficiaries. No provisions of the Loan Documents are intended, nor will be interpreted, to provide or create any third-party beneficiary rights or any other rights of any kind in any Person other than Agent, Lender and Borrower unless specifically provided otherwise herein, and, except as otherwise so provided, all provisions of the Loan Documents will be personal and solely among Agent, the Lender and the Borrower.

11.17 Agency.

(a) Lender hereby irrevocably appoints Hercules Capital, Inc. to act on its behalf as the Agent hereunder and under the other Loan Documents and authorizes the Agent to take such actions on its behalf and to exercise such powers as are delegated to the Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.

(b) Lender agrees to indemnify the Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), according to its respective Term Commitment percentages (based upon the total outstanding Term Commitments) in effect on the date on which indemnification is sought under this Section 11.17, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.

(c) Agent in Its Individual Capacity. The Person serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent and the term “Lender” shall, unless otherwise expressly indicated or unless the context otherwise requires, include each such Person serving as Agent hereunder in its individual capacity.

 

36


(d) Exculpatory Provisions. The Agent shall have no duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Agent shall not:

 

  (i) be subject to any fiduciary or other implied duties, regardless of whether any default or any Event of Default has occurred and is continuing;

 

  (ii) have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Agent is required to exercise as directed in writing by the Lender, provided that the Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Agent to liability or that is contrary to any Loan Document or applicable law; and

 

  (iii) except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and the Agent shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by any Person serving as the Agent or any of its Affiliates in any capacity.

(e) The Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Lender or as the Agent shall believe in good faith shall be necessary, under the circumstances or (ii) in the absence of its own gross negligence or willful misconduct.

(f) The Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 4 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agent.

(g) Reliance by Agent. Agent may rely, and shall be fully protected in acting, or refraining to act, upon, any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond or other paper or document that it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties. In the absence of its gross negligence or willful misconduct, Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to Agent and conforming to the requirements of the Loan Agreement or any of the other Loan Documents. Agent may consult with counsel, and any opinion or legal advice of such counsel shall be full and complete authorization and protection in respect of any action taken, not taken or suffered by Agent hereunder or under any Loan

 

37


Documents in accordance therewith. Agent shall have the right at any time to seek instructions concerning the administration of the Collateral from any court of competent jurisdiction. Agent shall not be under any obligation to exercise any of the rights or powers granted to Agent by this Agreement, the Loan Agreement and the other Loan Documents at the request or direction of Lenders unless Agent shall have been provided by Lender with adequate security and indemnity against the costs, expenses and liabilities that may be incurred by it in compliance with such request or direction.

11.18 Publicity. None of the parties hereto nor any of its respective member businesses and Affiliates shall, without the other parties’ prior written consent (which shall not be unreasonably withheld or delayed), publicize or use (a) the other party’s name (including a brief description of the relationship among the parties hereto), logo or hyperlink to such other parties’ web site, separately or together, in written and oral presentations, advertising, promotional and marketing materials, client lists, public relations materials or on its web site (together, the “Publicity Materials”); (b) the names of officers of such other parties in the Publicity Materials; and (c) such other parties’ name, Trademarks, servicemarks in any news or press release concerning such party; provided however, notwithstanding anything to the contrary herein, no such consent shall be required (i) to the extent necessary to comply with the requests of any regulators, legal requirements or laws applicable to such party, pursuant to any listing agreement with any national securities exchange (so long as such party provides prior notice to the other party hereto to the extent reasonably practicable) and (ii) to comply with Section 11.12.

(SIGNATURE PAGES FOLLOW)

 

38


IN WITNESS WHEREOF, Borrower, Agent and Lender have duly executed and delivered this Loan and Security Agreement as of the day and year first above written.

 

BORROWER:
TRICIDA, INC.
Signature:  

/s/ Geoffrey Parker

Print Name:   Geoffrey Parker
Title:   Chief Financial Officer

Accepted in Palo Alto, California:

 

AGENT and LENDER:
HERCULES CAPITAL, INC.
Signature:  

/s/ Zhuo Huang

Print Name:   Zhuo Huang
Title:   Associate General Counsel
LENDER:

HERCULES TECHNOLOGY III, L.P.,

a Delaware limited partnership

By:   Hercules Technology SBIC Management, LLC, its General Partner
By:   Hercules Capital, Inc., its Manager
By:  

/s/ Zhuo Huang

Name:   Zhuo Huang
Its:   Associate General Counsel

 

39

Exhibit 10.7

Execution Version

FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT AND

FIRST AMENDMENT TO WARRANTS

This FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT AND FIRST AMENDMENT TO WARRANTS (this “ Amendment ”), dated as of April 10, 2018 (the “ Amendment Effective Date ”), is entered into by and among Tricida, Inc. (the “ Borrower ”), Hercules Capital, Inc. (“ Hercules Capital ”), a Maryland corporation, in its capacity as administrative agent and collateral agent for itself and the Lender (in such capacity, together with its successors and assigns in such capacity, the “ Agent ”), and Hercules Technology III, L.P. (“ Hercules Technology ”), a Delaware limited partnership.

WHEREAS , the Borrower, the Lender and Agent are parties to that certain Loan and Security Agreement dated as of February 28, 2018 (as amended, modified or supplemented from time to time, the “ Loan Agreement ”);

WHEREAS , the Borrower and Hercules Capital entered into that certain Warrant Agreement (“ Warrant One ”) dated as of February 28, 2018;

WHEREAS , the Borrower and Hercules Technology (with Hercules Capital, the “ Warrantholders ”) entered into that certain Warrant Agreement (“ Warrant Two ”) dated as of February 28, 2018 (collectively, with Warrant One, the “ Warrants ,” and with the Loan Agreement and Warrant One, the “ Agreements ”);

WHEREAS , the Borrower has requested certain modifications to the Agreements; and

WHEREAS , the Required Lenders, as defined in the Loan Agreement, and Agent are willing to amend the Loan Agreement and the Warrantholders are willing to amend the Warrants in accordance with and subject to the terms and conditions set forth herein.

NOW, THEREFORE , in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

SECTION 1 Definitions; Interpretation.

(a) All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Loan Agreement or the Warrants, as applicable.

(b) The rules of interpretation set forth in Section 1.1 of the Loan Agreement shall be applicable to this Amendment and are incorporated herein by this reference.

SECTION 2 Amendments to the Loan Agreement and the Warrants

(a) Amendments to the Loan Agreement

 

1


(i) Section  1 (Definitions and Rules of Construction ) . The definition of “Warrant” in Section 1 is hereby amended and restated in its entirety as follows:

“‘Warrant’ means any warrant entered into in connection with the Borrower’s draw of each Term Loan Advance in Tranche 1, Tranche 2, Tranche 3, Tranche 4, and/or Tranche 5, respectively, as set forth in either Exhibit I or Exhibit J, as may be amended, restated or modified from time to time.”

(ii) Section  4.2 (All Advances). Section 4.2 of the Loan Agreement is hereby amended and restated in its entirety by adding a new subsection (g) as follows:

“(g) Borrower and the party identified on the signature pages to each form of Warrant, as set forth in Exhibit I or Exhibit J, shall have executed a Warrant in connection with each applicable Term Loan Advance.”

(iii) Table of Addenda, Exhibits and Schedules. In Annex A hereto, insertions of text in the Table of Addenda, Exhibits and Schedules as amended by this Amendment are indicated by bold, double-underlined text.

(iv) Addendum 1 to Loan Agreement, Section (g) (Redemption Provisions). Section (g) of Addendum 1 to Loan Agreement is hereby amended and restated in its entirety as follows:

“(g) Redemption Provisions. Notwithstanding any provision to the contrary contained in the Certificate of Incorporation of Borrower, as amended from time to time (the “Charter”), if, pursuant to the redemption provisions contained in the Charter, Lender is entitled to a redemption of its Warrant, such redemption (in the case of Lender) will be at a price equal to the redemption price set forth in the Charter (the “Existing Redemption Price”), if such exists. If, however, Lender delivers written notice to Borrower that the then current regulations promulgated under the SBIC Act prohibit payment of the Existing Redemption Price in the case of an SBIC (or, if applied, the Existing Redemption Price would cause the applicable preferred stock to lose its classification as an “equity security” and Lender has determined that such classification is unadvisable), the amount Lender will be entitled to receive shall be the greater of (i) fair market value of the securities being redeemed taking into account the rights and preferences of such securities plus any costs and expenses of the Lender incurred in making or maintaining the Warrant, and (ii) the Existing Redemption Price where the amount of accrued but unpaid dividends payable to the Lender is limited to Borrower’s earnings plus any costs and expenses of the Lender incurred in making or maintaining the Warrant; provided, however, the amount calculated in subsections (i) or (ii) above shall not exceed the Existing Redemption Price.”

(v) Exhibit I: Form of Warrant for Hercules Capital, Inc. Exhibit I is hereby added to the Loan Agreement in its entirety as provided in Annex B hereto.

 

2


(vi) Exhibit J: Form of Warrant for Hercules Technology III, L.P. Exhibit J is hereby added to the Loan Agreement in its entirety as provided in Annex C hereto.

(b) Amendments to the Warrants

(i) Section  1 (Grant of the Right to Purchase Common Stock). The definition of “Exercise Price” in Section 1 is hereby amended and restated in its entirety as follows:

“‘ Exercise Price ’ means the lesser of (a) if the Company achieves the IPO Milestone, the initial price to the public per share of Common Stock specified in the final prospectus filed with the SEC with respect to the Company’s Initial Public Offering, or (b) the Series D Conversion Price. In no event shall the Exercise Price be less than the Floor Price.”

(ii) Section  1 (Grant of the Right to Purchase Common Stock). Section 1 is modified to add the following:

Floor Price ” means $.20/share of Common Stock.

(iii) Section  1 (Grant of the Right to Purchase Common Stock). The definition of “Warrant Coverage” in Section 1 of Warrant One is hereby amended and restated in its entirety as follows:

“‘ Warrant Coverage ’ means Three Hundred Thousand Dollars ($300,000.00).”

(iv) Section  1 (Grant of the Right to Purchase Common Stock). The definition of “Warrant Coverage” in Section 1 of Warrant Two is hereby amended and restated in its entirety as follows:

“‘ Warrant Coverage ’ means Two Hundred Thousand Dollars ($200,000.00).”

(v) Section  2 (Term of the Agreement). Section 2 is hereby amended and restated in its entirety as follows:

“Except as otherwise provided for herein, the term of this Agreement and the right to purchase Common Stock as granted herein (the “ Warrant ”) shall commence on the Effective Date and shall be exercisable for a period ending upon the earliest to occur of (i) February 28, 2025; (ii) three (3) years after the Initial Public Offering; and (iii) immediately prior to the closing of a Merger Event (the “ Exercise Period ”).”

(c) References within the Loan Agreement and the Warrants. Each reference in the Loan Agreement and the Warrants to “this Agreement” and the words “hereof,” “herein,” “hereunder,” or words of like import, shall mean and be a reference to the Loan Agreement or the Warrants, as applicable, as amended by this Amendment.

SECTION 3 Conditions of Effectiveness. The effectiveness of Section  2 of this Amendment shall be subject to the satisfaction of each of the following conditions precedent:

 

3


(a) Fees and Expenses. The Borrower shall have paid (i) all attorney fees and other costs and expenses then due in accordance with Section  5(e) , and (ii) all other fees, costs and expenses, if any, due and payable as of the Amendment Effective Date under the Loan Agreement.

(b) This Amendment. Agent shall have received this Amendment, executed by Agent, the Lender and the Borrower.

(c) Officer’s Certificates. Agent shall have received certified copy of resolutions of Borrower’s board of directors evidencing approval of this Amendment and other transactions contemplated herein.

(d) Representations and Warranties; No Default. On the Amendment Effective Date, after giving effect to the amendment of the Loan Agreement contemplated hereby:

(i) The representations and warranties contained in Section  4 shall be true and correct on and as of the Amendment Effective Date as though made on and as of such date; and

(ii) There exist no Events of Default or events that with the passage of time would result in an Event of Default.

SECTION 4 Representations and Warranties. To induce Agent and Lender to enter into this Amendment, Borrower hereby confirms, as of the date hereof, (a) that the representations and warranties made by it in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct in all material respects; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; (b) that there has not been and there does not exist a Material Adverse Change; and (c) that the information included in the Perfection Certificate delivered to Agent on the Effective Date remains true and correct. For the purposes of this Section  4 , (i) each reference in Section 5 of the Loan Agreement to “this Agreement,” and the words “hereof,” “herein,” “hereunder,” or words of like import in such section, shall mean and be a reference to the Loan Agreement as amended by this Amendment, and (ii) any representations and warranties which relate solely to an earlier date shall not be deemed confirmed and restated as of the date hereof (provided that such representations and warranties shall be true, correct and complete as of such earlier date).

SECTION 5 Miscellaneous.

(a) Loan Documents Otherwise Not Affected; Reaffirmation. Except as expressly amended pursuant hereto or referenced herein, the Loan Agreement and the other Loan Documents shall remain unchanged and in full force and effect and are hereby ratified and confirmed in all respects. The Lender’s and Agent’s execution and delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. Borrower hereby reaffirms the grant of security under Section 3.1 of the Loan Agreement and hereby reaffirms that such grant of security in the Collateral secures all Secured Obligations under the Loan Agreement and the other Loan Documents.

 

4


(b) Conditions. For purposes of determining compliance with the conditions specified in Section  3 , each Lender that has signed this Amendment shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless Agent shall have received notice from such Lender prior to the Amendment Effective Date specifying its objection thereto.

(c) Release. In consideration of the agreements of Agent and each Lender contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, on behalf of itself and its successors, assigns, and other legal representatives, hereby fully, absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender, and its successors and assigns, and its present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, Lenders and all such other persons being hereinafter referred to collectively as the “ Releasees ” and individually as a “ Releasee ”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Borrower, or any of its successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment for or on account of, or in relation to, or in any way in connection with the Loan Agreement, or any of the other Loan Documents or transactions thereunder or related thereto. Borrower understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. Borrower agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall, to the fullest extent of the law, affect in any manner the final, absolute and unconditional nature of the release set forth above.

(d) No Reliance. Borrower hereby acknowledges and confirms to Agent and the Lender that Borrower is executing this Amendment on the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person.

(e) Costs and Expenses . Borrower agrees to pay to Agent on the Amendment Effective Date the out-of-pocket costs and expenses of Agent and the Lenders party hereto, and the fees and disbursements of counsel to Agent and the Lenders party hereto (including allocated costs of internal counsel), in connection with the negotiation, preparation, execution and delivery of this Amendment and any other documents to be delivered in connection herewith on the Amendment Effective Date or after such date.

(f) Binding Effect. This Amendment binds and is for the benefit of the successors and permitted assigns of each party.

 

5


(g) Governing Law. This Amendment and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

(h) Complete Agreement; Amendments. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements with respect to such subject matter. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

(i) Severability of Provisions. Each provision of this Amendment is severable from every other provision in determining the enforceability of any provision.

(j) Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Amendment. Delivery of an executed counterpart of a signature page of this Amendment by facsimile, portable document format (.pdf) or other electronic transmission will be as effective as delivery of a manually executed counterpart hereof.

(k) Loan Documents. This Amendment shall constitute a Loan Document.

[Balance of Page Intentionally Left Blank; Signature Pages Follow]

 

6


IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written.

 

BORROWER:
TRICIDA, INC.
Signature: /s/ Geoffrey Parker                            
Print Name: Geoffrey Parker
Title: Chief Financial Officer
AGENT, LENDER and WARRANTHOLDER:
HERCULES CAPITAL, INC.
Signature: /s/ Zhuo Huang                                
Print Name: Zhuo Huang
Title: Associate General Counsel
LENDER and WARRANTHOLDER:
HERCULES TECHNOLOGY III, L.P.,
a Delaware limited partnership

By: Hercules Technology SBIC Management, LLC,

its General Partner

By: Hercules Capital, Inc.,

its Manager

By:

  /s/ Zhuo Huang                                

Name:

  Zhuo Huang

Its:

  Associate General Counsel

[Signature Page to First Amendment to Loan and Security Agreement and First Amendment to Warrants]


A NNEX A

Table of Addenda, Exhibits and Schedules

 

Addendum 1: SBA Provisions

 

Exhibit A: Advance Request
  Attachment to Advance Request

 

Exhibit B: Term Note

 

Exhibit C: Name, Locations, and Other Information for Borrower

 

Exhibit D: [Reserved]

 

Exhibit E: Borrower’s Deposit Accounts and Investment Accounts

 

Exhibit F: Compliance Certificate

 

Exhibit G: Joinder Agreement

 

Exhibit H: ACH Debit Authorization Agreement

 

Exhibit I: Form of Warrant for Hercules Capital, Inc.

 

Exhibit J: Form of Warrant for Hercules Technology III, L.P.

 

Schedule 1 Subsidiaries
Schedule 1.1 Commitments
Schedule 1A Existing Permitted Indebtedness
Schedule 1B Existing Permitted Investments
Schedule 1C Existing Permitted Liens
Schedule 5.3 Consents, Etc.
Schedule 5.5 Actions Before Governmental Authorities
Schedule 5.8 Tax Matters
Schedule 5.9 Intellectual Property Claims
Schedule 5.10 Intellectual Property
Schedule 5.11 Borrower Products
Schedule 5.14 Capitalization


A NNEX B

EXHIBIT I

FORM OF WARRANT FOR HERCULES CAPITAL, INC.

THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT AGREEMENT

To Purchase Shares of Common Stock of

Tricida, Inc.

Dated as of [    ] (the “ Effective Date ”)

WHEREAS, Tricida, Inc., a Delaware corporation, has entered into a Loan and Security Agreement, dated as of February 28, 2018 (the “ Loan Agreement ”), with Hercules Capital, Inc., a Maryland corporation, in its capacity as administrative and collateral agent, Hercules Capital, Inc. (the “ Warrantholder ”) and the other lender parties thereto;

WHEREAS, the Company (as defined below) desires to grant to the Warrantholder, in consideration for, among other things, the financial accommodations provided for in the Loan Agreement, the right to purchase shares of Common Stock (as defined below) pursuant to this Warrant Agreement (the “ Agreement ”);

NOW, THEREFORE, in consideration of the Warrantholder executing and delivering the Loan Agreement and providing the financial accommodations contemplated therein, and in consideration of the mutual covenants and agreements contained herein, the Company and the Warrantholder agree as follows:

SECTION 1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.

For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, an aggregate number of fully paid and non-assessable shares of Common Stock equal to the quotient derived by dividing (a) the Warrant Coverage (as defined below) by (b) the Exercise Price (as defined below). The Exercise Price of such shares are subject to adjustment as provided in Section 8. As used herein, the following terms shall have the following meanings:

Act ” means the Securities Act of 1933, as amended.

Charter ” means the Company’s Certificate of Incorporation, as may be amended from time to time.

Common Stock ” means the Company’s common stock, $0.001 par value per share.

Company ” means Tricida, Inc., a Delaware corporation.

 

9


Exercise Price ” means the lesser of (a) if the Company achieves the IPO Milestone, the initial price to the public per share of Common Stock specified in the final prospectus filed with the SEC with respect to the Company’s Initial Public Offering, or (b) the Series D Conversion Price. In no event shall the Exercise Price be less than the Floor Price.”

Floor Price ” means $.20/share of Common Stock.

Initial Public Offering ” means the initial underwritten public offering of the Common Stock pursuant to a registration statement under the Act, which registration statement has been declared effective by the Securities and Exchange Commission (“ SEC ”).

IPO Milestone ” means receipt by the Company, prior to December 15, 2018, of at least One Hundred Million Dollars ($100,000,000.00) in aggregate proceeds (net of underwriting discounts and commissions) from an Initial Public Offering.

Merger Event ” means any sale, lease, exclusive license or other transfer of all or substantially all assets of the Company or any merger or consolidation involving the Company in which the Company is not the surviving entity, or in which the outstanding shares of the Company’s capital stock are otherwise converted into or exchanged for shares of common stock, preferred stock, other securities or property of another entity; other than any such consolidation, merger or reorganization in which the shares of capital stock of the Company immediately prior to such consolidation, merger or reorganization, continue to represent a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization (provided that, all shares of Common Stock issuable upon exercise of options or warrants outstanding immediately prior to such consolidation or merger or upon conversion of convertible securities outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged).

Preferred Stock ” means the Company’s Series D preferred stock, $0.001 par value per share, as presently constituted, and, to the extent provided in Section 8(b), any other stock into or for which such Preferred Stock may be converted or exchanged.

Purchase Price ” means, with respect to any exercise of this Agreement, an amount equal to the Exercise Price as of the relevant time multiplied by the number of shares of Common Stock requested to be exercised under this Agreement pursuant to such exercise.

Series D Conversion Price ” has the meaning set forth in the Charter.

Warrant Coverage ” means [Three Hundred Thousand Dollars ($300,000.00)] 1 [1.20% of such amount advanced under Tranche 2, Tranche 3, Tranche 4 or Tranche 5 (as defined and set forth in the Loan Agreement), as applicable to the tranche under which the Agreement was entered into by the parties hereto in connection with the Term Loan Advance (as defined in the Loan
Agreement)] 2 .

SECTION 2. TERM OF THE AGREEMENT.

Except as otherwise provided for herein, the term of this Agreement and the right to purchase Common Stock as granted herein (the “ Warrant ”) shall commence on the Effective Date and shall be exercisable for a period ending upon the earliest to occur of (i) February 28, 2025; (ii) three (3) years after the Initial Public Offering; and (iii) immediately prior to the closing of a Merger Event (the “ Exercise Period ”).

 

1   Note : Only Tranche 1.
2   Note : Warrantholder to complete based off of applicable Tranche.

 

10


SECTION 3. EXERCISE OF THE PURCHASE RIGHTS.

(a) Exercise . The purchase rights set forth in this Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the Exercise Period, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the “ Notice of Exercise ”), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the Purchase Price in accordance with the terms set forth below, and in no event later than five (5) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Common Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the “ Acknowledgment of Exercise ”) indicating the number of shares which remain subject to future purchases under this Warrant, if any.

The Purchase Price may be paid at the Warrantholder’s election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant for shares of Common Stock to be exercised under this Agreement and, if applicable, an amended Agreement representing the remaining number of shares purchasable hereunder, as determined below (“ Net Issuance ”). If the Warrantholder elects the Net Issuance method, the Company will issue shares of Common Stock in accordance with the following formula:

X = Y(A-B)

A

 

Where:

   X =    the number of shares of Common Stock to be issued to the Warrantholder.
   Y =    the number of shares of Common Stock requested to be purchased under this Agreement.
   A =    the fair market value of one (1) share of Common Stock at the time of issuance of such shares of Common Stock.
   B =    the Exercise Price.

For purposes of the above calculation, current fair market value of Common Stock shall mean with respect to each share of Common Stock:

(i) if the exercise is in connection with an Initial Public Offering, and if the Company’s Registration Statement relating to such Initial Public Offering has been declared effective by the SEC, then the fair market value per share shall be the initial “Price to Public” of the Common Stock specified in the final prospectus with respect to the offering;

(ii) if the exercise is after, and not in connection with an Initial Public Offering, and:

(A) if the Common Stock is traded on a securities exchange, the fair market value shall be deemed to be the average of the closing prices over a five (5) trading day period ending three (3) days before the day the current fair market value of the securities is being determined; or

(B) if the Common Stock is traded over-the-counter, the fair market value shall be deemed to be the average of the closing bid and asked price quoted on the NASDAQ system (or similar system) over the five (5) trading day period ended three (3) days before the day the current fair market value of the securities is being determined;

 

11


(iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ National Market or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could reasonably expect to obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors (provided that if the Company is then in possession of a recent valuation of the Company’s Common Stock, the Board of Directors may rely on such valuation), unless the Notice of Exercise is delivered in connection with a Merger Event, in which case the fair market value of Common Stock shall be deemed to be the per share value received by the holders of the Company’s Common Stock on a common equivalent basis pursuant to such Merger Event.

Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof and Exercise Period.

(b) Exercise Prior to Expiration . To the extent this Agreement is not previously exercised as to all shares of Common Stock subject hereto, and if the fair market value of one share of the Common Stock is greater than the Exercise Price then in effect, this Agreement shall be deemed automatically exercised pursuant to Section 3(a) (even if not surrendered) as of the last day of the Exercise Period. For purposes of such automatic exercise, the fair market value of one share of the Common Stock upon such expiration shall be determined pursuant to Section 3(a). To the extent this Agreement or any portion thereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify the Warrantholder of the number of shares of Common Stock, if any, the Warrantholder is to receive by reason of such automatic exercise.

SECTION 4. RESERVATION OF SHARES.

During the term of this Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein.

SECTION 5. NO FRACTIONAL SHARES OR SCRIP.

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, but in lieu of such fractional shares, the Company shall make a cash payment therefor equal to such fraction multiplied by the then fair market value of one share of Common Stock.

SECTION 6. NO RIGHTS AS STOCKHOLDER.

This Agreement does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the exercise of this Agreement.

SECTION 7. WARRANTHOLDER REGISTRY.

The Company shall maintain a registry showing the name and address of the registered holder of this Agreement. The Warrantholder’s initial address, for purposes of such registry, is set forth below the Warrantholder’s signature on this Agreement. The Warrantholder may change such address by giving written notice of such changed address to the Company.

SECTION 8. ADJUSTMENT RIGHTS.

The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment, as follows:

 

12


(a) Merger Event . If at any time there shall be a Merger Event, then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall be entitled to receive, concurrently with the closing of such Merger Event, the number of shares of Common Stock or other securities or property, if any, (collectively, “ Reference Property ”) that the Warrantholder would have received in connection with such Merger Event if Warrantholder had exercised this Agreement immediately prior to the Merger Event pursuant to the Net Issuance provisions of this Warrant Agreement without actually exercising such right.

(b) Reclassification of Shares . Except for Merger Events subject to Section 8(a), if the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Agreement exist into the same or a different number of securities of any other class or classes, this Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. The provisions of this Section 8(b) shall similarly apply to any successive combination, reclassification, exchange, subdivision or other change.

(c) Subdivision or Combination of Shares . If the Company at any time shall combine or subdivide its Common Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased and the number of shares of Common Stock issuable hereunder shall be proportionately increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased and the number of shares of Common Stock issuable hereunder shall be proportionately decreased.

(d) Dividends . If the Company at any time prior to the Initial Public Offering and while this Agreement is outstanding and unexpired shall:

(i) pay a dividend with respect to the Common Stock payable in Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution; or

(ii) make any other dividend or distribution with respect to Common Stock, except any dividend or distribution specifically provided for in any other clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder shall receive upon exercise or conversion of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Common Stock as of the record date fixed for the determination of the stockholders of the Company entitled to receive such dividend or distribution.

(e) [Intentionally omitted] .

(f) Notice of Adjustments . If prior to Initial Public Offering: (i) the Company shall declare any dividend or distribution upon its stock, whether in stock, cash, property or other securities; (ii) there shall be any Merger Event; or (iii) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least fifteen (15) days’ prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; and (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least fifteen (15) days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up).

 

13


Each such written notice shall be given in accordance with Section 12(g) below and shall set forth, in reasonable detail, (i) the event requiring the notice, and (ii) if any adjustment is required to be made pursuant to this Section 8, (A) the amount of such adjustment, (B) the method by which such adjustment was calculated, (C) the adjusted Exercise Price (if the Exercise Price has been adjusted), and (D) the number of shares subject to purchase hereunder after giving effect to such adjustment.

(g) Timely Notice . Notwithstanding the failure to timely provide any such notice required by Section 8(f) above, the Warrantholder shall retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by the Warrantholder.

SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

(a) Reservation of Common Stock . The Common Stock issuable upon exercise of this Agreement has been duly and validly reserved and, when issued in accordance with the provisions of this Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances created by the Company; provided , that the Common Stock issuable pursuant to this Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and current bylaws as of the Effective Date. The issuance of certificates for shares of Common Stock upon exercise of this Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock; provided , that the Company shall not be required to pay any tax which may be payable in respect of any transfer and the issuance and delivery of any certificate in a name other than that of the Warrantholder.

(b) Due Authority . The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company hereunder, including the issuance to the Warrantholder of the right to acquire the shares of Common Stock, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement: (i) does not violate the Charter or the Company’s current bylaws; (ii) does not contravene any law or governmental rule, regulation or order applicable to the Company; and (iii) does not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which the Company is a party or by which it is bound. This Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (b) as limited by general principles of equity that restrict the availability of equitable remedies.

(c) Consents and Approvals . No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Agreement, except for the filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

(d) Issued Securities . 3 All issued and outstanding shares of Common Stock, preferred stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, preferred stock and any other securities were issued in full compliance with all federal and state securities laws. In addition, as of the date immediately preceding the date of this Agreement:

(i) The authorized capital of the Company consists of (A) [134,000,000] shares of Common Stock, of which [9,152,544] shares are issued and outstanding; (B) [11,398,694] shares of Series A preferred stock, $0.001 par value per share, of which [11,302,758] shares are issued and outstanding and are convertible into an aggregate of [11,302,758] shares of Common Stock at [$0.886] per share; (C) [32,526,878] shares of

 

 

3  

Note: To be updated with each warrant issuance.

 

14


Series B preferred stock, $0.001 par value per share, of which [32,526,878] shares are issued and outstanding and are convertible into an aggregate of [32,526,878] shares of Common Stock at [$0.93] per share; (D) [35,806,451] shares of Series C preferred stock, $0.001 par value per share, of which [35,806,451] shares are issued and outstanding and are convertible into an aggregate of [35,806,451] shares of Common Stock at [$1.55] per share; and (E) [24,500,000] shares of Series D preferred stock, $0.001 par value per share, of which [24,493,615] shares are issued and outstanding and are convertible into an aggregate of [24,493,615] shares of Common Stock at [$2.35] per share.

(ii) The Company issued a warrant dated August 9, 2013 exercisable for 95,936 shares of Series A preferred stock.

(iii) The Company has reserved [18,040,000] shares of Common Stock for issuance under its stock option plan(s), under which options to purchase [14,115,728] shares of Common Stock are outstanding. Except as noted in clause (i) above, there are no other options, warrants, or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company’s capital stock of the Company.

(iv) No stockholder of the Company has preemptive rights to purchase new issuances of the Company’s capital stock, other than pursuant to the Investor Rights Agreement (as defined below) and the Loan Agreement.

(e) Registration Rights . The Company agrees that the shares of Common Stock issued upon exercise of this Warrant shall have the “Piggyback” and S-3 registration rights pursuant to and as set forth in the Company’s Amended and Restated Investor Rights Agreement, dated November 7, 2017, as amended from time to time (the “ Investor Rights Agreement ”) on a pari passu basis with the holders of outstanding shares of Preferred Stock who are parties thereto. The provisions set forth in the Company’s Investor Rights Agreement or similar agreement relating to such registration rights in effect as of the Effective Date may not be amended, modified or waived without the prior written consent of the Warrantholder unless such amendment, modification or waiver affects the rights associated with the shares of Common Stock issued and issuable upon exercise hereof in the same manner as such amendment, modification or waiver affects the rights associated with the shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock whose holders are parties thereto.

(f) Other Commitments to Register Securities . Except as set forth in this Agreement or the Investor Rights Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the Act any of its presently outstanding securities or any of its securities which may hereafter be issued.

(g) Exempt Transaction . Subject to the accuracy of the Warrantholder’s representations in Section 10, the issuance of the Common Stock upon exercise of this Agreement will constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

(h) Compliance with Rule 144 . If the Warrantholder proposes to sell Common Stock issuable upon the exercise of this Agreement in compliance with Rule 144 promulgated by the SEC, then, upon the Warrantholder’s written request to the Company, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the status of the Company’s compliance with the filing requirements of the SEC as set forth in such Rule, as such Rule may be amended from time to time.

(i) Information Rights . During the term of this Warrant, and only if the Initial Public Offering has not occurred, the Warrantholder will receive the Company’s audited financial statements in the manner and within the time period provided for with respect to the Major Investors (as defined in the Investor Rights Agreement) pursuant to Section 3.1(b) of the Investor Rights Agreement; provided , however , that any waiver of such information rights by the Major Investors pursuant to the Investor Rights Agreement shall not act as a waiver of the Warrantholder’s information rights provided for under this Section 9(i).

 

15


SECTION 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

This Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder:

(a) Investment Purpose . The right to acquire Common Stock is being acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of such rights or the Common Stock except pursuant to an effective registration statement or an exemption from the registration requirements of the Act.

(b) Private Issue . The Warrantholder understands (i) that the Common Stock issuable upon exercise of this Agreement is not registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on the representations set forth in this Section 10.

(c) Financial Risk . The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

(d) Risk of No Registration . The Warrantholder understands that if the Company does not register with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 (the “ 1934 Act ”), or file reports pursuant to Section 15(d) of the 1934 Act, or if a registration statement covering the securities under the Act is not in effect when it desires to sell (i) the rights to purchase Common Stock pursuant to this Agreement or (ii) the Common Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of (A) its rights hereunder to purchase Common Stock or (B) Common Stock issued or issuable hereunder which might be made by it in reliance upon Rule 144 under the Act may be made only in accordance with the terms and conditions of that Rule.

(e) Accredited Investor . The Warrantholder is an “accredited investor” within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect.

(f) For purposes of the rights contemplated by Section 9(e) of this Agreement, upon exercise of the Warrant, the Warrantholder hereby agrees to be bound by and subject to the terms and provisions of the Investor Rights Agreement as if the Warrantholder was an “Investor” (as defined in the Investor Rights Agreement) party thereto.

(g) Upon exercise of the Warrant, the Warrantholder hereby agrees to be bound by and subject to the terms and provisions of Section 1.8, Section 2 and Section 3 of the Company’s Amended and Restated Voting Agreement, dated November 7, 2017, as amended from time to time (the “Voting Agreement”), as if the Warrantholder were a “Stockholder” (as defined in the Voting Agreement) party thereto.

SECTION 11. TRANSFERS.

Subject to compliance with applicable federal and state securities laws, this Agreement and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Agreement properly endorsed; provided , however , that if there is not then any ongoing Event of Default (as defined in the Loan Agreement), then such transfer shall be subject to the prior written consent of the Company; provided further , that notwithstanding the foregoing, any such transfer to an Affiliate (as defined in the Loan Agreement) of the Warrantholder shall be allowed at any time without the

 

16


prior written consent of the Company. Each taker and holder of this Agreement, by taking or holding the same, consents and agrees that this Agreement, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Agreement shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Agreement. The transfer of this Agreement shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the “ Transfer Notice ”), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes. The Warrantholder may not transfer this Warrant to a competitor of the Company, as reasonably determined by the Board of Directors.

SECTION 12. MISCELLANEOUS.

(a) Effective Date . The provisions of this Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Agreement shall be binding upon any successors or assigns of the Company.

(b) Remedies . In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where the Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement.

(c) No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.

(d) Additional Documents . The Company, upon execution of this Agreement, shall provide the Warrantholder with a certified copy of resolutions of the Company’s board of directors evidencing approval of this Agreement and the reservation of the shares of Common Stock issuable upon exercise of the Warrant. Prior to the Initial Public Offering, the Company shall also supply documentation reasonably requested by the Warrantholder to evaluate whether to exercise this Warrant, including without limitation, (i) any merger/purchase/asset sale agreement and related documents and estimated payout allocations to each of the respective stockholders, warrant and option holders in connection with a Merger Event, (ii) the most recent capitalization tables, 409A valuations (if any), and board determination of share value (including any waterfall or per share allocations provided to the stockholders), and (iii) most recent Charter.

(e) Attorney’s Fees . In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement. For the purposes of this Section 12(e), attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.

(f) Severability . In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

 

17


(g) Notices . Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication that is required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by electronic mail or hand delivery if transmission or delivery occurs on a business day at or before 5:00 pm in the time zone of the recipient, or, if transmission or delivery occurs on a non-business day or after such time, the first business day thereafter, or the first business day after deposit with an overnight express service or overnight mail delivery service; or (ii) the third (3 rd ) calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows:

If to the Warrantholder:

HERCULES CAPITAL, INC.

Legal Department

Attention: Chief Legal Officer and Himani Bhalla

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Telephone: 650-289-3060

with a copy to (which shall not constitute notice):

LATHAM & WATKINS LLP

Attention: Haim Zaltzman

140 Scott Drive

Menlo Park, CA 94025

Telephone: 650-328-4600

If to the Company:

TRICIDA, INC.

Attention: Legal Department

7000 Shoreline Court, Suite 201

South San Francisco, CA 94080

Telephone: (415) 988-2420

with a copy to (which shall not constitute notice):

SIDLEY AUSTIN LLP

Attention: Geoffrey W. Levin

787 Seventh Avenue

New York, NY 10019

Telephone: 212-839-5776

or to such other address as each party may designate for itself by like notice.

 

18


(h) Entire Agreement; Amendments . This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof (including the Warrantholder’s proposal letter dated January 19, 2018). None of the terms of this Agreement may be amended except by an instrument executed by each of the parties hereto.

(i) Headings . The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.

(j) No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

(k) No Waiver . No omission or delay by the Warrantholder at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the Company at any time designated, shall be a waiver of any such right or remedy to which the Warrantholder is entitled, nor shall it in any way affect the right of the Warrantholder to enforce such provisions thereafter.

(l) Survival . All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be for the benefit of the Warrantholder or Company, as applicable, and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

(m) Governing Law . This Agreement has been negotiated and delivered to Warrantholder in the State of California, and shall have been accepted by the Warrantholder in the State of California. Delivery of Common Stock to the Warrantholder by the Company under this Agreement is due in the State of California. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

(n) Consent to Jurisdiction and Venue . All judicial proceedings arising in or under or related to this Agreement may be brought in any state or federal court of competent jurisdiction located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in San Mateo County, State of California; (b) waives any objection as to jurisdiction or venue in San Mateo County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement or the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 12(g), and shall be deemed effective and received as set forth in Section 12(g). Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

(o) Mutual Waiver of Jury Trial/ Judicial Reference .

(i) Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert Person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND THE WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “ CLAIMS ”) ASSERTED BY THE COMPANY AGAINST THE WARRANTHOLDER OR ITS ASSIGNEE OR BY THE WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all such Claims, including Claims that involve Persons

 

19


other than Company and Warrantholder; Claims that arise out of or are in any way connected to the relationship between the Company and the Warrantholder; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement.

(ii) If the waiver of jury trial set forth in Section 12(o)(i) above is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to California Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of San Mateo County, California. Such proceeding shall be conducted in San Mateo County, California, with California rules of evidence and discovery applicable to such proceeding.

(iii) In the event Claims are to be resolved by judicial reference, either party may seek from a court of competent jurisdiction identified in Section 12(n), any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

(p) Counterparts . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank]

 

20


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its officers thereunto duly authorized as of the Effective Date.

 

COMPANY:    TRICIDA, INC.
      By:   

                                                                                           

      Name:   

 

      Title:   

 

WARRANTHOLDER:    HERCULES CAPITAL, INC.
      By:   

 

      Name:   

 

      Title:   

 

 

21


EXHIBIT I

NOTICE OF EXERCISE

To: Tricida, Inc.

 

(1) The undersigned Warrantholder hereby elects to purchase [            ] shares of the Common Stock of Tricida, Inc., pursuant to the terms of the Warrant Agreement dated [            ] (the “ Agreement ”) between Tricida, Inc. and the Warrantholder, and [CASH PAYMENT: tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any.] [NET ISSUANCE: elects pursuant to Section 3(a) of the Agreement to effect a Net Issuance.]

 

(2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below.

 

    

 

(Name)

    

 

(Address)

WARRANTHOLDER:   HERCULES CAPITAL, INC.
     By:   

                                                                                   

     Name:   

 

     Title:   

 

     Date:   

 

 

22


EXHIBIT II

ACKNOWLEDGMENT OF EXERCISE

The undersigned Tricida, Inc., hereby acknowledges receipt of the “Notice of Exercise” from Hercules Capital, Inc., to purchase [            ] shares of the Common Stock of Tricida, Inc., pursuant to the terms of the Warrant Agreement by and between Tricida, Inc. and Hercules Capital, Inc., dated [            ] (the “ Agreement ”), and further acknowledges that [            ] shares of Common Stock remain subject to purchase under the terms of the Agreement.

 

COMPANY:

 

Tricida, Inc.

    

By:

  

                                                                                   

    

Title:

  

 

    

Date:

  

 

 

23


EXHIBIT III

TRANSFER NOTICE

(To transfer or assign the foregoing Agreement execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Agreement and all rights evidenced thereby are hereby transferred and assigned to

 

 

(Please Print)

 

whose address is                                                                                                                                                                    

 

 

 

  Dated:                                                                                                    
  Holder’s Signature:                                                                               
  Holder’s Address:                                                                                
 

 

Signature Guaranteed:                                                                                                                                                                           

NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Agreement.


A NNEX C

EXHIBIT J

FORM OF WARRANT FOR HERCULES TECHNOLOGY III, L.P.

THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT AGREEMENT

To Purchase Shares of Common Stock of

Tricida, Inc.

Dated as of [    ] (the “ Effective Date ”)

WHEREAS, Tricida, Inc., a Delaware corporation has entered into a Loan and Security Agreement, dated as of February 28, 2018 (the “ Loan Agreement ”), with Hercules Capital, Inc., a Maryland corporation, in its capacity as administrative and collateral agent, Hercules Technology III, L.P., a Delaware limited partnership (the “ Warrantholder ”) and the other lender parties thereto;

WHEREAS, the Company (as defined below) desires to grant to the Warrantholder, in consideration for, among other things, the financial accommodations provided for in the Loan Agreement, the right to purchase shares of Common Stock (as defined below) pursuant to this Warrant Agreement (the “ Agreement ”);

NOW, THEREFORE, in consideration of the Warrantholder executing and delivering the Loan Agreement and providing the financial accommodations contemplated therein, and in consideration of the mutual covenants and agreements contained herein, the Company and the Warrantholder agree as follows:

SECTION 1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.

For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, an aggregate number of fully paid and non-assessable shares of Common Stock equal to the quotient derived by dividing (a) the Warrant Coverage (as defined below) by (b) the Exercise Price (as defined below). The Exercise Price of such shares are subject to adjustment as provided in Section 8. As used herein, the following terms shall have the following meanings:

Act ” means the Securities Act of 1933, as amended.

Charter ” means the Company’s Certificate of Incorporation, as may be amended from time to time.

Common Stock ” means the Company’s common stock, $0.001 par value per share.

Company ” means Tricida, Inc., a Delaware corporation.

 

25


Exercise Price ” means the lesser of (a) if the Company achieves the IPO Milestone, the initial price to the public per share of Common Stock specified in the final prospectus filed with the SEC with respect to the Company’s Initial Public Offering, or (b) the Series D Conversion Price. In no event shall the Exercise Price be less than the Floor Price.”

Floor Price ” means $.20/share of Common Stock.

Initial Public Offering ” means the initial underwritten public offering of the Common Stock pursuant to a registration statement under the Act, which registration statement has been declared effective by the Securities and Exchange Commission (“ SEC ”).

IPO Milestone ” means receipt by the Company, prior to December 15, 2018, of at least One Hundred Million Dollars ($100,000,000.00) in aggregate proceeds (net of underwriting discounts and commissions) from an Initial Public Offering.

Merger Event ” means any sale, lease, exclusive license or other transfer of all or substantially all assets of the Company or any merger or consolidation involving the Company in which the Company is not the surviving entity, or in which the outstanding shares of the Company’s capital stock are otherwise converted into or exchanged for shares of common stock, preferred stock, other securities or property of another entity; other than any such consolidation, merger or reorganization in which the shares of capital stock of the Company immediately prior to such consolidation, merger or reorganization, continue to represent a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization (provided that, all shares of Common Stock issuable upon exercise of options or warrants outstanding immediately prior to such consolidation or merger or upon conversion of convertible securities outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged).

Preferred Stock ” means the Company’s Series D preferred stock, $0.001 par value per share, as presently constituted, and, to the extent provided in Section 8(b), any other stock into or for which such Preferred Stock may be converted or exchanged.

Purchase Price ” means, with respect to any exercise of this Agreement, an amount equal to the Exercise Price as of the relevant time multiplied by the number of shares of Common Stock requested to be exercised under this Agreement pursuant to such exercise.

Series D Conversion Price ” has the meaning set forth in the Charter.

Warrant Coverage ” means [Two Hundred Thousand Dollars ($200,000.00)] 1 [0.80% of such amount advanced under Tranche 2, Tranche 3, Tranche 4 or Tranche 5 (as defined and set forth in the Loan Agreement), as applicable to the tranche under which the Agreement was entered into by the parties hereto in connection with the Term Loan Advance (as defined in the Loan Agreement)] 2 .

SECTION 2. TERM OF THE AGREEMENT.

Except as otherwise provided for herein, the term of this Agreement and the right to purchase Common Stock as granted herein (the “ Warrant ”) shall commence on the Effective Date and shall be exercisable for a period ending upon the earliest to occur of (i) February 28, 2025; (ii) three (3) years after the Initial Public Offering; and (iii) immediately prior to the closing of a Merger Event (the “ Exercise Period ”).

 

 

1   Note : Only Tranche 1.
2   Note : Warrantholder to complete based off of applicable Tranche.

 

26


SECTION 3. EXERCISE OF THE PURCHASE RIGHTS.

(a) Exercise . The purchase rights set forth in this Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the Exercise Period, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the “ Notice of Exercise ”), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the Purchase Price in accordance with the terms set forth below, and in no event later than five (5) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Common Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the “ Acknowledgment of Exercise ”) indicating the number of shares which remain subject to future purchases under this Warrant, if any.

The Purchase Price may be paid at the Warrantholder’s election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant for shares of Common Stock to be exercised under this Agreement and, if applicable, an amended Agreement representing the remaining number of shares purchasable hereunder, as determined below (“ Net Issuance ”). If the Warrantholder elects the Net Issuance method, the Company will issue shares of Common Stock in accordance with the following formula:

X = Y(A-B)

A

 

           Where:    X =    the number of shares of Common Stock to be issued to the Warrantholder.
     Y =    the number of shares of Common Stock requested to be purchased under this Agreement.
     A =    the fair market value of one (1) share of Common Stock at the time of issuance of such shares of Common Stock.
     B =    the Exercise Price.

For purposes of the above calculation, current fair market value of Common Stock shall mean with respect to each share of Common Stock:

(i) if the exercise is in connection with an Initial Public Offering, and if the Company’s Registration Statement relating to such Initial Public Offering has been declared effective by the SEC, then the fair market value per share shall be the initial “Price to Public” of the Common Stock specified in the final prospectus with respect to the offering;

(ii) if the exercise is after, and not in connection with an Initial Public Offering, and:

(A) if the Common Stock is traded on a securities exchange, the fair market value shall be deemed to be the average of the closing prices over a five (5) trading day period ending three (3) days before the day the current fair market value of the securities is being determined; or

(B) if the Common Stock is traded over-the-counter, the fair market value shall be deemed to be the average of the closing bid and asked price quoted on the NASDAQ system (or similar system) over the five (5) trading day period ended three (3) days before the day the current fair market value of the securities is being determined;

 

27


(iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ National Market or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could reasonably expect to obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors (provided that if the Company is then in possession of a recent valuation of the Company’s Common Stock, the Board of Directors may rely on such valuation), unless the Notice of Exercise is delivered in connection with a Merger Event, in which case the fair market value of Common Stock shall be deemed to be the per share value received by the holders of the Company’s Common Stock on a common equivalent basis pursuant to such Merger Event.

Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof and Exercise Period.

(b) Exercise Prior to Expiration . To the extent this Agreement is not previously exercised as to all shares of Common Stock subject hereto, and if the fair market value of one share of the Common Stock is greater than the Exercise Price then in effect, this Agreement shall be deemed automatically exercised pursuant to Section 3(a) (even if not surrendered) as of the last day of the Exercise Period. For purposes of such automatic exercise, the fair market value of one share of the Common Stock upon such expiration shall be determined pursuant to Section 3(a). To the extent this Agreement or any portion thereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify the Warrantholder of the number of shares of Common Stock, if any, the Warrantholder is to receive by reason of such automatic exercise.

SECTION 4. RESERVATION OF SHARES.

During the term of this Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein.

SECTION 5. NO FRACTIONAL SHARES OR SCRIP.

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, but in lieu of such fractional shares, the Company shall make a cash payment therefor equal to such fraction multiplied by the then fair market value of one share of Common Stock.

SECTION 6. NO RIGHTS AS STOCKHOLDER.

This Agreement does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the exercise of this Agreement.

SECTION 7. WARRANTHOLDER REGISTRY.

The Company shall maintain a registry showing the name and address of the registered holder of this Agreement. The Warrantholder’s initial address, for purposes of such registry, is set forth below the Warrantholder’s signature on this Agreement. The Warrantholder may change such address by giving written notice of such changed address to the Company.

SECTION 8. ADJUSTMENT RIGHTS.

The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment, as follows:

 

28


(a) Merger Event . If at any time there shall be a Merger Event, then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall be entitled to receive, concurrently with the closing of such Merger Event, the number of shares of Common Stock or other securities or property, if any, (collectively, “ Reference Property ”) that the Warrantholder would have received in connection with such Merger Event if Warrantholder had exercised this Agreement immediately prior to the Merger Event pursuant to the Net Issuance provisions of this Warrant Agreement without actually exercising such right.

(b) Reclassification of Shares . Except for Merger Events subject to Section 8(a), if the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Agreement exist into the same or a different number of securities of any other class or classes, this Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. The provisions of this Section 8(b) shall similarly apply to any successive combination, reclassification, exchange, subdivision or other change.

(c) Subdivision or Combination of Shares . If the Company at any time shall combine or subdivide its Common Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased and the number of shares of Common Stock issuable hereunder shall be proportionately increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased and the number of shares of Common Stock issuable hereunder shall be proportionately decreased.

(d) Dividends . If the Company at any time prior to the Initial Public Offering and while this Agreement is outstanding and unexpired shall:

(i) pay a dividend with respect to the Common Stock payable in Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution; or

(ii) make any other dividend or distribution with respect to Common Stock, except any dividend or distribution specifically provided for in any other clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder shall receive upon exercise or conversion of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Common Stock as of the record date fixed for the determination of the stockholders of the Company entitled to receive such dividend or distribution.

(e) [Intentionally omitted] .

(f) Notice of Adjustments . If prior to Initial Public Offering: (i) the Company shall declare any dividend or distribution upon its stock, whether in stock, cash, property or other securities; (ii) there shall be any Merger Event; or (iii) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least fifteen (15) days’ prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; and (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least fifteen (15) days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up).

 

29


Each such written notice shall be given in accordance with Section 12(g) below and shall set forth, in reasonable detail, (i) the event requiring the notice, and (ii) if any adjustment is required to be made pursuant to this Section 8, (A) the amount of such adjustment, (B) the method by which such adjustment was calculated, (C) the adjusted Exercise Price (if the Exercise Price has been adjusted), and (D) the number of shares subject to purchase hereunder after giving effect to such adjustment.

(g) Timely Notice . Notwithstanding the failure to timely provide any such notice required by Section 8(f) above, the Warrantholder shall retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by the Warrantholder.

SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

(a) Reservation of Common Stock . The Common Stock issuable upon exercise of this Agreement has been duly and validly reserved and, when issued in accordance with the provisions of this Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances created by the Company; provided , that the Common Stock issuable pursuant to this Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and current bylaws as of the Effective Date. The issuance of certificates for shares of Common Stock upon exercise of this Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock; provided , that the Company shall not be required to pay any tax which may be payable in respect of any transfer and the issuance and delivery of any certificate in a name other than that of the Warrantholder.

(b) Due Authority . The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company hereunder, including the issuance to the Warrantholder of the right to acquire the shares of Common Stock, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement: (i) does not violate the Charter or the Company’s current bylaws; (ii) does not contravene any law or governmental rule, regulation or order applicable to the Company; and (iii) does not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which the Company is a party or by which it is bound. This Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (b) as limited by general principles of equity that restrict the availability of equitable remedies.

(c) Consents and Approvals . No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Agreement, except for the filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

(d) Issued Securities . 3 All issued and outstanding shares of Common Stock, preferred stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, preferred stock and any other securities were issued in full compliance with all federal and state securities laws. In addition, as of the date immediately preceding the date of this Agreement:

(i) The authorized capital of the Company consists of (A) [134,000,000] shares of Common Stock, of which [9,152,544] shares are issued and outstanding; (B) [11,398,694] shares of Series A preferred stock, $0.001 par value per share, of which [11,302,758] shares are issued and outstanding and are convertible into an aggregate of [11,302,758] shares of Common Stock at [$0.886] per share; (C) [32,526,878] shares of

 

 

3  

Note : To be updated with each warrant issuance.

 

30


Series B preferred stock, $0.001 par value per share, of which [32,526,878] shares are issued and outstanding and are convertible into an aggregate of [32,526,878] shares of Common Stock at [$0.93] per share; (D) [35,806,451] shares of Series C preferred stock, $0.001 par value per share, of which [35,806,451] shares are issued and outstanding and are convertible into an aggregate of [35,806,451] shares of Common Stock at [$1.55] per share; and (E) [24,500,000] shares of Series D preferred stock, $0.001 par value per share, of which [24,493,615] shares are issued and outstanding and are convertible into an aggregate of [24,493,615] shares of Common Stock at [$2.35] per share.

(ii) The Company issued a warrant dated August 9, 2013 exercisable for 95,936 shares of Series A preferred stock.

(iii) The Company has reserved [18,040,000] shares of Common Stock for issuance under its stock option plan(s), under which options to purchase [14,115,728] shares of Common Stock are outstanding. Except as noted in clause (i) above, there are no other options, warrants, or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company’s capital stock of the Company.

(iv) No stockholder of the Company has preemptive rights to purchase new issuances of the Company’s capital stock, other than pursuant to the Investor Rights Agreement (as defined below) and the Loan Agreement.

(e) Registration Rights . The Company agrees that the shares of Common Stock issued upon exercise of this Warrant shall have the “Piggyback” and S-3 registration rights pursuant to and as set forth in the Company’s Amended and Restated Investor Rights Agreement, dated November 7, 2017, as amended from time to time (the “ Investor Rights Agreement ”) on a pari passu basis with the holders of outstanding shares of Preferred Stock who are parties thereto. The provisions set forth in the Company’s Investor Rights Agreement or similar agreement relating to such registration rights in effect as of the Effective Date may not be amended, modified or waived without the prior written consent of the Warrantholder unless such amendment, modification or waiver affects the rights associated with the shares of Common Stock issued and issuable upon exercise hereof in the same manner as such amendment, modification or waiver affects the rights associated with the shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock whose holders are parties thereto.

(f) Other Commitments to Register Securities . Except as set forth in this Agreement or the Investor Rights Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the Act any of its presently outstanding securities or any of its securities which may hereafter be issued.

(g) Exempt Transaction . Subject to the accuracy of the Warrantholder’s representations in Section 10, the issuance of the Common Stock upon exercise of this Agreement will constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

(h) Compliance with Rule 144 . If the Warrantholder proposes to sell Common Stock issuable upon the exercise of this Agreement in compliance with Rule 144 promulgated by the SEC, then, upon the Warrantholder’s written request to the Company, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the status of the Company’s compliance with the filing requirements of the SEC as set forth in such Rule, as such Rule may be amended from time to time.

(i) Information Rights . During the term of this Warrant, and only if the Initial Public Offering has not occurred, the Warrantholder will receive the Company’s audited financial statements in the manner and within the time period provided for with respect to the Major Investors (as defined in the Investor Rights Agreement) pursuant to Section 3.1(b) of the Investor Rights Agreement; provided , however , that any waiver of such information rights by the Major Investors pursuant to the Investor Rights Agreement shall not act as a waiver of the Warrantholder’s information rights provided for under this Section 9(i).

 

31


SECTION 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

This Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder:

(a) Investment Purpose . The right to acquire Common Stock is being acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of such rights or the Common Stock except pursuant to an effective registration statement or an exemption from the registration requirements of the Act.

(b) Private Issue . The Warrantholder understands (i) that the Common Stock issuable upon exercise of this Agreement is not registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on the representations set forth in this Section 10.

(c) Financial Risk . The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

(d) Risk of No Registration . The Warrantholder understands that if the Company does not register with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 (the “ 1934 Act ”), or file reports pursuant to Section 15(d) of the 1934 Act, or if a registration statement covering the securities under the Act is not in effect when it desires to sell (i) the rights to purchase Common Stock pursuant to this Agreement or (ii) the Common Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of (A) its rights hereunder to purchase Common Stock or (B) Common Stock issued or issuable hereunder which might be made by it in reliance upon Rule 144 under the Act may be made only in accordance with the terms and conditions of that Rule.

(e) Accredited Investor . The Warrantholder is an “accredited investor” within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect.

(f) For purposes of the rights contemplated by Section 9(e) of this Agreement, upon exercise of the Warrant, the Warrantholder hereby agrees to be bound by and subject to the terms and provisions of the Investor Rights Agreement as if the Warrantholder was an “Investor” (as defined in the Investor Rights Agreement) party thereto.

(g) Upon exercise of the Warrant, the Warrantholder hereby agrees to be bound by and subject to the terms and provisions of Section 1.8, Section 2 and Section 3 of the Company’s Amended and Restated Voting Agreement, dated November 7, 2017, as amended from time to time (the “Voting Agreement”), as if the Warrantholder were a “Stockholder” (as defined in the Voting Agreement) party thereto.

SECTION 11. TRANSFERS.

Subject to compliance with applicable federal and state securities laws, this Agreement and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Agreement properly endorsed; provided , however , that if there is not then any ongoing Event of Default (as defined in the Loan Agreement), then such transfer shall be subject to the prior written consent of the Company; provided further , that notwithstanding the foregoing, any such transfer to an Affiliate (as defined in the Loan Agreement) of the Warrantholder shall be allowed at any time without the

 

32


prior written consent of the Company. Each taker and holder of this Agreement, by taking or holding the same, consents and agrees that this Agreement, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Agreement shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Agreement. The transfer of this Agreement shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the “ Transfer Notice ”), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes. The Warrantholder may not transfer this Warrant to a competitor of the Company, as reasonably determined by the Board of Directors.

SECTION 12. MISCELLANEOUS.

(a) Effective Date . The provisions of this Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Agreement shall be binding upon any successors or assigns of the Company.

(b) Remedies . In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where the Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement.

(c) No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.

(d) Additional Documents . The Company, upon execution of this Agreement, shall provide the Warrantholder with a certified copy of resolutions of the Company’s board of directors evidencing approval of this Agreement and the reservation of the shares of Common Stock issuable upon exercise of the Warrant. Prior to the Initial Public Offering, the Company shall also supply documentation reasonably requested by the Warrantholder to evaluate whether to exercise this Warrant, including without limitation, (i) any merger/purchase/asset sale agreement and related documents and estimated payout allocations to each of the respective stockholders, warrant and option holders in connection with a Merger Event, (ii) the most recent capitalization tables, 409A valuations (if any), and board determination of share value (including any waterfall or per share allocations provided to the stockholders), and (iii) most recent Charter.

(e) Attorney’s Fees . In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement. For the purposes of this Section 12(e), attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.

(f) Severability . In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

 

33


(g) Notices . Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication that is required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by electronic mail or hand delivery if transmission or delivery occurs on a business day at or before 5:00 pm in the time zone of the recipient, or, if transmission or delivery occurs on a non-business day or after such time, the first business day thereafter, or the first business day after deposit with an overnight express service or overnight mail delivery service; or (ii) the third (3 rd ) calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows:

If to the Warrantholder:

HERCULES TECHNOLOGY III, L.P.

Legal Department

Attention: Chief Legal Officer and Himani Bhalla

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Telephone: 650-289-3060

with a copy to (which shall not constitute notice):

LATHAM & WATKINS LLP

Attention: Haim Zaltzman

140 Scott Drive

Menlo Park, CA 94025

Telephone: 650-328-4600

If to the Company:

TRICIDA, INC.

Attention: Legal Department

7000 Shoreline Court, Suite 201

South San Francisco, CA 94080

Telephone: (415) 988-2420

with a copy to (which shall not constitute notice):

SIDLEY AUSTIN LLP

Attention: Geoffrey W. Levin

787 Seventh Avenue

New York, NY 10019

Telephone: 212-839-5776

or to such other address as each party may designate for itself by like notice.

 

34


(h) Entire Agreement; Amendments . This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof (including the Warrantholder’s proposal letter dated January 19, 2018). None of the terms of this Agreement may be amended except by an instrument executed by each of the parties hereto.

(i) Headings . The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.

(j) No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

(k) No Waiver . No omission or delay by the Warrantholder at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the Company at any time designated, shall be a waiver of any such right or remedy to which the Warrantholder is entitled, nor shall it in any way affect the right of the Warrantholder to enforce such provisions thereafter.

(l) Survival . All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be for the benefit of the Warrantholder or Company, as applicable, and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

(m) Governing Law . This Agreement has been negotiated and delivered to Warrantholder in the State of California, and shall have been accepted by the Warrantholder in the State of California. Delivery of Common Stock to the Warrantholder by the Company under this Agreement is due in the State of California. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

(n) Consent to Jurisdiction and Venue . All judicial proceedings arising in or under or related to this Agreement may be brought in any state or federal court of competent jurisdiction located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in San Mateo County, State of California; (b) waives any objection as to jurisdiction or venue in San Mateo County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement or the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 12(g), and shall be deemed effective and received as set forth in Section 12(g). Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

(o) Mutual Waiver of Jury Trial/ Judicial Reference .

(i) Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert Person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND THE WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “ CLAIMS ”) ASSERTED BY THE COMPANY AGAINST THE WARRANTHOLDER OR ITS ASSIGNEE OR BY THE WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all such Claims, including Claims that involve Persons

 

35


other than Company and Warrantholder; Claims that arise out of or are in any way connected to the relationship between the Company and the Warrantholder; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement.

(ii) If the waiver of jury trial set forth in Section 12(o)(i) above is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to California Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of San Mateo County, California. Such proceeding shall be conducted in San Mateo County, California, with California rules of evidence and discovery applicable to such proceeding.

(iii) In the event Claims are to be resolved by judicial reference, either party may seek from a court of competent jurisdiction identified in Section 12(n), any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

(p) Counterparts . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank]

 

36


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its officers thereunto duly authorized as of the Effective Date.

 

COMPANY:   TRICIDA, INC.
     By:   

                                                                                       

     Name:   

 

     Title:   

 

WARRANTHOLDER:   HERCULES TECHNOLOGY III, L.P.,
  a Delaware limited partnership
 

By: Hercules Technology SBIC Management, LLC,

its General Partner

 

By: Hercules Capital, Inc.,

its Manager

     By:   

 

     Name:   

 

     Title:   

 

 

37


EXHIBIT I

NOTICE OF EXERCISE

To: Tricida, Inc.

 

(1) The undersigned Warrantholder hereby elects to purchase [            ] shares of the Common Stock of Tricida, Inc., pursuant to the terms of the Warrant Agreement dated [            ] (the “ Agreement ”) between Tricida, Inc. and the Warrantholder, and [CASH PAYMENT: tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any.] [NET ISSUANCE: elects pursuant to Section 3(a) of the Agreement to effect a Net Issuance.]

 

(2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below.

 

 

 

(Name)

 

 

(Address)

WARRANTHOLDER:  

HERCULES TECHNOLOGY III, L.P.,

a Delaware limited partnership

 

By: Hercules Technology SBIC Management, LLC,

its General Partner

  By: Hercules Capital, Inc., its Manager
  By:   

                                                                                           

  Name:   

 

  Title:   

 

  Date:   

 

 

38


EXHIBIT II

ACKNOWLEDGMENT OF EXERCISE

The undersigned Tricida, Inc., hereby acknowledge receipt of the “Notice of Exercise” from Hercules Technology III, L.P., to purchase [            ] shares of the Common Stock of Tricida, Inc., pursuant to the terms of the Warrant Agreement by and between Tricida, Inc. and Hercules Technology III, L.P., dated [            ] (the “ Agreement ”), and further acknowledges that [            ] shares of Common Stock remain subject to purchase under the terms of the Agreement.

 

COMPANY:   Tricida, Inc.
     By:   

                                                                                       

     Title:   

 

     Date:   

 

 

39


EXHIBIT III

TRANSFER NOTICE

(To transfer or assign the foregoing Agreement execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Agreement and all rights evidenced thereby are hereby transferred and assigned to

____________________________________________________________________________________________

(Please Print)

 

whose address is                                                                                                                                                                    

 

____________________________________________________________________________

 

  Dated:                                                                                                                            
  Holder’s Signature:                                                                                                      
  Holder’s Address:                                                                                                         
 

 

Signature Guaranteed:                                                                                                                                                                             

NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Agreement.

Exhibit 10.8

LEASE AGREEMENT

THIS LEASE AGREEMENT (this “ Lease ”) is made this 4th day of April, 2014, between ARE-SAN FRANCISCO NO. 17, LLC , a Delaware limited liability company (“ Landlord ”), and TRICIDA, INC. , a Delaware corporation (“ Tenant ”).

 

Address:

   7000 Shoreline Court, South San Francisco, California

Premises:

   That portion of the second floor of the Project, containing approximately 13,729 rentable square feet, as shown on Exhibit A .

Project:

   The real property on which the building (the “ Building ”) in which the Premises are located, together with all improvements thereon and appurtenances thereto as described on Exhibit B .

Base Rent:

   Months 1 – 3:    $0 per month
   Months 4* – 6:    $33,000 per month
   Months 7 – 12:    $37,754.75 per month
   Months 13 – 24:    $39,127.65 per month
   Months 25 – 36:    $40,500.55 per month
   Months 37 – 48:    $41,873.45 per month
   Months 49 – 60:    $43,246.35 per month
   *Month 4 is the month in which the Rent Commencement Date (as defined in Section 2 below) occurs.

Rentable Area of Premises: 13,729 sq. ft.

  

Rentable Area of Project: 136,691 sq. ft.

   Tenant’s Share of Operating Expenses: 10.04%

Security Deposit: None

  

Target Commencement Date: June 15, 2014; provided, however, that the Target Commencement Date shall be delayed 1 day for each day after March 15, 2014, that this Lease has not been mutually executed and delivered by the parties.

Base Term:

   Beginning on the Commencement Date and ending 60 months from the first day of the first full month of the Term (as defined in Section 2 ) hereof.

Permitted Use:

   Research and development laboratory, related office and other related uses consistent with the character of the Project and otherwise in compliance with the provisions of Section 7 hereof.

Address for Rent Payment:

   Landlord’s Notice Address:

P.O. Box 975383

   385 E. Colorado Boulevard, Suite 299

Dallas, TX 75397-5383

   Pasadena, CA 91101

Attention: Corporate Secretary

   Attention: Corporate Secretary

Tenant’s Notice Address:

7000 Shoreline Court, Suite 201

South San Francisco, California 94158

Attention: Corporate Counsel

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 2

 

The following Exhibits and Addenda are attached hereto and incorporated herein by this reference:

 

[X]

  EXHIBIT A – PREMISES DESCRIPTION   [X]   EXHIBIT B – DESCRIPTION OF PROJECT

[X]

  EXHIBIT C – WORK LETTER   [X]   EXHIBIT D – COMMENCEMENT DATE

[X]

  EXHIBIT E – RULES AND REGULATIONS   [X]   EXHIBIT F – TENANT’S PERSONAL PROPERTY

[X]

  EXHIBIT G – ROFR SPACE    

1.     Lease of Premises . Upon and subject to all of the terms and conditions hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord. The portions of the Project which are for the non-exclusive use of tenants of the Project are collectively referred to herein as the “ Common Areas .” Landlord reserves the right to modify Common Areas, provided that such modifications do not materially adversely affect Tenant’s use of the Premises for the Permitted Use or materially adversely affect Tenant’s access to the Premises other than on a temporary basis.

2.     Delivery; Acceptance of Premises; Commencement Date . Landlord shall use reasonable efforts to deliver the Premises to Tenant on or before the Target Commencement Date, with Landlord’s Work Substantially Completed (“ Delivery ” or “ Deliver ”). If Landlord fails to timely Deliver the Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease shall not be void or voidable except as provided herein. If Landlord does not Deliver the Premises within 90 days of the Target Commencement Date for any reason other than Force Majeure delays and Tenant Delays, this Lease may be terminated by Tenant by written notice to Landlord, and if so terminated by Tenant, neither Landlord nor Tenant shall have any further rights, duties or obligations under this Lease, except with respect to provisions which expressly survive termination of this Lease. As used herein, the terms “ Landlord’s Work ,” “ Tenant Delays ” and “ Substantially Completed ” shall have the meanings set forth for such terms in the Work Letter. If Tenant does not elect to void this Lease within 5 business days of the lapse of such 90 day period, such right to void this Lease shall be waived and this Lease shall remain in full force and effect.

The “ Commencement Date ” shall be the earliest of: (i) the date Landlord Delivers the Premises to Tenant; (ii) the date Landlord could have Delivered the Premises but for Tenant Delays; and (iii) the date Tenant conducts any business in the Premises or any part thereof. The “ Rent Commencement Date ” shall be the date that is 90 days after the Commencement Date. Upon request of Landlord, Tenant shall execute and deliver a written acknowledgment of the Commencement Date, the Rent Commencement Date and the expiration date of the Term when such are established in the form of the “Acknowledgement of Commencement Date” attached to this Lease as Exhibit D ; provided , however , Tenant’s failure to execute and deliver such acknowledgment shall not affect Landlord’s rights hereunder. The “Term” of this Lease shall be the Base Term, as defined above on the first page of this Lease and, if applicable, the Extension Term which Tenant may elect pursuant to Section  40 hereof.

Except as set forth in the Work Letter: (i) Tenant shall accept the Premises in their condition as of the Commencement Date, subject to all applicable Legal Requirements (as defined in Section  7 hereof); (ii) Landlord shall have no obligation for any defects in the Premises; and (iii) Tenant’s taking possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken. Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease, excluding the obligation to pay Base Rent or Operating Expenses.

For the period of 60 consecutive days after the Commencement Date, Landlord shall, at its sole cost and expense (which shall not constitute an Operating Expense), be responsible for any repairs that are required to be made to the Building or Building Systems (as defined in Section  13 ), unless Tenant or any Tenant Party was responsible for the cause of such repair, in which case Tenant shall pay the cost.

Tenant agrees and acknowledges that, except as otherwise expressly set forth in this Lease, neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Premises or the Project, and/or the suitability of the Premises or the Project for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises or the Project are suitable for the Permitted Use. This Lease constitutes the complete agreement of Landlord

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 3

 

and Tenant with respect to the subject matter hereof and supersedes any and all prior representations, inducements, promises, agreements, understandings and negotiations which are not contained herein. Landlord in executing this Lease does so in reliance upon Tenant’s representations, warranties, acknowledgments and agreements contained herein.

3.     Rent .

(a)     Base Rent . Base Rent for the month in which the Rent Commencement Date occurs shall be due and payable on delivery of an executed copy of this Lease to Landlord. Tenant shall pay to Landlord in advance, without demand, abatement, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof after the Rent Commencement Date, in lawful money of the United States of America, by electronic transfer to Landlord or at the office of Landlord for payment of Rent set forth above, or to such other person or at such other place as Landlord may from time to time designate in writing. Payments of Base Rent for any fractional calendar month shall be prorated. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section  5 ) due hereunder except for any abatement as may be expressly provided in this Lease.

(b)     Additional Rent . In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent (“ Additional Rent ”): (i) Tenant’s Share of “Operating Expenses” (as defined in Section  5 ), and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period.

4.     Base Rent Adjustments .

(a)     Annual Adjustments . Base Rent shall be increased as provided in the schedule set forth on page 1 of this Lease.

(b)     Additional TI Allowance . In addition to the Tenant Improvement Allowance (as defined in the Work Letter), Landlord shall, subject to the terms of the Work Letter, make available to Tenant the Additional Tenant Improvement Allowance (as defined in the Work Letter). Commencing on the Rent Commencement Date and continuing thereafter on the first day of each month during the Base Term, Tenant shall pay the amount necessary to fully amortize the portion of the Additional Tenant Improvement Allowance actually funded by Landlord, if any, in equal monthly payments with interest at a rate of 8% per annum over the Base Term, which interest shall begin to accrue on the date that Landlord first disburses such Additional Tenant Improvement Allowance or any portion(s) thereof (“ TI Rent ”). Any of the Additional Tenant Improvement Allowance and applicable interest remaining unpaid as of the expiration or earlier termination of this Lease shall be paid to Landlord in a lump sum at the expiration or earlier termination of this Lease.

5.     Operating Expense Payments . Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar year during the Term (the “ Annual Estimate ”), which may be revised by Landlord from time to time during such calendar year. Commencing on the Rent Commencement Date and continuing thereafter on the first day of each month during the Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12th of Tenant’s Share of the Annual Estimate. Payments for any fractional calendar month shall be prorated.

Notwithstanding anything to the contrary contained herein, for the period commencing on the first day of the 4 th month after the Commencement Date through the last day of the 6 th month after the Commencement Date, Tenant shall only be required to pay Operating Expenses with respect to 12,000 rentable square feet of the Premises (and Tenant’s Share of Operating Expenses during such period shall be equal to 8.78%). Tenant shall commence paying Operating Expenses with respect to the entire Premises on the first day of the 7 th months after the Commencement Date.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 4

 

The term “ Operating Expenses ” means all costs and expenses of any kind or description whatsoever incurred or accrued each calendar year by Landlord with respect to the Project (including, without duplication, Taxes (as defined in Section  9 ), capital repairs and improvements amortized over the useful life of such capital items (as determined by Landlord taking into account all relevant factors including, but not limited, the hours of operation of the Building and its use for laboratory/office purposes) and the costs of Landlord’s third party property manager or, if there is no third party property manager, administration rent in the amount of 3.0% of Base Rent), excluding only:

(a)    the original construction costs of the Project and renovation prior to the date of this Lease and costs of correcting defects in such original construction or renovation;

(b)    capital expenditures for expansion or reconfiguration of the Project;

(c)    interest, principal or any other payments under any Mortgage (as defined in Section  27 ) debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured and all payments of rent (but not taxes or operating expenses) under any ground lease or other underlying lease of all or any portion of the Project;

(d)    depreciation of the Project (except for capital improvements, the cost of which are includable in Operating Expenses (and as amortized pursuant to this Section  5 ));

(e)    advertising, marketing, legal and/or space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for tenants;

(f)    legal and other expenses incurred in the negotiation or enforcement of leases;

(g)    completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;

(h)    costs to be reimbursed by other tenants of the Project or Taxes to be paid directly by Tenant or other tenants of the Project, whether or not actually paid;

(i)    salaries, wages, benefits and other compensation paid to officers and employees of Landlord who are not assigned in whole or in part (and, if in part, then on a pro rata basis based on the amount of time devoted to the Project) to the operation, management, maintenance or repair of the Project;

(j)    general organizational, administrative and overhead costs relating to maintaining Landlord‘s existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;

(k)    costs (including attorneys’ fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;

(l)    costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space in the Project or any Legal Requirement (as defined in Section  7 );

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 5

 

(m)    penalties, fines or interest incurred as a result of Landlord‘s inability or failure to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlord‘s failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency;

(n)    overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;

(o)    costs of Landlord’s charitable or political contributions, or of fine art maintained at the Project;

(p)    costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord;

(q)    costs incurred in the sale or refinancing of the Project;

(r)    items and services which Landlord provides selectively to one or more tenants of the Project (not including Tenant) without reimbursement;

(s)    costs of repairs directly resulting from the gross negligence or willful misconduct of Landlord or any Landlord Parties (as defined in Section  17 );

(t)    property management fees except as expressly set forth above;

(u)    any costs incurred to remove, study, test or remediate Hazardous Materials in or about the Building or the Project (provided, however, that the foregoing is in no event intended to limit Tenant’s obligations under Section  28 or Section  30 of this Lease);

(v)    the cost of installing or upgrading any utility metering for any part of the Project;

(w)    net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stock, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein; and

(x)    any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Project under leases for space in the Project.

Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to Tenant a statement (an “ Annual Statement ”) showing in reasonable detail: (a) the total and Tenant’s Share of actual Operating Expenses for the previous calendar year (which, with respect to the first calendar year, shall apply only after the Rent Commencement Date), and (b) the total of Tenant’s payments in respect of Operating Expenses for such year. If Tenant’s Share of actual Operating Expenses for such year exceeds Tenant’s payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30 days after delivery of such Annual Statement to Tenant. If Tenant’s payments of Operating Expenses for such year exceed Tenant’s Share of actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement, except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord.

The Annual Statement shall be final and binding upon Tenant unless Tenant, within 30 days after Tenant’s receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 6

 

each item contested and the reason therefor. Operating Expenses for the calendar years in which Tenant’s obligation to share therein begins and ends shall be prorated. Notwithstanding anything set forth herein to the contrary, if the Project is not at least 95% occupied on average during any year of the Term, Tenant’s Share of Operating Expenses for such year shall be computed as though the Project had been 95% occupied on average during such year. Landlord shall not be entitled to collect Operating Expenses from the tenants of the Project in excess of 100% of the total Operating Expenses actually incurred or accrued by Landlord nor shall Landlord be entitled to make any profit from Landlord’s collection of Operating Expenses.

Tenant’s Share ” shall be the percentage set forth on the first page of this Lease as Tenant’s Share as reasonably adjusted by Landlord for changes in the physical size of the Premises or the Project occurring thereafter. Landlord may equitably increase Tenant’s Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use. Base Rent, Tenant’s Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred to herein as “ Rent .”

6.     Intentionally Omitted .

7.     Use . The Premises shall be used solely for the Permitted Use set forth in the basic lease provisions on page 1 of this Lease, and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With Disabilities Act, 42 U.S.C. § 12101, et seq. (together with the regulations promulgated pursuant thereto, “ ADA ”) (collectively, “ Legal Requirements ” and each, a “ Legal Requirement ”). Tenant shall, upon 5 days’ written notice from Landlord, discontinue any use of the Premises which is declared by any Governmental Authority (as defined in Section  9 ) having jurisdiction to be a violation of a Legal Requirement. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant’s or Landlord’s insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits. The use that Tenant has disclosed to Landlord that Tenant will be making of the Premises as of the Commencement Date will not result in the voidance of or an increased insurance risk with respect to the insurance currently being maintained by Landlord. Tenant shall not permit any part of the Premises to be used as a “place of public accommodation”, as defined in the ADA or any similar legal requirement. Tenant shall reimburse Landlord promptly upon demand for any additional premium charged for any such insurance policy by reason of Tenant’s failure to comply with the provisions of this Section or otherwise caused by Tenant’s use and/or occupancy of the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be used for any unlawful purpose. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project. Tenant shall not place any machinery or equipment which will overload the floor in or upon the Premises or transport or move such items through the Common Areas of the Project or in the Project elevators without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Except as may be provided under the Work Letter, Tenant shall not, without the prior written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenant’s Share as usually furnished for the Permitted Use.

Landlord shall be responsible for the compliance of the Common Areas of the Project with Legal Requirements, including the ADA, as of the date of this Lease. Following the Commencement Date, Landlord shall, as an Operating Expense (to the extent such Legal Requirement is generally applicable to similar buildings in the area in which the Project is located) and at Tenant’s expense (to the extent such

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 7

 

Legal Requirement is triggered by reason of Tenant’s, as compared to other tenants of the Project, specific use of the Premises or Tenant’s alterations) make any alterations or modifications to the Common Areas or the exterior of the Building that are required by Legal Requirements. Except as provided in the two immediately preceding sentences and except for Landlord’s obligation under the Work Letter to substantially complete the Tenant Improvements (as defined in the Work Letter) in compliance with applicable Legal Requirements, Tenant, at its sole expense, shall make any alterations or modifications to the interior of the Premises that are required by Legal Requirements (including, without limitation, compliance of the Premises with the ADA related to Tenant’s use or occupancy of the Premises or Tenant’s Alterations. Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating or resisting the same (including, without limitation, reasonable attorneys’ fees, charges and disbursements and costs of suit) (collectively, “ Claims ”) arising out of or in connection with Legal Requirements related to Tenant’s use or occupancy of the Premises or Tenant’s Alterations (other than to the extent of Landlord’s obligation under the Work Letter to substantially complete the Tenant Improvements in compliance with applicable Legal Requirements), and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out of or in connection with any failure of the Premises to comply with any Legal Requirement related to Tenant’s use or occupancy of the Premises or Tenant’s Alterations (other than to the extent of Landlord’s obligation under the Work Letter to substantially complete the Tenant Improvements in compliance with applicable Legal Requirements). For purposes of Section 1938 of the California Civil Code, as of the date of this Lease, the Project has not been inspected by a certified access specialist.

8.     Holding Over . If, with Landlord’s express written consent, Tenant retains possession of the Premises after the termination of the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section  4 hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease or such other amount as Landlord may indicate, in Landlord’s sole and absolute discretion, in such written consent, and (iv) all other payments shall continue under the terms of this Lease. If Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of this Lease except that (i) for the first 30 days of such holdover, the monthly rental shall be equal to 125% of Rent in effect during the last 30 days of the Term, and (ii) for any period of holdover in excess of 30 days, the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (B) Tenant shall be responsible for all damages suffered by Landlord resulting from or occasioned by Tenant’s holding over, including consequential damages. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Section  8 shall not be construed as consent for Tenant to retain possession of the Premises. Acceptance by Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Lease.

9.     Taxes . Landlord shall pay, as part of Operating Expenses, all taxes, levies, fees, assessments and governmental charges of any kind, existing as of the Commencement Date or thereafter enacted (collectively referred to as “ Taxes ”), imposed by any federal, state, regional, municipal, local or other governmental authority or agency, including, without limitation, quasi-public agencies (collectively, “ Governmental Authority ”) during the Term, including, without limitation, all Taxes: (i) imposed on or measured by or based, in whole or in part, on rent payable to (or gross receipts received by) Landlord under this Lease and/or from the rental by Landlord of the Project or any portion thereof, or (ii) based on the square footage, assessed value or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance of any portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from Legal Requirements, or interpretations thereof, promulgated by any Governmental Authority, or (v) imposed as a license or other fee, charge, tax, or assessment on Landlord’s business or occupation of leasing space in the Project. Landlord may contest by appropriate legal proceedings the amount, validity, or application of

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 8

 

any Taxes or liens securing Taxes. Taxes shall not include any net income taxes imposed on Landlord except to the extent such net income taxes are in substitution for any Taxes payable hereunder. If any such Tax is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by Tenant in the Premises, whether levied or assessed against Landlord or Tenant. If any Taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property, or if the assessed valuation of the Project is increased by a value attributable to improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project, Landlord shall have the right, but not the obligation, to pay such Taxes. Landlord’s determination of any excess assessed valuation shall be binding and conclusive, absent manifest error. The amount of any such payment by Landlord shall constitute Additional Rent due from Tenant to Landlord within 10 days after Landlord’s delivery of demand therefor.

10.     Parking . Subject to all matters of record, Force Majeure, a Taking (as defined in Section  19 below) and the exercise by Landlord of its rights hereunder, at no additional cost, Tenant shall have the right, in common with other tenants of the Project pro rata in accordance with the rentable area of the Premises and the rentable areas of the Project occupied by such other tenants, to park in those areas designated for non-reserved parking, subject in each case to Landlord’s rules and regulations. Landlord may allocate parking spaces among Tenant and other tenants in the Project pro rata as described above if Landlord determines that such parking facilities are becoming crowded. As of the Commencement Date, Tenant’s pro rata share of parking is equal to 2.8 parking spaces per 1,000 rentable square feet of the Premises. Tenant’s pro rata parking shall not decrease by more than 5% during the Term for any reason other than Force Majeure or a Taking. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties, including other tenants of the Project.

11.     Utilities, Services . Landlord shall provide, subject to the terms of this Section  11 , water, electricity, heat, light, power, sewer, and other utilities (including gas and fire sprinklers to the extent the Project is plumbed for such services), refuse and trash collection and janitorial services (collectively, “ Utilities ”) consistent with the Utilities that have been provided by Landlord to the Project over the 12-month period prior to the Commencement Date. Landlord shall pay, as Operating Expenses or subject to Tenant’s reimbursement obligation, for all Utilities used on the Premises, all maintenance charges for Utilities, and any storm sewer charges or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and any taxes, penalties, surcharges or similar charges thereon. Landlord may cause, at Tenant’s expense, any Utilities to be separately metered or charged directly to Tenant by the provider. Tenant shall pay directly to the Utility provider, prior to delinquency, any separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term. Tenant shall pay, as part of Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of Utilities, from any cause whatsoever other than Landlord’s willful misconduct, shall result in eviction or constructive eviction of Tenant, termination of this Lease or the abatement of Rent. Tenant agrees to limit use of water and sewer with respect to Common Areas to normal restroom use.

Landlord’s sole obligation for either providing emergency generators or providing emergency back-up power to Tenant shall be: (i) to provide emergency generators with not less than the capacity of the emergency generators located in the Building as of the Commencement Date, and (ii) to contract with a third party to maintain the emergency generators as per the manufacturer’s standard maintenance guidelines. Landlord shall have no obligation to provide Tenant with operational emergency generators or back-up power or to supervise, oversee or confirm that the third party maintaining the emergency generators is maintaining the generators as per the manufacturer’s standard guidelines or otherwise. During any period of replacement, repair or maintenance of the emergency generators when the emergency generators are not operational, including any delays thereto due to the inability to obtain parts or replacement equipment, Landlord shall have no obligation to provide Tenant with an alternative back-up generator or generators or alternative sources of back-up power. Tenant expressly acknowledges and agrees that Landlord does not guaranty that such emergency generators will be operational at all times or that emergency power will be available to the Premises when needed.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 9

 

Notwithstanding anything to the contrary set forth herein, if (i) a stoppage of an Essential Service (as defined below) to the Premises shall occur and such stoppage is due solely to the gross negligence or willful misconduct of Landlord and not due in any part to any act or omission on the part of Tenant or any Tenant Party or any matter beyond Landlord’s reasonable control (any such stoppage of an Essential Service being hereinafter referred to as a “ Service Interruption ”), and (ii) such Service Interruption continues for more than 5 consecutive days after Landlord shall have received written notice thereof from Tenant, and (iii) as a result of such Service Interruption, the conduct of Tenant’s normal operations in the Premises are materially and adversely affected, then there shall be an abatement of one day’s Base Rent for each day during which such Service Interruption continues after such 5 day period; provided, however, that if any part of the Premises is reasonably useable for Tenant’s normal business operations or if Tenant conducts all or any part of its operations in any portion of the Premises notwithstanding such Service Interruption, then the amount of each daily abatement of Base Rent shall only be proportionate to the nature and extent of the interruption of Tenant’s normal operations or ability to use the Premises. The rights granted to Tenant under this paragraph shall be Tenant’s sole and exclusive remedy resulting from a failure of Landlord to provide services, and Landlord shall not otherwise be liable for any loss or damage suffered or sustained by Tenant resulting from any failure or cessation of services. For purposes hereof, the term “ Essential Services ” shall mean the following services: access to the Premises, HVAC service, water, sewer and electricity, but in each case only to the extent that Landlord has an obligation to provide same to Tenant under this Lease. The provisions of this paragraph shall not apply to any sublessee of Tenant.

12.     Alterations and Tenant’s Property . Any alterations, additions, or improvements made to the Premises by or on behalf of Tenant, including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation, removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any modifications to the structure or connections (other than by ordinary plugs or jacks) to Building Systems (as defined in Section  13 ) (“ Alterations ”) shall be subject to Landlord’s prior written consent, which may be given or withheld in Landlord’s sole discretion if any such Alteration affects the structure or Building Systems and shall not be otherwise unreasonably withheld. If Landlord approves any Alterations, Landlord may impose such reasonable conditions on Tenant in connection with the commencement, performance and completion of such Alterations as Landlord may deem appropriate. Any request for approval shall be in writing, delivered not less than 15 business days in advance of any proposed construction, and accompanied by plans, specifications, bid proposals, work contracts and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the identities and mailing addresses of all persons performing work or supplying materials. Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or construction comply with applicable Legal Requirements. Tenant shall cause, at its sole cost and expense, all Alterations to comply with insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification required by Legal Requirements as a result of any Alterations. With respect to Alterations costing in excess of $50,000, Tenant shall pay to Landlord, as Additional Rent, on demand an amount equal to 3% of all charges incurred by Tenant or its contractors or agents in connection with any Alteration to cover Landlord’s overhead and expenses for plan review, coordination, scheduling and supervision. Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup.

Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all Alterations work free and clear of liens, and shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for workers’ compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Alterations, Tenant shall deliver to Landlord: (i) sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such contractors and subcontractors; and (ii) if available, “as built” plans for any such Alteration.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 10

 

Except for Removable Installations (as hereinafter defined), all Installations (as hereinafter defined) shall be and shall remain the property of Landlord during the Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any time during the Term, and shall remain upon and be surrendered with the Premises as a part thereof. Notwithstanding the foregoing, Landlord may, at the time its approval of any such Alteration is requested, notify Tenant that Landlord requires that Tenant remove such Installation upon the expiration or earlier termination of the Term, in which event Tenant shall remove such Installation in accordance with the immediately succeeding sentence. Upon the expiration or earlier termination of the Term, Tenant shall remove (i) all wires, cables or similar equipment which Tenant has installed in the Premises or in the risers or plenums of the Building, (ii) any Installations for which Landlord has given Tenant notice of removal in accordance with the immediately preceding sentence, and (iii) all of Tenant’s Property (as hereinafter defined), and Tenant shall restore and repair any damage caused by or occasioned as a result of such removal, including, without limitation, capping off all such connections behind the walls of the Premises and repairing any holes. During any restoration period beyond the expiration or earlier termination of the Term, Tenant shall pay Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant. If Landlord is requested by Tenant or any lender, lessor or other person or entity claiming an interest in any of Tenant’s Property to waive any lien Landlord may have against any of Tenant’s Property, and Landlord consents to such waiver, then Landlord shall be entitled to be paid as administrative rent a fee of $1,000 per occurrence for its time and effort in preparing and negotiating such a waiver of lien.

For purposes of this Lease, (x) “ Removable Installations ” means any items listed on Exhibit F attached hereto and any items agreed by Landlord in writing to be included on Exhibit F in the future, (y) “ Tenant’s Property ” means Removable Installations and, other than Installations, any personal property or equipment of Tenant that may be removed without material damage to the Premises, and (z) “ Installations ” means all property of any kind paid for with the TI Fund, all Alterations, all fixtures, and all partitions, hardware, built-in machinery, built-in casework and cabinets and other similar additions, equipment, property and improvements built into the Premises so as to become an integral part of the Premises, including, without limitation, fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems, and any power generator and transfer switch.

Tenant shall not be required to remove the Tenant Improvements (as defined in the Work Letter) at the expiration or earlier termination of the Term nor shall Tenant have the right to remove any of the Tenant Improvements at any time.

13.     Landlord’s Repairs . Landlord, as an Operating Expense (except to the extent the cost thereof is excluded from Operating Expenses pursuant to Section  5 hereof or pursuant to the fourth paragraph of Section  2 of this Lease), shall maintain all of the structural, exterior, parking and other Common Areas of the Project, including HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and other portions of the Project (“ Building Systems ”), in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, or by any of Tenant’s agents, servants, employees, invitees and contractors (collectively, “ Tenant Parties ”) excluded. Subject to the provisions of the penultimate paragraph of Section  17 , losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance, at Tenant’s sole cost and expense. Landlord reserves the right to stop Building Systems services when necessary (i) by reason of accident or emergency, or (ii) for planned repairs, alterations or improvements, which are, in the judgment of Landlord, desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed. Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption; provided , however , that Landlord shall, except in case of emergency, make a commercially reasonable effort to give Tenant 2 business days advance notice

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 11

 

of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall make a commercially reasonable effort to effect such repair. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after Tenant’s written notice of the need for such repairs or maintenance. Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at Landlord’s expense and agrees that the parties’ respective rights with respect to such matters shall be solely as set forth herein. Repairs required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by Section  18 .

14.     Tenant’s Repairs . Subject to Section  13 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising walls. Such repair and replacement may include capital expenditures and repairs whose benefit may extend beyond the Term. Should Tenant fail to make any such repair or replacement or fail to maintain the Premises, Landlord shall give Tenant notice of such failure. If Tenant fails to commence cure of such failure within 10 days of Landlord’s notice, and thereafter diligently prosecute such cure to completion, Landlord may perform such work and shall be reimbursed by Tenant within 10 days after demand therefor; provided, however, that if such failure by Tenant creates or could create an emergency, Landlord may immediately commence cure of such failure and shall thereafter be entitled to recover the costs of such cure from Tenant. Subject to Sections 17 and 18 , Tenant shall bear the full uninsured cost of any repair or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party.

15.     Mechanic’s Liens . Tenant shall discharge, by bond or otherwise, any mechanic’s lien filed against the Premises or against the Project for work claimed to have been done for, or materials claimed to have been furnished to, Tenant within 10 days after the filing thereof, at Tenant’s sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant. Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and the cost thereof shall be immediately due from Tenant as Additional Rent. If Tenant shall lease or finance the acquisition of office equipment, furnishings, or other personal property of a removable nature utilized by Tenant in the operation of Tenant’s business, Tenant warrants that any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or by exhibit thereto indicate that such Financing Statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Project be furnished on the statement without qualifying language as to applicability of the lien only to removable personal property, located in an identified suite held by Tenant.

16.     Indemnification . Tenant hereby indemnifies and agrees to defend, save and hold Landlord harmless from and against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises, arising directly or indirectly out of Tenant’s (or any of Tenant’s assignees or sublessees) use or occupancy of the Premises or a breach or default by Tenant in the performance of any of its obligations hereunder, except to the extent caused by the willful misconduct or gross negligence of Landlord. Landlord shall not be liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including, without limitation, loss of records kept within the Premises). Tenant further waives any and all Claims for injury to Tenant’s business or loss of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records). Landlord shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other third party.

17.     Insurance . Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement cost of the Project or such lesser coverage amount as Landlord may elect provided such coverage amount is not less than 90% of such full replacement cost. Landlord shall further procure and maintain commercial general liability insurance with a single loss limit of not less

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 12

 

than $2,000,000 for bodily injury and property damage with respect to the Project. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss or failure of building equipment, errors and omissions, rental loss during the period of repair or rebuilding, workers’ compensation insurance and fidelity bonds for employees employed to perform services and insurance for any improvements installed by Tenant or which are in addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the Project. All such insurance shall be included as part of the Operating Expenses. The Project may be included in a blanket policy (in which case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurer’s cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant’s use of the Premises.

Tenant, at its sole cost and expense, shall maintain during the Term: all risk property insurance with business interruption and extra expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant’s expense; workers’ compensation insurance with no less than the minimum limits required by law; employer’s liability insurance with such limits as required by law; and commercial general liability insurance, with a minimum limit of not less than $2,000,000 per occurrence for bodily injury and property damage with respect to the Premises. The commercial general liability insurance policy shall name Alexandria Real Estate Equities, Inc., and Landlord, its officers, directors, employees, managers, agents, invitees and contractors (collectively, “ Landlord Parties ”), as additional insureds; insure on an occurrence and not a claims-made basis; be issued by insurance companies which have a rating of not less than policyholder rating of A and financial category rating of at least Class X in “Best’s Insurance Guide”; not contain a hostile fire exclusion; contain a contractual liability endorsement; and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant’s policies). Tenant shall (i) provide Landlord with 30 days’ advance written notice of cancellation of such commercial general liability policy, and (ii) require Tenant’s insurer to endeavor to provide 10 days’ advance written notice of cancellation of such commercial general liability policy. Copies of such policies (if requested by Landlord), or certificates of insurance showing the limits of coverage required hereunder and showing Landlord as an additional insured, along with reasonable evidence of the payment of premiums for the applicable period, shall be delivered to Landlord by Tenant prior to (i) the earlier to occur of (x) the Commencement Date, or (y) the date that Tenant accesses the Premises under this Lease, and (ii) each renewal of said insurance. Tenant’s policy may be a “blanket policy” with an aggregate per location endorsement which specifically provides that the amount of insurance shall not be prejudiced by other losses covered by the policy. Tenant shall, prior to the expiration of such policies, furnish Landlord with renewal certificates.

In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also designate and furnish certificates so evidencing Landlord as additional insured to: (i) any lender of Landlord holding a security interest in the Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located, if the interest of Landlord is or shall become that of a tenant under a ground or other underlying lease rather than that of a fee owner, and/or (iii) any management company retained by Landlord to manage the Project.

The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers, agents, invitees and contractors (“ Related Parties ”), in connection with any loss or damage thereby insured against. Neither party nor its respective Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage. The failure of a party to insure its property shall not void this waiver. Landlord and its respective Related Parties shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever. If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed not released but shall be secondary to the other’s insurer.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 13

 

Landlord may require insurance policy limits to be raised to conform with requirements of Landlord’s lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project.

18.     Restoration . If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other insured casualty, Landlord shall notify Tenant within 45 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will take to restore the Project or the Premises, as applicable (the “ Restoration Period ”). If the Restoration Period is estimated to exceed 12 months (the “ Maximum Restoration Period ”), Landlord may, in such notice, elect to terminate this Lease as of the date that is 60 days after the date of discovery of such damage or destruction; provided , however , that notwithstanding Landlord’s election to restore, Tenant may elect to terminate this Lease by written notice to Landlord delivered within 5 business days of receipt of a notice from Landlord estimating a Restoration Period for the Premises longer than the Maximum Restoration Period. Unless Landlord or Tenant so elects to terminate this Lease, Landlord shall, subject to receipt of sufficient insurance proceeds (with any deductible to be treated as a current Operating Expense), promptly restore the Premises (excluding the improvements installed by Tenant or by Landlord and paid for by Tenant), subject to delays arising from the collection of insurance proceeds, from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment, generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section  30 ) in, on or about the Premises (collectively referred to herein as “ Hazardous Materials Clearances ”); provided , however , that if repair or restoration of the Premises is not substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, Landlord may, in its sole and absolute discretion, elect not to proceed with such repair and restoration, or Tenant may by written notice to Landlord delivered within 5 business days of the expiration of the Maximum Restoration Period or, if longer, the Restoration Period, elect to terminate this Lease, in which event Landlord shall be relieved of its obligation to make such repairs or restoration and this Lease shall terminate as of the date that is 60 days after the later of: (i) discovery of such damage or destruction, or (ii) the date all required Hazardous Materials Clearances are obtained, but Landlord shall retain any Rent paid and the right to any Rent payable by Tenant prior to such election by Landlord or Tenant.

Tenant, at its expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds, from Force Majeure (as defined in Section  34 ) events or to obtain Hazardous Material Clearances, any repairs or restoration Tenant wishes to have performed that are not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Notwithstanding the foregoing, either Landlord or Tenant may terminate this Lease upon written notice to the other if the Premises are damaged during the last year of the Term and Landlord reasonably estimates that it will take more than 2 months to repair such damage; provided, however, that such notice is delivered within 10 business days after the date that Landlord provides Tenant with written notice of the estimated Restoration Period. Landlord shall also have the right to terminate this Lease if insurance proceeds are not available for such restoration. Rent shall be abated from the date all required Hazardous Material Clearances are obtained until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises, unless Landlord provides Tenant with other space during the period of repair that is suitable (as reasonably determined by Tenant) for the temporary conduct of Tenant’s business for the Permitted Use. In the event that no Hazardous Material Clearances are required to be obtained by Tenant with respect to the Premises, rent abatement shall commence on the date of discovery of the damage or destruction. Such abatement shall be the sole remedy of Tenant, and except as provided in this Section  18 , Tenant waives any right to terminate this Lease by reason of damage or casualty loss.

The provisions of this Lease, including this Section  18 , 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,

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 14

 

or any other portion of the Project, and any statute or regulation which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section  18 sets forth their entire understanding and agreement with respect to such matters.

19.     Condemnation . If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “ Taking ” or “ Taken ”), and the Taking would in Landlord’s reasonable judgment, either prevent or materially interfere with Tenant’s use of the Premises or materially interfere with or impair Landlord’s ownership or operation of the Project, then upon written notice by Landlord this Lease shall terminate and Rent shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square footage of the Premises, Tenant’s Share of Operating Expenses and the Rent payable hereunder during the unexpired Term shall be reduced to such extent as may be fair and reasonable under the circumstances. Upon any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant’s interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlord’s award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant’s trade fixtures, if a separate award for such items is made to Tenant. Tenant hereby waives any and all rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the Project.

20.     Events of Default . Each of the following events shall be a default (“ Default ”) by Tenant under this Lease:

(a)     Payment Defaults . Tenant shall fail to pay (i) any installment of Base Rent, Operating Expenses or any other regularly scheduled payment of Rent hereunder when due; provided, however, that Landlord will give Tenant notice and an opportunity to cure such failure to pay Rent within 5 days of any such notice and Tenant agrees that such notice shall be in lieu of and not in addition to, or shall be deemed to be, any notice required by law; provided, however, that Landlord shall not be required to deliver and Tenant shall not be entitled to receive a notice and opportunity to cure pursuant to this Section  20(a)(i) more than twice in any 12 month period, or (ii) any non-recurring payment of Rent hereunder when due; provided, however, that Landlord will give Tenant notice and an opportunity to cure any failure to pay such non-recurring payment of Rent within 5 days of any such notice and Tenant agrees that such notice shall be in lieu of and not in addition to, or shall be deemed to be, any notice required by law; provided, however, that Landlord shall not be required to deliver and Tenant shall not be entitled to receive a notice and opportunity to cure pursuant to this Section  20(a)(ii) more than twice in any 12 month period.

(b)     Insurance . Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed, or Landlord shall receive a notice of nonrenewal of any such insurance and Tenant shall fail to obtain replacement insurance at least 20 days before the expiration of the current coverage.

(c)     Abandonment . Tenant shall abandon the Premises. Tenant shall not be deemed to have abandoned the Premises if (i) Tenant provides Landlord with reasonable advance notice prior to vacating and, at the time of vacating the Premises, Tenant completes Tenant’s obligations with respect to the Surrender Plan in compliance with Section  28 , (ii) Tenant has made reasonable arrangements with Landlord for the security of the Premises for the balance of the Term, and (iii) Tenant continues during the balance of the Term to satisfy all of its obligations under this Lease as they come due.

(d)     Improper Transfer . Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenant’s interest in this Lease or the Premises except as expressly permitted herein, or Tenant’s interest in this Lease shall be attached, executed upon, or otherwise judicially seized and such action is not released within 90 days of the action.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 15

 

(e)     Liens . Tenant shall fail to discharge or otherwise obtain the release of any lien placed upon the Premises in violation of this Lease within 10 days after Tenant’s receipt of notice of any such lien is filed against the Premises.

(f)     Insolvency Events . Tenant or any guarantor or surety of Tenant’s obligations hereunder shall: (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a “ Proceeding for Relief ”); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

(g)     Estoppel Certificate or Subordination Agreement . Tenant fails to execute any document required from Tenant under Sections 23 or 27 within 5 business days after a second notice requesting such document.

(h)     Other Defaults . Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Section  20 , and, except as otherwise expressly provided herein, such failure shall continue for a period of 30 days after written notice thereof from Landlord to Tenant.

Any notice given under Section  20(h) hereof shall: (i) specify the alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenant’s default pursuant to Section  20(h) is such that it cannot be cured by the payment of money and reasonably requires more than 30 days to cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said 30 day period and thereafter diligently prosecutes the same to completion; provided , however , that such cure shall be completed no later than 60 days from the date of Landlord’s notice.

21.     Landlord’s Remedies .

(a)     Payment By Landlord; Interest . Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any obligation of Tenant hereunder, make such payment or perform such act. All sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the “ Default Rate ”), whichever is less, shall be payable to Landlord on demand as Additional Rent. Nothing herein shall be construed to create or impose a duty on Landlord to mitigate any damages resulting from Tenant’s Default hereunder.

(b)     Late Payment Rent . Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such payment is due, Tenant shall pay to Landlord an additional sum equal to 6% of the overdue Rent as a late charge. Notwithstanding the foregoing, before assessing a late charge the first time in any calendar year, Landlord shall provide Tenant written notice of the delinquency and will waive the right if Tenant pays such delinquency within 5 days thereafter. The parties agree that this late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. In addition to the late charge, Rent not paid when due shall bear interest at the Default Rate from the 5th day after the date due until paid.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 16

 

(c)     Remedies . Upon the occurrence of a Default, Landlord, at its option, without further notice or demand to Tenant, shall have in addition to all other rights and remedies provided in this Lease, at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

(i)    Terminate this Lease, or at Landlord’s option, Tenant’s right to possession only, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor;

(ii)    Upon any termination of this Lease, whether pursuant to the foregoing Section  21(c)(i) or otherwise, 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 Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(D)    Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or 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  21 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 21(c)(ii)(A) and (B) , above, the “ worth at the time of award ” shall be computed by allowing interest at the Default Rate. As used in Section  21(c)(ii)(C) above, the “ worth at the time of award ” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%.

(iii)    Landlord may continue this Lease in effect after Tenant’s Default and recover rent as it becomes due (Landlord and Tenant hereby agreeing that Tenant has the right to sublet or assign hereunder, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease following a Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies hereunder, including the right to recover all Rent as it becomes due.

(iv)    Whether or not Landlord elects to terminate this Lease following a Default by Tenant, Landlord shall have the right to terminate any and all subleases, licenses, concessions or

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 17

 

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. Upon 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.

(v)    Independent of the exercise of any other remedy of Landlord hereunder or under applicable law, Landlord may conduct an environmental test of the Premises as generally described in Section  30(d) hereof, at Tenant’s expense.

(d)     Effect of Exercise . Exercise by Landlord of any remedies hereunder or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, it being understood that such surrender and/or termination can be effected only by the express written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same and shall not be deemed a waiver of Landlord’s right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of Rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. To the greatest extent permitted by law, Tenant waives the service of notice of Landlord’s intention to re-enter, re-take or otherwise obtain possession of the Premises as provided in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. Any reletting of the Premises or any portion thereof shall be on such terms and conditions as Landlord in its sole discretion may determine. Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the Premises or collect rent due in respect of such reletting or otherwise to mitigate any damages arising by reason of Tenant’s Default.

22.     Assignment and Subletting .

(a)     General Prohibition . Without Landlord’s prior written consent subject to and on the conditions described in this Section  22 , Tenant shall not, directly or indirectly, voluntarily or by operation of law, assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt to do any of the foregoing shall be void and of no effect. If Tenant is a corporation, partnership or limited liability company, the shares or other ownership interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers whereby 50% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is, transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section  22 . Notwithstanding the foregoing, Tenant shall have the right to obtain financing from institutional investors (including venture capital funding and corporate partners) which regularly invest in private biotechnology companies or undergo a public offering which results in a change in control of Tenant without such change of control constituting an assignment under this Section  22 requiring Landlord consent, provided that (i) Tenant notifies Landlord in writing of the financing at least 5 business days prior to the closing of the financing (unless Tenant is prohibited from providing such notice by confidentiality or Legal Requirements in which case Tenant shall notify Landlord promptly thereafter), and (ii) provided that in no event shall such financing result in a change in use of the Premises from the use contemplated by Tenant at the commencement of the Term.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 18

 

(b)     Permitted Transfers . If Tenant desires to assign, sublease, hypothecate or otherwise transfer this Lease or sublet the Premises other than pursuant to a Permitted Assignment (as defined below), then at least 15 business days, but not more than 45 business days, before the date Tenant desires the assignment or sublease to be effective (the “ Assignment Date ”), Tenant shall give Landlord a notice (the “ Assignment Notice ”) containing such information about the proposed assignee or sublessee, including the proposed use of the Premises and any Hazardous Materials proposed to be used, stored handled, treated, generated in or released or disposed of from the Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent. Landlord may, by giving written notice to Tenant within 15 business days after receipt of the Assignment Notice: (i) grant such consent, (ii) refuse such consent, in its reasonable discretion; or (iii) terminate this Lease with respect to the space described in the Assignment Notice as of the Assignment Date (an “ Assignment Termination ”). Among other reasons, it shall be reasonable for Landlord to withhold its consent in any of these instances: (1) the proposed assignee or subtenant is a governmental agency; (2) in Landlord’s reasonable judgment, the use of the Premises by the proposed assignee or subtenant would entail any alterations that would lessen the value of the leasehold improvements in the Premises, or would require increased services by Landlord; (3) in Landlord’s reasonable judgment, the proposed assignee or subtenant is engaged in areas of scientific research or other business concerns that are controversial such that they may (i) attract or cause negative publicity for or about the Building or the Project, (ii) negatively affect the reputation of the Building, the Project or Landlord, (iii) attract protestors to the Building or the Project, or (iv) lessen the attractiveness of the Building or the Project to any tenants or prospective tenants, purchasers or lenders; (4) in Landlord’s reasonable judgment, the proposed assignee or subtenant lacks the creditworthiness to support the financial obligations it will incur under the proposed assignment or sublease; (5) in Landlord’s reasonable judgment, the character, reputation, or business of the proposed assignee or subtenant is inconsistent with the desired tenant-mix or the quality of other tenancies in the Project or is inconsistent with the type and quality of the nature of the Building; (6) Landlord has received from any prior landlord to the proposed assignee or subtenant a negative report concerning such prior landlord’s experience with the proposed assignee or subtenant; (7) Landlord has experienced previous defaults by or is in litigation with the proposed assignee or subtenant; (8) the use of the Premises by the proposed assignee or subtenant will violate any applicable Legal Requirement; (9) the proposed assignee or subtenant, or any entity that, directly or indirectly, controls, is controlled by, or is under common control with the proposed assignee or subtenant, is then an occupant of the Project (for whom alternate space in the Building is then-currently available that meets such party’s needs); or (10) the proposed assignee or subtenant is an entity with whom Landlord is then-currently negotiating to lease space in the Project. If Landlord delivers notice of its election to exercise an Assignment Termination, Tenant shall have the right to withdraw such Assignment Notice by written notice to Landlord of such election within 5 business days after Landlord’s notice electing to exercise the Assignment Termination. If Tenant withdraws such Assignment Notice, this Lease shall continue in full force and effect. If Tenant does not withdraw such Assignment Notice, this Lease, and the term and estate herein granted, shall terminate as of the Assignment Date with respect to the space described in such Assignment Notice. No failure of Landlord to exercise any such option to terminate this Lease, or to deliver a timely notice in response to the Assignment Notice, shall be deemed to be Landlord’s consent to the proposed assignment, sublease or other transfer. Tenant shall pay to Landlord a fee equal to One Thousand Five Hundred Dollars ($1,500) in connection with its consideration of any Assignment Notice and/or its preparation or review of any consent documents. Notwithstanding the foregoing, Landlord’s consent to an assignment of this Lease or a subletting of any portion of the Premises to any entity controlling, controlled by or under common control with Tenant (a “ Control Permitted Assignment ”) shall not be required, provided that Landlord shall have the right to reasonably approve the form of any such sublease or assignment. In addition, Tenant shall have the right to assign this Lease, upon 30 days prior written notice to Landlord (unless Tenant is prohibited from providing such notice by confidentiality or Legal Requirements in which case Tenant shall notify Landlord promptly thereafter) but without obtaining Landlord’s prior written consent, to a corporation or other entity which is a successor-in-interest to Tenant, by way of merger, consolidation or corporate reorganization, or by the purchase of all or substantially all of the assets, stock or other ownership interests of Tenant provided that (i) such merger or consolidation, or

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 19

 

such acquisition or assumption, as the case may be, is for a good business purpose and not principally for the purpose of transferring this Lease, and (ii) the net worth (as determined in accordance with generally accepted accounting principles (“ GAAP ”)) of the assignee is not less than the net worth (as determined in accordance with GAAP) of Tenant on the date immediately prior to the date of the assignment (as reflected in financial statements of Tenant delivered to Landlord concurrently with any notice of the assignment), and (iii) if, following such assignment, the Tenant under this Lease is an entity other than Tricida, Inc., a Delaware corporation, such assignee shall agree in writing to assume all of the terms, covenants and conditions of this Lease arising after the effective date of the assignment (a “ Corporate Permitted Assignment ”). Control Permitted Assignments and Corporate Permitted Assignments are hereinafter referred to as “ Permitted Assignments .” The rights provided to Tenant herein with respect to a Corporate Permitted Assignment shall be personal to Tricida, Inc., a Delaware corporation, in connection with this Lease only and shall not inure to the benefit of any assignee, sublessee or other transferee of Tricida, Inc.’s interest in this Lease, other than in connection with a Permitted Assignment.

(c)     Additional Conditions . As a condition to any such assignment or subletting, whether or not Landlord’s consent is required, Landlord may require:

(i)    that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives such party notice that Tenant is in default under this Lease, such party shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those due under this Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided , however , in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and

(ii)    A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises, together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or subletting, including, without limitation: permits; approvals; reports and correspondence; storage and management plans; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks. Neither Tenant nor any such proposed assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.

(d)     No Release of Tenant, Sharing of Excess Rents . Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant’s obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and for compliance with all of Tenant’s other obligations under this Lease. Except in connection with Permitted Assignments, if the Rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto in any form) exceeds the sum of the rental payable under this Lease, (excluding however, any Rent payable under this Section) and actual and reasonable brokerage fees, legal costs and any design or construction fees directly related to and required pursuant to the terms of any such sublease) (“ Excess Rent ”), then Tenant shall be bound and obligated to pay Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant. If Tenant shall sublet the Premises or any part thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent from any such subletting, and Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this Lease; except that, until the occurrence of a Default, Tenant shall have the right to collect such rent.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 20

 

(e)     No Waiver . The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor shall it release Tenant or any assignee or sublessee of Tenant from full and primary liability under this Lease. The acceptance of Rent hereunder, or the acceptance of performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.

(f)     Prior Conduct of Proposed Transferee . Notwithstanding any other provision of this Section  22 , if (i) the proposed assignee or sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination resulted from such party’s action or use of the property in question, (ii) the proposed assignee or sublessee is subject to an enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any such party.

23.     Estoppel Certificate . Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any, (ii) acknowledging that, to Tenant’s actual knowledge, there are not any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further information with respect to the status of this Lease or the Premises as may be reasonably requested thereon. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. Tenant’s failure to deliver such statement within such time shall, at the option of Landlord, constitute a Default under this Lease, and, in any event, shall be conclusive upon Tenant that this Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.

24.     Quiet Enjoyment . So long as Tenant is not in Default under this Lease, Tenant shall, subject to the terms of this Lease, at all times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.

25.     Prorations . All prorations required or permitted to be made hereunder shall be made on the basis of a 360 day year and 30 day months.

26.     Rules and Regulations . Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current rules and regulations are attached hereto as Exhibit E . If there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall not enforce such rules and regulations in a discriminatory manner.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 21

 

27.     Subordination . This Lease and Tenant’s interest and rights hereunder are hereby made and shall be subject and subordinate at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant; provided , however that so long as there is no Default hereunder, Tenant’s right to possession of the Premises shall not be disturbed by the Holder of any such Mortgage. Tenant agrees, at the election of the Holder of any such Mortgage, to attorn to any such Holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain appropriate non-disturbance provisions assuring Tenant’s quiet enjoyment of the Premises as set forth in Section  24 hereof. Notwithstanding the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such Mortgage and had been assigned to such Holder. The term “ Mortgage ” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “ Holder ” of a Mortgage shall be deemed to include the beneficiary under a deed of trust.

28.     Surrender . Upon the expiration of the Term or earlier termination of Tenant’s right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to any Alterations or Installations permitted by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises by any person other than a Landlord Party (collectively, “ Tenant HazMat Operations ”) and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 18 and 19 excepted. At least 3 months prior to the surrender of the Premises, Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term, free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (i.e., for all of the same uses permitted at the Project prior to the date of this Lease) (the “ Surrender Plan ”). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and approval of Landlord’s environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant HazMat Operations as Landlord shall reasonably request. On or before such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenant’s expense as set forth below, to cause Landlord’s environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of this Lease, free from any residual impact from Tenant HazMat Operations. Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord for Landlord’s environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same, which cost shall not exceed $2,500. Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlord’s environmental consultant with respect to the surrender of the Premises to third parties.

If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section  28 .

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 22

 

Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the Premises furnished to or otherwise procured by Tenant. If any such access card or key is lost, Tenant shall pay to Landlord, at Landlord’s election, either the cost of replacing such lost access card or key or the cost of reprogramming the access security system in which such access card was used or changing the lock or locks opened by such lost key. Any Tenant’s Property, Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and/or disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the obligations of Tenant under Section  30 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation, indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.

29.     Waiver of Jury Trial . TO THE EXTENT PERMITTED BY LAW, TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

30.     Environmental Requirements .

(a)     Prohibition/Compliance/Indemnity . Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises or the Project in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party. If Tenant breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials in the Premises during the Term or any holding over results in contamination of the Premises, the Project or any adjacent property or if contamination of the Premises, the Project or any adjacent property by Hazardous Materials brought into, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises by anyone other than Landlord and Landlord’s employees, agents and contractors otherwise occurs during the Term or any holding over, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the Premises or any portion of the Project), expenses (including, without limitation, attorneys’, consultants’ and experts’ fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (collectively, “ Environmental Claims ”) which arise during or after the Term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to return the Premises, the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlord’s approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 23

 

potentially have any material adverse long-term or short-term effect on the Premises or the Project. Notwithstanding anything to the contrary contained in this Lease, Tenant shall not be responsible for, and the indemnification and hold harmless obligations of Tenant set forth in this Lease shall not apply to (i) contamination in the Premises which Tenant can prove existed in the Premises immediately prior to the Commencement Date, or (ii) the presence of any Hazardous Materials in the Premises which Tenant can prove migrated from outside of the Premises into the Premises, unless in either case, the presence of such Hazardous Materials (x) is the result of a breach by Tenant of any of its obligations under this Lease, or (y) was caused, contributed to or exacerbated by Tenant or any Tenant Party.

(b)     Business . Landlord acknowledges that it is not the intent of this Section  30 to prohibit Tenant from using the Premises for the Permitted Use. Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all then applicable Environmental Requirements. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials on or from the Premises (“ Hazardous Materials List ”). Tenant shall deliver to Landlord an updated Hazardous Materials List at least once a year listing all Hazardous Materials which Tenant is required to disclose to any Governmental Authority ( e.g. , the fire department) in connection with its use or occupancy of the Premises. Tenant shall deliver to Landlord true and correct copies of the following documents (the “ Haz Mat Documents ”) relating to the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials prior to the Commencement Date, or if unavailable at that time, concurrent with the receipt from or submission to a Governmental Authority: permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Surrender Plan (to the extent surrender in accordance with Section  28 cannot be accomplished in 3 months). Tenant is not required, however, to provide Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities. It is not the intent of this Section to provide Landlord with information which could be detrimental to Tenant’s business should such information become possessed by Tenant’s competitors.

(c)     Tenant Representation and Warranty . Tenant hereby represents and warrants to Landlord that (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted from Tenant’s or such predecessor’s action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority). If Landlord determines that this representation and warranty was not true as of the date of this lease, Landlord shall have the right to terminate this Lease in Landlord’s sole and absolute discretion.

(d)     Testing . Landlord shall have the right to conduct annual tests of the Premises to determine whether any contamination of the Premises or the Project has occurred as a result of Tenant’s use. Tenant shall be required to pay the cost of such annual test of the Premises; provided, however, that if Tenant conducts its own tests of the Premises using third party contractors and test procedures acceptable to Landlord which tests are certified to Landlord, Landlord shall accept such tests in lieu of the annual tests to be paid for by Tenant. In addition, at any time, and from time to time, prior to the expiration or earlier termination of the Term, Landlord shall have the right to conduct appropriate tests of the Premises and the

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 24

 

Project to determine if contamination has occurred as a result of Tenant’s use of the Premises. In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party. If contamination has occurred for which Tenant is liable under this Section  30 , Tenant shall pay all costs to conduct such tests. If no such contamination is found, Landlord shall pay the costs of such tests (which shall not constitute an Operating Expense). Landlord shall provide Tenant with a copy of all third party, non-confidential reports and tests of the Premises made by or on behalf of Landlord during the Term without representation or warranty and subject to a confidentiality agreement. Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with all Environmental Requirements. Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights which Landlord may have against Tenant.

(e)     Control Areas . Tenant shall be allowed to utilize up to its pro rata share of the Hazardous Materials inventory within any control area or zone (located within the Premises), as designated by the applicable building code, for chemical use or storage. As used in the preceding sentence, Tenant’s pro rata share of any control areas or zones located within the Premises shall be determined based on the rentable square footage that Tenant leases within the applicable control area or zone. For purposes of example only, if a control area or zone contains 10,000 rentable square feet and 2,000 rentable square feet of a tenant’s premises are located within such control area or zone (while such premises as a whole contains 5,000 rentable square feet), the applicable tenant’s pro rata share of such control area would be 20%.

(f)     Underground Tanks . If underground or other storage tanks storing Hazardous Materials located on the Premises or the Project are used by Tenant or are hereafter placed on the Premises or the Project by Tenant, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements, as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation, upgrading and closure of such storage tanks.

(g)     Tenant’s Obligations . Tenant’s obligations under this Section  30 shall survive the expiration or earlier termination of this Lease. During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from the Premises of any Hazardous Materials for which Tenant is responsible under this Lease (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises and the completion of the approved Surrender Plan), Tenant shall continue to pay the full Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlord’s sole discretion, which Rent shall be prorated daily.

(h)     Definitions . As used herein, the term “ Environmental Requirements ” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any Governmental Authority regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. As used herein, the term “ Hazardous Materials ” means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the “ operator ” of Tenant’s “ facility ” and the “ owner ” of all Hazardous Materials brought on the Premises by Tenant or any Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 25

 

31.     Tenant’s Remedies/Limitation of Liability . Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary). Upon any default by Landlord, Tenant shall give notice by registered or certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder.

All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term “ Landlord ” in this Lease shall mean only the owner for the time being of the Premises. Upon the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owner’s ownership.

32.     Inspection and Access . Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Landlord and Landlord’s representatives may enter the Premises during business hours on not less than 48 hours advance written notice (except in the case of emergencies in which case no such notice shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose. Landlord may erect a suitable sign on the Premises stating that the Project is available for sale and/or, during that last 9 months of the Term, that the Premises are available for lease. Landlord may grant easements, make public dedications, designate Common Areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely affects Tenant’s use of the Premises for the Permitted Use or Tenant’s occupancy of, or access to or from, the Premises, or Tenant’s parking rights under Section  10 . At Landlord’s request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions. Tenant shall at all times, except in the case of emergencies, have the right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does not materially and adversely affect Landlord’s access rights hereunder.

33.     Security . Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises. Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant shall be solely responsible for the personal safety of Tenant’s officers, employees, agents, contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project. Tenant shall at Tenant’s cost obtain insurance coverage to the extent Tenant desires protection against such criminal acts.

34.     Force Majeure . Except for the payment of Rent, neither Landlord nor Tenant shall be held responsible or liable for delays in the performance of its obligations hereunder when caused by, related to, or arising out of acts of God, sinkholes or subsidence, strikes, lockouts, or other labor disputes, embargoes, quarantines, weather, national, regional, or local disasters, calamities, or catastrophes, inability to obtain labor or materials (or reasonable substitutes therefor) at reasonable costs or failure of, or inability to obtain, utilities necessary for performance, governmental restrictions, orders, limitations, regulations, or controls, national emergencies, delay in issuance or revocation of permits, enemy or hostile governmental action, terrorism, insurrection, riots, civil disturbance or commotion, fire or other casualty, and other causes or events beyond their reasonable control (“ Force Majeure ”).

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 26

 

35.     Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, “ Broker ”) in connection with this transaction and that no Broker brought about this transaction , other than Jones Lang LaSalle and Cresa Palo Alto. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than Jones Lang LaSalle and Cresa Palo Alto, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction. Landlord shall be responsible for all commissions due to Jones Lang LaSalle and Cresa Palo Alto arising out of the execution of this Lease in accordance with the terms of a separate written agreements between Landlord, on the one hand, and Jones Lang LaSalle and Cresa Palo Alto, on the other hand.

36.     Limitation on Landlord’s Liability . NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO: TENANT’S PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORD’S INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORD’S INTEREST IN THE PROJECT OR IN CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT’S BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.

37.     Severability . If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and enforceable.

38.     Signs; Exterior Appearance . Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld in Landlord’s sole discretion: (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens other than Landlord’s standard window coverings, (iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v) place any equipment, furniture or other items of personal property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the Premises or the Project any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises. Interior signs on doors and the directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at the sole cost and expense of Tenant, and shall be of a size, color and type acceptable to Landlord. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord’s standard lettering. The directory tablet shall be provided exclusively for the display of the name and location of tenants.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 27

 

39.     Right to Expand .

(a)     Right of First Refusal . Subject to the terms of this Section  39 , each time during the Base Term that Landlord intends to accept a written proposal or deliver a counter proposal which Landlord would be willing to accept (the “ Pending Deal ”) to lease all or a portion of the ROFR Space (as hereinafter defined) to a third party, Landlord shall deliver to Tenant written notice (the “ Pending Deal Notice ”) of the existence of such Pending Deal which Pending Deal Notice shall include the material business terms of the Pending Deal. For purposes of this Section  39(a) , “ ROFR Space ” shall mean the approximately 10,000 rentable square foot space located in the northwest corner of the second floor of the Building, as shown on Exhibit G attached hereto, which is not occupied by a tenant or which is occupied by a then existing tenant whose lease is expiring within 9 months or less and such tenant does not wish to renew (whether or not such tenant has a right to renew) its occupancy of such space. Tenant shall be entitled to exercise its right under this Section  39(a) only with respect to the entire ROFR Space described in such Pending Deal Notice (“ Identified Space ”). Within 10 calendar days after Tenant’s receipt of the Pending Deal Notice, Tenant shall deliver to Landlord written notice (the “ Space Acceptance Notice ”) if Tenant elects to lease the Identified Space. Tenant’s right to receive the Pending Deal Notice and election to lease or not lease the ROFR Space pursuant to this Section  39(a) is hereinafter referred to as the “ Right of First Refusal .” If Tenant elects to lease the Identified Space by delivering the Space Acceptance Notice within the required 10 calendar day period, Tenant shall be deemed to agree to lease the Identified Space on the same general terms and conditions as this Lease except that the terms of this Lease shall be modified to reflect the terms of the Pending Deal Notice for the rental of the Identified Space. Tenant acknowledges that the term of this Lease with respect to the Identified Space may not be co-terminous with the Term of this Lease with respect to the original Premises. If Tenant fails to deliver a Space Acceptance Notice to Landlord within the required 10 calendar day period, Tenant shall be deemed to have waived its rights under this Section  39(a) to lease the Identified Space, and Landlord shall have the right to lease the Identified Space to the third party subject to the Pending Deal (or an affiliate of such third party) (“ Pending Deal Party ”) on substantially the same business terms and conditions set forth in the Pending Deal Notice. Notwithstanding the foregoing or Section  39(b) , Tenant’s Right of First Refusal shall be restored if Landlord fails to enter into an agreement to lease the Identified Space to the Pending Deal Party within 6 months after Landlord’s delivery of the Pending Deal Notice to Tenant. Notwithstanding anything to the contrary contained herein, Tenant’s rights under this Section  39(a) shall terminate and be of no further force or effect after the date that is 9 months prior to the expiration of the Base Term if Tenant has not delivered an Extension Notice (as defined in Section  40(a) below) to Landlord pursuant to Section  40(a) .

(b)     Amended Lease . If (i) Tenant fails to timely deliver a Space Acceptance Notice, or (ii) after the expiration of a period of 10 days after Landlord’s delivery to Tenant of a lease amendment for Tenant’s lease of the Identified Space, no lease amendment for the Identified Space acceptable to both parties each in their sole and absolute discretion, has been executed, Tenant shall be deemed to have waived its right to lease such Identified Space.

(c)     Exceptions . Notwithstanding the above, the Right of First Refusal shall, at Landlord’s option, not be in effect and may not be exercised by Tenant:

(i)    during any period of time that Tenant is in Default under any provision of this Lease; or

(ii)    if Tenant has been in default under any provision of this Lease 3 or more times, whether or not the defaults are cured, during the 12 month period prior to the date on which Tenant seeks to exercise the Right of First Refusal.

(d)     Termination . The Right of First Refusal shall, at Landlord’s option, terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Right of First Refusal if, after such

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 28

 

exercise, but prior to the commencement date of the lease of the Identified Space, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has defaulted 3 or more times during the period from the date of the exercise of the Right of First Refusal, to the date of the commencement of the lease of the Identified Space, whether or not such defaults are cured.

(e)     Rights Personal . The Right of First Refusal is personal to Tenant and is not assignable without Landlord’s consent, which may be granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in this Lease, except that they may be assigned in connection with a Permitted Assignment.

(f)     No Extensions . The period of time within which the Right of First Refusal may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Right of First Refusal.

40.     Right to Extend Term . Tenant shall have the right to extend the Term of this Lease upon the following terms and conditions:

(a)     Extension Rights . Tenant shall have 1 right (an “ Extension Right ”) to extend the term of this Lease for 3 years (an “ Extension Term ”) on the same terms and conditions as this Lease (other than with respect to Base Rent and the Work Letter) by giving Landlord written notice (“ Extension Notice ”) of its election to exercise the Extension Right at least 9 months prior, and no earlier than 12 months prior, to the expiration of the Base Term of this Lease.

Upon the commencement of the Extension Term, Base Rent shall be payable at the Market Rate (as defined below). Base Rent shall thereafter be adjusted on each annual anniversary of the commencement of such Extension Term by a percentage as determined by Landlord and agreed to by Tenant at the time the Market Rate is determined. As used herein, “ Market Rate ” shall mean the then market rental rate as determined by Landlord and agreed to by Tenant.

Prior to Tenant’s delivery to Landlord of an Extension Notice, but not earlier than 15 months prior to the expiration of the Base Term of this Lease, Tenant may deliver a written request to Landlord for Landlord’s calculation of Market Rent and escalations during the Extension Term (“ Market Rate Calculation ”). Within 30 days after Landlord’s receipt of such a request, Landlord shall deliver written notice to Tenant of Landlord’s Market Rate Calculation. If Tenant subsequently delivers an Extension Notice to Landlord and does not agree with Landlord’s Market Rate Calculation, then Tenant shall, concurrent with its delivery of such Extension Notice to Landlord, deliver notice of its election to arbitrate the Market Rate and escalations as described in Section  40(b) . If Tenant does not so elect arbitration pursuant to the immediately preceding sentence, Tenant’s delivery of an Extension Notice shall be deemed Tenant’s acceptance of Landlord’s Market Rate Calculation.

If, on or before the date which is 180 days prior to the expiration of the Base Term of this Lease, Tenant has not agreed with Landlord’s determination of the Market Rate and the rent escalations during the Extension Term after negotiating in good faith, Tenant shall be deemed to have elected arbitration as described in Section  40(b) . Tenant acknowledges and agrees that, if Tenant has elected to exercise the Extension Right by delivering notice to Landlord as required in this Section  40(a) , Tenant shall have no right thereafter to rescind or elect not to extend the term of this Lease for the Extension Term.

(b)     Arbitration .

(i)    Within 10 days of Tenant’s notice to Landlord of its election (or deemed election) to arbitrate Market Rate and escalations, each party shall deliver to the other a proposal containing the Market Rate and escalations that the submitting party believes to be correct (“ Extension Proposal ”). Landlord’s Extension Proposal may differ from Landlord’s Market Rate Calculation if a Market Rate Calculation was requested by Tenant pursuant to Section  40(a) , provided that Landlord’s Extension Proposal may not be higher than Landlord’s Market Rate Calculation. If either

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 29

 

party fails to timely submit an Extension Proposal, the other party’s submitted proposal shall determine the Base Rent and escalations for the Extension Term. If both parties submit Extension Proposals, then Landlord and Tenant shall meet within 7 days after delivery of the last Extension Proposal and make a good faith attempt to mutually appoint a single Arbitrator (and defined below) to determine the Market Rate and escalations. If Landlord and Tenant are unable to agree upon a single Arbitrator, then each shall, by written notice delivered to the other within 10 days after the meeting, select an Arbitrator. If either party fails to timely give notice of its selection for an Arbitrator, the other party’s submitted proposal shall determine the Base Rent for the Extension Term. The 2 Arbitrators so appointed shall, within 5 business days after their appointment, appoint a third Arbitrator. If the 2 Arbitrators so selected cannot agree on the selection of the third Arbitrator within the time above specified, then either party, on behalf of both parties, may request such appointment of such third Arbitrator by application to any state court of general jurisdiction in the jurisdiction in which the Premises are located, upon 10 days prior written notice to the other party of such intent.

(ii)    The decision of the Arbitrator(s) shall be made within 30 days after the appointment of a single Arbitrator or the third Arbitrator, as applicable. The decision of the Arbitrator(s) shall be final and binding upon the parties. The arbitrator(s) must choose between the Landlord’s Extension Proposal and the Tenant’s Extension Proposal and may not compromise between the two or select some other amount. Each party shall pay the fees and expenses of the Arbitrator appointed by or on behalf of such party and the fees and expenses of the third Arbitrator shall be borne equally by both parties. If the Market Rate and escalations are not determined by the first day of the Extension Term, then Tenant shall pay Landlord Base Rent in an amount equal to the Base Rent in effect immediately prior to the Extension Term and increased by 3% until such determination is made. After the determination of the Market Rate and escalations, the parties shall make any necessary adjustments to such payments made by Tenant. Landlord and Tenant shall then execute an amendment recognizing the Market Rate and escalations for the Extension Term.

(iii)    An “ Arbitrator ” shall be any person appointed by or on behalf of either party or appointed pursuant to the provisions hereof and: (i) shall be (A) a member of the American Institute of Real Estate Appraisers with not less than 10 years of experience in the appraisal of improved office and high tech industrial real estate in the greater San Francisco Bay area, or (B) a licensed commercial real estate broker with not less than 15 years experience representing landlords and/or tenants in the leasing of high tech or life sciences space in the greater San Francisco Bay area, (ii) devoting substantially all of their time to professional appraisal or brokerage work, as applicable, at the time of appointment and (iii) be in all respects impartial and disinterested.

(c)     Rights Personal . The Extension Right is personal to Tenant and is not assignable without Landlord’s consent, which may be granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in this Lease, except that they may be assigned in connection with a Permitted Assignment.

(d)     Exceptions . Notwithstanding anything set forth above to the contrary, at Landlord’s option, the Extension Right shall not be in effect and Tenant may not exercise the Extension Right:

(i)    during any period of time that Tenant is in Default under any provision of this Lease; or

(ii)    if Tenant has been in Default under any provision of this Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period immediately prior to the date that Tenant intends to exercise an Extension Right, whether or not the Defaults are cured.

(e)     No Extensions . The period of time within which the Extension Right may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise this Extension Right.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 30

 

(f)     Termination . The Extension Right shall, at Landlord’s option, terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Extension Right, if, after such exercise, but prior to the commencement date of the Extension Term, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of the Extension Right to the date of the commencement of the Extension Term, whether or not such Defaults are cured.

41.     Intentionally Omitted .

42.     Miscellaneous .

(a)     Notices . All notices or other communications between the parties shall be in writing and shall be deemed duly given upon delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight guaranty courier, addressed and sent to the parties at their addresses set forth above. Landlord and Tenant may from time to time by written notice to the other designate another address for receipt of future notices.

(b)     Joint and Several Liability . If and when included within the term “ Tenant ,” as used in this instrument, there is more than one person or entity, each shall be jointly and severally liable for the obligations of Tenant.

(c)     Financial Information . Tenant shall furnish Landlord with true and complete copies of (i) Tenant’s most recent audited annual financial statements within 90 days of the end of each of Tenant’s fiscal years during the Term, (ii) Tenant’s most recent unaudited quarterly financial statements within 45 days of the end of each of Tenant’s first three fiscal quarters of each of Tenant’s fiscal years during the Term, (iii) at Landlord’s request from time to time, updated business plans, including cash flow projections and/or pro forma balance sheets and income statements, all of which shall be treated by Landlord as confidential information belonging to Tenant, (iv) corporate brochures and/or profiles prepared by Tenant for prospective investors, and (v) any other financial information or summaries that Tenant typically provides to its lenders or shareholders. Notwithstanding the foregoing, in no event shall Tenant be required to provide any financial information to Landlord which Tenant does not otherwise prepare (or cause to be prepared) for its own purposes.

(d)     Recordation . Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.

(e)     Interpretation . The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

(f)     Not Binding Until Executed . The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

(g)     Limitations on Interest . It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord’s and Tenant’s express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 31

 

in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

(h)     Choice of Law . Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the Premises are located, excluding any principles of conflicts of laws.

(i)     Time . Time is of the essence as to the performance of Tenant’s obligations under this Lease.

(j)     OFAC . Tenant, and all beneficial owners of Tenant, are currently (a) in compliance with and shall at all times during the Term of this Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“ OFAC ”) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the “ OFAC Rules ”), (b) not listed on, and shall not during the term of this Lease be listed on, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.

(k)     Incorporation by Reference . All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.

(l)     Entire Agreement . This Lease, including the exhibits attached hereto, constitutes the entire agreement between Landlord and Tenant pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, letters of intent, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements, express or implied, made to either party by the other party in connection with the subject matter hereof except as specifically set forth herein.

(m)     No Accord and Satisfaction . No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Base Rent or any Additional Rent will be other than on account of the earliest stipulated Base Rent and Additional Rent, nor will any endorsement or statement on any check or letter accompanying a check for payment of any Base Rent or Additional Rent be an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or to pursue any other remedy provided in this Lease.

(n)     Hazardous Activities . Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and contractors, reserves the right to refuse to perform any repairs or services in any portion of the Premises which, pursuant to Tenant’s routine safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety glasses. In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlord’s reasonable discretion, for all such repairs and services, and Landlord shall, to the extent required, equitably adjust Tenant’s Share of Operating Expenses in respect of such repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.

(o)     Project Specific Requirements . Tenant acknowledges that the use and operation of the Project are governed by, among other things, CC&Rs and Environmental CC&Rs, and Tenant acknowledges having reviewed copies of the same. Tenant agrees to comply with all of the terms of the CC&Rs and Environmental CC&Rs which are applicable to tenants of the Project including, without limitation, maintaining the insurance required under the Environmental CC&Rs. As used herein, (i) “ CC&Rs ” mean that certain Amended and Restated Declaration of Covenants, Conditions and Restrictions for Sierra Point recorded in the Official Records of San Mateo County on October 23, 1998, as amended, and (ii) “ Environmental CC&Rs ” mean that certain First Amended and Restated Declaration of Covenants, Conditions and Environmental Restrictions Relating to Environmental Compliance for Sierra Point, recorded in the Official Records of San Mateo County on October 20, 1999 as Instrument No. 1999-176058.

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 32

 

(p)     Non-Recurring Payments . If a time frame for the payment by Tenant of a non-recurring charge, cost or expense payable by Tenant pursuant to this Lease is not set forth in this Lease, such non-recurring charge, cost or expense shall be due within 30 days after Landlord’s delivery to Tenant of written demand therefor.

[ Signatures on next page ]

 

 

LOGO


Net Multi-Tenant Laboratory   7000 Shoreline/Tricida - Page 33

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

 

TENANT:

TRICIDA, INC.,

a Delaware corporation

By:   /s/ Gerrit Klaerner
Its:   CEO & President

 

LANDLORD:

ARE-SAN FRANCISCO NO. 17, LLC,

a Delaware limited liability company

By:  

ALEXANDRIA REAL ESTATE

EQUITIES, L.P., a Delaware limited

partnership, managing member

  By:  

ARE-QRS CORP.,

a Maryland corporation,

general partner

    By:   /s/ Eric S. Johnson
      Eric S. Johnson
    Its:  

Vice President

Real Estate Legal Affairs

 

 

LOGO


  7000 Shoreline/Tricida - Page 1

 

EXHIBIT A TO LEASE

DESCRIPTION OF PREMISES

 

 

LOGO


  7000 Shoreline/Tricida - Page 2

 

LOGO

 

 

LOGO


  7000 Shoreline/Tricida - Page 1

 

EXHIBIT B TO LEASE

DESCRIPTION OF PROJECT

CITY OF SOUTH SAN FRANCISCO

PARCEL 1 :

PARCEL C, AS SHOWN ON THAT CERTAIN MAP ENTITLED, “PARCEL MAP 98-044 LANDS OF SIERRA POINT, LLC, CITY OF SOUTH SAN FRANCISCO”, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY, STATE OF CALIFORNIA, ON AUGUST 6, 1999, IN BOOK 71 OF PARCEL MAPS, AT PAGE(S) 71 AND 72.

PARCEL 2 :

THOSE CERTAIN ACCESS EASEMENTS AS DESCRIBED IN THE FIRST AMENDMENT TO AMENDED AND RESTATED DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS FOR SIERRA POINT RECORDED AUGUST 6, 1999, AS DOCUMENT NO. 1999-134787, AND RERECORDED OCTOBER 20, 1999, AS DOCUMENT NO. 1999-176057.

ASSESSOR’S PARCEL NO. 015-010-570 JOINT PLANT NO. 015-001-010-02.04A

 

 

LOGO


Work Letter – Landlord Build   7000 Shoreline/Tricida - Page 1

 

EXHIBIT C TO LEASE

WORK LETTER

THIS WORK LETTER dated April 4, 2014 (this “ Work Letter ”) is made and entered into by and between ARE-SAN FRANCISCO NO. 17, LLC , a Delaware limited liability company (“ Landlord ”), and TRICIDA, INC. , a Delaware corporation (“ Tenant ”), and is attached to and made a part of the Lease Agreement dated April 4, 2014 (the “ Lease ”), by and between Landlord and Tenant. Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

1.     General Requirements .

(a)     Tenant’s Authorized Representative . Tenant designates Melissa Miksch (“ Tenant’s Representative ”) as the only person authorized to act for Tenant pursuant to this Work Letter. Landlord shall not be obligated to respond to or act upon any request, approval, inquiry or other communication (“ Communication ”) from or on behalf of Tenant in connection with this Work Letter unless such Communication is in writing from Tenant’s Representative. Tenant may change Tenant’s Representative at any time upon not less than 5 business days advance written notice to Landlord. Neither Tenant nor Tenant’s Representative shall be authorized to direct Landlord’s contractors in the performance of Landlord’s Work (as hereinafter defined).

(b)     Landlord’s Authorized Representative . Landlord designates Radika Bunton and Todd Miller (either such individual acting alone, “ Landlord’s Representative ”) as the only persons authorized to act for Landlord pursuant to this Work Letter. Tenant shall not be obligated to respond to or act upon any request, approval, inquiry or other Communication from or on behalf of Landlord in connection with this Work Letter unless such Communication is in writing from Landlord’s Representative. Landlord may change either Landlord’s Representative at any time upon not less than 5 business days advance written notice to Tenant. Landlord’s Representative shall be the sole persons authorized to direct Landlord’s contractors in the performance of Landlord’s Work.

(c)     Architects, Consultants and Contractors . Landlord and Tenant hereby acknowledge and agree that: (i) the general contractor for the Tenant Improvements shall be Landmark Builders, (ii) any subcontractors for the Tenant Improvements shall be selected by Landlord, subject to Tenant’s approval, which approval shall not be unreasonably withheld, conditioned or delayed, and (iii) DGA shall be the architect (the “ TI Architect ”) for the Tenant Improvements.

2.     Tenant Improvements .

(a)     Tenant Improvements Defined . As used herein, “ Tenant Improvements ” shall mean all improvements to the Project of a fixed and permanent nature as shown on the TI Construction Drawings, as defined in Section  2(c) below. Other than Landlord’s Work (as defined in Section  3(a) below, Landlord shall not have any obligation whatsoever with respect to the finishing of the Premises for Tenant’s use and occupancy.

(b)     Tenant’s Space Plans . Landlord and Tenant acknowledge and agree that the space plan prepared by the TI Architect attached hereto as Schedule 1 (the “ Space Plan ”) has been approved by both Landlord and Tenant.

(c)     Working Drawings . Not later than 5 days following the approval of the Space Plan, Landlord shall cause the TI Architect to prepare and deliver to Tenant for review and comment construction plans, specifications and drawings for the Tenant Improvements (“ TI Construction Drawings ”), which TI Construction Drawings shall be prepared substantially in accordance with the Space Plan. Tenant shall be solely responsible for ensuring that the TI Construction Drawings reflect Tenant’s requirements for the Tenant Improvements. Tenant shall deliver its written comments on the TI Construction Drawings to

 

 

LOGO


Work Letter – Landlord Build   7000 Shoreline/Tricida - Page 2

 

Landlord not later than 10 business days after Tenant’s receipt of the same; provided, however, that Tenant may not disapprove any matter that is consistent with the Space Plan without submitting a Change Request. Landlord and the TI Architect shall consider all such comments in good faith and shall, within 10 business days after receipt, notify Tenant how Landlord proposes to respond to such comments, but Tenant’s review rights pursuant to the foregoing sentence shall not delay the design or construction schedule for the Tenant Improvements. Any disputes in connection with such comments shall be resolved in accordance with Section  2(d) hereof. Provided that the design reflected in the TI Construction Drawings is consistent with the Space Plan, Tenant shall approve the TI Construction Drawings submitted by Landlord, unless Tenant submits a Change Request. Once approved by Tenant, subject to the provisions of Section  4 below, Landlord shall not modify the TI Construction Drawings except as may be reasonably required in connection with the issuance of the TI Permit (as defined in Section  3(b) below).

(d)     Approval and Completion . It is hereby acknowledged by Landlord and Tenant that the TI Construction Drawings must be completed and approved not later than April 15, 2014, in order for the Landlord’s Work to be Substantially Complete by the Target Commencement Date (as defined in the Lease). Upon any dispute regarding the design of the Tenant Improvements, which is not settled within 10 business days after notice of such dispute is delivered by one party to the other, Tenant may make the final decision regarding the design of the Tenant Improvements, provided (i) Tenant acts reasonably and such final decision is either consistent with or a compromise between Landlord’s and Tenant’s positions with respect to such dispute, (ii) that all costs and expenses resulting from any such decision by Tenant shall be payable out of the TI Fund (as defined in Section  5(d) below), and (iii) Tenant’s decision will not affect the base Building, structural components of the Building or any Building Systems. Any changes to the TI Construction Drawings following Landlord’s and Tenant’s approval of same requested by Tenant shall be processed as provided in Section  4 hereof.

3.     Performance of Landlord’s Work .

(a)     Definition of Landlord’s Work . As used herein, “ Landlord’s Work ” shall mean the work of constructing the Tenant Improvements.

(b)     Commencement and Permitting . Landlord shall commence construction of the Tenant Improvements upon obtaining a building permit (the “ TI Permit ”) authorizing the construction of the Tenant Improvements consistent with the TI Construction Drawings approved by Tenant. The cost of obtaining the TI Permit shall be payable from the TI Fund. Tenant shall reasonably assist Landlord in obtaining the TI Permit. If any Governmental Authority having jurisdiction over the construction of Landlord’s Work or any portion thereof shall impose terms or conditions upon the construction thereof that: (i) are inconsistent with Landlord’s obligations hereunder, (ii) increase the cost of constructing Landlord’s Work, or (iii) will materially delay the construction of Landlord’s Work, Landlord and Tenant shall reasonably and in good faith seek means by which to mitigate or eliminate any such adverse terms and conditions.

(c)     Completion of Landlord’s Work . On or before the Target Commencement Date (subject to Tenant Delays and Force Majeure delays), Landlord shall substantially complete or cause to be substantially completed Landlord’s Work in a good and workmanlike manner and in compliance with applicable Legal Requirements, in accordance with the TI Permit subject, in each case, to Minor Variations and normal “punch list” items of a non-material nature that do not interfere with the use of the Premises (“ Substantial Completion ” or “ Substantially Complete ”). Upon Substantial Completion of Landlord’s Work, Landlord shall require the TI Architect and the general contractor to execute and deliver, for the benefit of Tenant and Landlord, a Certificate of Substantial Completion in the form of the American Institute of Architects (“ AIA ”) document G704. For purposes of this Work Letter, “ Minor Variations ” shall mean any modifications reasonably required: (i) to comply with all applicable Legal Requirements and/or to obtain or to comply with any required permit (including the TI Permit); (ii) to comply with any request by Tenant for modifications to Landlord’s Work; (iii) to comport with good design, engineering, and construction practices that are not material; or (iv) to make reasonable adjustments for field deviations or conditions encountered during the construction of Landlord’s Work.

 

 

LOGO


Work Letter – Landlord Build   7000 Shoreline/Tricida - Page 3

 

(d)     Selection of Materials . Where more than one type of material or structure is indicated on the TI Construction Drawings approved by Landlord and Tenant, the option will be selected at Landlord’s sole and absolute subjective discretion. As to all building materials and equipment that Landlord is obligated to supply under this Work Letter, Landlord shall select the manufacturer thereof in its reasonable discretion.

(e)     Delivery of the Premises . When Landlord’s Work is Substantially Complete, subject to the remaining terms and provisions of this Section  3(e) , Tenant shall accept the Premises. Tenant’s taking possession and acceptance of the Premises shall not constitute a waiver of: (i) any warranty with respect to workmanship (including installation of equipment) or material (exclusive of equipment provided directly by manufacturers), (ii) any non-compliance of Landlord’s Work with applicable Legal Requirements, or (iii) any claim that Landlord’s Work was not completed substantially in accordance with the TI Construction Drawings (subject to Minor Variations and such other changes as are permitted hereunder) (collectively, a “ Construction Defect ”). Tenant shall have one year after Substantial Completion within which to notify Landlord of any such Construction Defect discovered by Tenant, and Landlord shall use reasonable efforts to remedy or cause the responsible contractor to remedy any such Construction Defect within 30 days thereafter. Notwithstanding the foregoing, Landlord shall not be in default under the Lease if the applicable contractor, despite Landlord’s reasonable efforts, fails to remedy such Construction Defect within such 30-day period, in which case Landlord shall have no further obligation with respect to such Construction Defect other than to cooperate, at no cost to Landlord, with Tenant should Tenant elect to pursue a claim against such contractor.

Tenant shall be entitled to receive the benefit of all construction warranties and manufacturer’s equipment warranties relating to equipment installed in the Premises. If requested by Tenant, Landlord shall attempt to obtain extended warranties from manufacturers and suppliers of such equipment, but the cost of any such extended warranties shall be borne solely out of the TI Fund. Landlord shall promptly undertake and complete, or cause to be completed, all punch list items.

(f)     Commencement Date Delay . Except as otherwise provided in the Lease, Delivery of the Premises shall occur when Landlord’s Work has been Substantially Completed, except to the extent that completion of Landlord’s Work shall have been actually delayed by any one or more of the following causes (“ Tenant Delay ”):

(i)    Tenant’s Representative was not available within 3 business days to give or receive any Communication or to take any other action required to be taken by Tenant hereunder;

(ii)    Tenant’s request for Change Requests (as defined in Section  4(a) below) whether or not any such Change Requests are actually performed;

(iii)    Construction of any Change Requests;

(iv)    Tenant’s request for materials, finishes or installations requiring unusually long lead times, provided that promptly after Landlord learns of such long lead times, Landlord informs Tenant that the requested items will require unusually long lead times;

(v)    Tenant’s delay in reviewing, revising or approving plans and specifications beyond the periods set forth herein;

(vi)    Tenant’s delay in providing information critical to the normal progression of the Project. Tenant shall provide such information as soon as reasonably possible, but in no event longer than one week after receipt of any request for such information from Landlord;

(vii)    Tenant’s delay in making payments to Landlord for Excess TI Costs (as defined in Section  5(d) below); or

 

 

LOGO


Work Letter – Landlord Build   7000 Shoreline/Tricida - Page 4

 

(viii)    Any other act or omission by Tenant or any Tenant Party (as defined in the Lease), or persons employed by any of such persons that continues for more than one 1 business day after Landlord’s notice thereof to Tenant.

If Delivery is delayed for any of the foregoing reasons, then Landlord shall cause the TI Architect to certify the date on which the Tenant Improvements would have been Substantially Completed but for such Tenant Delay and such certified date shall be the date of Delivery.

4.     Changes . Any changes requested by Tenant to the Tenant Improvements after the delivery and approval by Landlord of the Space Plan shall be requested and instituted in accordance with the provisions of this Section  4 and shall be subject to the written approval of Landlord and the TI Architect, such approval not to be unreasonably withheld, conditioned or delayed.

(a)     Tenant’s Request For Changes . If Tenant shall request changes to the Tenant Improvements (“ Changes ”), Tenant shall request such Changes by notifying Landlord in writing in substantially the same form as the AIA standard change order form (a “ Change Request ”), which Change Request shall detail the nature and extent of any such Change. Such Change Request must be signed by Tenant’s Representative. Landlord shall, before proceeding with any Change, use commercially reasonable efforts to respond to Tenant as soon as is reasonably possible with an estimate of: (i) the time it will take, and (ii) the architectural and engineering fees and costs that will be incurred, to analyze such Change Request (which costs shall be paid from the TI Fund to the extent actually incurred, whether or not such change is implemented). Landlord shall thereafter submit to Tenant in writing, within 5 business days of receipt of the Change Request (or such longer period of time as is reasonably required depending on the extent of the Change Request), an analysis of the additional cost or savings involved, including, without limitation, architectural and engineering costs and the period of time, if any, that the Change will extend the date on which Landlord’s Work will be Substantially Complete. Any such delay in the completion of Landlord’s Work caused by a Change, including any suspension of Landlord’s Work while any such Change is being evaluated and/or designed, shall be Tenant Delay.

(b)     Implementation of Changes . If Tenant: (i) approves in writing the cost or savings and the estimated extension in the time for completion of Landlord’s Work, if any, and (ii) deposits with Landlord any Excess TI Costs required in connection with such Change, Landlord shall cause the approved Change to be instituted. Notwithstanding any approval or disapproval by Tenant of any estimate of the delay caused by such proposed Change, the TI Architect’s determination of the amount of Tenant Delay in connection with such Change shall be final and binding on Landlord and Tenant.

5.     Costs .

(a)     Budget For Tenant Improvements . Before the commencement of construction of the Tenant Improvements, Landlord shall obtain a detailed breakdown by trade of the costs incurred or that will be incurred in connection with the design, permitting and construction of the Tenant Improvements (the “ Budget ”). The Budget may be amended from time to time but shall be submitted to Tenant each time for its approval, which approval shall not be unreasonably withheld, conditioned or delayed. Notwithstanding anything to the contrary contained herein, if Tenant does not approve or disapprove the Budget or amended Budget, as applicable, within 3 days after Landlord’s delivery to Tenant of such Budget or amended Budget, Tenant shall be deemed to have approved such Budget or amended Budget. The Budget shall be based upon the TI Construction Drawings approved by Landlord. If the Budget is greater than the TI Allowance, Tenant shall deposit the amounts required pursuant to Section  5(d) below, in cash, prior to the commencement of construction of the Tenant Improvements or Changes, for disbursement by Landlord as described in Section  5(d) .

 

 

LOGO


Work Letter – Landlord Build   7000 Shoreline/Tricida - Page 5

 

(b)     TI Allowance . Landlord shall provide to Tenant a tenant improvement allowance (collectively, the “ TI Allowance ”) as follows:

1.    a “ Tenant Improvement Allowance ” in the maximum amount of $40 per rentable square foot in the Premises, or $549,160 in the aggregate, which is included in the Base Rent set forth in the Lease; and

2.    an “ Additional Tenant Improvement Allowance ” in the maximum amount of $15 per rentable square foot in the Premises, or $205,935 in the aggregate, which shall, to the extent used, result in the payment of TI Rent as set forth in the Lease.

The TI Allowance shall be disbursed in accordance with this Work Letter. Except as otherwise provided in this paragraph, Tenant shall have no right to the use or benefit (including any reduction to or payment of Base Rent) of any portion of the TI Allowance not required for the design, permitting and construction of (i) the Tenant Improvements described in the TI Construction Drawings approved pursuant to Section  2(d) or (ii) any Changes pursuant to Section  4 . Tenant may elect, upon written notice to Landlord following the Substantial Completion of all of the Tenant Improvements, to use any remaining TI Allowance for the payment of Alterations performed by Tenant in the Premises pursuant to Section  12 of the Lease. The TI Allowance shall only be available for use by Tenant until the date that is 12 months after the Commencement Date of the Lease (“ Allowance Expiration Date ”), and any portion of the TI Allowance which has not been disbursed by Landlord for the Tenant Improvements or Alterations on or before the Allowance Expiration Date shall be forfeited and shall not be available for use by Tenant.

(c)     Costs Includable in TI Fund . The TI Fund shall be used solely for the payment of design, permits and construction costs in connection with the construction of the Tenant Improvements, including, without limitation, the cost of electrical power and other utilities used in connection with the construction of the Tenant Improvements, the cost of preparing the Space Plan and the TI Construction Drawings, all costs set forth in the Budget, Landlord’s out-of-pocket expenses, costs resulting from Tenant Delays and the cost of Changes (collectively, “ TI Costs ”). Notwithstanding anything to the contrary contained herein, the TI Fund shall not be used to purchase any furniture, personal property or other non-Building system materials or equipment, including, but not limited to, Tenant’s voice or data cabling, non-ducted biological safety cabinets and other scientific equipment not incorporated into the Tenant Improvements; provided, however, that a portion of the Additional Tenant Improvement Allowance may be used for Tenant’s voice or data cabling.

(d)     Excess TI Costs . Landlord shall have no obligation to bear any portion of the cost of any of the Tenant Improvements except to the extent of the TI Allowance. If at any time the remaining TI Costs under the Budget exceed the remaining unexpended TI Allowance, Tenant shall deposit with Landlord, as a condition precedent to Landlord’s obligation to complete the Tenant Improvements, 50% of the then current TI Cost in excess of the remaining TI Allowance (“ Excess TI Costs ”) and the remaining 50% of the Excess TI Costs upon Substantial Completion of the Tenant Improvements. If Tenant fails to deposit any Excess TI Costs with Landlord as required pursuant to this Section  5(d) , Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including, but not limited to, the right to interest at the Default Rate and the right to assess a late charge). For purposes of any litigation instituted with regard to such amounts, those amounts will be deemed Rent under the Lease. The TI Allowance and Excess TI Costs are herein referred to as the “ TI Fund .” Funds deposited by Tenant shall be the first disbursed to pay TI Costs. Notwithstanding anything to the contrary set forth in this Section  5(d) , Tenant shall be fully and solely liable for TI Costs and the cost of Minor Variations in excess of the TI Allowance. Subject to the last paragraph of Section  5(b) above, if upon completion of the Tenant Improvements and the payment of all sums due in connection therewith there remains any undisbursed portion of the TI Fund, Tenant shall be entitled to such undisbursed TI Fund solely to the extent of any Excess TI Costs deposit Tenant has actually made with Landlord.

6.     Tenant Access .

(a)     Tenant’s Access Rights . Landlord hereby agrees to permit Tenant access, at Tenant’s sole risk and expense, to the Building (i) 10 days prior to the Commencement Date to perform any work (“ Tenant’s Work ”) required by Tenant other than Landlord’s Work, provided that such Tenant’s Work is

 

 

LOGO


Work Letter – Landlord Build   7000 Shoreline/Tricida - Page 6

 

coordinated with the TI Architect and the general contractor, and complies with the Lease and all other reasonable restrictions and conditions Landlord may impose, and (ii) prior to the completion of Landlord’s Work, to inspect and observe work in process; all such access shall be during normal business hours or at such other times as are reasonably designated by Landlord. Notwithstanding the foregoing, Tenant shall have no right to enter onto the Premises or the Project unless and until Tenant shall deliver to Landlord evidence reasonably satisfactory to Landlord demonstrating that any insurance that Tenant is required to obtain pursuant to the Lease is in full force and effect. Any entry by Tenant shall comply with all established safety practices of Landlord’s contractor and Landlord until completion of Landlord’s Work and acceptance thereof by Tenant.

(b)     No Interference . Neither Tenant nor any Tenant Party (as defined in the Lease) shall interfere with the performance of Landlord’s Work, nor with any inspections or issuance of final approvals by applicable Governmental Authorities, and upon any such interference, Landlord shall have the right to exclude Tenant and any Tenant Party from the Premises and the Project until Substantial Completion of Landlord’s Work.

(c)     No Acceptance of Premises . The fact that Tenant may, with Landlord’s consent, enter into the Project prior to the date Landlord’s Work is Substantially Complete for the purpose of performing Tenant’s Work shall not be deemed an acceptance by Tenant of possession of the Premises, but in such event Tenant shall defend with counsel reasonably acceptable by Landlord, indemnify and hold Landlord harmless from and against any loss of or damage to Tenant’s property, completed work, fixtures, equipment, materials or merchandise, and from liability for death of, or injury to, any person, caused by the act or omission of Tenant or any Tenant Party.

7.     Miscellaneous .

(a)     Consents . Whenever consent or approval of either party is required under this Work Letter, that party shall not unreasonably withhold, condition or delay such consent or approval.

(b)     Modification . No modification, waiver or amendment of this Work Letter or of any of its conditions or provisions shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.

 

 

LOGO


Work Letter – Landlord Build   7000 Shoreline/Tricida - Page 7

 

Schedule 1

Space Plan

 

 

LOGO


Work Letter – Landlord Build   7000 Shoreline/Tricida - Page 8

 

LOGO

 

 

LOGO


Work Letter – Landlord Build   7000 Shoreline/Tricida - Page 9

 

LOGO

 

 

LOGO


  7000 Shoreline/Tricida - Page 1

 

EXHIBIT D TO LEASE

ACKNOWLEDGMENT OF COMMENCEMENT DATE

This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this           day of                      ,          , between ARE-SAN FRANCISCO NO. 17, LLC , a Delaware limited liability company (“ Landlord ”), and TRICIDA, INC. , a Delaware corporation (“ Tenant ”), and is attached to and made a part of the Lease dated                      ,          (the “ Lease ”), by and between Landlord and Tenant. Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

Landlord and Tenant hereby acknowledge and agree, for all purposes of the Lease, that the Commencement Date of the Base Term of the Lease is                      ,          , the Rent Commencement Date is                      ,          , and the termination date of the Base Term of the Lease shall be midnight on                      ,          . In case of a conflict between the terms of the Lease and the terms of this Acknowledgment of Commencement Date, this Acknowledgment of Commencement Date shall control for all purposes.

IN WITNESS WHEREOF, Landlord and Tenant have executed this ACKNOWLEDGMENT OF COMMENCEMENT DATE to be effective on the date first above written.

 

TENANT:

TRICIDA, INC.,

a Delaware corporation

By:    
Its:    

 

LANDLORD:

ARE-SAN FRANCISCO NO. 17, LLC,

a Delaware limited liability company

By:  

ALEXANDRIA REAL ESTATE

EQUITIES, L.P., a Delaware limited

partnership, managing member

  By:  

ARE-QRS CORP.,

a Maryland corporation,

general partner

    By:    
    Its:    

 

 

LOGO


Rules and Regulations   7000 Shoreline/Tricida - Page 1

 

EXHIBIT E TO LEASE

Rules and Regulations

1.    The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or any Tenant Party, or used by them for any purpose other than ingress and egress to and from the Premises.

2.    Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.

3.    Except for animals assisting the disabled, no animals shall be allowed in the offices, halls, or corridors in the Project.

4.    Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

5.    If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant’s expense.

6.    Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project.

7.    Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no “For Sale” or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.

8.    Tenant shall maintain the Premises free from rodents, insects and other pests.

9.    Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

10.    Tenant shall not cause any unnecessary labor by reason of Tenant’s carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.

11.    Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

12.    Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

 

 

LOGO


Rules and Regulations   7000 Shoreline/Tricida - Page 2

 

13.    All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

14.    No auction, public or private, will be permitted on the Premises or the Project.

15.    No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

16.    The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises.

17.    Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord’s consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.

18.    Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.

19.    Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant’s ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.

 

 

LOGO


  7000 Shoreline/Tricida - Page 1

 

EXHIBIT F TO LEASE

TENANT’S PERSONAL PROPERTY

None.

 

 

LOGO


  7000 Shoreline/Tricida - Page 1

 

EXHIBIT G TO LEASE

ROFR SPACE

 

 

LOGO


  7000 Shoreline/Tricida - Page 2

 

LOGO

 

 

LOGO

Exhibit 10.9

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (this “ First Amendment ”) is made as of August 2, 2017, by and between ARE-SAN FRANCISCO NO.  17, LLC, a Delaware limited liability company (“ Landlord ”), and TRICIDA, INC., a Delaware corporation (“ Tenant ”).

RECITALS

A.    Landlord and Tenant are now parties to that certain Lease Agreement dated as of April 4, 2014 (the “ Lease ”). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 13,729 rentable square feet (the “ Original Premises ”) in a building located at 7000 Shoreline Court, South San Francisco, California. The Original Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

B.    Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, (i) extend the Term of the Lease, and (ii) expand the size of the Premises leased by Tenant by adding that portion of the Building consisting of approximately 13,258 rentable square feet on the second floor of the east wing of the Building (the “ Expansion Premises ”), as shown on Exhibit  A attached to this First Amendment.

NOW, THEREFORE , in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Expansion Premises . In addition to the Original Premises, commencing on the Expansion Premises Commencement Date (as defined below), Landlord leases to Tenant, and Tenant leases from Landlord, the Expansion Premises.

 

2. Delivery . Landlord shall use reasonable efforts to deliver (“ Delivery or “ Deliver ”) the Expansion Premises to Tenant on or before August 15, 2017 (“ Target Expansion Premises Commencement Date ”). If Landlord fails to timely Deliver the Expansion Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom and the Lease with respect to the Expansion Premises shall not be void or voidable, except as provided in this paragraph. If Landlord does not Deliver the Expansion Premises to Tenant on or before the date that is 45 days after the Target Expansion Premises Commencement Date (as such date may be extended for Force Majeure delays), this First Amendment may be terminated by Tenant by written notice to Landlord, and if so terminated by Tenant, neither Landlord nor Tenant shall have any further rights, duties or obligations under this First Amendment, except with respect to provisions which expressly survive termination of this First Amendment, and the Lease shall continue in full force and effect as though the parties had never executed this First Amendment. If Tenant does not elect to terminate this First Amendment on or before the date that is 5 days after the lapse of such 45 days period, such right to terminate this First Amendment shall be waived and this First Amendment shall remain in full force and effect.

 

1


The “ Expansion Premises Commencement Date shall be the date that Landlord Delivers the Expansion Premises to Tenant. The “ Expansion Premises Rent Commencement Date” shall be the later to occur of (i) September 1, 2017, or (ii) the Expansion Premises Commencement Date. Upon the request of Landlord, Tenant shall execute and deliver a written acknowledgment of the Expansion Premises Commencement Date, the Expansion Premises Rent Commencement Date and the expiration date of the Lease in substantially the form of the “Acknowledgement of Commencement Date” attached to the Lease as Exhibit D ; provided , however , Tenant’s failure to execute and deliver such acknowledgment shall not affect Landlord’s rights hereunder.

For the period of 60 consecutive days after the Expansion Premises Commencement Date, Landlord shall, at its sole cost and expense (which shall not constitute an Operating Expense), be responsible for any repairs that are required to be made to the Building Systems serving the Expansion Premises, unless Tenant or any Tenant Party was responsible for the cause of such repair, in which case Tenant shall pay the cost.

Except as otherwise set forth in this First Amendment (including, without limitation, Landlord’s obligations set forth in the immediately preceding paragraph): (i) Tenant shall accept the Expansion Premises in their “as-is” condition as of the Expansion Premises Commencement Date (with the free standing storage cabinetry existing In the break room area of the Expansion Premises, the 6’ sink cabinet and the 34” upper cabinet existing in the portion of the Expansion Premises commonly known as the Jamison Conference Room prior to date of this First Amendment having been removed by the prior tenant); and (ii) Tenant’s taking possession of the Expansion Premises shall be conclusive evidence that Tenant accepts the Expansion Premises and that the Expansion Premises were in good condition at the time possession was taken.

Except as otherwise provided in this First Amendment, Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Expansion Premises, and/or the suitability of the Expansion Premises for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Expansion Premises are suitable for the Permitted Use.

 

3. Base Term . Commencing on the Expansion Premises Commencement Date, the defined term “Base Term” on page 1 of the Lease is deleted in its entirety and replaced with the following:

Base Term : Commencing (i) with respect to the Original Premises on the Commencement Date, and (ii) with respect to the Expansion Premises on the Expansion Premises Commencement Date, and ending with respect to the entire Premises on June 30, 2021.”

 

2


4. Definition of Premises and Rentable Area of Premises . Commencing on the Expansion Premises Commencement Date, the defined terms “ Premises and Rentable Area of Premises on Page 1 of the Lease shall be deleted in their entirety and replaced with the following:

Premises : That portion of the second floor of the Project containing approximately 26,987 rentable square feet, consisting of (i) approximately 13,729 rentable square feet (the “ Original Premises ”), and (ii) approximately 13,258 rentable square feet (the “ Expansion Premises ”), all as shown on Exhibit  A.

Rentable Area of Premises: 26,987 sq. ft.”

As of the Expansion Premises Commencement Date, Exhibit  A to the Lease shall be amended to include the Expansion Premises as shown on Exhibit  A to this First Amendment.

 

5. Base Rent .

a.     Original Premises . Tenant shall continue paying Base Rent with respect to the Original Premises as provided in the Lease through June 30, 2019. Base Rent payable with respect to the Original Premises shall be increased on July 1, 2019, and on each subsequent July 1st during the Base Term (each, a “ Original Premises Adjustment Date ”) by multiplying the Base Rent payable with respect to the Original Premises by 3% and adding the resulting amount to the Base Rent payable with respect to the Original Premises immediately before such Original Premises Adjustment Date.

b.     Expansion Premises . Commencing on the Expansion Premises Rent Commencement Date, Tenant shall commence paying Base Rent with respect to the Expansion Premises in the amount of $3.30 per rentable square foot of the Expansion Premises per month. Base Rent payable with respect to the Expansion Premises shall be increased on July 1, 2018, and on each subsequent July 1st during the Base Term (each, an “ Expansion Space Adjustment Date ”) by multiplying the Base Rent payable with respect to the Expansion Premises by 3% and adding the resulting amount to the Base Rent payable with respect to the Expansion Premises immediately before such Expansion Premises Adjustment Date.

c.     Additional Tenant Improvement Allowance . In addition to the Tenant Improvement Allowance (as defined in the First Amendment Work Letter attached to this First Amendment as Exhibit  B and incorporated herein by reference), Landlord shall, subject to the terms of the First Amendment Work Letter, make available to Tenant the Additional Tenant Improvement Allowance (as defined in the First Amendment Work Letter). Commencing on the earlier of (i) the last day of the 18th month after the Expansion Premises Commencement Date or, (ii) the date that Landlord disburses the full amount of the Additional Tenant Improvement Allowance, and continuing thereafter on the first day of each month during the Base Term, Tenant shall pay the amount necessary to fully amortize the full amount of the Additional Tenant Improvement Allowance in equal monthly payments with interest at a rate of 8% per annum over the remaining Base Term, which interest shall begin to accrue on the date that Landlord first disburses such Additional Tenant Improvement Allowance or any portion(s) thereof. Any of the Additional Tenant Improvement Allowance and applicable interest remaining unpaid as of the expiration or earlier termination of the Lease shall be paid to Landlord in a lump sum at the expiration or earlier termination of the Lease.

 

3


6. Definition of Tenant’s Share of Operating Expenses . Commencing on the Expansion Premises Rent Commencement Date, the defined term “ Tenant’s Share of Operating Expenses on page 1 of the Lease is deleted in their entirety and replaced with the following:

Tenant’s Share of Operating Expenses: 19.74%”

Notwithstanding anything to the contrary contained herein, Tenant shall not be required to pay Operating Expenses with respect to the Expansion Premises for the period commencing on the Expansion Premises Commencement Date through the day immediately preceding the Expansion Premises Rent Commencement Date (during which time Tenant’s Share of Operating Expenses shall continue to be 10.04%). Tenant shall commence paying Base Rent with respect to the Expansion Premises on the Expansion Premises Rent Commencement Date.

For the avoidance of doubt, Tenant shall not be responsible for Operating Expenses incurred with respect to the Expansion Premises prior to the Expansion Premises Rent Commencement Date and in no event shall Operating Expenses payable with respect to the Expansion Premises include the original construction costs of the Project and renovation prior to the Expansion Premises Commencement Date and costs of correcting defects in such original construction or renovation.

 

7.

California Accessibility Disclosure . For purposes of Section 1938(a) of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Project has not undergone inspection by a Certified Access Specialist (CASp). In addition, the following notice is hereby provided pursuant to Section 1938(e) of the California Civil Code: “A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.” In furtherance of and in connection with such notice: (i) Tenant, having read such notice and understanding Tenant’s right to request and obtain a CASp inspection, hereby elects not to obtain such CASp inspection and forever waives its rights to obtain a CASp inspection with respect to the Premises, Building and/or Project to the extent permitted by Legal Requirements; and (ii) if the waiver set forth in clause (i) hereinabove is not enforceable pursuant to Legal Requirements, then Landlord and Tenant hereby agree as follows (which constitute the mutual agreement of the parties as to the matters described in the last sentence of the foregoing notice): (A) Tenant shall have the onetime right to request for and obtain a CASp inspection, which request must be made, if at all, in a written notice delivered by Tenant to Landlord; (B) any CASp inspection timely requested by Tenant shall be conducted (1) at a time mutually agreed to by Landlord and Tenant, (2) in a professional manner by a CASp designated by Landlord

 

4


  and without any testing that would damage the Premises, Building or Project in any way, and (3) at Tenant’s sole cost and expense, including, without limitation, Tenant’s payment of the fee for such CASp inspection, the fee for any reports prepared by the CASp in connection with such CASp inspection (collectively, the “ CASp Reports ”) and all other costs and expenses in connection therewith; (C) the CASp Reports shall be delivered by the CASp simultaneously to Landlord and Tenant; (D) Tenant, at its sole cost and expense, shall be responsible for making any improvements, alterations, modifications and/or repairs to or within the Premises to correct violations of construction-related accessibility standards including, without limitation, any violations disclosed by such CASp inspection; and (E) if such CASp inspection identifies any improvements, alterations, modifications and/or repairs necessary to correct violations of construction-related accessibility standards relating to those items of the Building and Project located outside the Premises that are Landlord’s obligation to repair as set forth in the Lease, then Landlord shall perform such improvements, alterations, modifications and/or repairs as and to the extent required by Legal Requirements to correct such violations, and Tenant shall reimburse Landlord for the cost of such improvements, alterations, modifications and/or repairs within 10 business days after Tenant’s receipt of an invoice therefor from Landlord.

 

8. OFAC . Tenant and all beneficial owners of Tenant are currently (a) in compliance with and shall at all times during the Term of the Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“ OFAC ”) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the “ OFAC Rules ”), (b)  not listed on, and shall not during the term of the Lease be listed on, the Specially Designated Nationals and Blocked Persons List, Foreign Sanctions Evaders List or the Sectoral Sanctions Identifications List, which are all maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.

 

9. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, “ Broker’) in connection with the transaction reflected in this First Amendment and that no Broker brought about this transaction, other than Savills Studley. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than Savills Studley, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this First Amendment.

 

10. Miscellaneous .

a.    This First Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This First Amendment may be amended only by an agreement in writing, signed by the parties hereto.

b.    This First Amendment is binding upon and shall inure to the benefit of the parties hereto, and their respective successors and assigns.

 

5


c.    This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this First Amendment attached thereto.

d.    Except as amended and/or modified by this First Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this First Amendment. In the event of any conflict between the provisions of this First Amendment and the provisions of the Lease, the provisions of this First Amendment shall prevail. Whether or not specifically amended by this First Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this First Amendment.

[Signatures are on the next page.]

 

6


IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the day and year first above written.

 

TENANT:

TRICIDA, INC.,

a Delaware corporation

By:   /s/ Gerrit Klaerner
Its:   President & CEO

 

LANDLORD:

ARE-SAN FRANCISCO NO. 17, LLC,

a Delaware limited liability company

By:  

ALEXANDRIA REAL ESTATE

EQUITIES, L.P., a Delaware limited

partnership, managing member

  By:  

ARE-QRS CORP.,

a Maryland corporation,

general partner

    By:   /s/ Gary Dean
      Gary Dean
    Its:  

Senor Vice President

RE Legal Affairs

 

7


EXHIBIT A

Expansion Premises

 

LOGO

 

A-1


EXHIBIT B

First Amendment Work Letter

THIS FIRST AMENDMENT WORK LETTER (this “ First Amendment Work Letter ”) is incorporated into that certain Lease Agreement dated as of April 4, 2014, as amended by that certain First Amendment to Lease of even date herewith (as amended, (the “ Lease ”) dated as of August 2, 2017 by and between ARE-SAN FRANCISCO NO.  17, LLC , a Delaware limited company (“ Landlord ”), and TRICIDA , INC. , a Delaware corporation (“ Tenant ”). Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

1.    General Requirements.

(a)     Tenant’s Authorized Representative . Tenant designates Elizabeth Roberts and Edward Hejlek (either such individual acting alone, “ Tenant’s Representative ”) as the only persons authorized to act for Tenant pursuant to this First Amendment Work Letter. Landlord shall not be obligated to respond to or act upon any request, approval, inquiry or other communication (“ Communication ”) from or on behalf of Tenant in connection with this First Amendment Work Letter unless such Communication is in writing from Tenant’s Representative. Tenant may change either Tenant’s Representative at any time upon not less than 5 business days advance written notice to Landlord.

(b)     Landlord’s Authorized Representative . Landlord designates Hong Leahey and Todd Miller (either such individual acting alone, “ Landlord’s Representative ”) as the only persons authorized to act for Landlord pursuant to this First Amendment Work Letter. Tenant shall not be obligated to respond to or act upon any request, approval, inquiry or other Communication from or on behalf of Landlord in connection with this First Amendment Work Letter unless such Communication is in writing from Landlord’s Representative, Landlord may change either Landlord’s Representative at any time upon not less than 5 business days advance written notice to Tenant.

(c)     Architects, Consultants and Contractors . Landlord and Tenant hereby acknowledge and agree that the architect (the “ TI Architect ”) for the Tenant Improvements (as defined in Section  2(a) below), the general contractor and any subcontractors for the Tenant Improvements shall be selected by Tenant, subject to Landlord’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. Landlord shall be named a third party beneficiary of any contract entered into by Tenant with the TI Architect, any consultant, any contractor or any subcontractor, and of any warranty made by any contractor or any subcontractor.

2.    Tenant Improvements.

(a)     Tenant Improvements Defined. As used herein, “ Tenant Improvements shall mean all improvements to the Premises desired by Tenant of a fixed and permanent nature. Except as otherwise expressly provided in the First Amendment, other than funding the TI Allowance (as defined below) as provided herein, Landlord shall not have any obligation whatsoever with respect to the finishing of the Premises for Tenant’s use and occupancy.

 

B-1


(b)     Tenant’s Space Plans . Tenant shall deliver to Landlord, for Landlord’s reasonable approval, schematic drawings and outline specifications (the “ TI Design Drawings ”) detailing Tenant’s requirements for the Tenant Improvements. Not more than 5 days thereafter, Landlord shall deliver to Tenant the written objections, questions or comments of Landlord with regard to the TI Design Drawings. Tenant shall cause the TI Design Drawings to be revised to address such written comments and shall resubmit said drawings to Landlord for approval within 5 days thereafter. Such process shall continue until Landlord has approved the TI Design Drawings.

(c)     Working Drawings . Not later than 15 business days following the approval of the TI Design Drawings by Landlord, Tenant shall cause the TI Architect to prepare and deliver to Landlord for review and comment construction plans, specifications and drawings for the Tenant Improvements (“ TI Construction Drawings ”), which TI Construction Drawings shall be prepared substantially in accordance with the TI Design Drawings. Tenant shall be solely responsible for ensuring that the TI Construction Drawings reflect Tenant’s requirements for the Tenant Improvements. Landlord shall deliver its written comments on the TI Construction Drawings to Tenant not later than 10 business days after Landlord’s receipt of the same; provided, however, that Landlord may not disapprove any matter that is consistent with the TI Design Drawings. Tenant and the TI Architect shall consider all such comments in good faith and shall, within 10 business days after receipt, notify Landlord how Tenant proposes to respond to such comments. Any disputes in connection with such comments shall be resolved in accordance with Section  2(d) hereof. Provided that the design reflected in the TI Construction Drawings is consistent with the TI Design Drawings, Landlord shall approve the TI Construction Drawings submitted by Tenant. Once approved by Landlord, subject to the provisions of Section  4 below, Tenant shall not materially modify the TI Construction Drawings except as may be reasonably required in connection with the issuance of the TI Permit (as defined in Section  3(a) below).

(d)     Approval and Completion . If any dispute regarding the design of the Tenant Improvements is not settled within 10 business days after notice of such dispute is delivered by one party to the other, Tenant may make the final decision regarding the design of the Tenant Improvements, provided (i) Tenant acts reasonably and such final decision is either consistent with or a compromise between Landlord’s and Tenant’s positions with respect to such dispute, (ii) that all costs and expenses resulting from any such decision by Tenant shall be payable out of the TI Fund (as defined in Section  5(d) below), and (iii) Tenant’s decision will not affect the base Building, structural components of the Building or any Building systems (in which case Landlord shall make the final decision). Any changes to the TI Construction Drawings following Landlord’s and Tenant’s approval of same requested by Tenant shall be processed as provided in Section  4 hereof.

3.    Performance of the Tenant Improvements.

(a)     Commencement and Permitting of the Tenant Improvements . Tenant shall commence construction of the Tenant Improvements upon obtaining and delivering to Landlord a building permit (the “ TI Permit ”) authorizing the construction of the Tenant Improvements consistent with the TI Construction Drawings approved by Landlord. The cost of obtaining the TI Permit shall be payable from the TI Fund. Landlord shall assist Tenant in obtaining the TI Permit. Prior to the commencement of the Tenant Improvements, Tenant shall deliver to Landlord a copy of any contract with Tenant’s contractors (including the TI Architect), and certificates of insurance

 

B-2


from any contractor performing any part of the Tenant Improvement evidencing industry standard commercial general liability, automotive liability, “builder’s risk”, and workers’ compensation insurance. Tenant shall cause the general contractor to provide a certificate of insurance naming Landlord, Alexandria Real Estate Equities, Inc., and Landlord’s lender (if any) as additional insureds for the general contractor’s liability coverages required above,

(b)     Selection of Materials, Etc. Where more than one type of material or structure is indicated on the TI Construction Drawings approved by Tenant and Landlord, the option will be within Tenant’s reasonable discretion if the matter concerns the Tenant Improvements, and within Landlord’s sole and absolute subjective discretion if the matter concerns the structural components of the Building or any Building system.

(c)     Tenant Liability . Subject to Landlord’s repair obligations pursuant to the third full paragraph of Section  2 of the First Amendment, Tenant shall be responsible for correcting any deficiencies or defects in the Tenant Improvements.

(d)     Substantial Completion. Tenant shall substantially complete or cause to be substantially completed the Tenant Improvements in a good and workmanlike manner, in accordance with the TI Permit subject, in each case, to Minor Variations and normal “punch list” items of a non-material nature which do not interfere with the use of the Premises (“ Substantial Completion or “ Substantially Complete ”). Upon Substantial Completion of the Tenant Improvements, Tenant shall require the TI Architect and the general contractor to execute and deliver, for the benefit of Tenant and Landlord, a Certificate of Substantial Completion in the form of the American Institute of Architects (“ AlA ”) document G704. For purposes of this First Amendment Work Letter, “ Minor Variations shall mean any modifications reasonably required: (i) to comply with all applicable Legal Requirements and/or to obtain or to comply with any required permit (including the TI Permit); (ii) to comport with good design, engineering, and construction practices which are not material; or (iii) to make reasonable adjustments for field deviations or conditions encountered during the construction of the Tenant Improvements.

4.     Changes . Any changes requested by Tenant to the Tenant Improvements after the delivery and approval by Landlord of the TI Design Drawings, shall be requested and instituted in accordance with the provisions of this Section  4 and shall be subject to the written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.

(a)     Tenant’s Right to Request Changes. If Tenant shall request changes (“ Changes ”), Tenant shall request such Changes by notifying Landlord in writing in substantially the same form as the AIA standard change order form (a “ Change Request ”), which Change Request shall detail the nature and extent of any such Change. Such Change Request must be signed by Tenant’s Representative. Landlord shall review and approve or disapprove such Change Request within 10 business days thereafter, provided that Landlord’s approval shall not be unreasonably withheld, conditioned or delayed.

(b)     Implementation of Changes. If Landlord approves such Change and Tenant deposits with Landlord any Excess TI Costs (as defined in Section  5(d) below) required in connection with such Change, Tenant may cause the approved Change to be instituted. If any TI Permit modification or change is required as a result of such Change, Tenant shall promptly provide Landlord with a copy of such TI Permit modification or change.

 

B-3


5.    Costs.

(a)     Budget For Tenant Improvements. Before the commencement of construction of the Tenant Improvements, Tenant shall obtain a detailed breakdown, by trade, of the costs incurred or that will be incurred, in connection with the design and construction of the Tenant Improvements (the “ Budget ”), and deliver a copy of the Budget to Landlord for Landlord’s approval, which shall not be unreasonably withheld or delayed. The Budget shall be based upon the TI Construction Drawings approved by Landlord. The Budget shall include a payment to Landlord of administrative rent (“ Administrative Rent ”) equal to 1% of the TI Costs (as hereinafter defined) for monitoring and inspecting the construction of the Tenant Improvements, which sum shall be payable from the TI Fund. Such Administrative Rent shall include, without limitation, all out-of-pocket costs, expenses and fees incurred by or on behalf of Landlord arising from, out of, or in connection with, such monitoring of the construction of the Tenant Improvements, and shall be payable out of the TI Fund. If the Budget is greater than the TI Allowance, Tenant shall deposit with Landlord the difference, in cash, prior to the commencement of construction of the Tenant Improvements, for disbursement by Landlord as described in Section  5(d) .

(b)     TI Allowance . Landlord shall provide to Tenant a tenant improvement allowance (collectively, the “ TI Allowance ”) as follows:

1.    a “ Tenant Improvement Allowance in the maximum amount of $170,000, which is included in the Base Rent set forth in the Lease; and

2.    an “ Additional Tenant Improvement Allowance in the amount of $280,000 in the aggregate, which entire amount shall be amortized (with interest) as set forth in Section  5(c) of the First Amendment.

The parties agree that all disbursements of the TI Allowance in connection with the Tenant Improvements shall be deemed to be on account of the Tenant Improvement Allowance until exhausted in full, and only then on account of the Additional Tenant Improvement Allowance. The TI Allowance shall be disbursed in accordance with this First Amendment Work Letter.

Except as otherwise provided in this paragraph, Tenant shall have no right to the use or benefit (including any reduction to Base Rent) of any portion of the TI Allowance not required for the construction of (i) the Tenant Improvements described in the Ti Construction Drawings approved pursuant to Section  2(d) or (ii) any Changes pursuant to Section  4 . Tenant may elect, upon written notice to Landlord following the Substantial Completion of all of the Tenant Improvements, to use any remaining Additional Tenant Improvement Allowance for the payment of Alterations performed by Tenant in the Premises pursuant to Section  12 of the Lease. The Tenant Improvement Allowance shall only be available for use by Tenant until the date that is 12 months after the Expansion Premises Commencement Date (“ Tenant Improvement Allowance Expiration Date ”), and any portion of the Tenant Improvement Allowance which has not been disbursed by Landlord for the Tenant Improvements or Alterations on or before the

 

B-4


Tenant Improvement Allowance Expiration Date shall be forfeited and shall not be available for use by Tenant. The Additional Tenant Improvement Allowance shall only be available for use by Tenant until the date that is 18 months after the Expansion Premises Commencement Date (“ Additional Tenant Improvement Allowance Expiration Date ”), and any portion of the Additional Tenant Improvement Allowance which has not been disbursed by Landlord for the Tenant Improvements or Alterations on or before the Additional Tenant Improvement Allowance Expiration Date shall be forfeited and shall not be available for use by Tenant.

(c)     Costs Includable in TI Fund . The TI Fund shall be used solely for the payment of design, permits and construction costs in connection with the construction of the Tenant Improvements, including, without limitation, the cost of electrical power and other utilities used in connection with the construction of the Tenant Improvements, the cost of preparing the TI Design Drawings and the TI Construction Drawings, all costs set forth in the Budget, including Landlord’s Administrative Rent, and the cost of Changes (collectively, “ TI Costs ”). Notwithstanding anything to the contrary contained herein, except as provided in the immediately following sentence, the TI Fund shall not be used to purchase any furniture, personal property or other non-Building system materials or equipment, including, but not be limited to, non-ducted biological safety cabinets and other scientific equipment not incorporated into the Tenant Improvements. Tenant may use a portion of the TI Allowance for Tenant’s voice and data cabling and certain furniture reasonably approved by Landlord, which furniture shall remain the property of Landlord at the expiration or earlier termination of the Term.

(d)     Excess TI Costs . Landlord shall have no obligation to bear any portion of the cost of any of the Tenant Improvements except to the extent of the TI Allowance. If at any time and from time-to-time, the remaining TI Costs under the Budget exceed the remaining unexpended TI Allowance, Tenant shall deposit with Landlord, as a condition precedent to Landlord’s obligation to fund the TI Allowance, 100% of the then current TI Cost in excess of the remaining TI Allowance (“ Excess TI Costs ”). If Tenant fails to deposit, or is late in depositing any Excess TI Costs with Landlord, Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including, but not limited to, the right to interest at the Default Rate and the right to assess a late charge). For purposes of any litigation instituted with regard to such amounts, those amounts will be deemed Rent under the Lease. The TI Allowance and Excess TI Costs are herein referred to as the “ TI Fund .” Funds deposited by Tenant shall be the first thereafter disbursed to pay TI Costs. Notwithstanding anything to the contrary set forth in this Section  5(d) , Tenant shall be fully and solely liable for TI Costs and the cost of Minor Variations in excess of the TI Allowance. If upon Substantial Completion of the Tenant Improvements and the payment of all sums due in connection therewith there remains any undisbursed portion of the TI Fund, Tenant shall be entitled to such undisbursed TI Fund solely to the extent of any Excess TI Costs deposit Tenant has actually made with Landlord.

(e)     Payment for TI Costs . During the course of design and construction of the Tenant Improvements, Landlord shall reimburse Tenant for TI Costs once a month against a draw request in Landlord’s standard form, containing evidence of payment of such TI Costs by Tenant and such certifications, lien waivers (including a conditional lien release for each progress payment and unconditional lien releases for the prior month’s progress payments), inspection reports and other matters as Landlord customarily obtains, to the extent of Landlord’s approval thereof for payment,

 

B-5


no later than 30 days following receipt of such draw request. Upon completion of the Tenant Improvements (and prior to any final disbursement of the TI Fund), Tenant shall deliver to Landlord: (i) sworn statements setting forth the names of all contractors and first tier subcontractors who did the work and final, unconditional lien waivers from all such contractors and first tier subcontractors; (ii) as-built plans (one copy in print format and two copies in electronic CAD format) for such Tenant Improvements; (iii) a certification of substantial completion in Form AIA G704, (iv) a certificate of occupancy for the Expansion Premises; and (v) copies of all operation and maintenance manuals and warranties affecting the Premises with respect to the Tenant Improvements (and not prior improvements performed in any portion of the Premises).

6.      Miscellaneous .

(a)     Consents . Whenever consent or approval of either party is required under this First Amendment Work Letter, that party shall not unreasonably withhold, condition or delay such consent or approval, except as may be expressly set forth herein to the contrary.

(b)     Modification . No modification, waiver or amendment of this First Amendment Work Letter or of any of its conditions or provisions shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.

(c)     No Default Funding . In no event shall Landlord have any obligation to fund any portion of the TI Allowance during any period that Tenant is in Default under the Lease.

 

B-6

Exhibit 10.10

MASTER DEVELOPMENT/VALIDATION SERVICES

AND CLINICAL/LAUNCH SUPPLY AGREEMENT

This MASTER DEVELOPMENT/VALIDATION SERVICES AND CLINICAL/LAUNCH SUPPLY AGREEMENT (“ MDA ”) is made this 8 th day of May, 2018 (“ Effective Date ”), by and among Patheon Austria GmbH & Co KG, with its principal offices at St. Peter Strasse 25, 4021 Linz, Austria (“ Patheon ”) and Tricida, Inc., a Delaware corporation, with its principal executive offices located at 7000 Shoreline Court, Suite 201, South San Francisco, CA 94080 (“ Customer ” or “ Tricida ”). For purposes of this MDA, each of Patheon and Tricida may be referred to herein as a “ Party ” or collectively as the “ Parties ”.

WHEREAS, Tricida desires to engage Patheon, on a project basis, for certain drug development activities in connection with TRC101 Drug Substance (“ Product(s) ”) which may include but are not limited to manufacturing supply in connection with clinical trials, process development, scale up, quality projects and launch; and

WHEREAS, Patheon has agreed to perform these services under the terms and conditions of this MDA.

NOW, THEREFORE, the Parties, intending to be legally bound and in consideration of the mutual covenants and agreements contained in this MDA, agree as follows:

1. Definitions . Capitalized terms shall have the meaning set out in this MDA (including any SOW) and the following capitalized terms as used in this MDA shall have the meanings set forth in this Article:

1.1 “ Affiliate(s) ” means any corporation, firm, partnership or other entity that controls, is controlled by or is under common control with a party. For purposes of this definition, “control” shall mean the ownership of at least fifty percent (50%) of such voting stock or any other comparable equity or ownership interest entitled to vote for the election of directors, in the case of a corporation, or fifty percent (50%) or more of the equity interests in the case of any other type of legal entity, status as a general partner in any partnership, or any other arrangement whereby a party controls or has the right to control the board of directors or equivalent governing body of a corporation or other entity, or the ability to cause the direction of the management or policies of a corporation or other entity. The Parties acknowledge that in the case of certain entities organized under the laws of certain countries outside of the United States, the maximum percentage ownership permitted by law for a foreign investor may be less than fifty percent (50%), and that in such case such lower percentage shall be substituted in the preceding sentence; provided that such foreign investor has the power to direct the management and policies of such entity.

1.2 “ API ” means the active pharmaceutical ingredient having the Chemical Abstract Service (CAS) Registry name [***].

1.3 “ Applicable Law ” means (i) all applicable laws, regulations and standards of the United States of America, the European Union, the United Kingdom and such other countries as listed in the applicable SOW for the respective Services or any aspect thereof and the obligations of Patheon or Tricida,

 

1

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


as the context requires, under this MDA, including without limitation environmental, occupational health and safety, the FDA current Good Manufacturing Practices (“ cGMP ”), as set forth in the Title 21 of the United States Code of Federal Regulations as such regulations and guidelines may be revised from time to time in accordance with cGMP and similar laws of the European Union, the United Kingdom and such other countries as are listed in the applicable SOW or in an appendix to this MDA, and (ii) to the extent that any Services will be performed in a foreign jurisdiction identified in a SOW, all applicable laws, rules and regulations of such foreign jurisdiction relating to Patheon’s or Tricida’s obligations in connection therewith.

1.4 “ Background IP ” means all Intellectual Property owned or controlled by a Party as of the Effective Date of the MDA, or later generated, acquired or developed by a Party outside the scope of the MDA.

1.5 “ DEA ” means the United States Drug Enforcement Agency.

1.6 “ Facility ” means Patheon’s FDA inspected Linz facility in Austria or any approved facility set out in a SOW or in the Quality Agreement.

1.7 “ Field ” means pharmaceutical compositions for treating metabolic acidosis.

1.8 “ FDA ” means the United States Food and Drug Administration.

1.9 “ FD&C Act ” means the United States Federal Food, Drug and Cosmetic Act, as amended or supplemented from time to time.

1.10 “ Force Majeure ” means any events or conditions that are not reasonably within the control of either Party, including but not limited to: acts of state or governmental action (including regional or national emergency), orders, legislation, regulations, restrictions, priorities or rationing, riots, disturbance, terrorist threats or acts, war (declared or undeclared), strikes, lockouts, slowdowns, prolonged shortage of energy supplies, interruption of transportation, embargo (inability to procure or shortage of supply materials, equipment or production facilities), delay of subcontractors or vendors, fire, acts of God, earthquake, flood, hurricane, typhoon, explosion and accident.

1.11 “ Intellectual Property ” or “ IP ” means know-how and trade secrets; all inventions (whether patentable or unpatentable and whether or not reduced to practice), and all patents, patent applications, together with all reissuances, divisions, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; all copyrightable works, all copyrights, and all applications, registrations and renewals in connection therewith; trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith; all other proprietary rights (including proprietary information); and all copies and tangible embodiments thereof (in whatever form or medium).

1.12 “ Project Plan ” means a written plan developed and executed by the Parties for the applicable Services under an applicable SOW.

1.13 “ Quality Agreement ” means the Quality Agreement for TRC101 between Tricida and DPx Fine Chemicals Austria GmbH & Co KG, dated 11 November 2016, as amended, which is deemed attached hereto and incorporated herein, without the need for further amendment of this MDA. Provided

 

2

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


proposed changes in the Quality Agreement are consistent with industry standards, Patheon will not unreasonably withhold or delay its consent to execute amendments to the Quality Agreement as are reasonably requested, from time to time by Tricida. In the event that the proposed changes would result in changes that result in additional direct costs, the reasonable direct costs arising in connection with the implementation of proposed changes will be borne by Tricida. Patheon will use commercially reasonable efforts to provide an estimate of such costs prior to implementation.

1.14 “ Results ” means the product or other deliverables made pursuant to the MDA, including the Products, the processes and documentation resulting from the Services (exclusive of financial information or financial records of Patheon), and all Intellectual Property rights conceived, developed, generated, and/or acquired under or in connection with the performance of the Services by Patheon. Results shall include, without limitation, any and all Severable Improvements. The Parties agree that the Results shall however not include any financial information or financial records of Patheon. For the purpose of clarity, the Parties agree that the products and other deliverables made under the scope of the K1 Contract, K2 Contract, K3 Contract, and K4 Contract (each as defined below) shall be deemed to be Results from the Services under this MDA.

1.15 “ Severable Improvements ” means such improvements and enhancements to the processes, whether patentable or not, (i) generated by or on behalf of Patheon, alone or jointly with Tricida, (ii) during the course of the Services, (iii) that are not specially adapted to the manufacture of API, an API intermediate, a product containing API, or a polymer having the capability to [***], and (iv) can be used outside the Field. For the purposes of this definition, the services performed under obligations under the K1 Contract, K2 Contract, K3 Contract, and K4 Contract shall be deemed to be during the course of the Services for purposes of this definition and this MDA.

1.16 “ Statement of Work ” or “ SOW ” means the agreement for specific Services signed by the Parties as further described in Section 2. Notwithstanding any incorporation of terms from Patheon quotations, the Parties agree that any standard terms and conditions found in such quotations are void and of no force and effect.

2. Description of Work .

2.1 Services . This MDA sets forth the agreement between the Parties with respect to services to be performed on a project basis for certain drug development activities in connection with the Product, which may include but are not limited to manufacturing supply in connection with clinical trials and initial launch supply through 2020 as set out in Section 2.2 below, process development, scale up and quality projects to be performed by Patheon as further set out in a Statement of Work (collectively, the “ Services ”). This MDA shall set out the process to allow the Parties to contract for multiple projects through the issuance of different Statements of Work for the Services, without renegotiating the basic terms and conditions which are to be applicable to all projects, unless otherwise agreed in a signed writing. It is the intention of the Parties that the following Services shall not be considered within the scope of this MDA and shall require the Parties to enter into separate agreements: commercial production from 2021 onwards, isolation or targeted synthesis of impurities, forced degradation studies; preparation of analytical reference standards and long-term storage and costs for special packaging and transportation.

2.2 Process – Statement of Work . Each SOW shall be separately priced. Unless otherwise agreed by the Parties in the SOW, development related activities shall be determined on a milestone basis rather than an hourly basis. Each SOW shall, at a minimum, (i) address the topics found in and be similar in

 

3

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


form to the template SOW attached hereto as Exhibit A , (ii) specify the specific Services to be provided, quantities and delivery dates, testing criteria and process, project activities, any minimum output, late fees, if any, and the terms of compensation for each Service, and (iii) set forth the process and timeline for the development of an applicable Project Plan or attach the Project Plan for such SOW if already agreed upon. In addition, if the SOW involves the purchase of Products, the requirements for the applicable Products, including any Intermediates, shall be set forth in the SOW (collectively, the “ Specifications ”). Upon execution, each SOW (which shall be numbered sequentially starting with the number 5) shall be incorporated into this MDA and deemed attached hereto and incorporated herein. In the event of any inconsistencies or conflicts between the terms in the body of this MDA and any Exhibits attached hereto, including the Quality Agreement and any executed SOW, unless otherwise provided in this MDA, the terms set forth in the body of this MDA shall control to the extent that such other terms cannot otherwise be harmonized; provided, however that with respect to any quality matters, the terms in the Quality Agreement shall control over all documents, including the terms in the body of this MDA. The terms of the SOW shall control over the terms in the body of this MDA only (a) when the terms in the body of this MDA provide that to be the case or (b) when the SOW makes references to specific sections of the MDA or any of its attachments and also expressly provides that the Parties are explicitly agreeing that the terms in the SOW are to control over such other terms. As between the terms set forth in the Quality Agreement and any other Exhibit or SOW, the Quality Agreement shall control for all quality matters and the terms of any SOW shall otherwise control over any Exhibit or other document and the Exhibits shall control over any other document to the extent that such terms cannot be otherwise harmonized. Both Parties expressly reject any additional or different terms, including terms and conditions which appear in any quotations, shipping document, invoice, purchase order, acknowledgement or other document provided by the other Party unless expressly provided otherwise in this MDA.

2.3 Order Process for Products . In the event the Parties enter into a SOW for the manufacture of Products, from time to time, for administrative or accounting purposes, Tricida may, but is not required, in connection with such SOW to provide Patheon with an order setting out the volume of Product(s) ordered, agreed upon pricing, required delivery dates, and any other specific instructions that may be agreed in advance between the Parties (each an “ Order ”). Except as set out in Section 4 below no other orders are authorized under this MDA. All purchases of Products shall be on a non-exclusive basis. It is the intention of the Parties that terms of commercial manufacturing beyond 2020 shall be the subject of a separately negotiated commercial manufacturing and supply agreement. Except as set out in Section 4 below, no change to any SOW or Order is binding unless agreed to in writing by both parties (including but not limited to email). Unless otherwise set forth in the applicable SOW or Order, shipping terms for Product shall be FCA Linz (Incoterms ® 2010) and risk of loss and title shall pass in accordance with delivery pursuant to the shipping terms.

2.4 Amendments; Amendments to SOWs . Neither Party shall be bound by any amendments unless mutually agreed upon in a signed writing in accordance with Section 19.7 and the additional requirement that any changes to an executed SOW, this MDA, or any document incorporated or referenced herein, will be effective only upon execution by both Parties of a written amendment specifically referencing the applicable document to be amended and that the amended language is specifically to amend the prior terms.

2.5 Process Change . Notwithstanding the preceding Section 2.4, any changes to materials, equipment, release testing, any significant manufacturing changes or other aspects of Services addressed in the Quality Agreement (each a “ Process Change ”) will be subject to a mutually agreeable formal process for joint review and approval set out in the Quality Agreement without the need to amend this MDA or any

 

4

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


SOW. The Parties acknowledge and agree that Tricida retains the right to change the Specifications for Products at all times. Patheon will use commercially reasonable efforts to implement such Specification changes, provided that all increases in costs arising in connection with such Specification changes shall be borne by Tricida and any decreases in costs arising in connection with such Specification changes shall be passed on to Tricida. The Parties agree that any changes in vendors for raw and starting materials shall be made in accordance with an agreed upon procedure, which procedure shall include a process to verify that any new vendor can supply sufficient raw materials in a timely manner which does not alter or change the overall quality of the Products. Tricida shall have the right to withhold its consent to any changes in vendors or materials in its sole discretion.

2.6 Approvals . Tricida shall execute and deliver in a prompt fashion and in any event within two (2) business days all necessary documents, approvals, and information reasonably requested by Patheon, on an as needed basis to perform the Services. The applicable Project Plan shall take into account a reasonable period for Tricida’s response and the Parties may address the impact on Project Plans for delays in the applicable Project Plan or SOW. The Parties shall reasonably cooperate to establish on-line communication channels, subject to appropriate data security and privacy terms and conditions.

2.7 Location; Use of Affiliates and Subcontractors . Unless otherwise agreed in the respective SOW or in the Quality Agreement, the Services will be undertaken at the Facility. Patheon shall not make use of any other locations or Affiliates without the prior written consent of Tricida which shall not be unreasonably withheld or use of any subcontractors, without the prior written consent of Tricida, which may be withheld in its sole discretion.

3. Agreed Manufacturing Campaigns .

3.1 Patheon shall reserve capacity and carry out for Tricida and Tricida shall pay Patheon for the following manufacturing campaigns (collectively, the “ Agreed Campaigns ”):

(i) a [***] during the calendar year 2018 (“ K5 ”), as specified in more detail in the applicable K5 SOW;

(ii) a [***], during the calendar year 2019, [***] (“[***]” or “ K6 ”), as specified in more detail in the applicable Validation Campaign K6 SOW; and

(iii) a [***] during the calendar year 2020 (“ K7 ”), as specified in more detail in the applicable K7 SOW.

4. Compensation; Payment Terms .

4.1 Rate of Compensation . Tricida shall pay Patheon at the rates specified in the applicable SOW (“ Fees ”).

4.2 Exclusions from Fees . Any payment due to Patheon under this MDA in consideration for the provision of Services by Patheon to Tricida is exclusive of value added taxes (“ VAT ”), turnover taxes, sales taxes or similar taxes, including any related interest and penalties (hereinafter all referred to as “ Transaction Tax ”). If any Transaction Tax is payable on a Service supplied by Patheon to Tricida under this MDA, this Transaction Tax will be added to the invoice amount as a separate line item and will be for the account of (and reimbursable to Patheon by) Tricida.

 

5

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


4.3 Transaction Tax . If any Transaction Tax on the supplies by Patheon is payable by Tricida under a reverse charge or withholding procedure (i.e., shifting of liability, accounting or payment requirement to recipient of supplies), Tricida will ensure that Patheon will not effectively be held liable for this Transaction Tax by the relevant taxing authorities or other parties.

4.4 Invoices and VAT . Where applicable, Patheon will use commercially reasonable efforts to ensure that its invoices to Tricida are issued in such a way that these invoices meet the requirements for deduction of input VAT by Tricida, if Tricida is permitted by law to do so.

4.5 Transaction Tax Assistance . Each Party will provide the other with reasonable assistance to enable the recovery, as permitted by applicable laws, of Transaction Tax resulting from payments made under this MDA, such recovery to be for the benefit of the Party bearing such Transaction Tax.

4.6 Duties . Tricida will bear the cost of all duties, levies, tariffs and similar charges (and any related interest and penalties) (together “ Duties ”) however designated, arising from the performance of the Services by Patheon, including (without limitation) those imposed as a result of the shipping of materials (including drug substance, materials, components and finished Product) to, from or between Patheon site(s). If these Duties are incurred by Patheon, then Patheon shall be entitled to invoice Tricida for these Duties at the time that they are incurred. Patheon shall bear and pay all governmental (including federal, state and local) taxes based upon or measured by its net income, its personal property and all franchise taxes based upon its corporate existence, or its general corporate right to transact business. Notwithstanding any contrary terms in this Section 4, in the event of material changes to Applicable Law that are reasonably likely to materially increase the cost of providing the Services, the Parties shall review the potential impact and negotiate in good faith any applicable changes to the Fees.

4.7 Invoices and Payment .

(a) Invoicing . Patheon will promptly invoice Tricida for Services or Key Raw Materials (as listed in the SOW) at the time set out in the SOW or if no invoicing provisions with respect to the Services are provided in the SOW, upon completion of the Services. Unless otherwise set out in the SOW, payment of all undisputed invoiced amounts charged shall be made in the currency specified in the SOW within thirty (30) days following the date Patheon’s proper invoice (issued in USD) is received by Tricida and if no currency is specified in the SOW then in USD.

(b) Exchange Rate . Patheon shall invoice Tricida and Tricida shall pay Patheon in USD for all amounts due hereunder at an agreed USD/€ exchange rate (the “ Established Exchange Rate ”), which will initially be [***] based upon the rate found at source:www.oanda.com. Fluctuations in the actual exchange rate will only result in price adjustments if the exchange rate moves outside of [***] USD/€ from the Established Exchange Rate (the “ Exchange Rate Tolerance ”) within which both Parties accept a certain degree of risk. Outside the Exchange Rate Tolerance, both Parties agree that the Fees (minus the cost of all Materials) shall be adjusted from the Established Exchange Rate so that both Parties are equally impacted by such exchange rate change. Data relating to the currency and payments will be reviewed on a quarterly basis and reconciliations will be made by issuing corresponding debit or credit notes (as the case may be) on a quarterly basis based upon the date when funds are received by Patheon. The Established Exchange Rate will be adjusted on the first day of each calendar year if the actual exchange rate, as determined by reference to the average monthly exchange rate as published at Oanda.com, has stayed outside the range covered by the Exchange Rate Tolerance continuously for the last three months of the previous calendar year. At any such time, a new Established Exchange Rate will be set equal to the

 

6

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


average actual exchange rate for such three-month period. For clarity, the above mentioned price adjustment will not be applicable in connection with the Material cost reimbursement which will always be done based on actual costs at the day of payment by Patheon. Furthermore, the Parties acknowledge that they used a [***] in setting out the fees in the K5 SOW, K6 SOW and K7 SOW and with the setting of the Established Exchange Rate above of [***], the amounts in the K5 SOW should be subject to the currency adjustment in this Section by multiplying (x) [***] by (y) [***] used to set out the Fees (except with respect to the Material cost reimbursement as noted above in this Section).

(c) Right of Set-Off . Without prejudice to any other right or remedy it may have, Tricida reserves the right to set off at any time any uncontested and/or enforceable counter claims and may withhold payment of line items that are the subject of a good faith dispute until such time as the dispute is resolved, provided that Tricida notifies Patheon of the nature of the dispute promptly following receipt of the invoice. For clarity and the avoidance of doubt, Tricida shall promptly pay all line items on an invoice that are not subject to a good faith dispute.

4.8 Pre-Payment of Costs . Notwithstanding Section 4.7 above, the Parties might agree on reimbursement of certain cost or fees identified in the SOW or pre-payment of certain costs or fees identified in the SOW as “ Pre-Production Costs ” for use in the Services. The timing for payment of such amounts shall be subject to the invoice and payment terms of Section 4.7.

5. Storage Services; Shipping of Product .

5.1 Storage Services . Storage of Product in the ordinary course until release will be addressed in the Quality Agreement. Storage services for Product for the period beyond the agreed delivery date will be subject to a separate agreement between the Parties and the terms for such storage services have to be explicitly addressed in a SOW.

5.2 Preparation of Shipping Authorization . Unless otherwise provided in the SOW, Patheon will prepare shipments of the Product in accordance with a verified shipping authorization (as described below), this MDA and any other applicable shipping instructions, including packaging requirements. Each shipping authorization shall specify the specific materials to be included in the Order, the quantity, and the recipient and site address. Subject to the release requirements of the Quality Agreement, Patheon will use commercially reasonable efforts to prepare shipments of Product in order to meet agreed shipping dates.

5.3 Shipments of Product . Tricida will initiate and arrange for shipment of Product by means of the carrier and/or carrier account number designated by Tricida. Tricida shall provide instructions to Patheon necessary to enable Tricida to ship the Product in accordance with such arrangements, including without limitation any temperature conditions and Patheon shall provide assistance in completing any import or export documentation. Tricida shall be solely responsible for the proper classification and valuation of the Product for the United States, and foreign customs purposes (including without limitation the assignment of the proper commodity codes). Unless otherwise set forth in the applicable SOW, if the Product is to be exported out of Austria, Patheon shall obtain required export or import licenses applicable to the Product. Tricida will reimburse Patheon for actual costs, charges, expenses and import and export duties for delivery and transportation of Product, made in accordance with the terms of this MDA.

 

7

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


6. Inspection, Warranty .

6.1 Inspection; Remedies . Within a reasonable period after delivery in accordance with the shipping terms and prior to their use in downstream processing (“ Incoming Product Inspection Period ”) Tricida or its designee may inspect (i) the integrity of the packaging of the Products and (ii) the quantity and the identity of Products received. In the event that Tricida discovers any apparent damages or discrepancy with respect to the Products received (“ Non-Conforming Products ”), complaints about the Non-Conforming Products shall be promptly made in writing in accordance with the terms of the Quality Agreement. In the event that Tricida discovers that any batch of the Products does not meet the Specifications during the Incoming Product Inspection Period, such discrepancy shall be handled as a warranty claim under the terms of Section 6.2.

Within thirty (30) days of receiving any timely notice of complaint from Tricida of Non-Conforming Product, Patheon will respond stating in writing whether (a) it accepts the complaint or (b) it disputes the complaint, in which case the Parties hereto shall consult and negotiate with each other and, recognizing their mutual interests, attempt to reach a satisfactory resolution. If the Parties do not reach such resolution within a period of fifteen (15) business days after Patheon’s notice disputing the complaint, the Parties shall each escalate the matter to a Vice President of their organization and thereafter if the Parties do not reach such resolution within the next fifteen (15) business days, the Parties shall resolve such dispute pursuant to the provisions of Section 18. If Patheon does not provide written notice that it disputes Tricida’s complaint within thirty (30) days of receiving timely notice from Tricida, it will be deemed to have accepted such complaint.

If Patheon agrees that the Products in such batch are Non-Conforming Products, Patheon will consult with Tricida, and depending on Tricida’s preference either (i) replace the Products from such batch within a commercially reasonable timeframe, at Patheon’s expense, or (ii) issue a full refund of any amounts paid for that particular batch by Tricida. Where possible any replacement Product shall be made as promptly as reasonably practicable after Patheon’s acceptance of Tricida’s complaint, in light of available manufacturing capacity and in light of Patheon’s manufacturing commitments in the Facility. In the event of any shortage in Product shipped, Patheon shall take all commercially reasonable steps to correct any such deficiency, including shipping Product on an expedited basis at its costs and expense pursuant to instructions obtained from Tricida acting in a commercially reasonable manner. The Parties may agree on additional remedies for late delivery of Products in the applicable SOW. Tricida shall have the right to conduct further investigations as defined in the Quality Agreement or otherwise provided in this MDA after Patheon has carried out its remedial actions.

6.2 Patheon Warranty . Patheon represents and warrants (i) the Services will be performed with requisite care, skill and diligence, by individuals who are appropriately trained and qualified; (ii) that all Products shall be manufactured in accordance with cGMP, Applicable Law, the Quality Agreement and any other agreed manufacturing process or requirements and as of the date of delivery and throughout the re-test period meet the Specifications, even if the nonconformity does not become apparent until after acceptance (except to the extent that any non-compliance to the Specifications arises from the acts or omissions of Tricida or any parties under Tricida’s control or from a Force Majeure event); (iii) that Patheon shall use commercially reasonable efforts to perform the Services (subject to Tricida’s responsibilities set forth in this MDA) in a professional and workmanlike manner in accordance with generally recognized industry standards for similar services and shall devote adequate resources to meet its obligations under this MDA, (iv) that the Services, including the work product resulting from the Services, shall be free of all intellectual property claims by any third party (for clarity this warranty does not apply to Tricida Background IP or any other technology required by Product or manufacturing process specifications that are specifications provided by Tricida to Patheon for the performance of Services

 

8

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


hereunder) and Severable Improvements licensed to Patheon in connection with this MDA under Section 11), and (v) any other warranty provided in the body of this MDA, including Section 12 Representations and Warranties . PATHEON MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES OR PRODUCT, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED FOR THE PURPOSES OF THIS MDA. The warranties in this Section 6.2 will survive the termination of this MDA. All Product warranties shall run to Tricida, its permitted successors and permitted assigns. Tricida shall be entitled to claim latent defects of the Product with respect to Section 6.2 (ii) (i.e. defects that are not reasonably detectable upon a customary inspection upon receipt) for the re-test period associated with the relevant batch of Product. The warranty period for any replacement product shall be for the re-test period of the respective batch for such replacement Products.

Tricida, at its sole option, may inspect or have its designee inspect all or a sample of the Products, and may reject all or any portion of the Products, including replacement Products, if the Products do not meet the terms of the warranty provided in this Section 6.2, including but not limited to the Specifications. Any prior inspection or other action by Tricida under this MDA shall not reduce or otherwise affect Patheon’s obligations under this Warranty. Notwithstanding the preceding paragraph, Tricida shall bear the risk of loss for deterioration of Products after delivery that occurs as a normal part of the passage of time and for any loss to the extent due to acts or omissions of Tricida or its agents or Force Majeure events. In the event Tricida believes that any Products, after Delivery of such Products, do not meet the warranties of Section 6.2 (“ Defective Product ”), Tricida shall promptly notify Patheon in writing upon discovery of the defect. Within thirty (30) days of receiving any notice of complaint of Defective Product from Tricida, Patheon will respond, stating in writing whether (a) it accepts the complaint or (b) it disputes the complaint, in which case the Parties hereto shall consult and negotiate with each other and, recognizing their mutual interests, attempt to reach a satisfactory resolution. If the Parties do not reach such resolution within a period of fifteen (15) days after Patheon’s notice disputing the complaint, the Parties shall each escalate the matter to a Vice President of their organization and thereafter if the Parties do not reach such resolution within the next fifteen (15) business days, the Parties will resolve such matter by referring such dispute to a mutually acceptable independent third party with the appropriate expertise to determine whether or not the batch or run in question has met the Specifications. Such independent third party shall test the applicable batch or run and shall determine whether such batch or run met or did not meet the Specifications. The results of such testing shall be binding upon the Parties and the Party unable to uphold its position shall bear the related costs of the independent third party. If Patheon does not provide written notice that it disputes Tricida’s complaint within thirty (30) days of receiving notice from Tricida, it will be deemed to have accepted such complaint. If Patheon agrees that the Products in such batch are Defective Products, Patheon will consult with Tricida, and upon their mutual agreement, Patheon will either, after consultation with Tricida (i) replace the Products from such batch within a commercially reasonable timeframe at Patheon’s expense, or (ii) issue a full refund of any amounts paid for that particular batch by Tricida for such Products. Where possible any replacement Product shall be made as promptly as reasonably practicable after Patheon’s acceptance of Tricida’s complaint, in light of available manufacturing capacity and in light of Patheon’s manufacturing commitments in the Facility. With respect to any warranty claims with respect to the Services, re-performance by Patheon in connection with any breach of Patheon’s warranty for the Services may be permitted at Tricida’s option but such re-performance shall not be the exclusive remedy for breach of this warranty and shall be in addition to other contractual and other remedies that may be available to Tricida pursuant to this MDA, at law or in equity.

 

9

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


7. Analytical Testing Services . The following terms shall apply only if Analytical Testing Services are identified in the SOW and the terms are not addressed or are not inconsistent with those in the Quality Agreement:

7.1 Testing Services . Patheon shall use commercially reasonable efforts to complete all analytical testing services set forth in a SOW within the agreed upon timeframe. Patheon shall make the testing results available to Tricida in the form of an English language report. The report will include a summary of all testing results and a certificate of analysis, if applicable. Unless a different process is provided in the Quality Agreement, Tricida shall use commercially reasonable efforts to provide Patheon with any objections to the report within fourteen (14) calendar days following receipt, after which time the report shall be deemed accepted.

7.2 Data Retention . If not addressed in the Quality Agreement, the original of the raw data shall be archived at Patheon in accordance with Applicable Law, including without limitation United States Code of Federal Regulations Title 21, part 210 and 211 and similar laws of the European Union, the United Kingdom and such other countries as are listed in the applicable SOW or in an appendix to this MDA, as applicable.

8. Supply of Materials .

8.1 Acquisition of Raw Materials . Except as otherwise provided in the applicable SOW, Patheon will obtain all raw materials necessary to the manufacture of the Product. The pricing for such raw materials, including any specified handling fees for acquiring such raw materials shall be set forth in a SOW. Quantities purchased shall be in amounts consistent with the applicable SOW. Patheon shall use commercially reasonable efforts to obtain competitive pricing on materials and supplies. Acquisition of quantities beyond amounts consistent with the terms of any SOW or otherwise not authorized in writing by Tricida (email is sufficient) is done at Patheon’s risk, unless otherwise authorized under this MDA. Patheon undertakes to store raw materials which have not been used in a given manufacturing campaign free of charge until the following campaign.

Patheon acknowledges that [***] are required for the manufacture of Product and that Tricida has identified and will continue to identify suppliers to supply [***] (“ Preferred Suppliers ”) for purchase by Patheon. Except as may otherwise be agreed upon by the Parties from time to time, Patheon agrees to purchase [***] only from Tricida’s Preferred Suppliers and Tricida and Patheon shall take steps to ensure, taking into consideration typical lead times in the industry, that such Preferred Suppliers are able to timely cover Patheon’s [***] demand hereunder considering industry typical lead times, subject in all cases to the successful qualification of such Preferred Suppliers.

8.2 Title and Risk of Loss . Title and risk of loss with respect to raw materials and intermediates (“ Materials ”) sourced by Patheon shall remain with Patheon at all times. For the purpose of clarity, all [***] is to be treated as sourced by Patheon. Reimbursement shall be as set out in the applicable SOW. Patheon shall be solely responsible for insuring the Materials and Products prior to their delivery in accordance with the shipping terms against loss or damage and agrees to carry coverage in amounts not less than the amounts set forth in Section 16. Patheon shall be responsible for any loss or damage to Materials, including loss or damage due to Patheon’s gross negligence or willful misconduct in its handling or storing of Materials (“ Material Losses ”). Material Losses shall not include Materials used for authorized samples and testing. Tricida shall have no financial responsibility for any Material Losses and the costs of the same shall not be passed on to Tricida. In the event that Tricida has already reimbursed or advanced Fees or advanced other amounts to Patheon for any Materials that are considered under this Section as Material Losses, Patheon shall replace such Materials at no further cost to Tricida or reimburse Tricida for those expenses.

 

10

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


9. Audits .

9.1 Audits . In addition to any audits permitted under the Quality Agreement, Tricida or its representative (reasonably acceptable to Patheon), at its own cost and expense and upon reasonable prior written notice, reserves the right to perform audits for costs of raw materials that were the subject of reimbursement, compliance with anti-bribery or anti-corruption or similar laws, with a maximum of one auditor for up to two days every two (2) years (unless the audit is an audit for an alleged breach (“ Compliance Audits ”)). Such audits may be on-site, by telephone, online or in writing. All audits will be conducted during normal business hours and will be reasonable in scope and duration.

Tricida shall provide Patheon with the findings from the audit within thirty (30) days and Patheon will use commercially reasonable efforts to respond with response/action lists (correction action plan) to Tricida’s audit observations within thirty (30) days of receipt of a written audit report from Tricida or sixty (60) days if Patheon provides notice and reasonable justification for why such audit cannot be completed within the thirty (30) day period and shall thereafter promptly and completely implement agreed upon corrective actions in accordance with such plans. Compliance to the corrective action plan can be either verified by documented evidence with documents sent from Patheon to Tricida or in a subsequent audit by Tricida as provided above.

10. Confidentiality .

10.1 Proprietary Information . Each of Patheon and Tricida (including their Representatives (defined below)) agrees to keep confidential any and all confidential and/or proprietary information and materials, in verbal, written, graphic, electronic, photographic, recorded, prototype or sample form either generated by a Party or otherwise disclosed hereunder or through any prior disclosure by one Party to the other in connection with this MDA, or under the Contract for a [***] cGMP campaign of TRC101 dated [***] between the Parties (the “ K1 Contract ”), the Contract for a [***] cGMP campaign of TRC101 dated [***] between the Parties (the “ K2 Contract ”), the Contract for [***] cGMP campaign of TRC101, dated [***] between the Parties (the “ K3 Contract ”) and the Contract for partial supply of TRC101 for TRCA-303 study dated [***] between the Parties (the “ K4 Contract ”), including but not limited to scientific, technical, financial, trade or business information formulations, methods, processes, chemical structures, technology base, proprietary position, know-how, pricing and financial information, marketing plans, audit findings, inspection results and validation testing, business strategies in connection with or concerning Tricida and its projects and all disease areas, therapeutic targets, mechanisms, processes, compositions of matter, and experimental results therewith (“ Proprietary Information ”). The confidential information disclosed by Patheon under this MDA is described as and includes its interest in Tricida projects, and technical and business information disclosed to Tricida and its Representatives. The discussions and potential working relationship between Patheon and Tricida are also considered confidential.

10.2 Uses; Disclosures . The receiving party shall use the Proprietary Information solely for the purpose of carrying out its obligations contained in this MDA and any obligations under the K1 Contract, the K2 Contract, the K3 Contract and the K4 Contract. The receiving party agrees not to disclose such Proprietary Information to any person or entity, except to its and its Affiliates’ employees, directors,

 

11

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


officers, agents, contractors, and/or designees having a need to know the information in order to fulfill such Party’s obligations hereunder who are under confidentiality obligations at least as restrictive as those contained herein (each a “ Representative ”). Each Party agrees to be responsible for any breach of this Section 10 by any of its Representatives. A receiving party shall use at least the same degree of care that it uses to maintain the confidentiality of its own proprietary information, which in no event shall be less than a reasonable degree of care. For purposes of this Section 10, disclosures of Proprietary Information by Affiliates or Representatives of a Party shall be deemed to be disclosure made by that Party. Furthermore a receiving party agrees not to analyze or have a third party analyze any tangible products or materials constituting Proprietary Information for chemical composition or content without prior written authorization from the disclosing Party. For purposes of this Section 10, if a Party makes a request in writing for disclosure (“ Requesting Party ” and a “ Request ” respectively) that the other Party share the Requesting Party’s Proprietary Information with a third party that is not a Representative of the Party receiving the written request (a “ Third Party Recipient ”), the Party receiving such Request may treat such Request as consent for the disclosure of such information in accordance with the Request terms and the Requesting Party shall be responsible for taking any actions necessary to make the Third Party Recipient its Representative under confidentiality obligations to protect the confidentiality of such information being disclosed and the Party receiving the Request shall be deemed not to be in breach of this Section if the disclosure is made in accordance with the Request.

10.3 Exclusions . The obligations imposed by this Section 10 shall not apply to any Proprietary Information which the receiving party can prove by contemporaneous evidence:

(a) at the time of disclosure is in the public domain;

(b) after disclosure becomes part of the public domain by publication or otherwise, through no fault of the receiving party;

(c) at the time of disclosure is already in the receiving party’s possession and was not made available to the receiving party by anyone owing an obligation of confidentiality to the disclosing party;

(d) is rightfully made available to the receiving party from sources independent of the disclosing party; or

(e) is independently developed by the receiving party without reference to Proprietary Information;

(f) is legally required to be disclosed in the course of litigation or other legal or administrative proceedings or otherwise as required by law; provided that, in all cases, the Party receiving the Proprietary Information shall, to the extent permitted, give the other Party prompt notice of the pending disclosure and shall cooperate in such other Party’s attempts, at such other Party’s sole expense, to seek an order maintaining the confidentiality of the Proprietary Information. If the disclosing party is not successful in opposing such process, the receiving party may disclose Proprietary Information of the disclosing party to the extent required by law or regulation; provided, however, that prior to making any such legally required disclosure, the receiving party shall give the disclosing party as much prior notice of the requirement for and contents of such disclosure as is practicable under the circumstances.

 

12

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


10.4 Publicity . Neither Party shall originate any publicity, news release, or other announcement regarding this Agreement or the relationship or activities of the Parties thereunder, written or oral, whether to the public press, the trade, its customers, or the other Party’s customers without the prior written approval of the other Party, which approval shall not be unreasonably withheld or condition; provided, however, that any Party may make any public disclosure that it believes in good faith to be required by Applicable Law or any listing or trading agreement concerning securities to be publicly traded without the need for prior disclosure (in which case the Party making the public disclosure will use commercially reasonable efforts to advise the other Party before making the disclosure).

10.5 Period of Confidentiality . The obligation of confidentiality and nonuse set forth in this Section 10 shall survive for a period of fifteen (15) years beyond the termination or expiration of this MDA.

10.6 No License . Each Party hereby retains its entire right, title and interest, including all Intellectual Property rights, in and to all of its Proprietary Information, including its Background Information. No assignment, grant, option, license or other transfer of any right, title or interest whatsoever is granted in the Proprietary Information other than as set forth in this Section 10. Other than the limited right to use Proprietary Information as set out in this Section 10 or any license or other rights provided in Section 11 a disclosing party grants no rights or licenses, including without limitation Intellectual Property rights (such as trademarks, inventions, copyrights, or patents), to a receiving party under this MDA, and the disclosure of Proprietary Information to a receiving party by a disclosing party shall not result in any obligation to grant any such rights or licenses.

10.7 Relief; Injunctive Relief . In the event that a Party has knowledge of any breach of the provision contained in this Section 10, the Party shall promptly give notice thereof to the other Party. Each Party, as a potential receiving party, acknowledges that money damages would not be a sufficient remedy for the disclosing party in the event of any breach of this MDA and that disclosing party is entitled to seek specific performance and injunctive or other equitable relief as a remedy for any such breach, and the receiving party further agrees to waive any requirement for the posting of any bond in connection with any such remedy. Any such remedy will not be deemed to be the exclusive remedy for breach of this MDA but shall be in addition to all other remedies available at law or equity to the disclosing party.

10.8 Existing Confidentiality Agreements . The Parties hereto acknowledge that other confidentiality agreements may have been entered into prior to the Effective Date of this MDA and that such agreements shall continue to apply with respect to any period prior to the Effective Date of this MDA.

11. Intellectual Property .

11.1 Ownership . All Tricida Background IP remains the sole property of Tricida. All Patheon Background IP remains the sole property of Patheon. All Results shall be owned by Tricida and Patheon shall irrevocably assign, transfer, and convey and hereby irrevocably assigns, transfers and conveys all right, title and interest in and to such Results such that the Results shall be the sole property of Tricida. All of Patheon’s employees and subcontractors will be under binding written agreements that assign, transfer and convey and will cause such employees and subcontractors to assign, transfer and convey all right, title and interest in and to such Results such that the Results shall be the sole property of Tricida;

11.2 License to Tricida Background IP and Results . During the Term (defined below), Tricida grants a royalty-free, non-exclusive, worldwide, fully-paid, license to Patheon under Tricida Background IP and Results for the performance of Services under the terms of this MDA. For the sole purpose of

 

13

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


performing Services, such license to Tricida Background IP and Results shall be sublicensable to Patheon’s Affiliates and/or subcontractors upon Tricida’s prior written approval. Additionally, Tricida grants a royalty-free, non-exclusive, worldwide, fully-paid, revocable (as further provided in this Section 11.2 herein) license, during and after the Term, to Patheon under Tricida’s rights to Severable Improvements to make, use, sell, offer to sell, import and export compositions solely for use outside of the Field; provided further that such compositions are other than (i) API and (ii) intermediates that may be converted to API ( e.g. , TRC026) and polymers having the capability to [***] (the “ Permitted Uses ”). Such license to Severable Improvements shall be sublicensable to Patheon’s Affiliates and not otherwise, and only for the Permitted Uses. Patheon shall be responsible for ensuring that its Affiliates’ use of the Severable Improvements is only for the Permitted Uses. In addition to any other remedies available at law or in equity, in the event of a violation of this Section 11.2 with respect to Permitted Uses, Tricida shall have the right to revoke the license to Severable Improvements by written notice to Patheon.

11.3 License to Patheon Background IP . Patheon shall not incorporate any Patheon Background IP into any development, process or deliverable under this MDA, including the Products, without the prior written approval of Tricida. If incorporated, Patheon grants a royalty-free, non-exclusive, worldwide, fully-paid, perpetual, irrevocable, transferable, sublicenseable license to Tricida under Patheon’s rights to Patheon Background IP to make, use, sell, offer for sale, have made, import, export or otherwise exploit API, any product containing API, or any other pharmaceutical inside the Field.

12. Representations and Warranties .

12.1 By Patheon . Patheon hereby represents and warrants to Tricida that:

12.1.1 Patheon shall perform the Services in accordance with all Applicable Law. Without limiting the generality of the foregoing, Patheon will comply with all applicable anti-corruption laws, rules and regulations, and will reasonably cooperate with Tricida’s diligence efforts in order to satisfy each Party’s obligations under the United States Foreign Corrupt Practices Act, as amended (“ FCPA ”) and any applicable similar laws of the European Union, the United Kingdom and such other countries as are listed in the applicable SOW or in an appendix to this MDA. Patheon represents and warrants that Patheon and anyone acting on its behalf (collectively, the “ Patheon Representatives ”) have not and shall not pay, give, offer or promise, directly or indirectly, to pay or give, or authorize the payment, directly or indirectly, of any money or anything of value to any foreign government official or employee (including employees of state-owned institutions), for the purpose of (i) influencing any act or decision of such official or of such government, (ii) inducing that person to do or omit doing any act in violation of his or her lawful duty, (iii) securing an improper advantage, or (iv) influencing such official to use his influence with the government to effect or influence the decision of such government, in order to assist Tricida or Patheon in obtaining or retaining business for or with or directing business to any person or to or secure an improper advantage for Tricida or Patheon. Furthermore, Patheon nor any of its Patheon Representatives is a government official or has a personal, business, or other relationship or association with any government official or close family member of any government official who may have responsibility for or oversight of any business activities of Patheon, other than any relationships or associations that have been disclosed in writing to Tricida. Patheon represent and warrants that it has adopted and maintains adequate policies, procedures and controls to ensure that it has complied and is in compliance with all applicable anti-bribery law, including at a minimum policies and procedures relating to prevention of bribery, accounting for financial transactions, due diligence on third parties and training of personnel.

 

14

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


12.1.2 Patheon warrants, represents and certifies that it and to its knowledge on due inquiry, at all times during the Term, its subcontractors are not debarred under 21 U.S.C. 335(a) and the services of any persons debarred under Section 306 (a) or (b) of the Federal Food, Drug and Cosmetic Act or convicted of a crime for which a person could be debarred were not and will not be used in any capacity in conjunction with the Services and if Patheon is debarred or receives notice of an action or threat of action of debarment or if Patheon receives notice or becomes aware of the debarment or threat of action of debarment of any individual or entity providing Services under this MDA, Patheon shall promptly notify Tricida and Tricida shall have the right to terminate this MDA with no further obligations owed immediately upon receipt of such notice.

12.1.3 To Patheon’s knowledge as of the Effective Date, it has all necessary rights to perform the Services to be carried out pursuant to this MDA and that the performance of such Services by Patheon or its Affiliates or its or their contractors or agents will not infringe any third party rights or intellectual property rights, provided that this confirmation and warranty shall not apply to third party claims that result from the use of Tricida Background IP or any other technology required by Product or process specifications and that are specifications provided by Tricida to Patheon for the performance of Services hereunder.

12.2 By Tricida .

12.2.1 Tricida hereby represents and warrants to Patheon that Tricida will perform its obligations under this MDA in compliance with Applicable Law.

12.2.2. To Tricida’s knowledge as of the Effective Date, (i) it has all necessary rights to perform its obligations under this MDA and (ii) the manufacture of Product in accordance with Tricida Background IP, manufacturing processes directed by Tricida (to the extent not modified by Patheon and not otherwise in accordance with industry standards) and/or any other technology required by Product or process specifications and that are specifications provided by Tricida to Patheon for the performance of Services hereunder will not infringe any third party rights or intellectual property rights of any third party.

12.3 Tricida and Patheon will give prompt written notice to the other if it becomes aware during the term of this MDA of any action or development that would cause any warranty in this Section 12 to become untrue.

12.4 EXCEPT FOR THE WARRANTIES CONTAINED IN SECTION 6 AND THIS SECTION 12, NEITHER PARTY MAKES ANY OTHER WARRANTY, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

13. Term and Termination .

13.1 Term . The initial term of this MDA shall commence on the Effective Date and shall continue until the earlier of (i) three (3) years from the Effective Date or (ii) such time as there has been a period of twelve (12) months without any SOWs outstanding (“ Initial Term ”), unless earlier terminated by either Party as provided below. Thereafter, this MDA shall continue for consecutive one (1) year terms (each a “ Renewal Term ” and together with the Initial Term, the “ Term ”) unless earlier terminated. Either Party may terminate this MDA to be effective after the Initial Term, at any time, by providing the other

 

15

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Party at least three (3) months written notice of termination prior to the end of the then current Term. The term of each SOW shall commence on the date provided in the applicable SOW and shall continue for the term provided in such SOW or if no term is provided, until completion of the Services in the SOW, unless earlier terminated by either Party as provided below. In the event that any SOW is in effect at the time of the termination or expiration of the MDA, the terms of this MDA shall continue for the sole purpose of giving effect to such SOW.

13.2 Termination . Either Party may terminate this MDA and any SOW upon notice if the other Party materially breaches any of the provisions of this MDA (including but not limited to a breach when any required license, permit or certificate required of the other Party to perform its obligations under this MDA is not approved and/or issued, or is revoked, by any applicable agency) and such breach is not cured within thirty (30) days after the giving of written notice (or such longer period as agreed upon by the Parties if such breach is not capable of cure within a thirty (30) day period) or is incapable of cure. Furthermore either Party may terminate this MDA and any SOW in case the other Party becomes subject to any bankruptcy or insolvency proceedings which are not dismissed within sixty (60) days from the date of filing.

13.3 Duties Upon Termination . In the event of any termination of this MDA, either Party shall, unless otherwise agreed, continue to perform its obligations under any outstanding SOW.

13.4 Continuing Obligations . The rights and obligations of each of the Parties which by intent or meaning have validity beyond such termination for any reason or expiration shall survive the termination or expiration of this MDA and/or any SOW, including but not limited to those under the provisions of Section 1 ( Definitions ) Sections 4 ( Compensation; Payment Terms ), 6 ( Inspection, Warranty ), 8 ( Supply of Materials ), 9 (Audits), 10 ( Confidentiality ), 11 ( Intellectual Property ), 13.3 ( Duties Upon Termination ), 13.4 (Continuing Obligation ), 14 ( Indemnification/Limitation of Liability ), 16 ( Insurance ), 18 ( Dispute Resolution ; Governing Law ) and 19 ( Miscellaneous ) of this MDA notwithstanding the termination of this MDA for any reason.

14. Indemnification/Limitation of Liability .

14.1 Indemnification by Patheon . Patheon shall indemnify, defend and save harmless Tricida and its Affiliates, and each of their respective officers, directors, and employees from and against all claims, demands and actions brought or asserted by third parties (“ Claims ”), and resulting costs, expenses, liabilities, damages, losses and fees, including reasonable attorneys’ fees and costs (“ Losses ”), to the extent arising from: (i) Patheon’s breach of any of its obligations under this MDA, including without limitation the failure of any representation or breach of any warranty made by Patheon in this MDA; and (ii) personal injury or property damage caused by Patheon’s negligent acts or omissions or willful misconduct in each case except to the extent caused by the negligence or willful misconduct of Tricida or its Affiliates or agents, or any act or failure to act for which Tricida is obligated to indemnify Patheon under Section 14.2.

14.2 Indemnification by Tricida . Tricida will indemnify, defend and save harmless Patheon and its Affiliates, and each of their respective officers, directors, employees and representatives from and against all Claims and Losses, to the extent arising from: (i) Tricida’s breach of any of its obligations under this MDA, including without limitation the failure of any representation or breach of any warranty made by Tricida in this MDA; (ii) Patheon’s performance of the Services in full compliance with this MDA and the applicable SOW; (iii) the activities of Tricida in connection with the sale by Tricida, its Affiliates or agents

 

16

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


of a compound or product developed or manufactured by Patheon in full compliance with this MDA and the applicable SOW, (iv) the use of a compound or product developed or manufactured by Patheon in full compliance with this MDA and the applicable SOW; and (v) personal injury or property damage caused by Tricida’s negligent acts or omissions or willful misconduct, in each case except to the extent caused by the negligence or willful misconduct of Patheon or its Affiliates or agents, or any act or failure to act for which Patheon is obligated to indemnify Tricida under Section 14.1.

14.3 Procedure for Indemnification . Upon receiving notice of any claim for liability under this provision, the indemnified party shall promptly notify the indemnifying party in writing; provided, however, that failure to give notice shall not limit or otherwise reduce the indemnity provided for in this MDA except to the extent that failure to give notice materially prejudices the rights of the indemnifying party. The indemnifying party will assume and conduct the legal defense of the indemnified party in any suit that could result in claims under this provision. The indemnifying party will not settle any case without the prior written consent of the indemnified party and such consent shall not be unreasonably withheld or delayed.

14.4 Limitation of Liability .

14.4.1 EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS SET FORTH ABOVE AND CLAIMS RELATED TO A PARTY’S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS (SECTION 10), IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES ARISING OUT OF WHATSOEVER LEGAL THEORY, INCLUDING WITHOUT LIMITATION LOST REVENUES OR PROFITS. NOTHING IN THIS MDA SHALL LIMIT EITHER PARTY’S LIABILITY FOR (I) FRAUDULENT MISREPRESENTATION OR (II) ANY OTHER LIABILITY THAT CANNOT BE EXCLUDED OR LIMITED UNDER APPLICABLE LAW.

14.4.2 EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS SET FORTH ABOVE AND CLAIMS RELATED TO A PARTY’S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS (SECTION 10), NEITHER PARTY WILL BE LIABLE FOR ANY CLAIM FOR DAMAGES (WHETHER GROUNDED IN CONTRACT, TORT, INDEMNITY OR OTHERWISE) IN AN AMOUNT GREATER THAN THE NET AMOUNT PAID OR PAYABLE BY TRICIDA (EXCLUDING ANY PASS-THROUGH COSTS) UNDER THE SOW FOR THE PARTICULAR SERVICES THAT ARE THE SUBJECT OF SUCH CLAIM.

14.4.3 FOR CLARITY, CLAIMS MADE WITH RESPECT TO ANY FAILURE BY TRICIDA TO PAY ITS OBLIGATIONS WITH RESPECT TO FEES FOR SERVICES OR MATERIALS UNDER ANY SOW SHALL NOT BE SUBJECT TO THE LIMITATIONS ON LIABILITY IN THIS SECTION 4.

15. Safety Information . To the extent not already done so Tricida shall inform Patheon immediately of any important information relating to the activity, side effects, toxicity and/or safety of the Products that is or becomes known to Tricida during the Term of this MDA and that is relevant to the performance of the Services by Patheon.

 

17

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


16. Insurance .

16.1 Policies . During the term of this MDA and for a period of no less than three (3) years thereafter, either Party will maintain:

16.1.1 Workers compensation insurance (or self-insurance approved by the applicable state regulatory agency) with respect to Patheon;

16.1.2 Employer’s liability insurance with a limit of not less than [***]; and

16.1.3 Commercial general liability, with limits of [***] per occurrence and a general aggregate limit of [***];

16.1.4 Umbrella liability, in excess of the above coverages for employer’s liability and general liability, with a limit per occurrence of [***] and an aggregate limit of [***]; and

16.1.5 Products liability, which may be satisfied through a combination of product liability and umbrella coverage (provided such umbrella coverage does not exceed [***] of such combination) but is to be exclusive of the above coverage for general liability, with a per claim limit of [***] and an aggregate limit of [***].

16.1.6 Unless otherwise set out in a SOW, Patheon will have no obligation to insure Product against loss or damage to arising after shipment to or from the Patheon Facility.

16.2 General Insurance Provisions .

16.2.1 Insurance required herein will be underwritten by insurers with A. M. Best ratings of not less than A- (Excellent) and Financial Class VII.

16.2.2 Throughout the Term, Patheon will provide Tricida with at least thirty (30) days advance written notice of cancellation, non-renewal or material reduction of the insurance required herein that has not already been replaced by another insurance policy.

16.2.3 Upon written request, Patheon will provide Tricida with a valid, current certificate of insurance as evidence of the insurance required herein.

16.2.4 The insurance required herein may be satisfied by a combination of primary and excess insurance policies; Patheon may choose deductibles and/or self-insured retentions that it deems appropriate, however such deductibles and/or self-insured retentions are at Patheon’s sole risk. Deductibles limits will be disclosed by Patheon upon the written request of Tricida.

16.2.5 Nothing in this Section 16 shall be construed as limiting Patheon’s obligations elsewhere under this MDA.

17. Force Majeure .

If Patheon or Tricida is delayed in performing any of its respective obligations under this MDA (except in respect of any obligation to pay money), in each case in whole or in part, by reason of Force Majeure, such delay shall be excused during the continuance of and to the extent of such Force Majeure provided that the affected Party is using diligent efforts to end the failure or delay and ensure the effects of

 

18

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


such event of Force Majeure are minimized. The party suffering a Force Majeure event shall give notice within three (3) business days of the Force Majeure event to the other Party, stating the period of time the occurrence is expected to continue and shall also notify the other Party of the termination of such event. During the period that the performance by one of the Parties of any of its obligations under this MDA has been suspended by reason of an event of Force Majeure, the other Party may likewise suspend the performance of all or part of its obligations hereunder to the extent that such suspension is commercially reasonable, except that Tricida may not suspend its obligation to make payment pursuant to Section 4 for Services rendered. Resumption of obligations shall be made as soon as reasonably possible after the removal of such Force Majeure event and the time for performance of this MDA shall be extended for a period equal to the duration of such cause and the time reasonably necessary to effect a cure of the Force Majeure event. Notwithstanding any contrary terms herein, in the event any Force Majeure event continues beyond ninety (90) days or is likely to continue beyond ninety (90) days, the other Party shall have the right to terminate this MDA or any affected SOW upon not less than ten (10) days’ notice.

 

19

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


18. Dispute Resolution; Governing Law .

18.1 Negotiation; Arbitration . In the event of any dispute or claim arising out of or relating to this MDA, or a breach thereof, the Parties hereto shall consult and negotiate with each other and, recognizing their mutual interests, attempt to reach a satisfactory resolution. If the Parties do not reach such resolution within a period of sixty (60) days, then, upon notice by one Party to the other, any unresolved dispute or claim shall be finally resolved by arbitration, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. The arbitration will be conducted in the English language. There shall be a single arbitrator, named in accordance with the applicable rules identified in Section 18.2 below. The award of the arbitrators shall be accompanied by a statement of the reasons upon which the award is based.

18.2 Forum; Governing Law . This MDA will be governed and construed in accordance with the laws of the State of New York, as such laws are applied to contracts entered into and to be performed within such State, without regard to any conflicts of law provisions and excluding the United Nations Convention on Contracts for the International Sale of Goods. Any arbitration shall be administered in the City of New York, New York by the American Arbitration Association under its Commercial Arbitration Rules, which Rules are deemed to be incorporated by reference herein, in accordance with the United States Arbitration Act.

18.3 Other Remedies . Nothing in this Section 18 shall serve to limit or impair a Party’s right(s) to equitable relief in any court of competent jurisdiction or to enforce any decision in any court of competent jurisdiction.

19. Miscellaneous .

19.1 Relationship of the Parties . Except to the extent the Parties otherwise agree in writing, the Parties understand that Patheon, in performing the Services, is acting solely in the capacity of an independent contractor, and that Patheon is not an agent, servant, partner or employee of Tricida or any Affiliate, agent, licensee, or other designate of Tricida. Patheon will be responsible for making appropriate deductions for tax and national insurance contributions from the remuneration which it pays to its personnel (including without limitation its employees and contractors). Patheon shall be solely and entirely responsible for its activities and for the activities of Patheon’s agents, employees, contractors and servants during the performance of this MDA.

19.2 Notices . All notices, requests, demands and other communications required or permitted under this MDA shall be in writing and shall be deemed to have been duly given, made and received only when delivered: (i) personally; or (ii) by overnight courier service such as Federal Express at the address set for the below. Either Party may alter the address to which communications or copies are to be sent by giving notice of such change of address to the other Parties in conformity with the provision of this section for the giving of notice.

 

If to Patheon:

   Patheon Austria GmbH & Co KG
  

St. Peter Strasse 25

4021 Linz, Austria

   Attention: Managing Director

 

20

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


   With a copy to:
   Patheon Active Pharmaceutical Ingredients
  

St. Peter Strasse 25

4021 Linz, Austria

   Attn: Klaus Hilber, General Counsel Patheon API
   E-mail: [***]

If to Tricida:

  

Tricida, Inc.

7000 Shoreline Court, Suite 201

   South San Francisco, CA 94080
   Attention: Legal
   With a copy to E-mail: [***]
   With a copy to:
  

Tricida, Inc.

7000 Shoreline Court, Suite 201

   South San Francisco, CA 94080
   Attn: Wilhelm Stahl, CTO, SVP Technical Operations
   E-mail: [***]

19.3 Assignment . This MDA is not assignable by either Party except with the written consent of the other Party; provided, however, that (a) either Party may assign this MDA to any of its Affiliates without the consent of the other Party, and (b) either Party may assign or transfer this MDA to a successor to all or substantially all of the assets of such Party through merger, reorganization, consolidation or acquisition.

19.4 Subcontractors . Except as otherwise provided in the Quality Agreement, Patheon shall not subcontract any portion of the Services to be performed on behalf of Tricida hereunder without the prior written consent of Tricida, which may be exercised in its sole discretion. Upon Tricida’s request, Patheon shall provide a list of all proposed subcontractors. Patheon’s use of subcontractors, whether or not approved, shall not relieve Patheon of any of its obligations under this MDA.

19.5 Entire Agreement . This MDA, along with all exhibits and addendums incorporated herein (and all duly executed SOW), including the Quality Agreement, constitutes the entire agreement between the Parties relating to the subject matter contained herein and supersedes any prior agreements and understandings, whether oral or written, between the Parties. No modification or amendment to this MDA shall be effected by or result from the receipt, acceptance, signing or acknowledgment of any Party’s purchase orders, order acknowledgements, invoices, shipping documents or other business forms containing terms or conditions in addition to or different from the terms and conditions set forth in this MDA, and the terms of this MDA shall supersede any provision in any purchase order or other document (other than the Quality Agreement) that is in addition to or inconsistent with the terms of this MDA.

19.6 Application to Prior Campaigns . The Parties agree that the K1 Contract, K2 Contract, K3 Contract, K4 Contract and the related proposals (each a “ Campaign ” and collectively the “ Campaigns ”) shall for purposes of interpretation and application of these proposals, be deemed to be and shall be treated

 

21

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


as SOWs under this MDA solely with respect to the terms of Section 1 Definitions for Results and for Severable Improvements , Section 10 Confidentiality and Section 11 Intellectual Property ; provided, however that any reference in this MDA to Effective Date when referring to any of the Campaigns shall be a reference back to the effective date of the applicable contract (e.g. Section 1.4 Background IP ) . The Parties also agree to a correction in each of the K3 Contract and the K4 Contract to replace the reference to “Part D, Section 3” in Subsections 6(d) and (e) of Part I: Legal Terms and Conditions and replace such language with “Part D Section 1”, effective as of the effective date of each of these contracts. The Parties also agree that Section 14 of this MDA ( Indemnification/Limitation of Liability ) shall apply to the K4 Contract and that this Section 14 shall be deemed incorporated into the K4 Contract.

19.7 Amendments . No modification, amendment or change to this MDA or any SOW shall be effective or bind any Party unless set forth in writing, duly executed by the Parties. Either Party’s waiver of any requirement or obligation arising under this MDA shall not operate or be construed as a subsequent waiver thereof. This MDA shall be binding on and inure to the benefit of the Parties hereto and their respective heirs, executors, administrators, legal representatives, successors and permitted assigns. This MDA may be executed in one or more counterparts, each of which shall be an original but all of which will constitute one instrument. If any provision contained in this MDA shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not invalidate this entire MDA.

[Signatures Appear on Following Page]

 

22

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


IN WITNESS WHEREOF, the Parties hereto have set their hands the day and year first above written.

 

PATHEON AUSTRIA GMBH & CO KG   TRICIDA, INC.
By:   /s/Klaus Hilber    /s/ Michael Stanek     By:   /s/ Gerrit Klaerner
Name:   Klaus Hilber    Michael Stanek     Name:   Gerrit Klaerner, Ph.D.
Title:  

Lead Counsel

Patheon API

  

VP Business Management

Global API

    Title:   CEO and President

 

23

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


EXHIBIT A

Form of SOW

STATEMENT OF WORK NO .

(see attached)

 

24

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


EXHIBIT A

K_ [NO.][TO BE NUMBERED SEQUENTIALLY] STATEMENT OF WORK

[DESCRIBE CAMPAIGN TYPE]

This K [ NO.] Statement of Work (“K [ NO.] SOW ) made this _____ day of [MONTH] _______, 20__ is fully incorporated into the Master Development/Validation Services and Clinical/Launch Supply Agreement (“ MDA ”) between Patheon and Tricida, dated the __ day of April, 2018, the terms of which are incorporated herein by this reference. Capitalized terms used herein and not otherwise defined shall have the meanings given to them, respectively, in the MDA, and any other Statement of Work incorporated into the MDA by its terms, as applicable. In the event there are any inconsistencies or conflicts between the terms of this K [ NO.] SOW and the MDA (including any Statement of Work incorporated into the MDA), Section 2.2 of the MDA sets forth the process to harmonize the provisions.

A. Project Background and Requirements :

Campaign Description : K [ NO.] Campaign pursuant to the terms of the MDA to manufacture TRC101 for [DESCRIBE CAMPAIGN TYPE] (“ K [ NO.] Campaign ”).

Priorities : Production of a minimum of _________ kg of TRC101 (“ Minimum Requirement ”), in accordance with and meeting the specifications as set forth in the Quality Agreement (“ Specifications ”), as launch supply.

Pricing Overview : The manufacturing K [ NO.] Campaign is priced [DESCRIBE PRICING]. [If on a per campaign basis, insert the following: Therefore, all allotted time and Key Raw Materials (defined below) are to be used until the end of the allocated time period as provided in this K [ NO.] SOW and all TRC101 produced during this K [ NO.] Campaign will be provided to Tricida, subject to the terms of the Quality Agreement regarding releases.]

[DESCRIBE ANY POST CAMPAIGN REVIEWS] .

B. Location, if other than Facility : N/A

C. Project Management : [MODIFY AS NEEDED]

Dedicated Project Management Team : Tricida and Patheon will together agree on the composition of a Joint Project Management Team where the key functions of both Parties are represented: project management, technical/process experts, analytical development, quality control, quality assurance, regulatory. Patheon will provide dedicated project management support to manage all required K [ NO.] Campaign activities related to the manufacturing of TRC101 and to monitor the progress of the K [ NO.] Campaign against the agreed scope of work and timelines and will provide Tricida with routine updates while there are SOW activities ongoing.

Steering Committee : Tricida and Patheon will together agree on the composition of a Joint Steering Committee (“ JSC ”), which will include at least one representative from each of Tricida and Patheon with sufficient authority to bind Tricida or Patheon (as applicable) to facilitate efficient cooperation and resolution of disagreements. The JSC will meet at least once per calendar quarter, either in person or by phone.

 

25

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Meetings :

 

    Weekly : Weekly, one-hour teleconference meetings per calendar week. Patheon’s Project Leader, will typically organize the teleconferences. Other calls can be arranged as agreed between the Parties and ad hoc calls accommodated as needed. The frequency of meetings can be increased during peak activity times. The Project Leader and other functional project leads shall also make themselves reasonably available via e-mail/phone for discussions outside of scheduled meetings. Patheon will provide, no later than the day before scheduled calls, an agenda, a significant events report and a summary of work conducted.

 

    Quarterly: Quarterly, a face-to-face project review / update meeting one per calendar quarter.

 

    Meeting Reports : Minutes of teleconferences and other meetings will be documented, maintained and distributed on a timely basis by Patheon. These meeting reports will be in a format reasonably satisfactory to Tricida and can generally be customized at Tricida’s request to meet Tricida or K [ NO.] Campaign requirements.

Project Documentation : Documentation to be provided as part of the K [ NO.] Campaign may include such reports as specified in the Quality Agreement and if not so provided for in the Quality Agreement, then Sampling and test plan, MPC data, method details, process raw data upon request, Continuous temperature profile (at all monitoring points), Pressure, Fill volume, Stir rate, FBRM and NIR raw and final data, Equipment operating parameters (e.g. decanter centrifuge operating parameters) and all standard process data, delivery or any other project documentation in accordance with the Project Plan, and such additional data as mutually agreed upon from time to time by the Joint Project Management Team.

General Staffing : Consistent with the terms of the MDA, Patheon will assign a sufficient number of personnel to achieve the Priorities listed above. The Parties acknowledge that the actual personnel assigned to work on the K [ NO.] Campaign or staff the Joint Project Management Team or JSC may need to change from time to time. With respect to the Joint Project Management Team and JSC, Patheon will use commercially reasonable efforts to maintain continuity among personnel, subject to Customer’s replacement rights referenced in this Section. At all times during the term of this SOW, Tricida shall have the right, at its discretion, but in a commercially reasonable manner, to require that any personnel be removed from the K [ NO.] Campaign, and any related costs associated with such request shall not be borne by Tricida. Tricida may exercise this right by providing written notice to Patheon and will in this case reasonably cooperate with Patheon in defining a mutually acceptable path forward. Notwithstanding any contrary terms in this SOW or in the MDA, an e-mail or fax of such request shall constitute notice under this paragraph. [MODIFY AS NEEDED, ESPECIALLY IF ANY SPECIFIC STAFFING ISSUES ARE CRITICAL TO THE PROJECT.]

D. Project Activities : The Joint Project Management Team shall develop a project timeline, referred to in the MDA as a Project Plan for all K [ NO.] Campaign Activities (e.g. Materials (as defined in the MDA) acquisition, including Key Raw Materials as defined herein, assay development, manufacturing, validation). The manufacturing of the first batch is anticipated to start ______________, 20__, subject to adjustment as provided in this SOW or the MDA.

[INSERT CHART]

Dates : [DESCRIBE DATES/TIMING ] The overall campaign time as described above for TRC026 (=CIPO-01) and TRC101 (=CIPO-02) shall be referred to as the “ K [NO.] Campaign Time ”.

Batch Size and Production Location : [DESCRIBE] Process improvements over the process from the K_Validation Campaign require approval by both Parties in accordance with the terms of Section 2.5 of the MDA.

[EQUIPMENT USE] Patheon may change to equipment of identical size and capabilities (i.e. to just a different unit in the same building) if so needed due to portfolio requirements.

 

26

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Agreed key production parameters and definitions : (All additional details will be agreed upon and specified in the Master Batch Records):

TRC026:

 

    Batch size: ~____Kg

 

    Planned Batches: __

 

    Estimated cycle time: __ hrs

 

    Agreed Production Time (including cleaning and product changeover): __ days

 

    Production Window: The production slot for TRC026 in the K [ NO.] Campaign Time originally scheduled time (shown in red in the chart above), moved forward or back by no more than ____ (__) weeks as provided above, which slot shall not be less than the Agreed Production Time

TRC101:

 

    Batch size ~___kg

 

    Planned Batches: __

 

    Estimated cycle time: __ hrs

 

    Agreed Production Time (including cleaning and product changeover): __ days

 

    Production Window: The production slot for TRC101 in the K [ NO.] Campaign Time originally scheduled time (shown in red in the chart above), moved forward or back by no more than ____ (__) weeks as provided above, which slot shall not be less than the Agreed Production Time

Patheon agrees to manufacture and deliver, in accordance with the Specifications, at least the Minimum Requirement of ____ kg of TRC101 in the K [NO.] Campaign (subject to the terms of the MDA regarding Force Majeure and except in case of Process Issues as described below).

[ IF APPLICABLE : In order to provide Tricida with the maximum TRC101 quantities Patheon can manufacture within the Production Window, Patheon agrees that if, during the Agreed Production Time, Patheon manufactures the Minimum Requirement of Product meeting Specifications, Patheon shall continue production during the Agreed Production Time beyond the Minimum Requirement until the earlier of (x) the end of the Agreed Production Time and (y) the Key Raw Materials ([***]) and/or TRC026 are consumed such that additional production is not possible. Thereafter, any un-utilized Materials, including TRC026, Key Raw Materials ([***]) or other Materials will be appropriately stored until the next campaign or used for any other purpose as instructed by Tricida. The total amount of TRC101 manufactured within the Production Window will be delivered to Tricida.]

General Assumptions :

 

    Analytical methods, reference standards etc. as defined in the Quality Agreement will be provided by Tricida to Patheon.

 

    In accordance with the Quality Agreement, Specifications and release testing will be applied to all Materials, whether non-contributory or standard raw materials.

 

    Patheon shall individually release the first four (4) batches without any bundling of release testing, unless otherwise decided by the JSC, and then Patheon may bundle samples from two (2) or three (3) batches, but not more than three (3) batches for release testing.

Stability Studies : N/A

Deliverables :

 

    Minimum Quantity: ___ kg of TRC101 meeting Specifications as described in the Quality Agreement ( Appendix B to the MDA, as amended in accordance with the MDA).

 

    Documentation as per Section C of this K [ NO.] SOW, including, at a minimum, batch records and summary reports. All documentation per Patheon and known Tricida standards.

 

27

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


E. Delivery Terms (if other than as provided in the MDA) :

[ IF APPLICABLE : In accordance with the terms set forth in the Quality Agreement (which, in accordance with the MDA, shall control), Patheon is responsible for manufacturer’s release, and Tricida is responsible for shipping authorization/product release. Patheon will provide CofAs (Certificates of Analysis), CoCs (Certificates of Compliance) and QA (Quality Assurance ) reviewed batch records. Patheon may, elect to have the analytical testing for specific batches performed by the external contractors; Patheon shall provide all required support (such as, but not limited to, immediate sample shipment) to facilitate such analytical testing and such contractors shall provide the CofAs to Patheon; TRC026 and TRC101 release testing shall be the sole responsibility of Patheon. Patheon will release the first four (4) batches of TRC026 and TRC101 without bundling any of the testing. Upon receipt of all CofAs, executed batch records, and supporting documentation, Tricida may make inquiries, or request corrections or investigations as provided in the Quality Agreement and the terms of the MDA, which are consistent with cGMP practice, and the Parties shall make a good faith effort to close all investigations pertaining to the manufacture or analysis of product, and to satisfactorily resolve all inquiries and corrections requested by Tricida within a four (4) week period beginning with Patheon’s receipt of such inquiry or request. Tricida shall provide shipping authorization/product release within ten (10) business days of the satisfactory resolution of all issues. Any new inquiries or corrections made by Tricida more than two (2) weeks after its receipt of the CofA, executed batch records, and supporting documentation, will not impact the timing of invoicing and title transfer.]

F. Analytical Methods Implementation and Associated Services : N/A

G. Starting and Key Raw Materials ([***]) to be Acquired : Materials, including key raw materials such as [***] (“ Key Raw Materials ”) to be obtained as provided in the MDA. Additional information regarding Key Raw Materials will be determined by the JSC and the Parties agree to supplement the table below:

 

[***] (kg) (“Key Raw Materials”)

  

Preferred Suppliers (as defined in
Section 8.2 of the MDA)

  

Pricing**

     

 

  

 

  

 

     

 

  

 

  

 

     

 

  

 

  

 

**[***] quantities as specified in the table above which will be amended no later than __________ (__) months prior to the start of the K [NO.] Campaign will be procured by Patheon. In accordance with the terms of the MDA, Tricida is responsible for timely organizing the [***] quantities specified above at the prices to be specified in the table above, and Patheon will provide the corresponding quantities of all other raw materials up to such a quantity which enables Patheon to continue production for at least [***] beyond the originally scheduled Agreed Production Time. Patheon will use its reasonable best efforts to qualify the vendors of [***] prior to/during the K [ NO.] Campaign. All Materials (as defined in the MDA) will be reimbursed, based on successful release testing, in accordance with Section I (Invoicing). Tricida reserves the right to negotiate the price for its Key Raw Materials ([***]). Invoicing terms for Materials provided under Section I below.

No changes may be made to the list of Materials except in accordance with the terms of Section 2.5 of the MDA.

H. Fees : The “Fees” for the K [ NO.] Campaign referenced in this SOW are set out below under K [ NO.] Campaign Pricing and shall be based upon a base rate (and not on a per kg basis), provided that Patheon shall guarantee a minimum delivery volume for the K [ NO.] Campaign of the Minimum Requirement of _____ kg of TRC101. [DESCRIBE OPTIONS IF MINIMUM NOT MET.]

 

28

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


The Fees will be invoiced and due and payable as provided under Section I.

K [NO.] Campaign Pricing (Inclusive rates , except as provided for in Section 4 of the MDA) (Expressed in US dollars assuming a $/ € rate of [***], actual pricing subject to currency adjustments as provided in the MDA.)

 

Fees:

  

Materials

   $      *** 

Manufacturing

   $  

Net Amount Due for Manufacturing Activities of K [NO.] Campaign

   $  

Other Charges/Credits:

  

Installations*

   $ 0  

Total Amount Due for K [NO.] Campaign

   $  

 

* Installations include: N/A
*** Estimated cost based on a [***]. Cost of Materials will be adjusted to match the [***] quantities that will be specified in Section G, as determined by the JSC. Excess Material will be stored at Patheon’s costs and consumed during a subsequent Campaign.

I. Invoicing :

Materials : Materials, including Key Raw Materials, are to be billed as pass-through cost and will be invoiced at such time as Patheon completes the release testing of Materials which confirm that such Key Raw Materials meet specifications (except with respect to Materials to be used in replacement Products provided pursuant to the terms of the MDA, due to other Material Losses as provided in the MDA or otherwise provided for in this K [NO.] SOW). The invoice is due and payable as provided in the MDA.

Services : Except with respect to Materials or otherwise provided under this Section I, the Fees for the Services are to be invoiced upon completion of the Services.

If Patheon manufactures more than the Minimum Requirement by the end of the Agreed Production Time, no adjustment shall be made to the Fees. The Fees will be invoiced and due and payable as provided under this Section I.

If the actual quantity of TRC101 manufactured during the Agreed Production Time, is less than the Minimum Requirement, [DESCRIBE PRICING ADJUSTMENTS]

J. Applicable Law (list countries in addition to those in Section  1.2 of the MDA) : N/A

K. Storage Fees (Describe any differences from Section 5.1) : None.

L. Late Fees : In addition to any other rights of Tricida, at law or in equity, the following rights may arise following delays in release of TRC101 of [***] after completing the manufacture of a specific batch: Tricida may be entitled to take a discount equal to [***] of the invoiced value for such batches (based upon pro rata cost of the Manufacturing component (for an assumed __ Batches of TRC101) of the Net Amount Due for Manufacturing Activities of K [ NO.] Campaign) for

 

29

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


every [ [***] /TIME PERIOD] of the delayed shipment but with a maximum reduction of [***], provided , that Patheon shall not be required to pay such penalty associated with a late delivery if caused by a Force Majeure event or by other reasons not attributable to Patheon, such as for example Tricida’s breach of this SOW, the MDA [ or due to Process Issues ]. For avoidance of doubt, Tricida is not entitled to claim late fees under this Section L to the extent related to any volumes above the Minimum Requirement. Patheon shall remit payment due within thirty (30) days from receipt of an undisputed invoice or Tricida may exercise its right of set-off.

M. Describe any terms that are to control over body of the MDA :

Notice: Notice provisions of Section C of this K [ NO.] SOW regarding notice by e-mail or fax regarding staffing shall control.

Additional Termination Rights: The Parties agree that, in addition to any termination rights under Section 13 of the MDA, Tricida shall have additional rights of termination with respect to the K [NO.] SOW as follows: [DESCRIBE.]

N. Quality Agreement : Any references in this K [ NO.] SOW to the Quality Agreement, will be deemed to be references to the Commercial Quality Agreement, as adopted for the K6 Campaign.

IN WITNESS WHEREOF, the Parties hereto have set their hands the day and year first above written.

 

PATHEON AUSTRIA GMBH & CO KG       TRICIDA, INC.
By:           By:    
Name:            Name:    
Title:         Title:    

 

30

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated February 28, 2018, in the Registration Statement (Form S-1) and related Prospectus of Tricida, Inc. dated June 4, 2018 for the registration of its common stock.

/s/ Ernst & Young LLP

Redwood City, California

June 4, 2018