As filed with the Securities and Exchange Commission on April 2, 2021
Registration No. 333- |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IMPEL NEUROPHARMA, INC.
(Exact name of registrant as specified in its charter)
Delaware | 2834 | 26-3058238 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
201 Elliott Avenue West, Suite 260
Seattle, WA 98119
(206) 568-1466
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Adrian Adams
President and Chief Executive Officer
Impel NeuroPharma, Inc.
201 Elliott Avenue West, Suite 260
Seattle, WA 98119
(206) 568-1466
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Alan C. Smith Amanda L. Rose Ryan Mitteness Fenwick & West LLP 1191 Second Avenue, Floor 10 Seattle, WA 98101 (206) 389-4510 |
Michael Nordtvedt Bryan D. King Tony Jeffries Wilson Sonsini Goodrich & Rosati, Professional Corporation 701 Fifth Avenue, Suite 5100
Seattle, WA 98104
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Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Proposed
Maximum Aggregate Offering Price(1)(2) |
Amount of
Registration Fee |
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Common Stock, par value $0.001 per share |
$75,000,000 | $8,183 | ||
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(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, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion) |
Dated April 2, 2021 |
Shares
Impel NeuroPharma, Inc.
Common Stock
This is an initial public offering of shares of our common stock. We are offering shares of our common stock. Prior to this offering, there has been no public market for our common stock. We will apply for listing of our common stock on The Nasdaq Global Market under the symbol IMPL. We expect that the public offering price will be between $ and $ per share.
We have granted the underwriters an option to purchase up to additional shares of our common stock at the initial public offering price, less underwriting discounts and commissions. We intend to apply to list our common stock on The Nasdaq Global Market under the symbol IMPL.
We are an emerging growth company under applicable Securities and Exchange Commission rules and will be subject to reduced public company reporting requirements for this prospectus and future filings.
Our business and an investment in our common stock involve significant risks. These risks are described under the caption Risk Factors beginning on page 14 of this prospectus.
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 | |||||||
Public offering price |
$ | $ | ||||||
Underwriting discounts and commissions(1) |
$ | $ | ||||||
Proceeds, before expenses, to Impel NeuroPharma, Inc. |
$ | $ |
(1) |
See the section titled Underwriting for additional information regarding underwriting compensation. |
The underwriters may also purchase up to an additional shares from us at the public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus to cover overallotments.
The underwriters expect to deliver the shares against payment in New York, New York on , 2021.
Joint Book-Running Managers
Cowen | Guggenheim Securities |
Lead Manager
Wedbush PacGrow
, 2021
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Material U.S. Federal Income Tax Consequences to Non-U.S. Holders |
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F-1 |
We have not, and the underwriters have not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock.
Persons who come into possession of this prospectus and any applicable free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.
This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information set forth under the sections titled Risk Factors, Summary Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations, in each case included in this prospectus. Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See the section titled Special Note Regarding Forward-Looking Statements. Unless the context otherwise requires, we use the terms Impel, company, we, us and our in this prospectus to refer to Impel NeuroPharma, Inc.
Overview
We are a late-stage pharmaceutical company focused on utilizing our proprietary technology to develop and commercialize transformative therapies for patients suffering from diseases with high unmet medical needs, with an initial focus on diseases of the central nervous system, or CNS. Our company was founded on the premise that the upper nasal cavity can be an optimal treatment entry point for CNS and other diseases where rapid vascular absorption can result in superior clinical outcomes. Our strategy is to pair our proprietary Precision Olfactory Delivery, or POD, upper nasal delivery technology with well-established therapeutics or other therapeutics where rapid vascular absorption is preferred to drive therapeutic benefit, improve patient outcomes, reduce drug development risk and expand the commercial opportunity within our target diseases. Since 2016, we have identified and advanced multiple product candidates, including TRUDHESATM (INP104) for the acute treatment of migraine and INP105 for the acute treatment of agitation and aggression in patients with Autism Spectrum Disorder, or ASD. Our pipeline of proprietary product candidates also includes INP107 for the treatment of OFF episodes in Parkinsons Disease. In November 2020, we submitted an NDA for TRUDHESA, for the acute treatment of migraine headaches with or without aura in adult patients. The FDA has filed and accepted the new drug application, or NDA, for review and established a Prescription Drug User Fee Act, or PDUFA, goal date of September 6, 2021.
We have designed our proprietary POD technology to target the vascular-rich upper nasal cavity, and to provide rapid absorption, consistent drug biodistribution and ease of use for a patient, provider or caregiver. Our goal with our POD technology is to deliver injection-like clinical outcomes non-invasively. We believe that we are the first company to successfully harness the benefits of delivery to the upper nasal cavity to improve delivery and the pharmacologic potential of CNS therapies.
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We have developed a pipeline of proprietary CNS product candidates built around our intellectual property and expertise in upper nasal cavity delivery. The following table summarizes our product candidates, each of which is wholly owned:
POD Technology
Using our proprietary POD technology, we have developed devices that deliver therapeutics directly to the upper nasal cavity. These devices are designed to offer several key benefits compared to traditional nasal delivery systems, including:
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Rapid Onset. The precise spray plume and biphasic nature of delivery to the upper nasal cavity allows for superior dose deposition and rapid absorption into the systemic circulation as compared to traditional nasal delivery systems. |
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Consistent Drug Bioavailability. Metered propellant dosing allows for more consistent blood levels than typically seen with traditional nasal sprays and are equivalent, or superior, to those achieved through intramuscular, or IM, injections. |
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Improved Patient-Provider Experience. Our proprietary gas propulsion mechanism eliminates the need for coordination of breathing and enables delivery of a dosing in 1/10th of a second, enabling self- or provider-administration in a manner that improves patient comfort and compliance. |
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Manufacturability. Separation of propellant and drug within the POD device helps streamline chemistry, manufacturing and controls, or CMC, development, as we are not constrained by the limits of co-formulating our therapeutics inside of a pressurized propellant canister. |
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Formulation Versatility. The POD device is versatile and can deliver both liquid and powder formulations in order to potentially address a wide variety of indications across multiple therapeutic areas. |
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Strong Intellectual Property Position. We believe that we have a strong global intellectual property position relating to our POD device and product candidates. We have four U.S. issued patents and 21 patents issued in ex-U.S. jurisdictions directed to our approach of drug delivery to the upper nasal cavity, including claims directed to a nasal device with separate drug and propellant compartments. Our patent portfolio is expected to provide patent protection ranging from 2032 to 2040. |
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We believe that our in-house technical and development expertise positions us to address unmet medical needs across multiple therapeutic areas by delivering well-established and novel drugs consistently, rapidly and non-invasively. Our technical and development expertise has allowed us to rapidly identify and develop our product candidates to their current state in under five years. For example, INP105 was advanced from lead candidate selection to development of more than 20 formulations, the completion of five nonclinical studies, and ultimately a proof-of-concept clinical trial, within 16 months. We have tested over 30 small molecules and biologics for suitability of nasal drug administration with our proprietary POD technology. This depth of knowledge and experience, along with our proprietary technology, creates a platform for rapid additional pipeline expansion. In addition to our technology and development expertise, our strong intellectual property portfolio protects multiple aspects of our approach to delivering drug to the upper nasal cavity. We believe that our apparatus, composition of matter and method of use intellectual property can provide strong exclusivity protection to our product candidates.
Our Product Candidates
TRUDHESA (Acute Treatment of Migraine)
We are currently developing our lead product candidate, TRUDHESA (INP104), as an upper nasal formulation of dihydroergotamine, or DHE, administered using our proprietary POD technology for the acute treatment of migraine. The brand name TRUDHESA has been conditionally approved by the FDA. Migraine is a growing market projected to triple in size to over $10 billion by 2028 with the introduction of multiple new product offerings and an expected increase in disease diagnosis. DHE is widely used as part of a standard of care for treatment of migraines, despite being limited by intravenous, or IV, and injection delivery or traditional nasal administration. IV and injection delivery require administration in physicians offices, migraine clinics and hospitals, and traditional nasal administration has been challenged by inconsistent efficacy.
In June 2020, we announced the following exploratory efficacy results of our STOP301 trial to evaluate the safety and tolerability of long-term, intermittent use of TRUDHESA as an acute treatment of migraine with or without aura in adult patients. In this trial, baseline results prior to trial initiation were based on migraine attacks where patients used their standard acute migraine medication. In the trial:
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38% of patients were pain free at two hours after their first dose of TRUDHESA. |
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52% of patients receiving TRUDHESA were free of their most bothersome migraine symptom at two hours. |
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Patients treated with TRUDHESA also demonstrated improvement in pain relief: 16% of patients treated with TRUDHESA had pain relief within 15 minutes of treatment, and 66% had pain relief within two hours. |
The exploratory endpoints of the trial also included an assessment of the following long-term outcomes of TRUDHESA when patients were treated for six months:
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38% of patients treated with TRUDHESA remained pain free at two hours through three months of treatment and 34% of patients treated with TRUDHESA remained pain free at two hours through six months of treatment. |
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Patients who received TRUDHESA saw a 48% reduction in the frequency of their migraines compared to baseline during the six-month trial. |
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98% and 95% of patients achieving pain freedom at two hours on TRUDHESA did not suffer a relapse in migraine or require a rescue medication at 24 hours and 48 hours, respectively, by weeks 21 to 24. |
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Exposure Adjusted Event Rate, or EAER, data showed a meaningful reduction in the usage of healthcare resources by patients treated with TRUDHESA versus their baseline. Emergency room visits were reduced by approximately 73% and hospitalizations and urgent care visits were reduced by 100%. |
Although the trial was not powered to determine statistical significance of the exploratory efficacy endpoints, we believe these exploratory endpoints provide important data for evaluating the clinical benefit of TRUDHESA and showed consistency with the generally understood benefits of DHE for the acute treatment of migraines. The primary endpoints of the STOP301 trial were safety and tolerability of long-term, intermittent use. In this trial, TRUDHESA was generally well tolerated. There were a total of seven treatment emergent serious adverse events, or SAEs among five patients (1.4%) over the 52-week study. Three patients had one SAE each, consisting of one event each of ovarian mass, intestinal obstruction and miscarriage. Two patients had more than one SAE: one patient with a pulmonary embolism and visual impairment and one patient with clavicle and rib fractures. None of the SAEs were nasal-related and none of the SAEs, were determined by the investigator to be related to TRUDHESA or led to withdrawal from the trial. There were also no significant changes to sense of smell, and no significant abnormal findings from endoscopy examinations.
In November 2020, we submitted an NDA for TRUDHESA for the acute treatment of migraine headaches with or without aura in adult patients. The FDA has filed and accepted the NDA for review and established a PDUFA goal date of September 6, 2021. The brand name TRUDHESA has been conditionally approved by the FDA.
If approved, we believe we can successfully commercialize TRUDHESA in the United States with a specialty sales force beginning with approximately 60 representatives, and increasing to approximately 120 representatives, focusing in areas with increased demand. We intend to strategically pursue high value prescribers and early adopters, beginning with 8,000 of the highest volume migraine treatment prescribers. Based on recent migraine treatment product launches, such as ubrogepant and rimegepant, we believe this approach can be successful in accessing the concentrated prescriber bases in migraine. This target base includes approximately 4,000 neurologists and approximately 4,000 high prescribing primary care physicians and headache specialists who have significant experience with prescribing DHE. These groups make up 35% of the migraine treatment prescriptions written in 2020 in the United States. In particular, neurologist prescription productivity has grown an average of approximately 15% per year over the last two years, a growth figure aided by an increase in the number of patients seeking treatment from neurologists and primary care physicians for migraine. The planned scale up to 120 representatives is intended to allow us to target an additional 8,000 high prescribing physicians that we believe will enable us to expand coverage to 45% of all migraine treatment prescriptions in the United States. We intend to build a commercial infrastructure focused on distribution, access, promotion, education and customer support. Our market research indicates that over 70% of migraine sufferers are seeking better treatments, and physicians are willing to prescribe and payors support access at profitable price and rebate points. With approximately 72% of migraine prescriptions paid by commercial payors, we believe this market presents an attractive payor mix. We anticipate using a robust sample program to ensure trial with TRUDHESA for patients seeking better treatments and outcomes. Also, as part of our commercialization strategy, we plan to educate healthcare practitioners and patients, partner with national associations and actively support advocacy groups in the migraine market. These efforts will be supplemented with non-personal promotion to all targeted and non-targeted medium value physicians. To capture the maximum commercial opportunity of TRUDHESA, we may also selectively seek partners to commercialize the product outside of our target markets, including additional penetration within the broader primary care setting, as well as in geographies outside of the United States.
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INP105 (Acute Treatment of Agitation and Aggression in Autism Spectrum Disorder)
We are currently developing our second product candidate, INP105, as an upper nasal formulation of olanzapine administered using our proprietary POD technology for the treatment of agitation and aggression associated with ASD. ASD is a neurodevelopmental disorder affecting approximately 3.5 million children and adults in the United States and characterized by persistent difficulties in social communication and social interaction, coupled with restricted, repetitive patterns of behavior and higher aggression rates. Agitation and aggression are frequent and difficult to manage symptoms, and associated with negative outcomes for patients with ASD and their caregivers, including decreased quality of life, increased stress levels, and reduced availability of educational and social support. Based on a study of emergency room usage in Canada, which found that 18% of individuals with ASD aged 12 and up had visited the emergency room within the past year, and that approximately 34% of such visits were for mental health issues, we estimate that approximately 220,000 patients with ASD in the United States seek emergency room care due to mental health issues annually. Current treatment strategies include functional behavioral assessment, reinforcement strategies, functional communication training, and the use of second-generation antipsychotics. With an increasing rate of ASD diagnosis, we believe that the development of effective therapeutic and pharmacologic methods for preventing and treating aggression are essential to improving outcomes in this disorder. Currently, there is no approved treatment for patients living with ASD once there is onset of agitation leading to aggression, and we believe that INP105 has the potential to be an on-demand therapy in this indication.
In a double-blind, placebo-controlled, single ascending dose Phase 1 clinical trial in 40 healthy adults conducted in Australia, we observed similar bioavailability for INP105 compared to equivalent doses of olanzapine delivered through IM administration, as measured by the area under the plasma drug concentration-time curve, or AUC, which reflects the actual body exposure to the drug after administration of a drug dose, and the maximum drug concentration, or Cmax, and achieved time to maximum drug concentration, or Tmax, 25-22% faster than that of IM olanzapine.
Based on its pharmacokinetic profile and method of administration, we believe INP105, if approved, has the potential to treat acute agitation and aggression events in this under-served population and in patients homes, potentially reducing visits to the emergency department and limiting the need to call in reinforcements to help caregivers. We plan to initiate a double-blind, placebo-controlled Phase 2 proof-of-concept clinical trial of INP105 in adolescents with ASD in the United States by the end of 2021 and expect to report topline results in the second half of 2022.
INP107 (Treatment of OFF Episodes in Parkinsons Disease)
We are also currently developing INP107 as an upper nasal formulation of carbidopa/levodopa administered using our proprietary POD technology for the treatment of OFF episodes in Parkinsons Disease, or Parkinsons. The overall Parkinsons market is expected to grow to over $8.4 billion by 2026, with emerging treatments for OFF episodes contributing to that growth. Current standard of care for the symptomatic treatment of Parkinsons is oral levodopa; however when levodopa levels fall below their therapeutic range, patients may lose adequate control of motor symptoms, which are referred to as OFF episodes. Carbidopa is co-administered with levodopa to slow levodopas rapid absorption, thereby increasing the amount of levodopa available for the symptoms of Parkinsons. INP107 is a self- or caregiver-administered, upper nasal therapy candidate designed to provide rapid delivery of levodopa to the brain for the treatment of OFF episodes. In 2019, we completed a Phase 2a clinical trial of INP107 and a levodopa-only formulation in Australia, which demonstrated an encouraging pharmacokinetic profile in Parkinsons patients. Based on results of the Phase 2a clinical trial, we expect to further develop the formulation of INP107 prior to advancing into additional clinical trials. We expect to initiate a Phase 1 pharmacokinetic and tolerability trial in Australia or the United States in 2022 for dose selection for additional clinical development of INP107.
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Our Team
We have assembled a team of scientific, clinical and business leaders with deep expertise in neuroscience and a track record of building, growing and transacting pharmaceutical companies. Our Chief Executive Officer, Adrian Adams, has over 25 years of pharmaceutical experience with an emphasis on commercialization and strategic execution. Our co-founder and Chief Scientific Officer, John Hoekman, Ph.D., has over 15 years of experience in investigating upper nasal drug delivery and nose-to-brain delivery, is an inventor of our proprietary POD technology, is widely recognized as a pioneer in upper nasal cavity drug delivery and has evaluated over 30 CNS targeting compounds with over six different modalities including small molecules, proteins, peptides and antibodies as opportunities for upper nasal cavity delivery. Our Chief Financial Officer, John Leaman, M.D., has over 15 years of pharmaceutical experience with an emphasis on public company financial oversight, corporate strategy and business development. Our Chief Medical Officer, Stephen Shrewsbury, M.B. ChB., has over 30 years of experience in developing pulmonary and nasal drug delivery and CNS therapies at pharmaceutical companies including GlaxoSmithKline, Aquinox Pharmaceuticals, AVI Biopharma and MAP Pharmaceuticals, where he led the development of Levadex. Our Chief Commercial Officer, Leonard S. Paolillo, has nearly 20 years of experience with various companies in the healthcare and pharmaceutical industries, including Warner Chilcott and Kyowa Kirin. Our Senior Vice President of Regulatory Affairs, Lynn Gold, has over 30 years of experience of leading regulatory activities for pharmaceutical companies, including at Warner Chilcott, Pharmacia and Camargo Pharmaceutical Services, and has been involved in over 40 NDA submissions, with expertise in drug devices and delivery. We are supported by our board of directors, scientific advisory boards and a group of leading biotechnology-focused investors, including KKR Iris Investors LLC, or KKR Iris, which is owned by investment funds and other entities affiliated with Kohlberg Kravis Roberts & Co. L.P., Norwest Venture Partners, 5AM Venture Management, LLC, venBio and Vivo Capital.
Our Strategy
Our goal is to deliver transformative therapies, harnessing the benefits of delivery to the upper nasal cavity, to patients suffering from CNS diseases and other diseases with high unmet medical needs. The key tenets of our strategy to accomplish this goal include:
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Successfully commercialize TRUDHESA for the acute treatment of migraine after potential regulatory approval. |
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Rapidly advance INP105 through clinical development for the acute treatment of agitation and aggression associated with ASD. |
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Maximize the therapeutic and commercial potential of our proprietary POD technology platform. |
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Expand applications of our existing product candidates. |
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Independently develop and commercialize product candidates in indications and geographies where we believe we can maximize value. |
Risks Affecting Us
Our business is subject to risks and uncertainties, including those highlighted in the section titled Risk Factors immediately following this prospectus summary. These risks include, among others, the following:
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We are a late-stage pharmaceutical company with a limited operating history and have incurred net losses since our inception. We anticipate that we will continue to incur substantial operating losses for the foreseeable future and we may never achieve or sustain profitability. |
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We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts. |
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Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates on unfavorable terms to us. |
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The development and commercialization of pharmaceutical products is subject to extensive regulation, and we may not obtain regulatory approvals for TRUDHESA, INP105, INP107 or any other product candidates. |
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Our future commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients, health care payors and others in the medical community necessary for commercial success. |
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Clinical failure may occur at any stage of clinical development, and we may never succeed in developing marketable product candidates or generating product revenue. |
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Delays in the commencement, enrollment or completion of clinical trials of our product candidates, or in the acceptance of foreign clinical trial data, could result in increased costs to us as well as a delay or failure in obtaining regulatory approval, or prevent us from commercializing our product candidates on a timely basis, or at all. |
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The outbreak of COVID-19, or similar public health crises, could have a material adverse impact on our business, financial condition and results of operations, including through disruption to our planned clinical trials, supply chains, business operations and commercialization efforts, or through delay in the FDAs approval of our NDA for TRUDHESA. |
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We rely entirely on third parties for the manufacturing of product candidates that we develop for nonclinical studies and clinical trials and expect to continue to do so for commercialization. If we encounter difficulties in negotiating manufacturing and supply agreements with third-party manufacturers and suppliers of our POD device and the active ingredients in TRUDHESA, INP105, and INP107, our ability to commercialize our product candidates, if approved, would be impaired. |
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If we are not able to obtain and enforce patent protection for our technologies or product candidates, development and commercialization of our technology and product candidates may be adversely affected. |
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We may encounter difficulties in managing our growth and expanding our operations successfully. |
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If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop and commercialize our product candidates. |
Corporate Information
We were incorporated under the laws of the State of Delaware in July 2008. Our principal executive offices are located at 201 Elliott Avenue West, Suite 260, Seattle, Washington 98119, and our telephone number is (206) 568-1466. Our website address is www.impelnp.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated by reference into, this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock.
The marks IMPEL, POD, TRUDHESA, IMPELPOD and the Impel NeuroPharma logo and our other registered or common law trade names, trademarks or service marks appearing in this prospectus are the property of Impel. All other service marks, trademarks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and tradenames referred to in this prospectus appear without the ® and symbols, 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.
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Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
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being permitted to present only two years of audited financial statements and only two years of related Managements Discussion and Analysis of Financial Condition and Results of Operations in this prospectus; |
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not being required to comply with the auditor attestation requirements on the effectiveness of our internal controls over financial reporting; |
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not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements (auditor discussion and analysis); |
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reduced disclosure obligations regarding executive compensation arrangements; and |
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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We may use these provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering or such earlier time when we no longer qualify as an emerging growth company. We will cease to be an emerging growth company upon the earliest of (i) the end of the fiscal year following the fifth anniversary of this offering; (ii) the last day of the fiscal year during which our annual gross revenues are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year.
We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, until those standards apply to private companies. We have elected to take advantage of the benefits of this extended transition period and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an emerging growth company or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act of 1933, as amended, upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.
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Smaller Reporting Company
Additionally, we are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company as long as either (i) the market value of our common stock held by non-affiliates is less than $250 million as of the prior June 30, or (ii) our annual revenues is less than $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates is less than $700 million as of the prior June 30.
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THE OFFERING
Common stock offered |
shares |
Option to purchase additional shares |
We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional shares from us. See the section of this prospectus titled Underwriting. |
Common stock to be outstanding immediately after this offering |
shares (or shares if the underwriters exercise their option to purchase additional shares in full). |
Use of proceeds |
We estimate that the net proceeds from this offering will be approximately $ million (or approximately $ million if the underwriters exercise their option to purchase additional shares in full), based upon the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. |
We intend to use the net proceeds that we receive in this offering as follows: approximately $ million to fund the regulatory approval process and initial commercial launch of TRUDHESA; approximately $ million to initiate a clinical proof-of-concept trial for INP105 in patients with ASD; and any remaining amounts to fund working capital and general corporate purposes. See the section titled Use of Proceeds. |
Risk factors |
You should read the section titled Risk Factors in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. |
Listing |
We intend to apply to list our shares of common stock on The Nasdaq Global Market under the symbol IMPL. |
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 December 31, 2020, which gives effect to (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of December 31, 2020 into an aggregate of 206,399,763 shares of common stock immediately prior to the completion of this offering, (ii) the automatic exchange of a warrant held by Avenue Venture Opportunities Fund, L.P., or Avenue, into 1,762,810 shares upon completion of this offering, (iii) the
10
issuance of shares of common stock pursuant to the net exercise of warrants to purchase 1,987,348 shares of redeemable convertible preferred stock outstanding as of December 31, 2020, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, (iv) the automatic conversion of convertible notes we issued in March 2021 into shares of common stock immediately prior to the completion of this offering and (v) the issuance of shares of common stock that we expect to issue, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, and excludes:
∎ |
39,983,012 shares of common stock issuable upon the exercise of options outstanding as of December 31, 2020, with a weighted-average exercise price of $0.32 per share; |
∎ |
shares of our common stock issuable upon the exercise of stock options granted after December 31, 2020, with a weighted-average exercise price of $ per share; and |
∎ |
shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of (i) 5,639,902 shares of common stock reserved for future issuance under our 2018 Equity Incentive Plan as of December 31, 2020, (ii) shares of common stock reserved for future issuance under our 2021 Equity Incentive Plan, which will become effective on the date immediately prior to the date of this prospectus and (iii) shares of common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective on the date of this prospectus. Upon completion of this offering, any remaining shares available for issuance under our 2018 Equity Incentive Plan will be added to the shares reserved under our 2021 Equity Incentive Plan and we will cease granting awards under our 2018 Equity Incentive Plan. Our 2021 Equity Incentive Plan and 2021 Employee Stock Purchase Plan also provide for automatic annual increases in the number of shares reserved under the plans each year, as more fully described in Executive CompensationEquity Compensation Plans and Other Benefit Plans. |
Except as otherwise indicated, all information in this prospectus assumes or gives effect to:
∎ |
the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into an aggregate of 206,399,763 shares of common stock immediately prior to the completion of this offering; |
∎ |
the automatic exchange of a warrant held by Avenue into 1,762,810 shares upon completion of this offering; |
∎ |
the net exercise immediately prior to the completion of this offering of outstanding warrants to purchase 1,987,348 shares of redeemable convertible preferred stock that would otherwise terminate upon completion of this offering, which will result in the issuance of shares of common stock, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus; |
∎ |
the automatic conversion of $7.5 million aggregate principal amount of convertible notes issued in March 2021 into shares of common stock immediately prior to the completion of this offering; |
∎ |
a -for- reverse stock split, which will become effective on ; |
∎ |
the effectiveness of our restated certificate of incorporation and restated bylaws in connection with the completion of this offering; |
∎ |
no exercise of outstanding options or warrants after December 31, 2020, other than as described in the second and third bullets above; and |
∎ |
no exercise of the underwriters option to purchase up to additional shares of our common stock. |
11
Summary Consolidated Financial Data
The following tables set forth our summary consolidated statements of operations and consolidated balance sheet data. The summary consolidated statements of operations data presented below for the years ended December 31, 2019 and 2020 and the summary consolidated balance sheet data as of December 31, 2020 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated financial data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in any future period. The summary consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.
Year ended December 31, | ||||||||
2019 | 2020 | |||||||
(in thousands, except share
and per share data) |
||||||||
Statement of Operations Data: |
||||||||
Operating expenses: |
||||||||
Research and development |
$ | 28,812 | $ | 27,285 | ||||
General and administrative |
12,754 | 18,049 | ||||||
|
|
|
|
|||||
Total operating expenses |
41,566 | 45,334 | ||||||
|
|
|
|
|||||
Loss from operations |
(41,566 | ) | (45,334 | ) | ||||
Interest income (expense), net |
417 | (55 | ) | |||||
Other expense, net |
(680 | ) | (408 | ) | ||||
|
|
|
|
|||||
Loss before income taxes |
(41,829 | ) | (45,797 | ) | ||||
Provision for income taxes |
(30 | ) | (1 | ) | ||||
|
|
|
|
|||||
Net loss and comprehensive loss |
$ | (41,859 | ) | $ | (45,798 | ) | ||
Accretion on redeemable convertible preferred stock |
(505 | ) | (518 | ) | ||||
|
|
|
|
|||||
Net loss attributable to common stockholders |
$ | (42,364 | ) | $ | (46,316 | ) | ||
|
|
|
|
|||||
Per share information: |
||||||||
Net loss per share attributable to common stockholders, basic and diluted(1) |
$ | (7.46 | ) | $ | (5.56 | ) | ||
|
|
|
|
|||||
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted(1) |
5,682,463 | 8,328,911 | ||||||
|
|
|
|
|||||
Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2) |
$ | |||||||
|
|
|||||||
Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2) |
||||||||
|
|
(1) |
See Note 13 to our audited financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share and basic and diluted weighted-average number of shares of common stock used in the computation of the per share amounts. |
(2) |
See the subsection titled Managements Discussion and Analysis of Financial Condition and Results of OperationsUnaudited Pro Forma Information for an explanation of the calculations of our basic and diluted pro forma net loss per share attributable to common stockholders, and the weighted-average number of shares outstanding used in the computation of the per share amounts. |
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As of December 31, 2020 | ||||||||||||
Actual | Pro Forma(1) |
Pro Forma
As Adjusted(2) |
||||||||||
(in thousands) | ||||||||||||
Balance Sheet Data: |
||||||||||||
Cash |
$ | 7,095 | $ | $ | ||||||||
Working capital (deficit)(3) |
(2,354 | ) | ||||||||||
Total assets |
12,059 | |||||||||||
Redeemable convertible preferred stock warrant liabilities |
2,622 | |||||||||||
Long-term debt, current and noncurrent |
8,411 | |||||||||||
Total redeemable convertible preferred stock |
127,039 | |||||||||||
Total stockholders (deficit) equity |
(133,500 | ) |
(1) |
Pro forma amounts give effect to (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of December 31, 2020 into an aggregate of 206,399,763 shares of our common stock immediately prior to the completion of this offering, (ii) the automatic exchange of a warrant held by Avenue into 1,762,810 shares upon completion of this offering, (iii) the issuance of shares of common stock pursuant to the net exercise of warrants to purchase 1,987,348 shares of redeemable convertible preferred stock outstanding as of December 31, 2020 that would otherwise expire upon completion of this offering, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, (iv) $7.5 million in proceeds from the convertible notes we issued in March 2021 and their conversion into shares of common stock immediately prior to the completion of this offering at 90% of the offering price and (v) the effectiveness of our restated certificate of incorporation in connection with the completion of this offering. |
(2) |
Pro forma as adjusted amounts reflect pro forma adjustments described in footnote (1) as well as the sale of shares of our common stock in this offering, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, working capital, total assets and total stockholders equity by $ million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1.0 million in the number of shares offered by us in this offering would increase (decrease) the pro forma as adjusted amount of each of cash, working capital, total assets and total stockholders equity by $ million, assuming the assumed initial offering price remains the same and after deducting estimated underwriting discounts and commissions. |
(3) |
We define working capital (deficit) as current assets less current liabilities. |
13
Investing in our common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, you should carefully consider the risks described below, together with the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus. We cannot assure you that any of the events discussed below will not occur. Any of these events could have a material and adverse impact on our business, financial condition, results of operations and prospects. If that were to happen, the trading price of our common stock could decline, and you could lose all or part of your investment.
Risks Related to Our Financial Position and Need for Additional Capital
We are a late-stage pharmaceutical company and have incurred net losses since our inception. We anticipate that we will continue to incur substantial operating losses for the foreseeable future and we may never achieve or sustain profitability.
We are a late-stage pharmaceutical company formed in 2008. Since inception, we have devoted substantially all of our financial resources to research and development, including our clinical and nonclinical development activities. To date, we have financed our operations primarily through the sale and issuance of redeemable convertible preferred stock, convertible notes and warrants.
We have incurred significant net losses since our inception. Our net losses were $41.9 million and $45.8 million for the years ended December 31, 2019 and 2020, respectively. As of December 31, 2020, we had an accumulated deficit of $138.3 million. We cannot predict when or whether we will become profitable. To date, we have not generated any product revenues, and we may never be able to develop or commercialize a marketable product. Our losses have resulted principally from costs incurred in our product candidate discovery and development activities. We expect to incur net losses for the foreseeable future.
Our financial position will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations, or additional grants. If we are required by the U.S. Food and Drug Administration, or FDA, or any equivalent foreign regulatory authority to perform clinical trials or studies in addition to those we currently expect to conduct, including if foreign clinical trial data are not accepted by the FDA, or if there are any delays in completing the clinical trials of our product candidates, our expenses could increase substantially. Although we have submitted an NDA for TRUDHESA, we may not receive approval for commercialization and even if approved, the resulting revenue may not enable us to achieve profitability. Even if we obtain regulatory approval to market a product candidate, our future revenues will depend upon the size of any markets in which our product candidates have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for our product candidates in those markets.
We expect our expenses and net losses to increase significantly as we prepare to potentially commercialize TRUDHESA, continue our development of, and seek regulatory approvals for, our other product candidates, and begin to commercialize other approved products, if any, as well as hire additional personnel, protect our intellectual property and incur additional costs associated with operating as a public company. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical studies and trials, associated manufacturing needs, commercialization activities if our product candidates are approved and our expenditures on other research and development activities.
14
To become and remain profitable, we must successfully develop product candidates, obtain regulatory approval for them, and manufacture, market and sell those product candidates for which we may obtain regulatory approval. We may not succeed in these activities and we may never generate revenue from product sales that are significant enough to achieve profitability. 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 for any reason, including as a result of the COVID-19 pandemic. 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 and expected future losses have had and will continue to have an adverse effect on our stockholders equity and working capital. Our failure to become or remain profitable would depress our market value and could impair our ability to raise capital, expand our business, discover or develop other product candidates or continue our operations. A decline in the value of our business could cause you to lose all or part of your investment.
We will require substantial additional financing to achieve our goals and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.
As of December 31, 2020, we had $7.1 million of cash. We believe that we will continue to expend substantial resources for the foreseeable future as we continue clinical trials, pursue product commercialization, in particular as we prepare for potential commercialization of TRUDHESA and develop additional product candidates. In addition, other unanticipated costs may arise. Because the outcome of our planned and anticipated clinical trials are highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates. Our costs will increase if we suffer any delays in our planned clinical trials for our current product candidates. Following this offering, we expect to incur additional costs associated with operating as a public company, hiring additional personnel and potentially expanding our facilities.
We believe that the net proceeds from this offering, together with our existing cash, will fund our projected operating requirements through at least the next 12 months. Our forecast of the period of time through which our financial reserves will adequately support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this Risk Factors section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
∎ |
the timing of, and the costs involved in, obtaining regulatory approvals for TRUDHESA and our other product candidates if clinical trials are successful; |
∎ |
the cost of commercialization activities for TRUDHESA, if approved, or any other approved product, including marketing, sales and distribution costs; |
∎ |
the scope, progress, results and costs of developing and advancing our product candidates through clinical trials and researching and discovering new product candidates; |
∎ |
our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements; |
∎ |
the cost of manufacturing our product candidates for clinical trials in preparation for regulatory approval and in preparation for commercialization; |
∎ |
our ability to generate revenue from approved product candidates, if any; and |
∎ |
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation. |
15
We will need to raise additional funds to address our goals. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. Until we can generate sufficient revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, and other marketing or distribution arrangements. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate nonclinical studies, clinical trials or other development activities for one or more of our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates if approved.
We have disclosed that there is substantial doubt about our ability to continue as a going concern.
As a result of our net losses from operations, accumulated deficit and need for substantial additional capital, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of, and for the year ended, December 31, 2020 that raises substantial doubt about our ability to continue as a going concern. The conditions giving rise to this uncertainty and our plan with respect to this uncertainty are disclosed in Note 1 to our consolidated financial statements appearing at the end of this prospectus. If we are unable to obtain sufficient funding, we could be forced to delay, reduce or eliminate all of our research and development programs, future research and development efforts and ongoing preclinical studies and clinical trials, and our financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. After the completion of this offering, future financial statements may continue to disclose substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates on unfavorable terms to our business.
We may seek additional capital through a variety of means, including through private and public equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of such equity or convertible debt securities may include liquidation or other preferences that are senior to or otherwise adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures, declaring dividends or encumbering our assets to secure future indebtedness. For example, our debt and equity financing agreement with Avenue is secured by a lien on substantially all of our assets, including our intellectual property and following this offering will be secured by a lien on substantially all of our assets, excluding our intellectual property. If we raise additional funds through strategic partnerships with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for our product candidates, or grant rights to third parties to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
16
Our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
∎ |
variations in the level of expense related to the ongoing development of our product candidates or future development programs; |
∎ |
results of nonclinical and clinical trials, or the addition or termination of clinical trials or funding support by us, or existing or future collaborators or licensing partners; |
∎ |
our execution of any additional collaboration, licensing or similar arrangements, and the timing of payments we may make or receive under existing or future arrangements or the termination or modification of any such existing or future arrangements; |
∎ |
any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved; |
∎ |
additions and departures of key personnel; |
∎ |
strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; |
∎ |
if any of our product candidates receive regulatory approval, the terms of such approval and market acceptance and demand for such product candidates; |
∎ |
if any of our product candidates receive regulatory approval, variation in the level of expense related to the commercialization of such product candidates and quarterly fluctuations in any future product sales; |
∎ |
regulatory developments affecting our product candidates or those of our competitors; and |
∎ |
changes in general market and economic conditions. |
If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially. We believe that quarterly comparisons of our financial results should not be relied upon as an indication of our future performance.
Risks Related to Regulatory Review and Approval of Our Product Candidates
The development and commercialization of pharmaceutical products is subject to extensive regulation, and we may not obtain regulatory approvals for TRUDHESA, INP105, INP107 or any other product candidates.
The clinical development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion, export, import, marketing, distribution, adverse event reporting, including the submission of safety and other post-marketing information and reports, and other possible activities relating to TRUDHESA and INP105, which are our furthest advanced product candidates under clinical development, as well as INP107 and any other product candidate that we may develop in the future, are subject to extensive regulation. Marketing approval of drugs in the United States requires the submission of an NDA to the FDA, and we are not permitted to market any product candidate in the United States until we obtain approval from the FDA of the NDA for that product. An NDA must be supported by extensive clinical and preclinical data, as well as extensive information regarding pharmacology, CMC, and current good manufacturing practices, or cGMP, at the manufacturing facilities. Further, our product candidates must be approved by comparable regulatory authorities in other jurisdictions where we intend to market our product candidates prior to commercialization.
17
FDA approval of an NDA is not guaranteed, and review and approval is an expensive and uncertain process that may take several years. Of the large number of drugs in development in the United States, only a small percentage will successfully complete the FDA regulatory approval process and will be commercialized. Accordingly, there can be no assurance that any of our product candidates will receive regulatory approval in the United States, or other jurisdictions. The FDA also has substantial discretion in the approval process. The number and types of preclinical studies and clinical trials that will be required for NDA approval varies depending on the product candidate, the disease or the condition that the product candidate is designed to treat and the regulations applicable to any particular product candidate. We have submitted an NDA for TRUDHESA through the Section 505(b)(2) regulatory pathway and intend to seek FDA approval for our other product candidates through the Section 505(b)(2) regulatory pathway. If the FDA does not agree that the 505(b)(2) regulatory pathway is appropriate or scientifically justified for one or more of our product candidates, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. Additionally, if CMC information in the NDA is found to be deficient, if the FDA disagrees with our interpretation or analysis of clinical data, or identifies any deficiency in our clinical data, we may fail to obtain approval of TRUDHESA or approval may be delayed. CMC issues that could be found to be deficient to the FDA include our investigation of increased levels of impurities in some vials of certain drug lots used in the STOP301 trial, or the use of certain drug lots for our primary stability data because the FDA concludes that the manufacturing process has not been in a state of control at the time of their manufacture.
Clinical trial failure may result from a multitude of factors including flaws in trial design, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety or efficacy traits, and failure in clinical trials can occur at any stage. Companies in the pharmaceutical industry frequently suffer setbacks in the advancement of clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Based upon negative or inconclusive results, we may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from clinical trials are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may further delay, limit or prevent marketing approval.
The FDA could delay, limit or deny approval of a product candidate for many reasons, including because the FDA:
∎ |
may not deem our product candidate to be safe and effective; |
∎ |
determines that the product candidate does not have an acceptable benefit-risk profile; |
∎ |
determines in the case of an NDA seeking accelerated approval that the NDA does not provide evidence that the product candidate represents a meaningful advantage over available therapies; |
∎ |
determines that the objective response rate, or ORR, and duration of response are not clinically meaningful; |
∎ |
may not agree that the data collected from preclinical studies and clinical trials are acceptable or sufficient to support the submission of an NDA or other submission or to obtain regulatory approval, and may impose requirements for additional preclinical studies or clinical trials; |
∎ |
may determine that adverse events experienced by participants in our clinical trials represent an unacceptable level of risk; |
∎ |
may determine that population studied in the clinical trial may not be sufficiently broad or representative to assure safety in the full population for which we seek approval; |
∎ |
may disagree regarding the formulation, labeling and/or the specifications; |
∎ |
may not approve the manufacturing processes associated with our product candidate or may determine that a manufacturing facility does not have an acceptable compliance status; |
18
∎ |
may conclude there are CMC issues that preclude approval of the NDA; |
∎ |
may conclude that the drug substance or drug product manufacturing process is not in a state of control or does not meet cGMPs or all the regulatory requirements; |
∎ |
may not be able to timely conduct the necessary pre-approval inspection or devote sufficient resources to NDA review on a timely basis due to the COVID-19 pandemic; |
∎ |
may change approval policies or adopt new regulations; or |
∎ |
may not file a submission due to, among other reasons, the content or formatting of the submission. |
We have not obtained FDA approval for any of our product candidates. This lack of experience may impede our ability to obtain FDA approval in a timely manner, if at all, for our clinical product candidates.
If we experience delays in obtaining approval or if we fail to obtain approval of TRUDHESA, INP105 or INP107, our commercial prospects will be harmed and our ability to generate revenues will be materially impaired which would adversely affect our business, prospects, financial condition and results of operations.
Clinical failure may occur at any stage of clinical development, and we may never succeed in developing marketable product candidates or generating product revenue.
Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. Although our NDA for TRUDHESA for the acute treatment of migraine headaches with or without aura in adult patients has been accepted for filing, the FDA may reject this NDA or require additional clinical testing prior to approval.
Although the active ingredients in our product candidates, TRUDHESA, INP105, and INP107, are approved or commonly used as treatments for migraine, agitation associated with ASD, and Parkinsons, respectively, they have not previously been approved or demonstrated to be safe for chronic use over an extended period of time using an upper nasal cavity drug delivery. Our NDA submission for TRUDHESA proposes to bridge TRUDHESA to two Listed Drugs, or LDs, for which we have conducted a comparative bioavailability study, and conducted a long-term safety study to evaluate local toxicity on the nasal and olfactory epithelia. Our prior clinical results for our product candidates are not necessarily indicative of our ability to bridge to LD, as there can be significant variability in results between different clinical trials due to numerous factors, including changes in trial procedures, differences in the size and type of patient populations, including across geographies, changes in and adherence to the clinical trial protocols, and the rate of dropout among clinical trial participants. If we are not able to establish a bridge between a product candidate and each LD upon which they rely to demonstrate that such reliance is justified, we may be required to show safety and efficacy through one or more clinical trials. In addition, the long-term safety studies we are conducting or plan to conduct may reveal safety concerns, including with regard to nasal mucosa or olfactory function. If either or both of these outcomes occur, we may be prevented or delayed in obtaining marketing approval.
We may be required to perform additional or unanticipated clinical trials to obtain approval or be subject to additional post-marketing testing requirements to maintain regulatory approval. In addition, regulatory authorities may withdraw their approval of a product or impose restrictions on our distribution, such as in the form of a Risk Evaluation and Mitigation Strategy, or REMS. The failure to obtain timely regulatory approval of product candidates, any product marketing limitations or a product
19
withdrawal would materially and adversely affect our business, results of operations and financial condition.
Delays in the commencement, enrollment or completion of clinical trials of our product candidates could result in increased costs to us as well as a delay or failure in obtaining regulatory approval, or prevent us from commercializing our product candidates on a timely basis, or at all.
We plan to initiate a Phase 2 trial of a double-blind placebo-controlled single dose of INP105 study in adolescents with ASD by the end of 2021. Any of our future clinical trials may not be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage. Events that may prevent successful or timely commencement, enrollment or completion of clinical development include:
∎ |
delays by us in reaching a consensus with regulatory agencies on trial design; |
∎ |
delays in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites; |
∎ |
delays in obtaining required Institutional Review Board, or IRB, approval at each clinical trial site; |
∎ |
delays in recruiting suitable patients to participate in clinical trials; |
∎ |
the effects of COVID-19 on our ability to recruit and retain patients, including as a result of potential heightened exposure to COVID-19, prioritization of hospital resources toward the outbreak and unwillingness by patients to enroll or comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services; |
∎ |
imposition of a clinical hold by regulatory agencies for any reason, including safety concerns or after an inspection of clinical operations or trial sites; |
∎ |
failure by CROs, other third parties or us to adhere to clinical trial requirements; |
∎ |
failure to perform clinical trials in accordance with the FDAs good clinical practices, or GCP, or applicable regulatory guidelines in other countries; |
∎ |
delays in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites; |
∎ |
delays caused by patients not completing participation in a trial or not returning for post-treatment follow-up, which we have experienced and believe may be caused by patients experiencing reduced symptoms or incidences of disease; |
∎ |
clinical trial sites or patients dropping out of a trial; |
∎ |
delays or interruptions to supply or failure to ensure compliance with cGMP or quality standards of our product candidates or the other product candidates in a combination product trial or other materials necessary to conduct clinical trials of our product candidates; |
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occurrence of adverse events in clinical trials that are associated with the product candidates that are viewed to outweigh their potential benefits; or |
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changes in regulatory requirements and guidance that require amending or submitting new clinical protocols. |
Delays, including delays caused by any of the above factors, can be costly and could negatively affect our ability to complete a clinical trial. If we are not able to successfully complete clinical trials, we will not be able to obtain regulatory approval and will not be able to commercialize our product candidates.
If we are not able to use the 505(b)(2) regulatory approval pathway for regulatory approval of TRUDHESA or any of our other product candidates or if the FDA requires additional clinical or
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nonclinical data to support an NDA under Section 505(b)(2) than we have previously anticipated, it will likely take significantly longer, cost significantly more and be significantly more complicated to gain FDA approval for our product candidates, and in any case may not be successful.
We have submitted an NDA for TRUDHESA through the Section 505(b)(2) regulatory pathway and intend to seek FDA approval for our other product candidates through the Section 505(b)(2) regulatory pathway. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act, or the FDCA. In general, Section 505(b)(2) allows a 505(b)(2) applicant to rely on the FDAs finding of safety or effectiveness for an LD only to the extent that the proposed product in the 505(b)(2) application shares common characteristics with the LD. The 505(b)(2) application must include sufficient data to support differences between the LD and the proposed drug in the 505(b)(2) application. If the FDA does not agree that the 505(b)(2) regulatory pathway is appropriate or scientifically justified for one or more of our product candidates, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. For example, the FDA may not agree that we have provided a scientific bridge, through, for example, comparative bioavailability data, to demonstrate that reliance on the prior findings of safety or efficacy for an LD is justified. If we are unable to pursue a Section 505(b)(2) pathway, the time and financial resources required to obtain FDA approval for our product candidates would likely increase substantially. Moreover, the inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market faster than our product candidates, which could materially adversely impact our competitive position and prospects.
Even if we are successful in pursuing the Section 505(b)(2) regulatory pathway for TRUDHESA or are able to pursue the Section 505(b)(2) regulatory pathway for any other product candidate, we cannot assure you that nonclinical studies or clinical trials that we have conducted or that we currently anticipate conducting will be sufficient for approval or that we will receive the requisite or timely approvals for commercialization of such product candidate. Although the Section 505(b)(2) pathway allows us to rely in part on the FDAs prior findings of safety or efficacy for approved LDs or on published literature, the FDA may determine that prior findings by the FDA or the published literature that we believe supports the safety or efficacy of one or more of our product candidates is insufficient or not applicable to our application or that additional studies will need to be conducted. To the extent that we are relying on the Section 505(b)(2) regulatory pathway based on the approval of an LD for a similar indication, the FDA may require that we include in the labeling of our product candidates, if approved, some or all of the safety information that is included in the labeling of the approved LD. Moreover, even if our product candidates are approved through the Section 505(b)(2) regulatory pathway, the approval may be subject to limitations on the indicated uses for which the products may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products.
The outbreak of COVID-19, or similar public health crises, could have a material adverse impact on our business, financial condition and results of operations, including through disruption to our planned clinical trials, supply chains, business operations and commercialization efforts, or through delay in the FDAs approval of our NDA.
In December 2019, a novel strain of the coronavirus SARS-CoV-2, was identified in Wuhan, China. This virus spread globally, including within the United States and in March 2020 the World Health Organization declared the disease caused by SARS-CoV-2, COVID-19, a pandemic. The pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended, and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such
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as travel, has fallen. The extent to which COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain the virus or treat its impact.
Site initiation, participant recruitment and enrollment, participant dosing, distribution of clinical trial materials, study monitoring and data analysis for our planned clinical trials may be delayed due to changes in hospital or university policies, federal, state or local regulations, prioritization of hospital resources toward pandemic efforts, or other reasons related to the pandemic. Additionally, some participants and clinical investigators may not be able to comply with clinical trial protocols. For example, quarantines or other travel limitations (whether voluntary or required) may impede participant movement, affect sponsor access to study sites, or interrupt healthcare services, and we may be unable to conduct our planned clinical trials. If the global effort to control the spread of COVID-19 and treat COVID-19 patients continues on the current trajectory for an extended period of time, we risk a delay in activating sites and enrolling subjects as previously projected. Any such delays to our planned clinical trials for our current product candidates could impact the use and sufficiency of our existing cash reserves, and we may be required to raise additional capital earlier than we had previously planned. We may be unable to raise additional capital if and when needed, which may result in further delays or suspension of our development plans.
Further, as a result of the COVID-19 public health emergency, we may be required to develop and implement additional clinical trial policies and procedures based on new guidance and regulatory requirements promulgated by the FDA or other regulatory authorities. For example, the FDA issued guidance in March 2020, which the FDA subsequently updated, on conducting clinical trials during the pandemic, which describe a number of considerations for sponsors of clinical trials impacted by the pandemic. In June 2020, the FDA also issued a guidance on good manufacturing practice considerations for responding to COVID-19 infection in employees in drug products manufacturing, including recommendations for manufacturing controls to prevent contamination of drugs. Additional COVID-19 related guidance released by the FDA includes guidance addressing resuming normal drug and biologics manufacturing operations; manufacturing, supply chain, and inspections; and statistical considerations for clinical trials during the COVID-19 public health emergency.
Further, infections and deaths related to COVID-19 are disrupting certain healthcare and healthcare regulatory systems globally. Such disruptions could divert healthcare resources away from, or materially delay review by, the FDA and comparable foreign regulatory agencies. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions could materially adversely affect the development and study of our product candidates.
The COVID-19 pandemic could have an adverse impact on our commercial launch plans for TRUDHESA, if approved, due to the continuation of government-imposed quarantines, stay at home orders, travel restrictions, mandated business closures and other public health safety measures which may result in limiting our ability to hire a sales force prior to launch, conduct necessary trainings of such sales force and attending and presenting at various conferences or other programs. If TRUDHESA is approved, continuation of these government-imposed orders may also result in patients not visiting their healthcare providers or their pharmacies to get their prescriptions filled, in-person interactions by sales and medical representatives in healthcare settings may be suspended, and any remote interactions may be less effective than in-person interactions. In addition, due to the prioritization of healthcare resources toward pandemic efforts, even remote interactions may not be possible. These factors could have an adverse impact on our business and our ability to effectively launch TRUDHESA, if approved.
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We currently utilize third parties to, among other things, manufacture raw materials and our product candidates, components, parts, and consumables, and to perform quality control and testing. If either we or any third-party in the supply chain for materials used in the production of our product candidates are adversely impacted by restrictions resulting from the COVID-19 pandemic, our supply chain may be disrupted, limiting our ability to manufacture product candidates for our clinical trials.
The spread of COVID-19, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material adverse effect on our business. While the potential economic impact brought by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruption of global financial markets and the trading prices of pharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic, which may reduce our ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the global effort to control COVID-19 infections could materially and adversely affect our business.
The ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our planned clinical trials, healthcare systems or the global economy as a whole. However, these effects could have a material adverse impact on our business, financial condition and results of operations.
All of our product candidates utilize similar drug delivery devices. If a drug delivery device in one of our clinical trials demonstrates unanticipated biocompatibility, usability, performance or safety issues in a clinical or nonclinical study for one product candidate, our entire pipeline of product candidates may be adversely affected.
All of our product candidates utilize similar POD devices, which are designed to deliver the drug into the upper nasal cavity using a gas propellant. While our product candidates have been generally well tolerated in nonclinical studies and early clinical trials, patients may in the future experience different or more severe adverse events due in part to our POD device. Any failure of our POD device to demonstrate adequate biocompatibility, usability, performance or safety could adversely affect the development, approval, or commercialization of our other product candidates utilizing the same or similar POD device, including a suspension or delay of all ongoing development in our other product candidates, or our marketed product candidates, if any.
If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and, as a result, our stock price may decline.
From time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of nonclinical studies and clinical trials and the submission of regulatory filings. All of these milestones are, and will be, based on a variety of assumptions. The actual timing of these milestones can vary significantly compared to our estimates, in some cases for reasons beyond our control. We may experience numerous unforeseen events during, or as a result of, any future clinical trials that we conduct that could delay or prevent our ability to reach subsequent milestones, receive marketing approval or commercialize our product candidates, including:
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the FDA and other governmental health authorities, IRBs, or ethics committees may not authorize or may delay authorizing us or our investigators to commence or continue a clinical trial or conduct a clinical trial at all or at a prospective trial site, such as by requiring us to |
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conduct additional nonclinical studies and to programs for our product candidates submit additional data or imposing other requirements before permitting us to initiate or continue a clinical trial; |
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we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
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clinical trials of our product candidates may produce negative or inconclusive results and we may decide, or regulators may require us, to conduct nonclinical studies in addition to those we currently have planned or additional clinical trials or we may decide to abandon drug development programs for our product candidates; |
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the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; |
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our contractors, such as our CROs, clinical trial sites or investigators, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators; |
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we may elect to, or regulators, IRBs or ethics committees may require that, we or our investigators, suspend or terminate clinical trials for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to health risks; |
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the cost of planned clinical trials of our product candidates may be greater than we anticipate; |
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the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; |
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our third-party suppliers, such as our contract manufacturers of the POD device and our active ingredients, may not provide us with the information we need for our marketing submissions or may not manufacture product for us that is in compliance with regulatory requirements; and |
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our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs or ethics committees to suspend or terminate the trials, or reports may arise from nonclinical or clinical testing of studies conducted by competitors that raise safety or efficacy concerns broadly about our POD technology, upper nasal cavity delivery or about our product candidates specifically. |
Clinical development, regulatory review and approval by the FDA and comparable foreign authorities are lengthy, time consuming, costly, and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
Our product candidates are subject to extensive governmental regulation relating to, among other things, development, clinical trials, manufacturing and commercialization. In order to obtain regulatory approval for the commercial sale of any of our product candidates, we must demonstrate through extensive nonclinical studies and clinical trials that the candidate is safe and effective for use in each target indication.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the acceptance of clinical data developed in foreign geographies. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidates clinical development and may vary
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among jurisdictions, which may cause delays in the approval or the decision not to approve a product candidate. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. In addition, we may gain regulatory approval in some but not all of the territories available or some but not all of the target indications, resulting in limited commercial opportunity for the approved product.
Applications for our product candidates could be delayed or could fail to receive regulatory approval for many reasons, including but not limited to the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials; |
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the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval; |
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical studies clinical trials or may refuse to accept data from nonclinical studies or clinical trials conducted in other geographies or jurisdictions; |
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data collected from clinical trials may not be sufficient to support the submission of an NDA, or other submission, or to obtain regulatory approval in the United States or elsewhere; |
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the FDA may determine that we cannot rely on the Section 505(b)(2) approval pathway for any of our product candidates, in which case we may be required to conduct additional clinical trials, provide additional data and information and meet additional standards for product approval, resulting in increased time and financial resources required to obtain FDA approval for our product candidates; |
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the FDA may determine that we have identified the wrong LD or LDs or that approval of a Section 505(b)(2) application for any of our product candidates is blocked by patent or non-patent exclusivity of the LD or LDs; |
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the FDA may require us to conduct additional clinical trials depending on the safety or exploratory efficacy data from our existing and planned future clinical trials; |
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we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidates risk-benefit ratio for our proposed indication is acceptable; |
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications of third-party manufacturers with which we contract for clinical and commercial supplies; |
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we or any third-party manufacturers may be unable to demonstrate compliance with cGMP to the satisfaction of the FDA or comparable foreign regulatory authorities, which could result in delays in regulatory approval or require us to withdraw or recall product candidates and interrupt commercial supply of our product candidates; and |
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. |
This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations, and prospects.
Inadequate funding for the FDA, the SEC and other government agencies or other disruptions at these agencies could hinder these agencies ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business
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functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times, and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical employees and stop critical activities. Separately, in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention to temporarily postpone most inspections of foreign manufacturing facilities and products. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and provided guidance regarding the conduct of clinical trials, which has since been further updated. As of June 23, 2020, the FDA noted it was continuing to ensure timely reviews of applications for medical products during the COVID-19 pandemic in line with its user fee performance goals and conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. As of July 2020, utilizing a rating system to assist in determining when and where it is safest to conduct such inspections based on data about the virus trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments, the FDA is either continuing to, on a case-by-case basis, conduct only mission critical inspections, or, where possible to do so safely, resuming prioritized domestic inspections, which generally include pre-approval inspections. Foreign pre-approval inspections that are not deemed mission-critical remain postponed, while those deemed mission-critical will be considered for inspection on a case-by-case basis. The FDA will use similar data to inform resumption of prioritized operations abroad as it becomes feasible and advisable to do so. The FDA may not be able to maintain this pace, and delays or setbacks are possible in the future. Should the FDA determine that an inspection is necessary for approval because available information raises concerns about the adequacy of the facility or site and an inspection cannot be completed during the review cycle due to restrictions on travel, the FDA has stated that it generally intends to issue a complete response letter. Further, if there is inadequate information to make a determination on the acceptability of a facility, the FDA may defer action on the application until an inspection can be completed. Additionally, regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Additionally, as of June 23, 2020, the FDA noted it is continuing to ensure timely reviews of applications for medical products during the COVID-19 pandemic in line with its user fee performance goals; however, the FDA may not be able to continue its current pace and review timelines could be extended.
Further, in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Results of earlier studies or clinical trials may not be predictive of future clinical trial results, and initial studies or clinical trials may not establish an adequate safety or efficacy profile for
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our product candidates to justify proceeding to advanced clinical trials or an application for regulatory approval.
The results of nonclinical and preclinical studies and early clinical trials may not be predictive of the results of later-stage clinical trials, and interim results of a clinical trial do not necessarily predict final results. The results of preclinical studies and clinical trials in one set of patients or disease indications may not be predictive of those obtained in another. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size, demographics and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval. For example, our STOP301 trial for TRUDHESA primarily evaluated the safety and tolerability of TRUDHESA against the patients best previous migraine treatment. While exploratory efficacy endpoints were analyzed as part of the trial and were notable, the exploratory nature of the trial limits the interpretability of these results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through nonclinical studies and initial clinical trials. Even if early-stage clinical trials are successful, we may need to conduct additional clinical trials of our product candidates in additional patient populations or under different treatment conditions before we are able to seek approvals from the FDA and regulatory authorities outside the United States to market and sell these product candidates. Our failure to obtain marketing approval for our product candidates would substantially harm our business, prospects, financial condition and results of operations.
Additionally, several of our past and planned clinical trials utilize an open-label trial design, including our STOP301 trial for TRUDHESA. An open-label clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a patient bias where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. In addition, open-label clinical trials may be subject to an investigator bias where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. The results from an open-label trial may not be predictive of future clinical trial results with any of our product candidates in clinical trials when studied in a controlled environment with a double-blind placebo or active control.
Our product candidates may cause undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities and potential product liability claims. Adverse events deemed to be caused by our product candidates could have a material adverse effect on the development of our product candidates and our business as a whole. For example, the most common adverse events in our STOP301 trial evaluating TRUDHESA were nasal congestion, nausea, nasal discomfort and unpleasant taste. Moreover, we could in the future observe local toxicity in the nasal or olfactory epithelia.
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If we or others identify undesirable side effects caused by our product candidates either before or after receipt of marketing approval, a number of potentially significant negative consequences could result, including:
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we may be unable to obtain regulatory approval for our product candidates; |
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our clinical trials may be put on hold; |
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regulatory authorities may withdraw approvals of our product candidates or require additional nonclinical studies or clinical trials; |
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regulatory authorities may require additional warnings in the labeling; |
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regulatory authorities may require us to implement a REMS; |
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a medication guide outlining the risks of such side effects for distribution to patients may be required; |
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we could be sued and held liable for harm caused to patients; and |
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our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and could substantially increase commercialization costs.
Some of our clinical trials for our product candidates have been, and we may in the future conduct clinical trials for our product candidates, outside the United States, and the FDA or comparable foreign regulatory authorities may not accept data from such trials.
Some of our clinical trials for our product candidates have been conducted, and we may in the future choose to conduct one or more clinical trials, outside the United States. The acceptance of trial data from clinical trials conducted outside the United States or another jurisdiction by the FDA or comparable foreign regulatory authorities may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to Good Clinical Practice, or GCP, regulations. Additionally, the FDAs clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA, EMA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA, EMA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in product candidates that we may develop not receiving approval for commercialization in the applicable jurisdiction.
This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations, and prospects.
If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our product candidates in those jurisdictions.
We intend to market our product candidates, if approved, in international markets either directly or through partnerships. Such marketing will require separate regulatory approvals in each jurisdiction and compliance with numerous and varying regulatory requirements. The approval procedures vary from jurisdiction to jurisdiction and may require additional testing that we are not required to perform to
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obtain regulatory approval in the United States. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. In addition, in many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign jurisdictions or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our product candidates in any foreign market. If we or any future partner are unable to obtain regulatory approval for our product candidates in one or more significant foreign jurisdictions, then the commercial opportunity for our product candidates, as well as our financial condition, will be adversely affected.
Even if we receive regulatory approval for our product candidates, they will be subject to ongoing regulatory requirements, which may result in significant additional expenses. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.
Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed, or to conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor safety and efficacy. In addition, the manufacturing processes, labeling, packaging, distribution, adverse event, or AE, reporting, storage, advertising, promotion and recordkeeping for any approved product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, including reporting of certain adverse events, malfunctions, corrections and removals related to the POD device, registration, as well as continued compliance with cGMP for the drug products, the quality system regulation, or QSR, for medical devices and GCP for any clinical trials that we conduct post-approval.
Later discovery of previously unknown problems with an approved product, including AEs of unanticipated severity or frequency, or with manufacturing operations or processes, or failure to comply with regulatory requirements, may result in, among other things:
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holds on clinical trials; |
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls; |
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imposition of a REMS, which may include distribution or use restrictions; |
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requirements to conduct additional post-market clinical trials to assess the safety of the product; |
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revisions to the labeling, including limitation on approved uses or the addition of additional warnings, contraindications or other safety information, including boxed warnings; |
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manufacturing delays and supply disruptions where regulatory inspections identify observations of noncompliance requiring remediation; |
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fines, warning or untitled letters; |
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refusal by the FDA to approve pending applications or supplements to approved applications submitted by us, or withdrawal of product approvals; |
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product seizure or detention, or refusal to permit the import or export of product candidates; and |
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injunctions or the imposition of civil or criminal penalties. |
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The FDAs policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. 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 abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or not able to maintain regulatory compliance, we may lose any marketing approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.
We may be subject to enforcement action by the FDA or other government agencies or competitor lawsuits or other claims, including litigation brought by the government, if we engage or are found to have engaged in improper promotion of our products.
Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including laws and regulations prohibiting marketing claims that promote the off-label use of our products or that omit material facts or make false or misleading statements about the safety or efficacy of our products. We are responsible for training our marketing and sales force against promoting our product candidates for off-label use, but healthcare providers may use our products off-label, as the FDA does not restrict or regulate a physicians choice of treatment within the practice of medicine. The FDA also could conclude that a claim is misleading if it determines that there are inadequate nonclinical and/or clinical data supporting the claim, or if a claim fails to reveal material facts about the safety or efficacy of our products. If the FDA determines that our promotional labeling or advertising materials promote an off-label use or make false or misleading claims, it could request that we modify our promotional materials or training content or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fines and criminal penalties.
The FDA closely regulates the pre- and post-approval marketing and promotion of drugs to ensure they are promoted and marketed in compliance with the FDCA and its implementing regulations and only for the approved indications and in a manner consistent with the approved labeling. For example, our labeling for TRUDHESA, pending FDA approval, cannot include any of the data from the exploratory efficacy endpoints that we evaluated in our Phase 3 safety clinical trial or make any broad efficacy claims based on the results of this study. Post approval, if the FDA disagrees with our claims or approach to describing the efficacy results from any data deemed as unreliable or uninterpretable, including our exploratory efficacy analyses, in our promotional materials, it may take enforcement action against us. In addition, without conducting head-to-head clinical trials designed to investigate the clinical superiority of our product candidates to marketed products, we would not be able to make any such claims in our promotional materials. The FDA imposes stringent restrictions on manufacturers communications regarding use of their products. If we promote our product candidates in a manner inconsistent with the FDA-approved labeling or otherwise not in compliance with the FDCA or implementing regulations, we may be subject to enforcement action. Violations of the FDCA relating to improper promotion of prescription drugs may lead to warning letters, investigations, violations under federal and state healthcare fraud and abuse laws, including the False Claims Act, as well as state consumer protection laws.
It is also possible that other federal, state or foreign enforcement authorities might take action if they determine that our promotional or training materials promote an unapproved use or make false or misleading claims, which could result in significant fines or penalties. Although our policy is to refrain from statements that could be considered off-label promotion of our products or false or misleading claims, the FDA or another regulatory agency could disagree with the manner in which we advertise and promote our products. Violations of the FDCA may also lead to investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws, which may lead to costly penalties and may adversely impact our business. Recent court decisions have impacted the FDAs enforcement activity regarding off-label promotion in light of First Amendment
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considerations; however, there are still significant risks in this area, in part due to the potential for False Claims Act exposure.
Many companies have also faced government investigations or lawsuits by whistleblowers who bring a qui tam action under the False Claims Act on behalf of themselves and the government for a variety of alleged improper marketing activities. In addition, the government and private whistleblowers have pursued False Claims Act cases against pharmaceutical companies for causing false claims to be submitted as a result of the marketing of their products for unapproved uses. If we are found to have improperly promoted our products, we may be subject to significant liability, including civil fines, criminal fines and penalties, civil damages, exclusion from federally funded healthcare programs and potential liability under the federal False Claims Act and any applicable state false claims act. In addition, we may incur liability from claims initiated under the Lanham Act or other federal and state unfair competition laws with respect to how our products are marketed and promoted. Furthermore, the off-label use of our products may increase the risk of product liability claims. The scope of potential liability with respect to any such claims, enforcement actions, or lawsuits is uncertain, and we cannot assure you that we will not receive claims from competitors or other third parties or be subject to enforcement actions in the future from regulatory agencies. Moreover, threatened or actual government enforcement actions or lawsuits by third parties could generate adverse publicity, which could decrease demand for our products and require that we devote substantial resources that could be used productively on other aspects of our business.
Our relationships with health care professionals, institutional providers, principal investigators, consultants, potential customers and third-party payors are, and will continue to be, subject, directly and indirectly, to federal and state health care fraud and abuse, false claims, marketing expenditure tracking and disclosure, government price reporting, and privacy and data security laws. If we are unable to comply, or have not fully complied, with such laws, we could face penalties, including, without limitation, civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal and state health care programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations.
Our business operations and activities may be directly or indirectly subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. If we obtain FDA approval for any of our product candidates and begin commercializing those product candidates in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. Our current and future arrangements with healthcare professionals, clinical investigators, CROs, third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to laws of the federal government and state governments in which we conduct our business relating to privacy and data security with respect to patient information. The laws that may affect our ability to operate include, but are not limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal health care program, such as the Medicare and Medicaid programs; |
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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be |
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presented, claims for payment or approval from a federal health care program, such as Medicare, Medicaid, or other third-party payors that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government; |
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing, or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, health care benefits, items or services relating to health care matters; |
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose requirements on certain covered health care providers, health plans, and health care clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization; |
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the federal physician self-referral law, commonly known as the Stark Law, which prohibits a physician from making a referral to an entity for certain designated health services reimbursed by Medicare or Medicaid if the physician or a member of the physicians family has a financial relationship with the entity, and which also prohibits the submission of any claims for reimbursement for designated health services furnished pursuant to a prohibited referral; |
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the federal Physician Payments Sunshine Act, created under Section 6002 of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively, or the ACA, and its implementing regulations require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health Insurance Program (with certain exceptions) to report annually to the United States Department of Health and Human Services, Centers for Medicare & Medicaid Services information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, including ownership and investment interests held by physicians and their immediate family members; effective January 1, 2022, reporting on payments and transfers of value made in the previous year to covered recipients will be expanded to include physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and anesthesiologist assistants, and certified nurse-midwives; |
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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; |
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federal government price reporting laws, changed by the ACA to, among other things, increase the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program and offer such rebates to additional populations, that require us to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement or discounts on our marketed drugs (participation in these programs and compliance with the applicable requirements may subject us to potentially significant discounts on our product candidates, increased infrastructure costs, and potentially limit our ability to offer certain marketplace discounts); |
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the Foreign Corrupt Practices Act, a United States law which regulates certain financial relationships with foreign government officials (which could include, for example, certain medical professionals); and |
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state law equivalents and adjuncts to many of the above federal laws, such as anti-kickback, false claims, consumer protection, unfair competition, and privacy and data security laws, which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements as well as submission of claims involving any of our product candidates or related health care services for reimbursement by any third-party payor, including public and commercial insurers; state laws that require biotech companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to health care providers; state laws that require drug manufacturers to file reports with states regarding marketing information, such as the tracking and reporting of gifts, compensation and other remuneration and items of value provided to health care professionals and entities (compliance with such requirements may require investment in infrastructure to ensure that tracking is performed properly, and some of these laws result in the public disclosure of various types of payments and relationships, which could potentially have a negative effect on our business or increase enforcement scrutiny of our activities); state laws regarding the reporting of certain pricing information; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, with differing effects and obligations. |
In addition, the regulatory approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the laws and regulations mentioned above, including reporting requirements detailing interactions with and payments to healthcare providers, and requirements in Europe and other jurisdictions relating to privacy, data protection and cybersecurity, among other foreign laws. In addition to health information privacy, data security, and data protection laws that apply to some of the patient data we hold, other privacy, data security and data protection laws may also apply to such data, as well as to the personal data of our employees and other individuals generally. Many of these laws governing privacy, data protection and cybersecurity differ from each other in significant ways and may not have the same effects or obligations, thus complicating compliance efforts. We expect to incur increased costs of compliance with such laws and regulations as they continue to evolve, as well as the increased risk of regulatory investigations, enforcement actions, and other claims and litigation, with the potential for significant fines, penalties, and other liabilities in the event of actual or alleged noncompliance. Any of these could adversely affect our business, financial condition, and results of operations.
The ACA, among other things, amended the intent standard of the federal Anti-Kickback Statute and criminal health care fraud statutes to a stricter standard such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the ACA 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.
Efforts to ensure that our business arrangements with third parties will comply with applicable health care laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other health care laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, imprisonment, loss of eligibility to obtain approvals from the FDA, qui tam actions, lawsuits, government investigations, exclusion from participation in government contracting, healthcare
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reimbursement, or other federal or state government healthcare programs, including Medicare and Medicaid, corporate integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations.
The impact of recent health care reform legislation and other changes in the health care industry and in healthcare spending on us is currently unknown, and may adversely affect our business model.
Existing regulatory policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. 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 abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. The pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the ACA was enacted, which was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The ACA substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, (i) subjected therapeutic biologics to potential competition by lower-cost biosimilars by creating a licensure framework for follow on biologic products, (ii) proscribed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and therapeutic biologics that are inhaled, infused, instilled, implanted or injected, (iii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, (iv) established annual nondeductible fees and taxes on manufacturers of certain branded prescription drugs and therapeutic biologics, apportioned among these entities according to their market share in certain government healthcare programs, (v) established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs and therapeutic biologics to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers outpatient drugs and therapeutic biologics to be covered under Medicare Part D, which has since been increased to 70% by the Bipartisan Budget Act of 2018, or the BBA, (vi) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals 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, (vii) expanded the entities eligible for discounts under the Public Health program (viii) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research and (ix) established a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Since its enactment, there have been executive, judicial, and Congressional challenges to certain aspects of the ACA. The Tax Cuts and Jobs Act of 2017, or the Tax Reform Act, among other things, included a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA 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. In November 2020, the
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United States Supreme Court held oral arguments on the Fifth Circuit U.S. Court of Appeals decision that held that the individual mandate is unconstitutional. The Supreme Court is expected to issue a decision by mid-2021. It is uncertain how the Supreme Court will rule on this case. In January 2021, President Biden issued an executive order to initiate a special enrollment period to allow people to obtain health insurance coverage through the ACA marketplace, and instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, among others. We cannot predict how the Supreme Court ruling, other litigation, or the healthcare reform measures of the Biden administration will impact our business. We are continuing to monitor any changes to the ACA that, in turn, may potentially impact our business in the future. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated Cadillac tax on certain high-cost employer-sponsored insurance plans and the medical device excise tax, and effective January 1, 2021, also eliminates the health insurer tax. The BBA, among other things, also amended the ACA, effective January 1, 2019, by increasing from 50% to 70% the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and closing the coverage gap in most Medicare drug plans, commonly referred to as the donut hole. In addition, CMS published a final rule that would give states greater flexibility, effective January 1, 2020, in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislations automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in 2013 and will remain in effect through 2030, with the exception of a temporary suspension implemented under various COVID-19 relief legislation from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken. Congress recently introduced a bill to extend the moratorium on 2% Medicare sequester cuts through the end of 2021. We are continuing to monitor the status of this bill. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Further, there have been several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMSs policy change that was effective January 1, 2019. In 2020, the U.S. Department of Health and Human Services (HHS) and the CMS issued various rules that are expected to impact, among others, price reductions from pharmaceutical manufacturers to plan sponsors under Part D, fee arrangements between pharmacy benefit managers and manufacturers, manufacturer price reporting requirements under the Medicaid Drug Rebate Program, including regulations that affect manufacturer-sponsored patient assistance programs subject to pharmacy benefit manager accumulator programs and Best Price reporting related to certain value-based purchasing arrangements. Multiple lawsuits have been brought against the HHS challenging various aspects of the rules. In January 2021, the Biden administration issued a regulatory freeze memorandum that directs department and agency heads to review new or
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pending rules of the prior administration. It is unclear whether these new regulations will be withdrawn or when they will become fully effective under the current administration. The impact of these lawsuits as well as legislative, executive, and administrative actions of the current administration on us and the pharmaceutical industry as a whole is unclear. We expect additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates if approved. Complying with any new legislation and regulatory changes could be time-intensive and expensive, resulting in a material adverse effect on our business.
We expect to transition the POD device used in the INP105 and INP107 clinical trials to a commercial stage POD device for pivotal clinical trials and commercialization, which may be unsuccessful or costly.
While we used for our TRUDHESA STOP301 trial the version of our POD device that we intend to use for commercialization, the version of our POD devices used in the initial clinical trials for INP105 and INP107 will need to be further refined for use in later-stage clinical trials and to enable larger scale manufacturing and distribution, if the INP105 and INP107 candidates receive regulatory approvals. We expect to transition these clinical-stage POD devices to commercial stage POD devices prior to pivotal clinical trials and commercialization. The development work on the commercial stage devices for INP105 and INP107 is ongoing. We cannot be certain that the transition from the clinical stage POD device to the commercial stage POD device will be successful or be completed on time. If we are unable to complete the transition in a timely and cost-effective manner, our clinical trials and commercialization efforts may be harmed.
Risks Related to Commercialization of Our Product Candidates
Our future commercial success depends upon attaining significant market acceptance of TRUDHESA and our other product candidates, if approved, among physicians, patients, health care payors and others in the medical community necessary for commercial success.
Even if we obtain regulatory approval for TRUDHESA, INP105, and INP107 or any other product candidate that we may develop or acquire in the future, these product candidates may not gain market acceptance among physicians, health care payors, patients and the medical community. There are several approved acute treatments for migraine currently on the market, including triptans, ditans, calcitonin gene-related peptides antagonists, or gepants, lasmiditan and alternative formulations of DHE, such as Migranal, which is administered intranasally. All of these will be competitive with TRUDHESA and our level of market acceptance of TRUDHESA for the acute treatment for migraine may be lower than we expect. Market acceptance of any approved product candidates depends on a number of factors, including:
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the efficacy and safety of our product candidates; |
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perceived advantages of our product candidates over alternative treatments, such as oral, IM and IV formulations; |
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the indications for which the product candidates are approved and the labeling approved by regulatory authorities for use with the product candidates, including any warnings, limitations or contraindications contained in a products approved labeling; |
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acceptance by physicians and patients of the product candidate as a safe and effective treatment; |
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the cost, safety and efficacy of treatment in relation to alternative treatments, including generic versions of the product candidates; |
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the extent to which our product candidates are included on formularies of hospitals and managed care organizations; |
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the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities for the product candidates; |
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relative convenience and ease of administration of the product candidates; |
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the prevalence and severity of adverse side effects; |
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the timing of market introduction of competitive product; |
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restrictions on the distribution of our product candidates; |
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the effectiveness of our sales and marketing efforts; |
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unfavorable publicity relating to our product candidates; and |
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the approval of other new therapies for the same indications. |
Market acceptance is critical to our ability to generate significant revenue and become profitable. Any product candidate, if approved and commercialized, may be accepted in only limited capacities or not at all. If any approved product candidates are not accepted by the market to the extent that we expect, we may not be able to generate significant revenue and our business would suffer.
The market for our product candidates may not be as large as we expect.
Our estimates of the potential market opportunity for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys, including surveys commissioned by us. These assumptions include the size of our target populations, the prevalence and incidence of each of our target indications, the number of patients receiving current treatment, the percentage of patients unsatisfied with the current treatments, the number of diagnosed but untreated patients, the compliance and adherence of patients in our target populations, the number of treatment centers and prescribing physicians and the percentage of payer acceptance. While we believe that our internal assumptions are reasonable, if any of these assumptions proves to be inaccurate, then the actual market for our product candidates could be smaller than our estimates of our potential market opportunity. If the actual market for any of our product candidates is smaller than we expect, our product revenue may be limited, and it may be more difficult for us to achieve or maintain profitability.
In addition, we anticipate that, if approved, the FDA may require labeling restrictions on the patients and uses of our product candidates, including but not limited to contraindications for use in certain populations. For example, upper nasal cavity drug delivery may not be appropriate for use by patients with certain pre-existing conditions, such as chronic rhinitis, seasonal allergies or anatomical nasal obstruction.
If we are unable to establish sales, marketing and distribution capabilities, we may not be successful in commercializing our product candidates if and when they are approved.
While certain of our executives have commercialization expertise, we do not have a sales or marketing infrastructure. To achieve commercial success for any product for which we have obtained marketing approval, we will need to establish a sales and marketing organization.
We expect to build a focused sales and marketing infrastructure to market TRUDHESA and potentially other product candidates in the United States, if and when they are approved. There are risks involved with establishing our own sales, marketing and distribution capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, including failure to receive marketing approval from the FDA, we
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would have prematurely or unnecessarily incurred these commercialization expenses. We may also inaccurately estimate the number of representatives needed to build our sales force, which may result in unnecessary expense or the inability to scale as quickly as needed. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our product candidates, if approved, on our own include:
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our inability to recruit, train and retain adequate numbers of effective sales, marketing, reimbursement, customer service, medical affairs, and other support personnel; |
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the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any product candidates; |
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the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement and other acceptance by payors for our product candidates; |
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the inability to price our product candidates at a sufficient price point to ensure an adequate and attractive level of profitability; |
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restricted or closed distribution channels that make it difficult to distribute our product candidates to segments of the patient population; |
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the lack of complementary product candidates to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and |
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unforeseen costs and expenses associated with creating an independent commercialization organization. |
In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates outside of the United States or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
Problems related to large-scale commercial manufacturing could cause delays in product launches, an increase in costs or shortages of product candidates.
Manufacturing finished drug products, especially in large quantities, is complex. If our product candidates receive regulatory approval, they will require several manufacturing steps and may involve complex techniques to assure quality and sufficient quantity, especially as the manufacturing scale increases. Our product candidates will need to be made consistently and in compliance with a clearly defined manufacturing process pursuant to FDA regulations. Accordingly, it will be essential to be able to validate and control the manufacturing process to assure that it is reproducible. Slight deviations anywhere in the manufacturing process, including obtaining materials, filling, labeling, packaging, storage, shipping, quality control and testing, may result in lot failures, delay in the release of lots, product recalls or spoilage. Success rates can vary dramatically at different stages of the manufacturing process, which can lower yields and increase costs. We may experience deviations in the manufacturing process that may take significant time and resources to resolve and, if unresolved, may affect manufacturing output and cause us to fail to satisfy contractual commitments, lead to delays in our clinical trials or result in litigation or regulatory action. Such actions would hinder our ability to meet contractual obligations and could cause material adverse consequences for our business.
Reimbursement for any approved products may be limited or unavailable, which could make it difficult for us to sell our product candidates profitably.
In both domestic and foreign markets, sales of any of our product candidates, if approved, will depend, in part, on the extent to which the costs of our product candidates will be covered by third-
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party payors, such as government health care programs, commercial insurance and managed health care organizations. These third-party payors decide which drugs will be covered and establish reimbursement levels for those drugs. The containment of health care costs has become a priority of foreign and domestic governments as well as private third-party payors. The prices of drugs have been a focus in this effort. Governments and private third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product candidates profitably. Cost-control initiatives could cause us to decrease the price we might establish for product candidates, which could result in lower than anticipated product revenues.
Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payors determination that use of a product is:
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a covered benefit under its health plan; |
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safe, effective and medically necessary; |
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appropriate for the specific patient; |
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cost-effective relative to other alternatives, including generic products; and |
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neither experimental nor investigational. |
Adverse pricing limitations may hinder our ability to recoup our investment in our existing and any future product candidates, even if such product candidates obtain marketing approval.
Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our product candidates to the payor. Further, there is significant uncertainty related to third-party payor coverage and reimbursement of newly approved product candidates, including our product candidates if they are approved. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our product candidates. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize certain of our product candidates. In addition, in the United States, third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new product candidates. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patients for their use of newly approved product candidates, which in turn will put pressure on pricing.
Price controls may be imposed in foreign markets, which may adversely affect our future profitability.
In some countries, including member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states and other countries and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or
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reimbursement levels within the country of publication and other countries. If reimbursement of our product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.
We face substantial competition, which may result in others discovering, developing or commercializing product candidates before, or more successfully, than we do.
The development and commercialization of new and improved pharmaceutical products is highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations actively engaged in research development of product candidates which may target the same markets as our product candidates. Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our product candidates within those markets. We expect any future product candidates we develop and commercialize on our own or with our strategic partners, if approved, to compete with existing and leading products in the market on the basis of, among other things, product efficacy and safety, time to market, price, extent of adverse side effects experienced and convenience of administration and drug delivery.
For our product candidates, we are aware of the following competing efforts:
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TRUDHESA. Approved acute treatments for migraine include triptans, ditans, gepants, lasmiditan and alternative formulations of DHE, such as Migranal, which is administered intranasally. Some of these competitor products have been launched. In addition, there are product candidates in development by large pharmaceutical companies such as Eli Lilly & Co., Allergan plc, Alder Biopharmaceuticals, Inc., and other smaller companies. Some of these competitors are also developing product candidates that utilize alternative routes of administration, including Biohaven Pharmaceuticals, Inc., GlaxoSmithKline plc, OptiNose Inc., and Promius Pharma LLC, whose product candidates use nasal pumps or other nasal drug delivery technologies. |
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INP105. While there are no FDA-approved acute treatments for agitation and aggression in ASD, commonly prescribed treatments include mostly atypical (second generation) antipsychotics. These can include risperdone (Risperdal), olanzapine (Zyprexa), quetiapine (Seroquel), aripiprazole (Abilify), ziprasidone (Geodon) and others. |
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INP107. Approved treatments for the symptoms of OFF episodes in Parkinsons include carbidopa/levodopa (both short and long-acting oral forms), MAO-B inhibitors, COM-T inhibitors, dopamine agonists, amantadine such as Gocovri, apomorphine and inhaled levodopa, such as Inbrija. In addition, there are several product candidates under development by pharmaceutical companies such as Eli Lilly & Co., Intec Pharma Ltd. and AbbVie Inc. Some of these product candidates also utilize alternative routes of administration, such as Sunovion Pharmaceuticals, Inc., whose product candidate uses a sublingual film, and Acorda Therapeutics, Inc. whose product candidate uses a dry powder inhaler. |
One or more of our competitors may utilize their expertise in other methods of pharmaceutical drug delivery to develop and obtain approval for upper nasal cavity delivery products that may compete with our product candidates. These competitors may include Aegis, Optinose and other smaller pharmaceutical companies. Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales and supply resources or experience than we have had to date. Our ability to compete effectively will depend, in part, on the timing and scope of regulatory approvals for these product candidates, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position, the safety and effectiveness of our product candidates, the ease with which our product candidates can be administered and the extent to which patients accept relatively new routes of administration. Competing products could present superior
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treatment alternatives, including by being more effective, safer, less expensive or marketed and sold more effectively than any product candidates we may develop. Competitive products may reduce the demand and price for any product candidates we develop, making them obsolete or noncompetitive before we recover the expense of developing and commercializing such product. Our competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our business plan.
We rely entirely on third parties for the manufacturing of product candidates that we develop for nonclinical studies and clinical trials and expect to continue to do so for commercialized products. If we encounter difficulties in negotiating manufacturing and supply agreements with third-party manufacturers and suppliers of our POD device and the active ingredients in TRUDHESA, INP105 and INP107, our ability to commercialize our product candidates, if approved, would be impaired.
We do not own any manufacturing facilities and have limited experience in drug development and commercial manufacturing. We currently rely, and expect to continue to rely, on a limited number of experienced personnel and contract manufacturing organizations, or CMOs, and suppliers, including in some cases single-source suppliers, who assist in the production, assembly, test, validation, supply, storage and distribution of our drug-device combination product candidates in our clinical trials, and we do not control their activities. While we have developmental and commercial supply agreements in place with some of our key suppliers, we may not be able to obtain terms that are favorable to us or enter into commercial manufacturing and supply agreements at all with other necessary third parties. If we are unable to enter into such agreements on commercially reasonable terms, our ability to commercialize our product candidates, if approved, would be impaired, and our business, financial condition and results of operations would be materially adversely affected.
If approved and if and when product sales grow, our product candidates will require production processes to be scaled up. We will be dependent on external manufacturers and suppliers to ensure that their manufacturing processes can be scaled up adequately such that we are able to supply the market. If any of our key suppliers are unable or unwilling to scale up production, our product candidates would be impaired, and our business, financial condition and results of operations would be materially adversely affected.
Additionally, we currently have no plans to build our own clinical or commercial scale manufacturing facility. Should any of our product candidates receive approval, we would lack the resources and expertise to manufacture and test, on a commercial scale, the technical performance of our POD device and the active ingredients, and would need to incur significant expense to develop and acquire such expertise internally or partner with a third-party who possesses such expertise.
We rely on third parties to conduct nonclinical studies and clinical trials, and if they do not properly and successfully perform their obligations to do so, we may not be able to obtain regulatory approvals for our product candidates.
We rely on CROs and other third parties to assist in managing, monitoring and otherwise carrying out nonclinical and clinical trials for our product candidates. We compete with many other companies for the resources of these third parties. Any disruption in supply from any supplier or manufacturing location, including on account of the COVID-19 pandemic, could lead to supply delays or interruptions which would damage our business, financial condition, results of operations and prospects. Further, the third parties on whom we rely generally may terminate their engagements at any time. Having to enter into alternative arrangements would delay development and commercialization of our product candidates.
The FDA and comparable foreign regulatory authorities require compliance with regulations and standards, including GCP, for designing, conducting, monitoring, recording, analyzing, and reporting
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the results of clinical trials to assure that the data and results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although we rely on third parties to conduct many of our clinical trials, they are not our employees, and we are responsible for ensuring that each of these clinical trials is conducted in accordance with our general investigational plan, protocol and other requirements. Our reliance on these third parties for clinical research and development activities will reduce our control over these activities but will not relieve us of our responsibilities.
If these third parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to clinical trial protocols or to regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, the clinical trials of our product candidates may not meet regulatory requirements. If clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our nonclinical development activities or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates on a timely basis, or at all.
If we encounter issues with our CMOs or suppliers, we may need to qualify alternative manufacturers or suppliers, which could impair our ability to sufficiently and timely manufacture and supply product candidates.
We currently depend on third parties to manufacture and supply our POD device, the active pharmaceutical ingredients and final formulations in our product candidates. Although we could obtain each of these components from other third-party suppliers, we would need to qualify and obtain FDA approval for another contract manufacturer or supplier as an alternative source for each such component, which could be costly and cause significant delays. Each of our current manufacturing and supply agreements include limitations on our ability to utilize alternative manufacturers or suppliers during the terms of the agreements, which impairs our ability to prepare in advance for any future manufacturing and supply shortages or quality issues.
In addition, some of our suppliers conduct their manufacturing operations for us at a single facility. Unless and until we qualify additional facilities, we may face limitations in our ability to respond to manufacturing and supply issues. For example, if regulatory, manufacturing or other problems require one of these manufacturers or suppliers to discontinue production at their respective facility, or if the equipment used for the production of our POD device or the active ingredients in these facilities is significantly damaged or destroyed by fire, flood, earthquake, power loss or similar events, the ability of such manufacturer or supplier to provide components or the active pharmaceutical ingredients needed for our product candidates, or to manufacture our product candidates may be significantly impaired. In the event that these parties suffer a temporary or protracted loss of our facility or equipment, we would still be required to obtain FDA approval to qualify a new manufacturer or supplier, as applicable, as an alternate manufacturer or source for the respective component before any components manufactured by such manufacturer or by such supplier could be sold or used. To do so, we would need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product candidates according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new CMO could negatively affect our ability to develop product candidates or commercialize any of our approved products in a timely manner or within budget. Furthermore, a CMO may possess technology related to the manufacture of our product candidate that such CMO owns independently. This would increase our reliance on such CMO or require us to obtain a license from such CMO in order to have another CMO manufacture the product candidates. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies before implementing the change for our clinical supply for use in clinical trials or for commercial supply of any approved product. We may be unsuccessful in demonstrating the comparability of supplies before and after a
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manufacturing change, which could require the conduct of additional clinical trials and result in a delay or disruption in our clinical development plan or our ability to commercialize any approved product.
Any production shortfall that impairs the supply of our POD device or the active ingredients or any of these components could negatively impact our ability to complete clinical trials, obtain regulatory approval and commercialize our product candidates. If our product candidates receive approval, a product shortfall could have a material adverse effect on our business, financial condition and results of operations and adversely affect our ability to satisfy demand for our product candidates, which could materially and adversely affect our product sales and operating results.
If third-party manufacturers, wholesalers and distributors fail to perform as expected, or fail to devote sufficient time and resources to our product candidates, our clinical development may be delayed, our costs may be higher than expected or our product candidates may fail to be approved.
Our reliance on third-party manufacturers, wholesalers and distributors exposes us to the following risks, any of which could delay FDA approval of our product candidates and commercialization of our product candidates, result in higher costs, or deprive us of potential product revenues:
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our CMOs, or other third parties we rely on, may encounter difficulties in achieving the volume of production needed to satisfy commercial demand, may experience technical issues that impact quality or compliance with applicable and strictly enforced regulations governing the manufacture of pharmaceutical products, and may experience shortages of qualified personnel to adequately staff production operations; |
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our wholesalers and distributors could become unable to sell and deliver our product candidates for regulatory, compliance and other reasons; |
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our CMOs, wholesalers and distributors could breach or default on their agreements with us to meet our requirements for commercialization of our product candidates; |
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our CMOs, wholesalers and distributors may not perform as agreed or may not remain in business for the time required to successfully produce, store, sell and distribute our product candidates and we may incur additional cost; |
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our CMOs, wholesalers and distributors may misappropriate our proprietary information; and |
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if our CMOs, wholesalers and distributors were to terminate our arrangements or fail to meet their contractual obligations, we may be forced to delay our commercial programs. |
For example, we identified increased levels of impurities in some drug vials of certain drug lots used in our TRUDHESA STOP301 trial. Vials from those drug lots were removed from the trial and we conducted a root cause investigation, identifying the likely root cause as long stoppages in the production of two lots. We have not identified any safety issues in our Phase 3 clinical trials related to exposure to the increased levels of impurity. We had a pre-NDA meeting with the FDA on this topic and described our investigation and response to the issue in the NDA submission. At that time, the FDA did not concur that the investigation had adequately identified the root cause of the presence of impurities. While we have conducted additional investigations that have led us to believe we identified the root cause and we have worked with our CMO to avoid those conditions in future production runs, there is no guarantee that the FDA will agree that our subsequent investigations have adequately identified the root cause, or that our corrective and preventive actions have sufficiently remediated the issue. The FDA may request more detailed safety analyses, additional product stability data, and further investigations into the impurity issue or other CMC issues, which could have a material and adverse impact on review of the TRUDHESA NDA, including, for example, the issuance of a complete response letter.
Our reliance on third parties reduces our control over our product candidate development activities but does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and
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scientific standards. For example, the FDA and other regulatory authorities require that our product candidates and any products that we may eventually commercialize be manufactured according to cGMP and QSR, and similar foreign standards. Any failure by our third-party manufacturers to comply with cGMP or QSR or maintain a compliance status acceptable to the FDA or other regulatory authorities or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates. In addition, our third-party manufacturers will be subject to periodic inspections by the FDA and other regulatory authorities, and failure to comply with cGMP or QSR could be the basis for the FDA to issue a warning or untitled letter, withdraw approvals for product candidates previously granted to us, or take other regulatory or legal action, including request a recall or seize product candidates, total or partial suspension of production, suspension of clinical trials, refusal to approve pending applications or supplemental applications, detention of product, refusal to permit the import or export of product candidates, injunction, imposing civil penalties or pursuing criminal prosecution.
Additionally, as we scale up manufacturing of our product candidates and conduct required stability testing, issues may arise involving product-packaging and third-party equipment malfunctions. These issues may require refinement or resolution in order to proceed with commercial marketing of our product candidates. In addition, quality issues may arise during scale-up and validation of commercial manufacturing processes. Any issues in our product or delivery devices could result in increased scrutiny by regulatory authorities, delays in our regulatory approval process, increases in our operating expenses, or failure to obtain or maintain approval for our product candidates.
We may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop and commercialize product candidates, negatively impacting our operating results.
We continue to strategically evaluate and, as deemed appropriate, we may enter into partnerships in the future when strategically attractive, including potentially with major biotechnology or pharmaceutical companies, although there is no guarantee we will be able to enter into these agreements if we elect to do so. We face significant competition in seeking appropriate partners for our product candidates, and the negotiation process is time-consuming and complex. In order for us to successfully identify and work with partners, potential partners must view our product candidates as economically valuable in markets they determine to be attractive in light of the terms that we are seeking and other available product candidates for licensing by other companies. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, development or approval of a product candidate is delayed or sales of an approved product are disappointing. Any delay in entering into strategic partnership agreements related to our product candidates could delay the development and commercialization of such candidates and reduce their competitiveness even if they reach the market. In addition, we have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effectively or create sufficient sales.
If we fail to establish and maintain strategic partnerships related to our product candidates, we will bear all of the risk and costs related to the development of any such candidate, and we may need to seek additional financing, hire additional employees and otherwise develop expertise, such as regulatory expertise, for which we have not budgeted. This could negatively affect the development of any unpartnered product candidate.
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Risks Related to Our Intellectual Property
If we are not able to obtain and enforce patent protection for our technologies or product candidates, development and commercialization of our technology and product candidates may be adversely affected.
Our success depends in part on our ability to obtain, maintain, protect and enforce patents and other forms of intellectual property rights, including in-licenses of intellectual property rights of others, relating to our product candidates, our technology such as our proprietary POD nasal drug delivery platform, and methods for treating patients using our product candidates, as well as our ability to preserve our trade secrets, to prevent third parties from infringing upon our proprietary rights and to operate without infringing upon the proprietary rights of others. As of December 31, 2020, we solely owned four issued U.S. patents, 14 pending U.S. patent applications, 21 issued foreign patents, 55 pending foreign patent applications, and three pending international applications that cover our lead product candidates and our proprietary POD nasal drug delivery platform. We may not be able to apply for patents on certain aspects of our technology and our product candidates in a timely fashion or at all. Further, we may not be able to prosecute all necessary or desirable patent applications, or maintain, enforce and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. We may not have the right to control the preparation, filing and prosecution of any patent applications that we license from third parties, or the ability to maintain the rights to patents licensed to third parties, and should we decide to license any of our patents to third parties in the future, we may not retain sufficient rights to prosecute and enforce such patents. Our existing issued and granted patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technology or from developing competing product candidates and technology. There is no guarantee that any of our pending patent applications will result in issued or granted patents, that any of our issued or granted patents will not later be found to be invalid or unenforceable or that any issued or granted patents will include claims that are sufficiently broad to cover our technology and our product candidates or to provide meaningful protection from our competitors. Moreover, the patent position of biotechnology and pharmaceutical companies can be highly uncertain because it involves complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our current and future proprietary technology and product candidates are covered by valid and enforceable patents or are effectively maintained as trade secrets. If third parties disclose or misappropriate our proprietary rights, it may materially and adversely affect our position in the market.
The U.S. Patent and Trademark Office, or USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance 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. The standards applied by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology and pharmaceutical patents. As such, we do not know the degree of future protection that we will have on our proprietary product candidates and drug delivery system. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property. While we will endeavor to try to protect our technology and product candidates with intellectual property rights such as patents, as appropriate, the process of obtaining patents is time consuming, expensive and sometimes unpredictable. The failure to adequately protect our intellectual property and other proprietary rights could materially harm our business.
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We may be required to spend significant resources to monitor and protect our intellectual property rights. Monitoring unauthorized uses and disclosures is difficult and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our patents may be challenged in the courts or patent offices in the U.S. and abroad. Any patents that are issued may subsequently be invalidated or otherwise limited, allowing other companies to develop offerings that compete with our offerings, which could adversely affect our competitive business position, business prospects and financial condition. In addition, issuance of a patent does not guarantee that we have a right to practice the patented invention. Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action before patent offices for a given period after allowance or grant, during which time third parties can raise objections against such initial grant, or in court. 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.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our patents, trade secrets or other intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations.
In addition, there can be no assurance that:
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others will not or may not be able to make, use or sell upper nasal cavity product candidates that are the same as or similar to our product candidates but that are not covered by the claims of the patents that we own; |
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we or our existing or future collaborators are the first to make the inventions covered by each of our issued patents and pending patent applications that we own; |
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we, or our existing or future collaborators, are the first to file patent applications covering certain aspects of our inventions; |
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others will not independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
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a third party will not challenge our patents and, if challenged, a court would hold that our patents are valid, enforceable and infringed; |
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any issued patents that we own or have licensed will provide us with any competitive advantages, or will not be challenged by third parties; |
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we may develop additional proprietary technologies that are patentable; |
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the patents of others will not have a material or adverse effect on our business, financial condition, results of operations and prospects; and |
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our competitors do not conduct research and development activities in countries where we do not have enforceable patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets. |
If we, our licensor or collaborators fail to maintain the patents and patent applications covering our technology or product candidates, our competitors might be able to enter the market, which could have a material and adverse effect on our business, financial condition, results of operations and prospects.
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If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patent protection for certain aspects of our technology and our product candidates, we also consider trade secrets, including confidential and unpatented know-how, important to the maintenance of our competitive position. We protect trade secrets and confidential and unpatented know-how, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as our employees, corporate collaborators, outside scientific collaborators, CROs, CMOs, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them to maintain confidentiality and assign their inventions to us. Despite these efforts, we cannot be certain that such agreements have been entered into with all relevant parties. In addition, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts in the United States and certain foreign jurisdictions are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed which could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Other companies or organizations may challenge our or our licensors patent rights or may assert patent rights that prevent us from developing and commercializing our product candidates.
The issued patents and pending patent applications in the United States and in key markets around the world that we own or license claim many different devices, compositions and methods, including processes relating to the discovery, development, manufacture and commercialization of upper nasal cavity drug delivery. As the field of upper nasal cavity drug delivery continues to mature, patent applications are being processed by national patent offices around the world. There is uncertainty about which patents will issue and, if they do, as to when, to whom, and with what claims. In addition, third parties may attempt to invalidate our intellectual property rights. Even if our rights are not directly challenged, disputes could lead to the weakening of our intellectual property rights. Our defense against any attempt by third parties to circumvent or invalidate our intellectual property rights could be costly to us, could require significant time and attention of our management and could have a material and adverse effect on our business, financial condition, results of operations and prospects or our ability to successfully compete.
We may not be able to protect our intellectual property rights throughout the world.
Obtaining a valid and enforceable issued or granted patent covering our technology in the United States and worldwide can be extremely costly, and our or our licensors or collaborators intellectual property rights may not exist in some countries outside the United States or may be less extensive in some countries than in the United States. In jurisdictions where we or our licensor or collaborators have not obtained patent protection, competitors may seek to use our or their technology to develop their own products and further, may export otherwise infringing products to territories where we or they have patent protection, but where it is more difficult to enforce a patent as compared to the United States. Competitor products may compete with our future product candidates in jurisdictions where we do not have issued or granted patents or where our or our licensors or collaborators issued or granted patent claims or other intellectual property rights are not sufficient to prevent competitor activities in these jurisdictions. The legal systems of certain countries, particularly certain developing countries, make it difficult to enforce patents and such countries may not recognize other types of intellectual
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property protection, particularly relating to pharmaceuticals. This could make it difficult for us or our licensor or collaborators to prevent the infringement of our or their patents or marketing of competing products in violation of our or their proprietary rights generally in certain jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our and our licensors or collaborators efforts and attention from other aspects of our business, could put our and our licensors or collaborators patents at risk of being invalidated or interpreted narrowly, and our and our licensors or collaborators patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensor or collaborators. We or our licensor or collaborators may not prevail in any lawsuits that we or our licensor or collaborators initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful.
We have so far not filed for patent protection in all national and regional jurisdictions where such protection may be available. In addition, we may decide to abandon national and regional patent applications before grant. Finally, the grant proceeding of each national or regional patent is an independent proceeding which may lead to situations in which applications might in some jurisdictions be refused by the relevant registration authorities, while granted by others. It is also quite common that depending on the country, various scopes of patent protection may be granted on the same product candidate or technology.
The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or our licensor or collaborators encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition from others in those jurisdictions. Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensor or collaborators are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position in the relevant jurisdiction may be impaired and our business, financial condition, results of operations and prospects may be adversely affected.
We, our collaborators, or any future strategic partners may need to resort to litigation to protect or enforce our patents or other proprietary rights, all of which could be costly, time consuming, delay or prevent the development and commercialization of our technology or product candidates, or put our patents and other proprietary rights at risk.
Competitors may infringe our patents or other intellectual property. If we were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates or our technology, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that an individual connected with prosecution of the patent withheld information material to patentability from the USPTO, or made a materially misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, 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 or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our product candidates or certain aspects of our platform technology. Such a loss of patent protection could have a material and adverse effect on our business, financial condition, results of operations and prospects.
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Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without legally infringing our patents or other intellectual property rights.
Intellectual property rights of third parties could adversely affect our ability to commercialize our technology or our product candidates, and we, our licensor or collaborators, or any future strategic partners may become subject to third party claims or litigation alleging infringement of patents or other proprietary rights or seeking to invalidate patents or other proprietary rights. We might be required to litigate or obtain licenses from third parties in order to develop or market our technology or our product candidates. Such litigation or licenses could be costly or not available on commercially reasonable terms.
We, our collaborators, or any future strategic partners may be subject to third-party claims for infringement or misappropriation of patent or other proprietary rights. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, post grant review and inter partes review proceedings before the USPTO, and corresponding foreign patent offices. There are issued and pending patents that might claim aspects of our technology and our product candidates, and modifications that we may need to apply to our technology or our product candidates. Thus, it is possible that one or more individuals or organizations will hold patent rights to which we will need a license. If those individuals or organizations refuse to grant us a license to such patent rights or refuse to grant us a license on reasonable terms, we may not be able to market product candidates or perform research and development or other activities covered by these patents which could have a material and adverse effect on our business, financial condition, results of operations and prospects. We are obligated under certain of our license and collaboration agreements to indemnify and hold harmless our licensor or collaborators for damages arising from intellectual property infringement by use. If we, our licensor or collaborators, or any future strategic partners are found to infringe a third-party patent or other intellectual property rights, we could be required to pay damages, potentially including treble damages, if we are found to have infringed willfully. In addition, we, our licensor or collaborators, or any future strategic partners may choose to seek, or be required to seek, a license from a third party, which may not be available on acceptable terms, if at all. Even if a license can be obtained on acceptable terms, the rights may be non-exclusive, which could give our competitors access to the same technology or intellectual property rights licensed to us. If we fail to obtain a required license, we or our existing or future collaborators may be unable to effectively market our technology or our product candidates, which could limit our ability to generate revenue or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations. In addition, we may find it necessary to pursue claims or initiate lawsuits to protect or enforce our patent or other intellectual property rights. The cost to us in defending or initiating any litigation or other proceeding relating to patent or other proprietary rights, even if resolved in our favor, could be substantial, and litigation could divert our managements attention. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from
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the initiation and continuation of patent litigation or other proceedings could delay our research and development efforts and limit our ability to continue our operations.
Because the upper nasal cavity therapeutics landscape is still evolving, it is difficult to conclusively assess our freedom to operate without infringing on third-party rights. Our competitive position may suffer if patents issued to third parties or other third-party intellectual property rights cover our technology or our product candidates or elements thereof, or our manufacture or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize our technology or our product candidates until such patents expire or unless we successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms. There may be issued patents held by third parties of which we are not aware that, if found to be valid and enforceable, could be alleged to be infringed by our POD nasal drug delivery platform and related technologies and product candidates. There also may be pending patent applications of which we are not aware that may result in issued patents, which could be alleged to be infringed by our POD nasal drug delivery platform and related technologies and product candidates. If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, including potentially treble damages and attorneys fees for willful infringement, and we may be forced to abandon our technology or our product candidates or seek a license from any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.
It is also possible that we have failed to identify relevant third-party patents or applications. For example, U.S. applications filed before November 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidates or platform technology could have been filed by others without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technology, our product candidates or the use of our product candidates. Third-party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in marketing our product candidates. Parties making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing any of our technology or our product candidates that are held to be infringing. We might, if possible, also be forced to redesign our technology or our product candidates so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business and could have a material and adverse effect on our business, financial condition, results of operations and prospects.
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Intellectual property rights of third parties could delay the development timeline with respect to one or more of our product candidates.
TRUDHESA includes a prior-approved formulation of our active pharmaceutical ingredient and our INP105 and INP107 product candidates include prior-approved active pharmaceutical ingredients. We are not aware of any unexpired patents that cover these active pharmaceutical ingredients, and there are no unexpired patents or regulatory exclusivities listed on the FDA Orange Book for the formulation we are using in TRUDHESA. However, it is possible that one or more individuals or organizations will hold patent rights to which we will need to obtain a license. If those individuals or organizations refuse to grant us a license to such patent rights or refuse to grant us a license on commercially reasonable terms, our development timeline with respect to one or more of our product candidates may be materially and adversely delayed.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Moreover, such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.
We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
We may be subject to claims that we or our employees, consultants or independent contractors have wrongfully used or disclosed confidential information or alleged trade secrets of third parties or their former employers. These claims may be costly to defend and if we do not successfully do so, we may be required to pay monetary damages and may lose valuable intellectual property rights or personnel.
Many of our employees were previously employed at universities or biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper our ability to commercialize, or prevent us from commercializing, our technology or our product candidates, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
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Patent terms may be inadequate to protect our competitive position on our technology or our product candidates 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 our technology or our product candidates 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 new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to our products.
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.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm or rely on our outside counsel to pay these fees due to the USPTO and non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
Changes in U.S. patent and ex-U.S. patent laws could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
Changes in either the patent laws or interpretation of the patent laws in the United States or in other ex-U.S. jurisdictions could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. In the United States, numerous recent changes to the patent laws and proposed changes to the rules of the USPTO may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years, some of which cases either narrow the scope of patent protection available in certain circumstances or weaken the rights of patent owners in certain situations. For example, the decision by the U.S. Supreme Court in Association for Molecular Pathology v. Myriad Genetics, Inc. precludes a claim to a nucleic acid having a stated nucleotide sequence that is identical to a sequence found in nature and unmodified. We currently are not aware of an immediate impact of this decision on our patents or patent applications because we are developing product candidates that contain modifications that we believe are not found in nature. However, this decision has yet to be unambiguously interpreted by courts and by the USPTO. We cannot assure you that the interpretations of this decision or subsequent rulings will not adversely impact our patents or patent applications. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, and similar legislative and regulatory bodies in other countries in which
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may pursue patent protection, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the U.S. 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. Assuming that other requirements for patentability are met, prior to March 2013, in the U.S., the first to invent the claimed invention was entitled to the patent, while outside the U.S., the first to file a patent application was entitled to the patent. A third party that files a patent application in the USPTO after March 2013, but before we do, 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 from invention to filing of a patent application. Since patent applications in the U.S. and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to either (i) file any patent application related to our product candidates or (ii) invent any of the inventions claimed in our 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 patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, and results of operations.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively which could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Risks Related to Our Employee Matters, Managing Growth and Other Risks Related to Our Business
We may encounter difficulties in managing our growth and expanding our operations successfully.
As we seek to advance our product candidates through clinical trials and commercialization, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers,
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manufacturers and other third parties. Future growth will impose significant added responsibilities on members of our management. Our future financial performance and our ability to commercialize our product candidates, if approved, and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and, if necessary, sales and marketing personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company or disrupt our operations.
If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop and commercialize our product candidates.
We are highly dependent on members of our senior management, including Adrian Adams, our President and Chief Executive Officer, John Hoekman, Ph.D., Chief Scientific Officer and one of our founders, John Leaman, M.D., our Chief Financial Officer, Leonard S. Paolillo, our Chief Commercial Officer, and Stephen Shrewsbury M.B. ChB., our Chief Medical Officer. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives. Also, each of these persons may terminate their employment with us at any time. We do not maintain key person insurance for any of our executives or other employees.
Recruiting and retaining qualified scientific, clinical, manufacturing, sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors, including our scientific co-founders, may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market, or Nasdaq, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We will need to hire additional accounting, finance and other personnel and make further investments in processes and systems in connection with these efforts. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain sufficient coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. Moreover, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in
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practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
We are not currently required to comply with the SECs rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company or a non-accelerated filer, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, if we are not able to continue to meet these requirements, we may not be able to remain listed on Nasdaq.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Employees may also misappropriate information in violation of applicable insider trading laws, which could also seriously harm our reputation even if we are not deemed to be at fault. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal health care programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
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If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any product candidates. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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injury to our reputation; |
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decreased demand for our product candidates or products that we may develop; |
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withdrawal of clinical trial participants; |
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costs to defend the related litigations; |
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a diversion of managements time and our resources; |
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substantial monetary awards to trial participants or patients; |
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product recalls, withdrawals, or labeling, marketing or promotional restrictions; |
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loss of revenue; |
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the inability to commercialize our product candidates, if approved; and |
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a decline in our stock price. |
Failure to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of product candidates we develop. We currently carry product liability insurance covering our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, we could prevent or inhibit the development and commercial production and sale of our product candidates, which could adversely affect our business, financial condition, and results of operations.
The security of the information technology systems used in our business may be compromised, and confidential information, including non-public personal information, could be improperly disclosed.
Our information technology systems, and those of our contractors and consultants, may be vulnerable to physical or electronic intrusions, computer viruses or other attacks, as well as employee, vendor, or contractor errors or malfeasance. As part of our business, we and our contractors and consultants maintain large amounts of confidential information, including non-public personal information on patients and our employees. Breaches in security and other information security events and incidents could result in interruption to our or our service providers systems and operations, and the loss, unauthorized modification, or misuse of information. Any such breach or other incident may result in significant costs to remediate and otherwise respond, including efforts to analyze, correct, eliminate, remediate or work around deficiencies in our systems or our security measures, recover and
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validate data, and to address any applicable legal or contractual obligations. Further, any actual or perceived breach in security may result in potential regulatory actions or litigation, including material claims for damages, interruption to our operations, delays in regulatory filings and approvals, damage to our reputation or otherwise have a material adverse effect on our business, financial condition and operating results. Like many businesses, we have been in the past, and may again be in the future, subject to phishing attacks. In 2018 we experienced a successful phishing attack. While we were able to swiftly contain and remediate this incident, without a material impact to our business, there can be no assurances that we will be able to defend against or successfully remediate any such attacks that may occur in the future. Further, companies have experienced an increase in phishing and social engineering attacks from third parties, including in connection with the COVID-19 pandemic. Also, due to the COVID-19 pandemic, all of our employees are working remotely. As a result, we may have increased cybersecurity and data security risks, due to increased use of home wi-fi networks and virtual private networks, as well as increased disbursement of physical machines. While we have implemented IT controls to reduce the risk of a cybersecurity or data security breach, there is no guarantee that these measures will be adequate to safeguard all systems, especially with an increased number of employees working remotely. While we expect to implement and maintain appropriate information security policies and systems in order to prevent unauthorized loss, unavailability, modification, use or disclosure of confidential information, including non-public personal information, there can be no assurance that any such loss, unavailability, modification, use or disclosure will not occur.
While we maintain insurance with respect to cybersecurity, our insurance may be insufficient to cover all liabilities incurred by us in connection with any privacy or cybersecurity incidents. We also cannot be certain that any insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results and reputation.
If we acquire complementary business or technologies in the future, we may be unable to integrate such acquired businesses and technologies successfully or fail to achieve the expected benefits.
Although we have not made any acquisitions to date, our business strategy in the future may include acquiring other complementary therapies, products, technologies or businesses. We also may enter into relationships with other businesses to expand our domestic and international operations. An acquisition, investment, or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, therapies, technologies, products, services, personnel or operations of the acquired companies, particularly if the key personnel of the acquired companies choose not to work for us. Acquisitions may also disrupt our business, divert our resources and require significant management attention that would otherwise be available for the development of our business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities.
Negotiating these transactions can be time consuming, difficult, and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close. Even if we do successfully complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by our customers, securities analysts and investors.
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Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred substantial losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. Unused losses incurred in taxable years beginning on or prior to December 31, 2017, will carry forward to offset future taxable income, if any, until such unused losses expire. Under the Tax Reform Act, as modified by the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, unused U.S. federal net operating losses generated in tax years beginning after December 31, 2017, will not expire and may be carried forward indefinitely but the deductibility of such federal net operating losses is limited to 80% of current year taxable income in taxable years beginning after December 31, 2020. As a result, our net operating loss carryforwards generated in taxable years beginning on or before December 31, 2017, may expire prior to being used, and the deductibility of our net operating loss carryforwards generated in taxable years beginning after December 31, 2017 in taxable years beginning after December 31, 2020, may be limited. It is uncertain if and to what extent various states will conform to the Tax Reform Act or the CARES Act. In addition, both our current and our future unused losses and other tax attributes may be subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code) if we undergo, or have undergone, an ownership change, generally defined as a greater than 50 percentage point change (by value) in our equity ownership by certain stockholders over a three-year period. We have not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study and the fact that there may be additional ownership changes in the future. If we undergo an ownership change (or if we previously underwent such an ownership change), our ability to use all of our pre-change net operating loss carryforwards and other pre-change tax attributes (such as research tax credits) to offset our post-change income or taxes may be limited. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of net operating losses is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, even if we attain profitability, we may be unable to use all or a material portion of our net operating losses and other tax attributes, which could adversely affect our future cash flows.
Changes in U.S. tax law could adversely affect our financial condition and results of operations.
The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, or IRS, and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. For example, on March 27, 2020, the CARES Act was enacted, which included certain changes in tax law intended to stimulate the U.S. economy in light of the COVID-19 coronavirus outbreak, including temporary beneficial changes to the treatment of net operating losses, interest deductibility limitations and payroll tax matters. Future changes in U.S. tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. We urge investors to consult with their legal and tax advisors regarding the implications of potential changes in U.S. tax laws on an investment in our common stock.
Risks Related to Our Common Stock and this Offering
The market price of our Common Stock may be volatile.
The market price of our common stock following this offering may be volatile. The market price for our common stock may be influenced by many factors, including the other risks described in this section of the prospectus entitled Risk Factors and the following:
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receipt of marketing approval for TRUDHESA or any of our other product candidates; |
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results of nonclinical studies and clinical trials of our product candidates, or those of our competitors or our existing or future collaborators; |
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introductions and announcements of new product candidates by us, our future commercialization partners, or our competitors, and the timing of these introductions or announcements; |
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regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our product candidates; |
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material and adverse impact of the COVID-19 pandemic on the markets and the broader global economy; |
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the success of competitive products or technologies; |
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actions taken by regulatory agencies with respect to our product candidates, clinical trials, manufacturing process or sales and marketing terms; |
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actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us; |
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the success of our efforts to acquire or in-license additional technologies, products or product candidates; |
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developments concerning any future collaborations, including but not limited to those with our sources of manufacturing supply and our commercialization partners; |
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market conditions in the life sciences and pharmaceutical sectors; |
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announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures or capital commitments; |
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developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates and products; |
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our ability or inability to raise additional capital and the terms on which we raise it; |
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the recruitment or departure of key personnel; |
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changes in the structure of healthcare payment systems; |
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actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally; |
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our failure or the failure of our competitors to meet analysts projections or guidance that we or our competitors may give to the market; |
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fluctuations in the valuation of companies perceived by investors to be comparable to us; |
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announcement and expectation of additional financing efforts; |
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speculation in the press or investment community; |
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trading volume of our common stock; |
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sales of our common stock by us or our stockholders; |
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the concentration in ownership of our common stock; |
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changes in accounting principles; |
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potential litigation or the threat thereof; |
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terrorist acts, acts of war or periods of widespread civil unrest; |
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natural disasters and other calamities; and |
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general economic, industry and market conditions. |
In addition, the stock market in general, and the markets for pharmaceutical and medical device stocks in particular, have experienced extreme price and volume fluctuations that have been often unrelated or disproportionate to the operating performance of these companies, including as a result of
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the COVID-19 pandemic. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in this Risk Factors section, could have a dramatic and adverse impact on the market 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.
Based on the beneficial ownership of our common stock as of December 31, 2020, prior to this offering, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately % of our 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, no exercise of our outstanding options and no purchases of shares in this offering by any of this group), in each case assuming the conversion of all outstanding shares of our redeemable convertible preferred stock into shares of our common stock and the net exercise of warrants outstanding. As a result, these stockholders, if acting together, will continue to have significant influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, amendment of our organizational documents, any merger, consolidation or sale of all or substantially all of our assets and any other significant corporate transaction. The interests of these stockholders may not be the same as or may even conflict with your interests. For example, these stockholders could delay or prevent a change of control of our company, even if such a change of control would benefit our other stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might affect the prevailing market price of our common stock. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors perception that conflicts of interest may exist or arise.
We are an emerging growth company and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and (iii) exemptions from the requirements of holding nonbinding advisory stockholder votes on executive compensation and stockholder approval of any golden parachute payments not approved previously. In addition, as an emerging growth company, we are only required to provide two years of audited financial statements and two years of selected financial data in this prospectus.
We could be an emerging growth company for up to five years following the completion of this offering, although circumstances could cause us to lose that status earlier, including if we are deemed to be a large accelerated filer, which occurs when the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30, or if we have total annual gross revenue of $1.07 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31, or if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, in which case we would no longer be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and
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reduced disclosure obligations regarding executive compensation in this prospectus and in our periodic reports and proxy statements. 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 share price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an emerging growth company or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act, upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.
Anti-takeover provisions in our restated certificate of incorporation and our restated bylaws and under Delaware or Washington law could make an acquisition of our business, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Our restated certificate of incorporation and our restated bylaws that will be in effect upon completion of this offering contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors who are not nominated by current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions:
∎ |
establish a classified board of directors so that not all members of our board are elected at one time; |
∎ |
permit only the board of directors to establish the number of directors and fill vacancies on the board; |
∎ |
provide that directors may only be removed for cause and only with the approval of two-thirds of our stockholders; |
∎ |
require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws; |
∎ |
authorize the issuance of blank check preferred stock that our board could use to implement a stockholder rights plan; |
∎ |
eliminate the ability of our stockholders to call special meetings of stockholders; |
∎ |
prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; |
∎ |
prohibit cumulative voting; and |
∎ |
establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. |
Moreover, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Likewise, because our principal executive offices are located in Washington, the anti-takeover provisions of the Washington Business Corporation Act may
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apply to us under certain circumstances now or in the future. These provisions prohibit a target corporation from engaging in any of a broad range of business combinations with any stockholder constituting an acquiring person for a period of five years following the date on which the stockholder became an acquiring person. Any of these provisions of our charter documents or Delaware or Washington law could, under certain circumstances, depress the market price of our common stock.
Our restated certificate of incorporation will 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 and our restated bylaws will designate federal district courts as the sole and exclusive forum for actions under the Securities Act, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or agents.
Our restated certificate of incorporation that will become effective upon the completion of this offering will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under the DGCL: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our restated certificate of incorporation, or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.
Our restated bylaws will also provide that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act. The enforceability of similar exclusive federal forum provisions in other companies organizational documents has been challenged in legal proceedings, and while the Delaware Supreme Court has ruled that this type of exclusive federal forum provision is facially valid under Delaware law, there is uncertainty as to whether other courts would enforce such provisions and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
These choice of forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provisions contained in our restated certificate of incorporation or restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. You will not have the opportunity, as part of your investment decision, to assess whether we are using the proceeds appropriately. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. If we do not invest or apply the net proceeds in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
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General Risk Factors
Natural disasters, catastrophic events and calamities including epidemics and pandemics may disrupt our business.
Natural disasters or other catastrophic events may damage or disrupt our operations and thus could harm our business. For example, our headquarters are located in Seattle, Washington, an earthquake-prone area. A natural disaster or catastrophic event in Seattle could interrupt our operations and impair access to internal systems, documents, and materials critical to the operation and growth of our business.
Further, occurrences of epidemics or pandemics, depending on their scale, may result in damage to the national and local economies within our geographic area. Global economic conditions may be disrupted by widespread outbreaks of infectious or contagious diseases, and such disruption may adversely affect clinical development plans. See Risk FactorsThe outbreak of COVID-19, or similar public health crises, could have a material adverse impact on our business, financial condition and results of operations, including the execution of our planned clinical trials.
As we grow, the need for business continuity planning and disaster recovery plans will become increasingly important. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster, and successfully execute on those plans in the event of a disaster or emergency, our business could be harmed.
We and our CMOs must comply with environmental, health and safety laws and regulations, and failure to comply with these laws and regulations could expose us to significant costs or liabilities.
We and our CMOs are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the use, generation, manufacture, distribution, storage, handling, treatment, remediation and disposal of hazardous materials and wastes. Hazardous chemicals, including flammable and biological materials, are involved in certain aspects of our business, and we cannot eliminate the risk of injury or contamination from the use, generation, manufacture, distribution, storage, handling, treatment or disposal of hazardous materials and wastes. In the event of contamination or injury, or failure to comply with environmental, health and safety laws and regulations, we could be held liable for any resulting damages and any such liability could exceed our assets and resources. We could also incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. We are uninsured for third-party injury from contamination.
Environmental, health and safety laws and regulations are becoming increasingly more stringent. We may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Further, with respect to the operations of our CMOs, it is possible that if they fail to operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated with our product candidates, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption in the manufacture and supply of our product candidates or products.
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We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our managements attention from other business concerns, which could seriously harm our business.
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 common 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 common stock could be impacted negatively. 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 nonclinical studies and clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of such 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 a decline in our stock price or trading volume.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections titled Prospectus Summary, Risk Factors, Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Business contains forward-looking statements. The words believe, may, will, potentially, estimate, continue, anticipate, intend, could, would, project, plan, expect and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.
These forward-looking statements are subject to several risks, uncertainties and assumptions, including those described in Risk Factors and elsewhere in this prospectus. Moreover, we operate in a competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, in addition to those discussed in the section titled Risk Factors and elsewhere in this prospectus, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:
∎ |
our ability to obtain and maintain regulatory approval of TRUDHESA and our other product candidates, and any related restrictions, limitations or warnings in the label of any approved product; |
∎ |
our ability to successfully formulate and execute on our commercialization strategy for TRUDHESA, if approved by the FDA; |
∎ |
the timing or likelihood of regulatory filings and approvals; |
∎ |
the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets; |
∎ |
the success, cost and timing of our development activities, preclinical studies and clinical trials; |
∎ |
the number, size and design of clinical trials that regulatory authorities may require to obtain marketing approval; |
∎ |
our plans relating to the future development and manufacturing of our product candidates, including plans for future development of our POD devices and plans to address additional indications for which we may pursue regulatory approval; |
∎ |
future agreements with third parties in connection with preclinical and clinical development as well as the manufacture and commercialization of our product candidates, if approved for commercial use; |
∎ |
our ability to attract customers for any approved products; |
∎ |
the effect of litigation, complaints or adverse publicity on our business; |
∎ |
our ability to establish and expand our sales force to address effectively the new indications, geographies and types of organizations we intend to target; |
∎ |
our ability to forecast and maintain an adequate rate of revenue growth and appropriately plan our expenses; |
∎ |
our liquidity and working capital requirements; |
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∎ |
our ability to attract and retain qualified employees and key personnel; |
∎ |
our ability to protect and enhance our brand and intellectual property; |
∎ |
the costs related to defending intellectual property infringement and other claims; |
∎ |
privacy, data security, and data protection laws, actual or perceived privacy or data breaches or other data security incidents, or the loss of data; |
∎ |
future regulatory, judicial, and legislative changes in our industry; |
∎ |
future arrangements with, or investments in, other entities or associations, products, services or technologies; |
∎ |
our use of the net proceeds from this offering; and |
∎ |
the increased expenses and administrative workload associated with being a public company. |
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this prospectus are more fully described in the section titled Risk Factors and elsewhere in this prospectus. The risks described in the section titled Risk Factors are not exhaustive. Other sections of this prospectus describe additional factors that could adversely affect our business, financial condition or results of operations. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
In addition, statements that we believe and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required by law.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission, or SEC, as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
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This prospectus contains estimates and other statistical data made by independent parties and by us relating to our industry and the markets in which we operate, including our general expectations and market position, market opportunity, the incidence of certain medical conditions and other industry data. These data, to the extent they contain estimates or projections, involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates or projections. Industry publications and other reports we have obtained from independent parties generally state that the data contained in these publications or other reports have been obtained in good faith or from sources considered to be reliable, but they do not guarantee the accuracy or completeness of such data. The industry in which we operate is subject to risks and uncertainties due to a variety of factors, including those described in the section titled Risk Factors. These and other factors could cause results to differ materially from those expressed in these publications and reports.
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We estimate that the net proceeds from our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $ million, or $ million if the underwriters exercise their option to purchase additional shares in full.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares offered, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered would increase (decrease) the net proceeds that we receive from this offering by $ million, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions.
We currently intend to use the net proceeds we receive from this offering as follows:
∎ |
approximately $ million to fund the regulatory approval process and initial commercial launch of TRUDHESA; |
∎ |
approximately $ million to initiate a clinical proof-of-concept trial for INP105 in patients with ASD; and |
∎ |
any remaining amounts to fund working capital and general corporate purposes. |
Based on our planned use of the net proceeds, we estimate such funds, together with our existing cash, will be sufficient for us to fund our operating expenses and capital expenditure requirements through at least the next 12 months. Until such time as we can generate significant revenue from sales of our products, if ever, we expect to finance our future operations, including the development of our product candidates, through the sale of additional equity, debt financings or other capital sources.
The amounts we actually spend in these areas, and the timing of such spending, may vary significantly from our current intentions and will depend on a number of factors, including the success of research and product development efforts, cash generated from future operations and actual expenses to operate our business.
The expected use of the net proceeds from the offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our clinical expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the status, results and timing of our current preclinical studies and clinical trials and those which we may commence in the future, the product approval process with the FDA and other regulatory agencies, any collaborations we may enter into with third parties and any unforeseen cash needs. As a result, we cannot predict with any certainty all of the particular uses for the net proceeds or the amounts that we will actually spend on the uses set forth above. We may use a portion of the net proceeds for the acquisition of, or investment in, businesses that complement our business, although we have no present commitments or agreements to do so. Accordingly, our management will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the net proceeds of this offering.
Pending the uses described above, we intend to invest the net proceeds from this offering in short term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.
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We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. Our future ability to pay cash dividends on our capital stock is limited by the terms of our existing debt and equity agreement with Avenue.
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The following table sets forth our cash and capitalization as of December 31, 2020 on:
∎ |
an actual basis; |
∎ |
a pro forma basis, giving effect to (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of December 31, 2020 into an aggregate of 206,399,763 shares of common stock immediately prior to the completion of this offering, (ii) the automatic exchange of a warrant held by Avenue Venture Opportunities Fund, L.P., or Avenue, into 1,762,810 shares upon completion of this offering, (iii) the issuance of shares of common stock pursuant to the net exercise of warrants to purchase 1,987,348 shares of redeemable convertible preferred stock outstanding as of December 31, 2020 that would otherwise expire upon completion of this offering, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, (iv) $7.5 million in proceeds from the convertible notes we issued in March 2021 and their conversion into shares of common stock immediately prior to the completion of this offering at 90% of the offering price, and (v) the effectiveness of our restated certificate of incorporation in connection with the completion of this offering; and |
∎ |
a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments described above and (ii) the sale of shares of common stock in this offering, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. |
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.
You should read this table together with Managements Discussion and Analysis of Financial Condition and Results of Operations, and our audited consolidated financial statements and related notes, each included elsewhere in this prospectus.
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As of December 31, 2020 | ||||||||||||
Actual | Pro Forma |
Pro Forma
As Adjusted(1) |
||||||||||
(in thousands, except share
and per share data) |
||||||||||||
(unaudited) | ||||||||||||
Cash |
$ | 7,095 | $ | $ | ||||||||
|
|
|
|
|
|
|||||||
Long-term debt, current and noncurrent |
$ | 8,411 | $ | $ | ||||||||
Redeemable convertible preferred stock warrant liabilities |
2,622 | |||||||||||
Redeemable convertible preferred stock, $0.001 par value; 204,198,489 shares authorized and 202,009,981 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted |
127,039 | |||||||||||
Stockholders (deficit) equity: |
||||||||||||
Preferred stock, $0.001 par value, no shares authorized, issued and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted |
| |||||||||||
Common stock, $0.001 par value; 266,833,885 shares authorized; 12,370,104 shares issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted |
12 | |||||||||||
Additional paid-in capital |
4,750 | |||||||||||
Accumulated deficit |
(138,262 | ) | ||||||||||
|
|
|
|
|
|
|||||||
Total stockholders (deficit) equity |
(133,500 | ) | ||||||||||
|
|
|
|
|
|
|||||||
Total capitalization |
$ | 4,572 | $ | $ | ||||||||
|
|
|
|
|
|
(1) |
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) each of our pro forma as adjusted cash, additional paid-in-capital, total stockholders (deficit) equity and total capitalization by approximately $ million, assuming that the number of shares offered remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered would increase (decrease) each of our pro forma as adjusted cash, additional paid-in-capital, total stockholders (deficit) equity and total capitalization by approximately $ million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions. |
The table above excludes the following shares:
∎ |
39,983,012 shares of common stock issuable upon the exercise of options outstanding as of December 31, 2020, with a weighted-average exercise price of $0.32 per share; |
∎ |
shares of our common stock issuable upon the exercise of stock options granted after December 31, 2020, with a weighted-average exercise price of $ per share; and |
∎ |
shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of (i) 5,639,902 shares of common stock reserved for future issuance under our 2018 Equity Incentive Plan as of December 31, 2020, (ii) shares of common stock reserved for future issuance under our 2021 Equity Incentive Plan, which will become effective on the date immediately prior to the date of this prospectus and (iii) shares of common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective on the date of this prospectus. Upon completion of this offering, any remaining shares available for issuance under our 2018 Equity Incentive Plan will be added to the shares reserved under our 2021 Equity Incentive Plan and we will cease granting awards under our 2018 Equity Incentive Plan. Our 2021 Equity Incentive Plan and |
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2021 Employee Stock Purchase Plan also provide for automatic annual increases in the number of shares reserved under the plans each year, as more fully described in Executive CompensationEquity Compensation Plans and Other Benefit Plans. |
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If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after this offering.
Net tangible book value (deficit) per share is determined by dividing our total tangible assets (which excludes deferred offering costs) less our total liabilities and redeemable convertible preferred stock by the number of shares of our common stock outstanding. Our historical net tangible book value (deficit) as of December 31, 2020 was $(133.5) million, or $(10.79) per share, based on 12,370,104 shares of common stock outstanding as of December 31, 2020. Our net tangible book value (deficit) per share represents total tangible assets, excluding deferred offering costs, less total liabilities and redeemable convertible preferred stock, all divided by the number of shares of common stock outstanding on December 31, 2020.
Our pro forma net tangible book value per share represents the amount of our total tangible assets (which excludes deferred offering costs) reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of December 31, 2020, after giving effect to (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of December 31, 2020 into an aggregate of 206,399,763 shares of common stock immediately prior to the completion of this offering, (ii) the automatic exchange of a warrant held by Avenue into 1,762,810 shares upon completion of this offering, (iii) the issuance of shares of common stock pursuant to the net exercise of warrants to purchase 1,987,348 shares of redeemable convertible preferred stock outstanding as of December 31, 2020 that would otherwise expire upon completion of this offering, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus and (iv) $7.5 million in proceeds from the convertible notes we issued in March 2021 and their conversion into shares of common stock immediately prior to the completion of this offering. Our pro forma net tangible book value as of December 31, 2020 was approximately $ million, or $ per share of common stock.
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Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after completion of this offering. After giving effect to (i) the pro forma adjustments described in the immediately preceding paragraph and (ii) our sale in this offering of shares of our common stock at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of December 31, 2020 would have been approximately $ million, or $ per share of our common stock. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to investors in this offering, as illustrated in the following table:
Assumed initial public offering price per share |
$ | |||||||
Historical net tangible book deficit per share as of December 31, 2020 |
$ | (10.79 | ) | |||||
Pro forma increase in net tangible book value per share attributable to the pro forma transactions described above |
||||||||
|
|
|||||||
Pro forma net tangible book value per share as of December 31, 2020 |
||||||||
Increase in pro forma net tangible book value per share attributable to new investors participating in this offering |
||||||||
|
|
|||||||
Pro forma as adjusted net tangible book value per share after this offering |
||||||||
|
|
|||||||
Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering |
$ | |||||||
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value by $ million, or $ per share and the dilution in pro forma as adjusted net tangible book value per share to new investors in this offering by $ per share, assuming the number of shares offered , as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase of 1,000,000 shares in the number of shares of common stock offered in this offering would increase our pro forma as adjusted net tangible book value by approximately $ million, or approximately $ per share, and would increase dilution per share to new investors in this offering by approximately $ per share and each decrease of 1,000,000 shares in the number of shares of common stock offered in this offering would decrease our pro forma as adjusted net tangible book value by approximately $ million, or approximately $ per share, and would decrease dilution per share to new investors in this offering by approximately $ per share, assuming the assumed initial public offering price per share remains the same and after deducting the estimated underwriting discounts and commissions. 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 exercise their option in full to purchase additional shares, the pro forma as adjusted net tangible book value per share after this offering would be $ per share, the increase in pro forma as adjusted net tangible book value per share to existing stockholders would be $ per share and the dilution to new investors in this offering would be $ per share.
The following table shows, as of December 31, 2020, on a pro forma as adjusted basis described above, the differences between the existing stockholders and the purchasers of shares in this offering with respect to the number of shares purchased from us, the total consideration paid, which includes
74
net proceeds received from the issuance of common and redeemable convertible preferred stock, cash received from the exercise of stock options, and the value of any stock issued for services and the average price paid per share (in thousands, except per share amounts and percentages):
Shares Purchased | Total Consideration |
Average
Price Per Share |
||||||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||||||
Existing stockholders |
% | $ | % | $ | ||||||||||||||||
Investors purchasing shares in this offering |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
100.0 | % | $ | 100.0 | % | |||||||||||||||
|
|
|
|
|
|
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) total consideration paid by new investors and total consideration paid by all stockholders by approximately $ million, assuming that the number of shares offered, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered in this offering would increase (decrease) total consideration paid by new investors and total consideration paid by all stockholders by approximately $ million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions.
To the extent that any outstanding stock options or warrants are exercised, or new stock options or warrants are issued under our equity incentive plans, or we issue additional equity in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or equity-linked securities, the issuance of these securities could result in further dilution to our stockholders.
Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters option to purchase additional shares. If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own % and our new investors would own % of the total number of shares of our common stock outstanding upon the completion of this offering.
The number of shares of common stock outstanding as of December 31, 2020 excludes:
∎ |
39,983,012 shares of common stock issuable upon the exercise of options outstanding as of December 31, 2020, with a weighted-average exercise price of $0.32 per share; |
∎ |
shares of our common stock issuable upon the exercise of stock options granted after December 31, 2020, with a weighted-average exercise price of $ per share; and |
∎ |
shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of (i) 5,639,902 shares of common stock reserved for future issuance under our 2018 Equity Incentive Plan as of December 31, 2020, (ii) shares of common stock reserved for future issuance under our 2021 Equity Incentive Plan, which will become effective on the date immediately prior to the date of this prospectus and (iii) shares of common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective on the date of this prospectus. Upon completion of this offering, any remaining shares available for issuance under our 2018 Equity Incentive Plan will be added to the shares reserved under our 2021 Equity Incentive Plan and we will cease |
75
granting awards under our 2018 Equity Incentive Plan. Our 2021 Equity Incentive Plan and 2021 Employee Stock Purchase Plan also provide for automatic annual increases in the number of shares reserved under the plans each year, as more fully described in Executive CompensationEquity Compensation Plans and Other Benefit Plans. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and consolidated results of operations together with our consolidated financial statements and related notes and other financial information 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, includes forward-looking statements that involve risks and uncertainties. See Special Note Regarding Forward-Looking Statements and Risk Factors for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements.
Overview
We are a late-stage pharmaceutical company focused on utilizing our proprietary technology to develop and commercialize transformative therapies for patients suffering from diseases with high unmet medical needs, with an initial focus on diseases of the central nervous system, or CNS. Our company was founded on the premise that the upper nasal cavity can be an optimal treatment entry point for CNS and other diseases where rapid vascular absorption can result in superior clinical outcomes. Our strategy is to pair our proprietary Precision Olfactory Delivery, or POD, upper nasal delivery technology with well-established therapeutics or other therapeutics where rapid vascular absorption is preferred to drive therapeutic benefit, improve patient outcomes, reduce drug development risk and expand the commercial opportunity within our target diseases. Since 2016, we have identified and advanced multiple product candidates, including TRUDHESATM (INP104) for the acute treatment of migraine and INP105 for the acute treatment of agitation and aggression in patients with Autism Spectrum Disorder, or ASD. Our pipeline of proprietary product candidates also includes INP107 for the treatment of OFF episodes in Parkinsons Disease. In November 2020, we submitted an NDA for TRUDHESA, for the acute treatment of migraine headaches with or without aura in adult patients. The FDA has filed and accepted the new drug application, or NDA, for review and established a Prescription Drug User Fee Act, or PDUFA, goal date of September 6, 2021.
We have retained all development and commercial rights to each of our product candidates. Given the concentrated prescriber base of our target market for TRUDHESA and our other product candidates, we believe we will be able to independently commercialize each of our existing product candidates, if approved. We initially plan to build a targeted sales team of approximately 60 representatives for TRUDHESA, as well as similar targeted sales teams for our other existing product candidates. We would then build and leverage a central organization comprised of market access, medical affairs, patient support, marketing and operations to support these distinct field teams.
We have built out an internal research and development team and also used and plan to continue to use third-party contract research organizations, or CROs, to carry out our preclinical and clinical development. We rely on third-party contract manufacturing organizations, or CMOs, to manufacture and supply our clinical materials to be used during the development of our product candidates. These CMOs are currently manufacturing commercial stage POD devices for TRUDHESA, which we used for our Phase 1 clinical trial, our registration lots and our STOP301 trial, and we intend to use for commercial launch of TRUDHESA. CMOs are currently manufacturing clinical stage POD devices for INP105 and INP107, which we expect to transition to a commercial stage POD device for pivotal studies and commercialization. The development work on the commercial stage POD device for INP105 is ongoing while the commercial formulation and drug production are scaled to commercial level.
From inception through December 31, 2020, we funded our operations primarily with an aggregate of $135.0 million in gross cash proceeds from the sale and issuance of redeemable convertible
77
preferred stock, convertible notes, debt and warrants. Since inception, we have incurred significant operating losses and expect to incur significant and increasing losses in the foreseeable future as we advance our product candidates into later stages of development and, if approved, commercialization. Our net losses were $41.9 million and $45.8 million for the years ended December 31, 2019 and 2020, respectively. As of December 31, 2020, we had an accumulated deficit of $138.3 million.
We expect our expenses and net losses to increase significantly as we prepare to commercialize TRUDHESA, continue our development of, and seek regulatory approvals for, our other product candidates, and begin to commercialize any approved products, if any, as well as hire additional personnel, protect our intellectual property and incur additional costs associated with operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical studies and trials, associated manufacturing needs, commercialization activities if our product candidates are approved and our expenditures on other research and development activities.
Until such time as we can generate significant revenue from sales of our products, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our product candidates or delay our efforts to advance and expand our pipeline.
COVID-19 Impact
We are continuing to proactively monitor and assess the novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, global pandemic. Since early March we have been monitoring the potential impact on our business that may result from this rapidly evolving crisis and to avoid any unnecessary potential delays to our programs. The safety and well-being of employees, patients and partners is our highest priority. To date, we have continued to operate without material impact on our business.
In response to the COVID-19 pandemic, we have implemented or are planning to implement various strategies to minimize any disruptions to our potential commercialization of TRUDHESA and our planned clinical trials. As of the date of this prospectus, we do not expect any disruption in our supply chain of drugs necessary to initially launch TRUDHESA and to conduct our clinical trials. However, we are continuing to evaluate our clinical supply chain in light of the COVID-19 pandemic. Numerous state and local jurisdictions have imposed, and others in the future may impose, shelter-in-place orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. We are supporting our employees by utilizing remote work, leveraging virtual meeting technology and encouraging employees to follow local guidance.
The global pandemic of COVID-19 continues to rapidly evolve. The extent to which COVID-19 may impact our business, including our clinical trials, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
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Financial Operations Overview
Operating Expenses
Research and Development
Research and development costs are expensed as incurred. Research and development expenses consist primarily of salaries, benefits and other staff-related costs, including associated stock-based compensation, laboratory supplies, nonclinical and clinical studies and trials, manufacturing, costs for product candidates and POD devices to support our studies and trials, to design new versions of PODs, vendor validation and quality control preparation and fees paid to other entities that conduct certain research and development activities on our behalf.
We accrue for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from our external service providers. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and the services are performed. In addition, we account for fully refundable research and development tax credits, based on 43.5% of qualified research and development expenditures of our Australian subsidiary, as an offset to research and development expenses.
We track our direct costs by product candidate, but we do not allocate overhead costs or certain external costs because they support multiple product candidates. In particular, with respect to internal costs, several of our departments support multiple product candidate research and development programs, and we do not allocate those costs by product candidate.
We expect to continue to incur significant research and development expenses over the next several years as our clinical programs progress and we seek to complete existing clinical studies and trials and initiate additional nonclinical and clinical studies and trials and pursue regulatory approval of our product candidates.
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. Our research and development expenses may vary significantly based on factors such as:
∎ |
the phases of development of our product candidates; |
∎ |
the progress and results of our research and development activities; |
∎ |
the number of trials required for regulatory approval of our product candidates; |
∎ |
the number of sites included in the trials; |
∎ |
the countries in which the trials are conducted; |
∎ |
the length of time required to enroll eligible subjects and initiate clinical trials; |
∎ |
the number of subjects that participate in the trials; |
∎ |
the drop-out and discontinuation rate of subjects; |
∎ |
potential additional safety monitoring requested by regulatory agencies; |
∎ |
the duration of subject participation in the trials and follow-up; |
∎ |
the cost and timing of manufacturing of our product candidates; |
∎ |
the receipt of regulatory approvals from applicable regulatory authorities; |
∎ |
the timing, receipt and terms of any marketing approvals from applicable regulatory authorities; |
∎ |
the hiring and retention of research and development personnel; |
∎ |
the impact of the COVID-19 pandemic or other future pandemics on timelines and clinical operations, which may lead to increased costs, delays or both; and |
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∎ |
the extent to which we establish collaboration, licensing or similar arrangements and the performance of any related third parties. |
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.
General and Administrative
Our general and administrative expenses consist primarily of employee-related expenses, including salaries, benefits, travel and stock-based compensation for our personnel in executive, finance and accounting, human resources, and other administrative functions, as well as fees paid for accounting, legal and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. We also expect selling and marketing costs to increase significantly as we prepare for the expected commercial launch of TRUDHESA, if approved, including the build out of our specialized sales force beginning in 2021 and further growth of our commercial infrastructure thereafter. We anticipate that, following completion of this offering, we will incur additional expenses associated with operating as a public company, including increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with the rules and regulations of the SEC and standards applicable to companies listed on a national securities exchange, additional insurance expenses, investor relations activities and other administrative and professional services.
Other Expense, Net
Other expense, net, consists of interest earned on our cash and changes in the fair value of our redeemable convertible preferred stock warrant liabilities.
Consolidated Results of Operations
Comparison of the Years Ended December 31, 2019 and 2020
Year Ended
December 31, |
Change | |||||||||||
2019 | 2020 | |||||||||||
(in thousands) | ||||||||||||
Operating expenses: |
||||||||||||
Research and development |
$ | 28,812 | $ | 27,285 | $ | (1,527 | ) | |||||
General administrative |
12,754 | 18,049 | 5,295 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
41,566 | 45,334 | 3,768 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(41,566 | ) | (45,334 | ) | (3,768 | ) | ||||||
Other expense, net |
(263 | ) | (463 | ) | (200 | ) | ||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
(41,829 | ) | (45,797 | ) | (3,968 | ) | ||||||
Provision for income taxes |
(30 | ) | (1 | ) | 29 | |||||||
|
|
|
|
|
|
|||||||
Net loss and comprehensive loss |
(41,859 | ) | (45,798 | ) | (3,939 | ) | ||||||
Accretion on redeemable convertible preferred stock |
(505 | ) | (518 | ) | (13 | ) | ||||||
|
|
|
|
|
|
|||||||
Net loss attributable to common stockholders |
$ | (42,364 | ) | $ | (46,316 | ) | $ | (3,952 | ) | |||
|
|
|
|
|
|
Research and Development
Research and development expenses were $28.8 million in 2019, compared to $27.3 million in 2020. The decrease of $1.5 million was primarily due to a $4.0 million decrease in program-specific
80
costs supporting clinical development of our product candidates, primarily for TRUDHESA, INP105 and INP107, as clinical trials either closed or neared completion. This decrease was partially offset by an increase in non program-specific costs of $2.5 million primarily related to personnel costs due to an increase in headcount.
The following table summarizes the period-over-period change in research and development expenses by product candidate for the periods indicated:
Year Ended
December 31, |
||||||||||||
2019 | 2020 | Change | ||||||||||
(in thousands) | ||||||||||||
Program-specific costs: |
||||||||||||
TRUDHESA |
$ | 17,199 | $ | 15,961 | $ | (1,238 | ) | |||||
INP105 |
1,759 | 222 | (1,537 | ) | ||||||||
INP107(1) |
1,242 | 82 | (1,160 | ) | ||||||||
Other programs |
102 | 55 | (47 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total program-specific costs |
20,302 | 16,320 | (3,982 | ) | ||||||||
|
|
|
|
|
|
|||||||
Non program-specific costs: |
||||||||||||
Personnel-related |
7,599 | 9,701 | 2,102 | |||||||||
Cost reimbursements and credits |
(227 | ) | (47 | ) | 180 | |||||||
Internal, overhead and other expenses |
1,138 | 1,311 | 173 | |||||||||
|
|
|
|
|
|
|||||||
Total non program-specific costs |
8,510 | 10,965 | 2,455 | |||||||||
|
|
|
|
|
|
|||||||
Total research and development expenses |
$ | 28,812 | $ | 27,285 | $ | (1,527 | ) | |||||
|
|
|
|
|
|
(1) |
Includes expenditures relating to a levodopa-only formulation, prior to our decision to move INP107 forward in clinical development. |
General and Administrative
General and administrative expenses were $12.8 million in 2019, compared to $18.0 million in 2020. The increase of $5.3 million was primarily due to a $3.2 million increase in personnel-related expenses due to an increase in headcount, along with accrued bonus and severance for our former CEO. The increase was also due to an increase in commercialization activities in marketing, market access and sales related services of $0.9 million, and an increase in routine legal expenses of $1.1 million.
Other Expense, Net
Other expense, net was $0.3 million in 2019, compared to $0.5 million in 2020. The increase of $0.2 million was primarily due to a decrease in interest income of $0.4 million as a result of lower cash balances and an increase in interest expense of $0.2 million related to the amortization of the debt discount. This was partially offset by a decrease of expense of $0.4 million attributable to changes in the fair value of our convertible preferred stock warrant liabilities.
Unaudited Pro Forma Information
Immediately prior to the completion of this offering, all outstanding shares of our redeemable convertible preferred stock will automatically convert into shares of our common stock. Unaudited pro forma net loss per share attributable to common stockholders was computed to give effect to the (i) automatic conversion of all outstanding shares of redeemable convertible preferred stock into shares of common stock at a ratio of (a) 1:1 for Series A, C, and D, and (b) 1:2.10608 for Series B, in connection with a Qualified Public Offering, using the as-converted method as though the conversion had occurred as of the beginning of the period or the date of issuance, if later; (ii) the automatic exchange of a
81
warrant held by Avenue Venture Opportunities Fund, L.P., or Avenue, into 1,762,810 shares upon completion of this offering, and (iii) the net exercise of redeemable convertible preferred stock warrants, that would otherwise expire upon completion of the IPO, based on an assumed IPO price of per share. Pro forma net loss per share attributable to common stockholders does not include the shares expected to be sold in this offering or the conversion of the 2021 convertible notes.
The following table sets forth the computation of the unaudited pro forma basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):
Year Ended
December 31, 2020 |
||||
(Unaudited) | ||||
Numerator: |
||||
Net loss attributable to common stockholders |
$ | (46,316 | ) | |
Change in fair value of redeemable convertible preferred stock warrant liabilities |
153 | |||
Accretion to redemption value on redeemable convertible preferred stock |
518 | |||
|
|
|||
Net loss used in computing pro forma net loss per share attributable to common stockholders, basic and diluted |
$ | (45,645 | ) | |
|
|
|||
Denominator: |
||||
Weighted-average shares of common stock used in computing net loss per share attributable to common stockholders |
8,328,911 | |||
Pro forma adjustment to reflect conversion of redeemable convertible preferred stock |
205,662,100 | |||
Pro forma adjustment to reflect automatic exchange of Avenue warrant |
||||
Pro forma adjustment to reflect net exercise of redeemable convertible preferred stock warrants |
||||
|
|
|||
Weighted-average shares of common stock used in computing pro forma net loss per share attributable to common stockholders, basic and diluted |
||||
|
|
|||
Pro forma net loss per share attributable to common stockholders, basic and diluted |
$ | |||
|
|
Liquidity and Capital Resources
Sources of Liquidity
Due to our significant research and development expenditures, we have incurred significant operating losses and negative cash flows from operations since our inception. Through December 31, 2020, we have funded our operations primarily through the issuance of convertible promissory notes, redeemable convertible preferred stock, debt and warrants with aggregate proceeds of $135.0 million. In March 2021, we issued convertible promissory notes for aggregate proceeds of $7.5 million, or the 2021 convertible notes. As of December 31, 2020, we had available cash of $7.1 million. We believe our cash as of December 31, 2020, together with the proceeds from the 2021 convertible notes, will not be sufficient for us to continue as a going concern for at least one year from the issuance date of our financial statements. We believe that this raises substantial doubt about our ability to continue as a going concern. As a result, we will be required to raise additional capital. If sufficient funds on acceptable terms are not available when needed, we could be required to significantly reduce our operating expenses and delay, reduce the scope of or eliminate one or more of our development programs. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact our ability to achieve our intended business objectives.
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In November 2020, we entered into a debt and equity financing agreement, or the Avenue Agreement, with Avenue. The Avenue Agreement provides for a 36-month term loan of up to $20.0 million, of which $10.0 million was funded at close and an additional $10.0 million is available at our request until December 31, 2021, subject to (i) completion of an underwritten public offering with gross proceeds of at least $75.0 million, or a Qualified Public Offering, (ii) receipt of FDA approval of TRUDHESA and (iii) approval by Avenues investment committee. Under the agreement, Avenue also has the right to invest up to $10.0 million in our equity securities in a private placement concurrent with the closing of our initial public offering at the initial price to the public, subject to mutual agreement. Loans under the Avenue Agreement incur interest at an initial interest rate of 11% per year. Payments for the term loan are interest only for the initial 12 months and can be extended to (i) 24 months upon achieving a Qualified Public Offering or (ii) 36 months upon achieving the first interest only period extension and FDA approval of TRUDHESA. The term loan will amortize in equal payments of principal from the end of the interest only period to the expiration of the 36-month term on November 1, 2023. The term loan is subject to a final payment fee and prepayment fees. Prior to a Qualified Public Offering, the term loan is secured by substantially all of our assets, including substantially all of our intellectual property. Following closing of a Qualified Public Offering, the term loan will be secured by substantially all of our assets, excluding our intellectual property.
We also issued a warrant to Avenue to purchase, at its option, either 1,762,810 shares of our Series D redeemable convertible preferred stock or a number of shares of the preferred stock issued in our next preferred stock equity financing determined based on the sale price of such preferred stock. Upon completion of this offering, this warrant will be automatically exchanged for 1,762,810 shares of common stock for no additional consideration.
Cash Flows
Year Ended
December 31, |
||||||||
2019 | 2020 | |||||||
(in thousands) | ||||||||
Cash used in operating activities |
$ | (36,487 | ) | $ | (39,183 | ) | ||
Cash used in investing activities |
(1,523 | ) | (1,782 | ) | ||||
Cash provided by financing activities |
21 | 11,059 | ||||||
|
|
|
|
|||||
Net decrease in cash |
$ | (37,989 | ) | $ | (29,906 | ) | ||
|
|
|
|
Cash Flows From Operating Activities
For 2019, cash used in operating activities was $36.5 million, which consisted of a net loss of $41.9 million partially offset by a net change of $3.2 million in operating assets and liabilities and $2.2 million in non-cash charges. The net change in our operating assets was primarily due to increases in accounts payable and accrued expenses of $3.8 million due to an increase in the level of research and development expenses and other assets of $0.3 million partially offset by an increase in prepaid expenses and other current assets and other assets of $0.9 million. The non-cash charges primarily consisted of depreciation and amortization of $0.7 million, stock-based compensation of $0.8 million and $0.7 million from a change in the fair value of our redeemable convertible preferred stock warrant liabilities.
For 2020, cash used in operating activities was $39.2 million, which consisted of a net loss of $45.8 million partially offset by $5.1 million in non-cash charges and by a net change of $1.5 million in operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $3.6 million, depreciation and amortization of $1.1 million, amortization of debt discounts of $0.2 million, and $0.2 million from a change in the fair value of our redeemable convertible
83
preferred stock warrant liabilities. The net change in our operating assets was primarily due to an increase in accounts payable of $1.5 million and a decrease in prepaid expenses and other current assets of $1.4 million partially offset by a decrease in accrued liabilities of $1.2 million and an increase in other assets of $0.2 million.
Cash Flows From Investing Activities
For 2019 and 2020, cash used in investing activities of $1.5 million and $1.8 million, respectively, was related to purchases of property and equipment.
Cash Flows From Financing Activities
For 2019, cash provided by financing activities was $21,000, consisting primarily of proceeds from the exercise of stock options.
For 2020, cash provided by financing activities was $11.1 million, consisting primarily of $9.7 million in proceeds from the issuance of debt, $0.9 million in proceeds from the exercise of stock options, and $0.5 million in proceeds from the issuance of redeemable convertible preferred stock.
Funding Requirements
We use our cash to fund operating expenses, including research and development expenditures and sales and marketing in anticipation of a potential commercial launch for TRUDHESA. We will incur significant expense as we prepare for and execute a potential commercial launch for TRUDHESA. We plan to continue to incur research and development expenses for the foreseeable future as we continue clinical trials and move further into product candidate development. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs primarily through a combination of equity or debt financings.
The timing and amount of our operating expenditures will depend largely on:
∎ |
the costs and timing of commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; |
∎ |
the costs, timing and outcome of regulatory review of our product candidates; |
∎ |
the number and development requirements of other product candidates that we may pursue; |
∎ |
the costs associated with building out our operations; |
∎ |
the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; |
∎ |
our ability to establish strategic collaborations; |
∎ |
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; |
∎ |
the risk/benefit profile, cost and reimbursement policies with respect to our product candidates, if approved, and existing and potential future therapies that compete with our product candidates; and |
∎ |
the costs associated with being a public company. |
If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders rights. If we raise additional capital through debt financing, we may be subject to additional liens against potentially all of our assets and covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
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Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Polices and Estimates
Our managements discussion and analysis of our financial condition and consolidated results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated 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 consolidated financial statements, as well as the reported revenue generated, and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this prospectus, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.
Research and Development
We expense research and development costs as incurred. Research and development costs consist primarily of salaries, benefits, occupancy, materials and supplies, manufacturing and assembly of devices for clinical trials, contracted research, consulting arrangements, and other expenses incurred to sustain our research and development programs. We defer and capitalize non-refundable advance payments for goods or services that will be used or rendered for future research and development activities as prepaid expenses until the related goods are delivered or services are performed. We evaluate such payments for current or long-term classification based on when such services are expected to be received.
We are required to estimate our expenses resulting from our obligation under contracts with vendors and consultants and clinical site agreements in connection with our research and development efforts. The financial terms of these contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We match those expenses with the period in which services and efforts are expended and we account for these expenses according to the progress of our research and development efforts. We determine advance payments for research and development services and accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of communication of clinical trials, or other services completed. We adjust our rate of research and development expense recognition if actual results differ from our estimates.
Stock-Based Compensation
We maintain a stock-based compensation plan as a long-term incentive for employees, consultants and members of our board of directors. The plan allows for the issuance of incentive stock options, non-qualified stock options, restricted stock units and other forms of stock awards.
We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes-Merton option pricing model. This model utilizes
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inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:
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Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding. We use the simplified method (based on the mid-point between the vesting date and the end of the contractual term) to determine the expected term. |
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Expected Volatility. Since we have been privately held and do not have any trading history for our common stock, the expected volatility was estimated based on the average historical volatilities for comparable publicly traded pharmaceutical 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 and area of specialty. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. |
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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. |
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Expected Dividend. We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero. |
We recorded stock-based compensation expense of $0.8 million and $3.6 million for the years ended December 31, 2019 and 2020, respectively. The fair values of the shares of common stock underlying our share-based awards are estimated on each grant date by our board of directors. Our board of directors considers, among other things, valuations of our common stock which were prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. In determining a fair value for our common stock, we used the Backsolve Method. The Backsolve Method utilizes a recent equity financing to back into the implied equity value. The equity value is then allocated to the equity classes using an option pricing method and then reducing the implied common stock value by a discount for lack of marketability.
Given the absence of a public trading market prior to this offering, our board of directors with input from management considered numerous objective and subjective factors to determine the fair value of common stock. The factors included, but were not limited to:
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third-party valuations of our common stock; |
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our stage of development; |
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the status of research and development efforts; |
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the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock; |
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our operating results and financial condition, including our levels of available capital resources; |
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equity market conditions affecting comparable public companies; |
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general U.S. market conditions; and |
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the lack of marketability of our common stock. |
For valuations after the completion of this offering, the fair value of each share of underlying common stock will be based on the closing price of our common stock as reported on the date of grant.
The intrinsic value of all outstanding options as of December 31, 2020 was $ million based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus.
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Redeemable Convertible Preferred Stock Warrant Liabilities
We have issued warrants to purchase shares of our redeemable convertible preferred stock that are accounted for as liabilities at fair value, because the shares underlying the warrants contain contingent redemption features outside our control. Warrants classified as liabilities are recorded on the consolidated balance sheets at their fair value on the date of issuance and remeasured to fair value on each subsequent reporting period, with the changes in fair value recognized as a component of other expense, net in the consolidated statements of operations. The fair value of the warrants was determined using an option pricing model. Under this model, our estimated equity value as of the measurement date is allocated to various classes of financial instruments (such as common and redeemable convertible preferred stock and warrants to purchase redeemable convertible preferred stock) based on their rights and preferences in an assumed liquidity scenario. The liability is adjusted for changes in the fair value of these warrants until the earlier of the exercise of the warrants, the expiration of the warrants, or until such time as the warrants are no longer considered liability instruments.
Income Taxes
We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. In evaluating our valuation allowance, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Due to uncertainty with respect to ultimate realizability of deferred tax assets, we have provided a valuation allowance against the U.S. deferred tax assets. We intend to maintain a full valuation allowance on the federal and state deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.
At December 31, 2020, we had federal NOL and research and development credit carryforwards of approximately $21.4 million and $6.5 million that begin to expire in 2028 and 2029, respectively. In addition, we have $98.7 million of post 2017 federal NOL carryforwards that carry forward indefinitely. Utilization of the post 2017 federal NOL carryforwards is limited to eighty-percent of taxable income generated in a given tax year.
Under Sections 382 and 383 of the IRC, substantial changes in our ownership may limit the amount of NOL and research and development credit carryforwards that could be used annually in the future to offset taxable income. The tax benefits related to future utilization of federal and state NOL carryforwards, credit carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period. We have not completed an IRC Section 382/383 analysis regarding the limitation of NOL and credit carryforwards. If a change in ownership were to have occurred, the annual limitation may result in the expiration of NOL carryforwards and credits before utilization. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.
We record unrecognized tax benefits as liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
Recent Accounting Pronouncements
See Note 2 to our audited consolidated financial statements included elsewhere in this prospectus for more information.
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Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. We held cash of $7.1 million and $37.0 million as of December 31, 2020 and December 31, 2019, respectively. We generally hold our cash in interest-bearing money market accounts. Historical fluctuations in interest rates have not been significant for us. Due to the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS 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 elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We are using the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.
We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenues 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 $700.0 million as of the prior June 30th and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
We are also a smaller reporting company, meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Reports on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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Overview
We are a late-stage pharmaceutical company focused on utilizing our proprietary technology to develop and commercialize transformative therapies for patients suffering from diseases with high unmet medical needs, with an initial focus on diseases of the CNS. Our company was founded on the premise that the upper nasal cavity can be an optimal treatment entry point for CNS and other diseases where rapid vascular absorption can result in superior clinical outcomes. Our strategy is to pair our proprietary POD upper nasal delivery technology with well-established therapeutics or other therapeutics where rapid vascular absorption is preferred to drive therapeutic benefit, improve patient outcomes, reduce drug development risk and expand the commercial opportunity within our target diseases. Since 2016, we have identified and advanced multiple product candidates, including TRUDHESA for the acute treatment of migraine and INP105 for the acute treatment of agitation and aggression in patients with Autism Spectrum Disorder, or ASD. Our pipeline of proprietary product candidates also includes INP107 for the treatment of OFF episodes in Parkinsons Disease. In November 2020, we submitted an NDA for TRUDHESA, for the acute treatment of migraine headaches with or without aura in adult patients. The FDA has filed and accepted the NDA for review and established a PDUFA goal date of September 6, 2021.
We have designed our proprietary POD technology to target the vascular-rich upper nasal cavity, and to provide rapid absorption, consistent drug biodistribution and ease of use for a patient, provider or caregiver. Our goal with our POD technology is to deliver injection-like clinical outcomes non-invasively. We believe that we are the first company to successfully harness the benefits of delivery to the upper nasal cavity to improve delivery and the pharmacologic potential of CNS therapies.
The following table summarizes our product candidates, each of which is wholly owned:
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POD Technology
Using our proprietary POD technology, we have developed devices that deliver therapeutics directly to the upper nasal cavity. These devices are designed to offer several key benefits compared to traditional nasal delivery systems, including:
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Rapid Onset. The precise spray plume and biphasic nature of delivery to the upper nasal cavity allows for superior dose deposition and rapid absorption into the systemic circulation as compared to traditional nasal delivery systems. |
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Consistent Drug Bioavailability. Metered propellant dosing allows for more consistent blood levels than typically seen with traditional nasal sprays and are equivalent, or superior, to those achieved through IM injections. |
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Improved Patient-Provider Experience. Our proprietary gas propulsion mechanism eliminates the need for coordination of breathing and enables delivery of a dosing in 1/10th of a second, enabling self- or provider-administration in a manner that improves patient comfort and compliance. |
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Manufacturability. Separation of propellant and drug within the POD device helps streamline CMC development, as we are not constrained by the limits of co-formulating our therapeutics inside of a pressurized propellant canister. |
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Formulation Versatility. The POD device is versatile and can deliver both liquid and powder formulations in order to potentially address a wide variety of indications across multiple therapeutic areas. |
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Strong Intellectual Property Position. We believe that we have a strong global intellectual property position relating to our POD device and product candidates. We have four U.S. issued patents and 21 patents issued in ex-U.S. jurisdictions directed to our approach of drug delivery to the upper nasal cavity, including claims directed to a nasal device with separate drug and propellant compartments. Our patent portfolio is expected to provide patent protection ranging from 2032 to 2040. |
We believe that our in-house technical and development expertise positions us to address unmet medical needs across multiple therapeutic areas by delivering well-established and novel drugs consistently, rapidly and non-invasively. Our technical and development expertise has allowed us to rapidly identify and develop our product candidates to their current state in under 5 years. For example, INP105 was advanced from lead candidate selection to development of more than 20 formulations, the completion of five nonclinical studies, and ultimately a proof-of-concept clinical trial, within 16 months. We have tested over 30 small molecules and biologics for suitability of nasal drug administration with our proprietary POD technology. This depth of knowledge and experience, along with our proprietary technology, creates a platform for rapid additional pipeline expansion. In addition to our technology and development expertise, our strong intellectual property portfolio protects multiple aspects of our approach to delivering drug to the upper nasal cavity. We believe that our apparatus, composition of matter and method of use intellectual property can provide strong exclusivity protection to our product candidates.
Our Product Candidates
TRUDHESA (Acute Treatment of Migraine)
We are currently developing our lead product candidate, TRUDHESA (INP104), as an upper nasal formulation of DHE administered using our proprietary POD technology for the acute treatment of migraine. Migraine is a growing market projected to triple in size to over $10 billion by 2028 with the introduction of multiple new product offerings and an expected increase in disease diagnosis. DHE is widely used as part of a standard of care for treatment of migraines, despite being limited by IV and
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injection delivery or traditional nasal administration. IV and injection delivery require administration administered in physicians offices, migraine clinics and hospitals, and traditional nasal administration has been challenged by inconsistent efficacy.
In June 2020, we announced the following exploratory efficacy results of our STOP301 trial to evaluate the safety and tolerability of long-term, intermittent use of TRUDHESA as an acute treatment of migraine with or without aura in adult patients. In this trial, baseline results prior to trial initiation were based on migraine attacks where patients used their standard acute migraine medication. In the trial:
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38% of patients were pain free at two hours after their first dose of TRUDHESA. |
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52% of patients receiving TRUDHESA were free of their most bothersome migraine symptom at two hours. |
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Patients treated with TRUDHESA also demonstrated improvement in pain relief: 16% of patients treated with TRUDHESA had pain relief within 15 minutes of treatment, and 66% had pain relief within two hours. |
The exploratory endpoints of the trial also included an assessment of the following long-term outcomes of TRUDHESA when patients were treated for six months:
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38% of patients treated with TRUDHESA remained pain free at two hours through three months of treatment and 34% of patients treated with TRUDHESA remained pain free at two hours through six months of treatment. |
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Patients who received TRUDHESA saw a 48% reduction in the frequency of their migraines compared to baseline during the six-month trial. |
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98% and 95% of patients achieving pain freedom at two hours on TRUDHESA did not suffer a relapse in migraine or require a rescue medication at 24 hours and 48 hours, respectively, by weeks 21 to 24. |
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EAER data showed a meaningful reduction in the usage of healthcare resources by patients treated with TRUDHESA versus their baseline. Emergency room visits were reduced by approximately 73% and hospitalizations and urgent care visits were reduced by 100%. |
Although the trial was not powered to determine statistical significance of the exploratory efficacy endpoints, we believe these exploratory endpoints provide important data for evaluating the clinical benefit of TRUDHESA and showed consistency with the generally understood benefits of DHE for the acute treatment of migraines. The primary endpoints of the STOP301 trial were safety and tolerability of long-term, intermittent use. In this trial, TRUDHESA was generally well tolerated. There were a total of seven treatment emergent SAEs none of which were determined by the investigator to be related to TRUDHESA, or led to withdrawal from the trial. There were also no significant changes to sense of smell, and no significant abnormal findings from endoscopy examinations.
In November 2020, we submitted an NDA for TRUDHESA for the acute treatment of migraine headaches with or without aura in adult patients. The FDA has filed and accepted the NDA for review and established a PDUFA goal date of September 6, 2021. The brand name TRUDHESA has been conditionally approved by the FDA.
If approved, we believe we can successfully commercialize TRUDHESA in the United States with a specialty sales force beginning with approximately 60 representatives, and increasing to approximately 120 representatives, focusing in areas with increased demand. We intend to strategically pursue high value prescribers and early adopters, beginning with 8,000 of the highest volume migraine treatment
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prescribers. Based on recent migraine treatment product launches, such as ubrogepant and rimegepant, we believe this approach can be successful in accessing the concentrated prescriber bases in migraine. This target base includes approximately 4,000 neurologists and 4,000 high prescribing primary care physicians and headache specialists who have significant experience with prescribing DHE. These groups make up 35% of the migraine treatment prescriptions written in 2020 in the United States. In particular, neurologist prescription productivity has grown an average of approximately 15% per year over the last two years, a growth figure aided by an increase in the number of patients seeking treatment from neurologists and primary care physicians for migraine. The planned scale up to 120 representatives is intended to allow us to target an additional 8,000 high prescribing physicians that we believe will enable us to expand coverage to 45% of all migraine treatment prescriptions in the United States. We intend to build a commercial infrastructure focused on distribution, access, promotion, education and customer support. Our market research indicates that over 70% of migraine sufferers are seeking better treatments, and physicians are willing to prescribe and payors support access at profitable price and rebate points. With approximately 72% of migraine prescriptions paid by commercial payors, we believe this market presents an attractive payor mix. We anticipate using a robust sample program to ensure trial with TRUDHESA for patients seeking better treatments and outcomes. Also, as part of our commercialization strategy, we plan to educate healthcare practitioners and patients, partner with national associations and actively support advocacy groups in the migraine market. These efforts will be supplemented with non-personal promotion to all targeted and non-targeted medium value physicians. To capture the maximum commercial opportunity of TRUDHESA, we may also selectively seek partners to commercialize the product outside of our target markets, including additional penetration within the broader primary care setting, as well as in geographies outside of the United States.
INP105 (Acute Treatment of Agitation and Aggression in Autism Spectrum Disorder)
We are currently developing our second product candidate, INP105, as an upper nasal formulation of olanzapine administered using our proprietary POD technology for the treatment of agitation and aggression associated with ASD. ASD is a neurodevelopmental disorder affecting approximately 3.5 million children and adults in the United States and characterized by persistent difficulties in social communication and social interaction, coupled with restricted, repetitive patterns of behavior and higher aggression rates. Agitation and aggression are frequent and difficult to manage symptoms, and associated with negative outcomes for patients with ASD and their caregivers, including decreased quality of life, increased stress levels, and reduced availability of educational and social support. Based on a study of emergency room usage in Canada, which found that 18% of individuals with ASD aged 12 and up had visited the emergency room within the past year, and that approximately 34% of such visits were for mental health issues, we estimate that approximately 220,000 patients with ASD in the United States seek emergency room care due to mental health issues annually. Current treatment strategies include functional behavioral assessment, reinforcement strategies, functional communication training, and the use of second-generation antipsychotics. With an increasing rate of ASD diagnosis, we believe that the development of effective therapeutic and pharmacologic methods for preventing and treating aggression are essential to improving outcomes in this disorder. Currently, there is no approved treatment for patients living with ASD once there is onset of agitation leading to aggression, and we believe that INP105 has the potential to be an on-demand therapy in this indication.
In a double-blind, placebo-controlled, single ascending dose Phase 1 clinical trial in 40 healthy adults conducted in Australia, we observed similar bioavailability for INP105 compared to equivalent doses of olanzapine delivered through IM administration, as measured by the area under the plasma drug concentration-time curve, or AUC, which reflects the actual body exposure to the drug after administration of a drug dose, and the maximum drug concentration, or Cmax, and achieved time to maximum drug concentration, or Tmax, 25-22% faster than that of IM olanzapine.
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Based on its pharmacokinetic profile and method of administration, we believe INP105, if approved, has the potential to treat acute agitation and aggression events in this under-served population and in patients homes, potentially reducing visits to the emergency department and limiting the need to call in reinforcements to help caregivers. We plan to initiate a double-blind, placebo-controlled Phase 2 proof-of-concept clinical trial of INP105 in adolescents with ASD in the United States by the end of 2021 and expect to report topline results in the second half of 2022.
INP107 (Treatment of OFF Episodes in Parkinsons Disease)
We are also currently developing INP107 as an upper nasal formulation of carbidopa/levodopa administered using our proprietary POD technology for the treatment of OFF episodes in Parkinsons Disease, or Parkinsons. The overall Parkinsons market is expected to grow to over $8.4 billion by 2026, with emerging treatments for OFF episodes contributing to that growth. Current standard of care for the symptomatic treatment of Parkinsons is oral levodopa; however when levodopa levels fall below their therapeutic range, patients may lose adequate control of motor symptoms, which are referred to as OFF episodes. Carbidopa is co-administered with levodopa to slow levodopas rapid absorption, thereby increasing the amount of levodopa available for the symptoms of Parkinsons. INP107 is a self- or caregiver-administered, upper nasal therapy candidate designed to provide rapid delivery of levodopa to the brain for the treatment of OFF episodes. In 2019, we completed a Phase 2a clinical trial of INP107 and a levodopa-only formulation, in Australia, which demonstrated an encouraging pharmacokinetic profile in Parkinsons patients. Based on results of the Phase 2a clinical trial, we expect to further develop the formulation of INP107 prior to advancing into additional clinical trials. We expect to initiate a Phase 1 pharmacokinetic and tolerability trial in Australia or the United States in 2022 for dose selection for additional clinical development of INP107.
Our Team
We have assembled a team of scientific, clinical and business leaders with deep expertise in neuroscience and a track record of building, growing and transacting pharmaceutical companies. Our Chief Executive Officer, Adrian Adams, has over 25 years of pharmaceutical experience with an emphasis on commercialization and strategic execution. Our co-founder and Chief Scientific Officer, John Hoekman, Ph.D., has over 15 years of experience in investigating upper nasal drug delivery and nose-to-brain delivery, is an inventor of our proprietary POD technology, is widely recognized as a pioneer in upper nasal cavity drug delivery and has evaluated over 30 CNS targeting compounds with over six different modalities including small molecules, proteins, peptides and antibodies as opportunities for upper nasal cavity delivery. Our Chief Financial Officer, John Leaman, M.D., has over 15 years of pharmaceutical experience with an emphasis on public company financial oversight, corporate strategy and business development. Our Chief Medical Officer, Stephen Shrewsbury, M.B. ChB., has over 30 years of experience in developing pulmonary and nasal drug delivery and CNS therapies at pharmaceutical companies including GlaxoSmithKline, Aquinox Pharmaceuticals, AVI Biopharma and MAP Pharmaceuticals, where he led the development of Levadex. Our Chief Commercial Officer, Leonard S. Paolillo, has nearly 20 years of experience with various companies in the healthcare and pharmaceutical industries, including Warner Chilcott and Kyowa Kirin. Our Senior Vice President of Regulatory Affairs, Lynn Gold, has over 30 years of experience of leading regulatory activities for pharmaceutical companies, including at Warner Chilcott, Pharmacia and Camargo Pharmaceutical Services, and has been involved in over 40 NDA submissions, with expertise in drug devices and delivery. We are supported by our board of directors, scientific advisory boards and a group of leading biotechnology-focused investors, including KKR Iris, Norwest Venture Partners, 5AM Venture Management, LLC, venBio and Vivo Capital.
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Our Strategy
Our goal is to deliver transformative therapies, harnessing the benefits of delivery to the upper nasal cavity, to patients suffering from CNS diseases and other diseases with high unmet medical needs. The key tenets of our strategy to accomplish this goal include:
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Successfully commercialize TRUDHESA for the acute treatment of migraine after potential regulatory approval. Based on the positive data from our STOP301 Phase 3 trial, we submitted an NDA in November 2020 for TRUDHESA for the acute treatment of migraine headaches with or without aura in adult patients. The FDA filed and accepted the NDA for review and established a PDUFA goal date of September 6, 2021. If approved, we believe we can successfully commercialize TRUDHESA in the United States with a specialty sales force beginning with approximately 60 representatives, and increasing to approximately 120 representatives, focusing in areas with increased demand. We intend to strategically pursue high value prescribers and early adopters, beginning with 8,000 of the highest volume migraine treatment prescribers. Based on recent migraine treatment product launches, such as ubrogepant and rimegepant, we believe this approach can be successful in accessing the concentrated prescriber bases in migraine. This target base includes approximately 4,000 neurologists and 4,000 high prescribing primary care physicians and headache specialists who have significant experience with prescribing DHE. These groups make up 35% of the migraine treatment prescriptions written in 2020 in the United States. In particular, neurologist prescription productivity has grown an average of approximately 15% per year over the last two years, a growth figure aided by an increase in the number of patients seeking treatment from neurologists and primary care physicians for migraine. The planned scale up to 120 representatives is intended to allow us to target an additional 8,000 high prescribing physicians that we believe will enable us to expand coverage to 45% of all migraine treatment prescriptions in the United States. These efforts will be supplemented with non-personal promotion to all targeted and non-targeted medium value physicians. To capture the maximum commercial opportunity of TRUDHESA, we may also selectively seek partners to commercialize the product outside of our target markets, including additional penetration within the broader primary care setting, as well as in geographies outside of the United States. |
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Rapidly advance INP105 through clinical development for the acute treatment of agitation and aggression associated with ASD. We believe INP105 has the potential to become a first-line on-demand therapy for the safe and rapid treatment of agitation and aggression events in patients with ASD. Based on the positive clinical data generated to date, INP105s rapid onset of action and non-invasive delivery, we believe it is well positioned to expand the treatment setting beyond the emergency department to administration in in-patient treatment facilities and patients homes by parents or caregivers. We believe INP105 has the potential to reduce emergency room visits for the approximately 220,000 ASD patients in the United States that we estimate seek care due to mental health issues annually. We plan to initiate a double-blind, placebo-controlled Phase 2 proof-of-concept clinical trial of INP105 as an acute treatment of agitation and aggression associated with ASD in adolescents and young adults in the United States by the end of 2021, and expect to report topline results in the second half of 2022. |
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Maximize the therapeutic and commercial potential of our proprietary POD technology platform. Based on the unique characteristics and versatility of our proprietary POD technology, and expertise with developing novel drug formulations, we believe we are positioned to address multiple therapeutic areas with unmet medical needs. Our current strategy is to pair proven therapeutics with our proprietary POD technology and, thus, reduce risk by capitalizing on these therapeutics known safety, efficacy and commercialization history. We also intend to pair our proprietary POD technology with new chemical entities. While our initial focus is to address CNS diseases, we intend to explore the broader therapeutic utility of |
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our POD technology in diseases where rapid vascular absorption can result in superior clinical outcomes. In doing so, we may elect to enter into collaborations for third-party product candidates for which we believe that our technologies and expertise may be valuable. |
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Expand applications of our existing product candidates. Our goal is to maximize the commercial potential of our existing product candidates by exploring additional indications. For example, in the case of INP105, in addition to patients with ASD, we believe the product candidate has potential utility as an acute treatment of agitation and aggression associated with bipolar disorder and schizophrenia. We plan to selectively pursue development in follow-on indications and in patient populations where our product candidates can deliver meaningful clinical impact, and we have a clear clinical and regulatory approval pathway and that we believe we can commercialize successfully, if approved. |
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Independently develop and commercialize product candidates in indications and geographies where we believe we can maximize value. Given the potential of our POD technology and product candidates to treat a wide range of diseases, we believe that it will be important to maintain in-house discipline with respect to our development and commercialization efforts. We have a disciplined strategy to maximize the value of our pipeline by retaining development and commercialization rights to those product candidates, indications and geographies that we believe we can ultimately commercialize successfully on our own if they are approved. We plan to collaborate on product candidates that we believe have promising utility in disease areas or patient populations that are better served by the resources or specific expertise of other biopharmaceutical companies. |
Our Technology
We have developed upper nasal cavity devices to enable differentiated clinical profiles for our product candidates. These devices utilize our proprietary POD technology propellant and a biphasic spray that creates a precise plume or stream of drug to initially reach the vascular-rich upper nasal cavity and then a second puff of propellant to further distribute drug across the upper nasal cavity. Two of our devices are depicted below.
We have designed our proprietary POD technology to target the vascular-rich upper nasal cavity, and to provide rapid absorption, consistent drug biodistribution and ease of use for a patient, provider or caregiver. Our goal with our POD technology is to deliver injection-like clinical outcomes non-invasively. We believe that we are the first company to successfully harness the benefits of delivery to the upper nasal cavity to improve the therapeutic potential of CNS therapies. Traditional nasal pumps have suffered from high variability and low overall absorption. These characteristics have generally limited the nasal route of administration to local treatment of allergies or nasal inflammation. We have pioneered research into systemic drug delivery through the upper nasal cavity,the anatomy of
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which is depicted in the picture below, to the CNS. We have demonstrated with multiple molecules that targeting the upper nasal cavity could improve the bioavailability and biodistribution of drugs into systemic circulation. The upper nasal cavity is more permeable, has a higher density of vasculature and has a reduced clearance rate compared to the lower nasal cavity. These advantages of the upper nasal cavity may allow for a better consistency in dosing and uptake as well as the potential for faster time to onset of action. We have spent years developing device technologies and drug formulations to take advantage of this route of administration. We currently pair our technologies with established therapeutics approved through other routes of administration to create drug-device combination product candidates with the potential to address significant unmet medical needs and broaden the addressable patient population within our initial indications. This technology also offers potential to expand into other therapeutic areas.
As demonstrated in the figures below, compared to traditional nasal pumps, which have a diffuse aerosol spray, the POD technology creates a soft focused stream which consistently delivers drug to the upper nasal cavity. The figure on the top left shows a demonstrative spray pattern of DHE in our proprietary POD technology. The figure on the top right shows a demonstrative spray pattern of DHE in a traditional nasal pump. The figure on the bottom left shows the different route to the CNS as a result of upper nasal cavity delivery.
POD Technology | Traditional Nasal Pump | |
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Potential Advantages of Upper Nasal Cavity Delivery
∎ Rapid uptake into the blood stream
∎ Decreased dripping and swallowing
∎ Consistent dosing and distribution |
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Our proprietary POD technology is designed to offer a number of key benefits compared to traditional nasal delivery systems. These features include:
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Dose Consistency. Consistent dosing is critical to producing predictable and reproducible clinical outcomes. Unlike existing nasal delivery systems, which rely solely on mechanical pressure to deliver the drug into the nasal cavity, our proprietary POD technology utilizes hydrofluoroalkane, or HFA, gas as a propellant to expel the drug from our device into the upper nasal cavity, allowing us to achieve dose consistency within a 15% standard deviation of the mean consistent with guidance from the FDA. |
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Biphasic Spray. The POD devices deliver drugs through a biphasic spray, which consists of a first phase that delivers the drug to the upper nasal cavity and then a second phase that further distributes the drug across the upper nasal cavity. |
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Narrow Plume Geometry. Traditional nasal delivery systems create a wide aerosol plume that is typically unable to get past the two-to-three millimeter wide nasal vestibule, which creates variability in the absorption of the drug. The POD devices use a proprietary drug flow path and nozzle to create a narrow spray plume that can deliver drug past the vestibule and into the upper nasal cavity. |
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Reduces Human Error. Conventional nasal spray devices rely on the user to breathe in through their nasal passages while the dose is being administered. This can be challenging for patients to perform accurately and consistently. The POD device uses HFA gas to expel drug into the upper nasal cavity. The HFA gas is metered out in a consistent manner regardless of how much force the user applies to actuate the device. The HFA gas is then able to consistently expel the drug with less chance for user error. These features allow the POD devices to be used independently of patients breathing coordination, which may lead to more consistent drug absorption. |
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Separated Drug and Propellant. In our product candidates, the drug formulation and propellant are maintained in separated compartments of the device until delivery of the dose. This separation of the drug and propellant allows us to formulate our product candidates without being constrained by the limits of formulating inside of a pressurized propellant canister. We are developing POD devices for both liquid and powder drug formulations, and we believe that these devices can deliver a wide range of total dose. |
We have developed unique POD devices for each of nonclinical development, early clinical trials, and commercialization. We have spent years developing these nonclinical devices and methods to create a robust early development process. With each of our product candidates, we have done extensive nonclinical testing to assess safety and expected clinical performance. Our proprietary POD technology allows for rapid decision making when advancing product candidates into clinical development by testing a variety of doses and formulations. With our proprietary POD technology, we have evaluated in a nonclinical setting multiple additional candidates that could be developed further in the future.
In addition to our proprietary POD technology, we have expertise in developing proprietary upper nasal formulations that further improve the product profile. The flexibility of our proprietary POD technology to deliver both liquid and powder formulations allows us to develop the most appropriate formulation for the patient, indication and dosing regimen. We evaluate each molecule in early development with the goal of making the simplest formulation using inactive ingredients present in FDA-approved drug products. Since our proprietary POD technology is not reliant on breath coordination, our nasal drug formulations do not need to achieve a specific particle size range like many other nasal or pulmonary delivery devices, which allows for more flexibility in the manufacturing process. Our expertise in upper nasal formulation allows us to select therapeutics that are already in wide use and regarded as safe in other delivery formats, for our product candidate pipeline. We believe we can also pair our proprietary POD technology with new chemical entities.
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We believe that we have the ability to use our proprietary POD technology and upper nasal formulation expertise to produce product candidates that allow for convenient, non-invasive administration with the potential for injection-like clinical outcomes. Given their ease of administration, our product candidates can be self- or caregiver-administered outside of traditional patient care settings, thus expanding patient access. Additionally, our separation of propellant and drug in the POD device allows for reduced CMC risks. The unique characteristics of our product candidates have the potential to address unmet needs across multiple CNS diseases.
We have issued patent claims covering certain devices and methods of drug delivery, as well as pending patent applications directed to certain other embodiments of our device, drug formulations and methods of using our current product candidates. We believe that this apparatus, composition of matter and method of use intellectual property can provide strong exclusivity protection to our product candidates. Our existing solely owned patent portfolio is expected to provide patent protection ranging from 2032 to 2040, unless we receive patent term adjustment or patent term extension, or both.
Our Product Candidates
TRUDHESA for the Acute Treatment of Migraine
We are currently developing TRUDHESA as an upper nasal formulation of DHE administered using our proprietary POD technology for the acute treatment of migraine. DHE is widely used as part of a standard of care for the acute treatment of migraines, in addition to the use of triptans, but is generally limited by IV and injection delivery administered in physicians offices, migraine clinics and hospitals. In June 2020, we announced positive results of our 360-patient STOP301 trial to evaluate the safety and tolerability of long-term, intermittent use of TRUDHESA, and in November 2020, we submitted an NDA for TRUDHESA for the acute treatment of migraine headaches with or without aura in adult patients. The FDA has filed and accepted the NDA for review and established a PDUFA goal date of September 6, 2021.
Disease Overview and Market Opportunity
Migraine is a chronic and debilitating disorder characterized by recurrent attacks generally lasting four to 72 hours with multiple symptoms, including typically one-sided, pulsating headaches of moderate to severe pain intensity that are associated with nausea or vomiting, sound sensitivity and light sensitivity. Migraines are often preceded by transient neurological warning symptoms, known as auras, which typically involve visual disturbances such as flashing lights but may also involve numbness or tingling in parts of the body. Migraines are both widespread and disabling.
The State of U.S. Health, 1990-2016 Study rates migraine as the fifth leading cause of years lived with disability in 2016. Based on market research commissioned by us, we believe that approximately 36 million individuals in the United States suffer from migraine attacks. Most sufferers experience migraine attacks once or twice per month and over 1.2 million emergency room visits per year are for acute treatment of migraine attacks. Migraine is a growing market projected to triple in size to over $10 billion by 2028 with the introduction of multiple new product offerings and an expected rise in disease diagnosis. Additionally, with the approvals of calcitonin gene-related peptide antagonists, or gepants, for chronic migraine and the approvals of new therapies for the acute treatment of migraine, such as oral gepants and ditans, a new specific form of triptan, the awareness of migraine and its impact and treatment are expected to continue to grow. Of the approximately 18 million diagnosed migraine patients, approximately 12 million are not on active treatment. Of the six million patients diagnosed and on prescription treatment, up to 79% of the patients are willing to try another medication for the acute treatment of migraine.
Acute Treatment of Migraine and Limitation of Current Treatments
Until the recent approval of the gepant and ditan drugs, there has been limited innovation in the acute treatment of migraine since the introduction of triptans in 1992. Additional pharmacologic agents
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used for the acute treatment of migraine include analgesics, non-steroidal anti-inflammatory drugs, anti-emetics and ergotamines. The migraine market has steadily increased from approximately 20 million prescriptions in 2017 to approximately 27 million prescriptions in 2020, while triptans share of the migraine market has steadily decreased from approximately 97% in 2017 to 72% in 2020. While triptans remain the most common prescribed therapy for migraines, they possess four major limitations that result in an unmet need for migraine patients:
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Unmet Need for Efficacy. Approximately 30% to 40% of migraine patients do not fully respond to triptans, and alternatives, including gepant and ditan drugs, are limited. Triptans have also been shown to be more efficacious when taken early in a migraine attack, but those patients who wait or delay treatment may not experience the full benefit of triptan therapy. |
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Need for More Rapid Onset. While triptans have improved the treatment of migraine, their onset of pain relief is relatively slow. Historically, estimated onset of significant pain relief with oral triptans occurs between one and three hours after dosing. |
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Need for Longer Duration of Effect. Published studies cite that the recurrence within 24 hours of an effectively treated migraine is a common reason given for dissatisfaction with triptans. |
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Opportunity for Improved Tolerability Profile. Triptans as a class are known to be associated with an increase in blood pressure. |
The recent approvals of gepant and ditan drugs have introduced new migraine treatment options into the market. While these oral medications are generally an improvement over triptans, there remains a significant unmet need. As oral medications, these products have relatively low efficacy and persistence rates. Further, ditans have significant potential side effects, including significant driving impairment, sleepiness and dizziness.
DHE is an acute therapy and an alternative to existing treatments that has been used for more than 60 years to safely and effectively treat migraine. DHE is widely used as part of a standard of care for treatment of migraines, despite being limited by IV and injection delivery or traditional nasal administration. IV and injection delivery require administration in physicians offices, migraine clinics and hospitals, and traditional nasal administration has been challenged by inconsistent efficacy. The AUC of DHE in the first two hours of exposure, or AUC0-2hr, is thought to be critical for achievement of pain relief in acute migraine. Many headache specialists consider DHE to be the current standard of care for the treatment of status migrainosus, which is a condition characterized by debilitating migraines that last more than 72 hours. Unlike triptans, DHE is known to bind to multiple receptors theorized to be implicated in migraine onset and duration. DHE overcomes many of the limitations of other existing treatments but in its current methods of administration present a number of limitations resulting in unmet needs for migraine patients, including:
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Need for More Convenient and Consistent Dosing. DHE is available for administration both intravenously and nasally. Intravenous administration of DHE requires the supervision of a healthcare provider and is typically performed in a headache clinic or hospital setting, requiring the patient to travel while suffering with the migraine. DHE administrated nasally with traditional, lower cavity devices may lead to inconsistent dosing and slower speed of effect and pain relief. |
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Opportunity for an Improved Tolerability Profile Compared to Intravenous Administration. One of the common side effects of conventional DHE administered intravenously is nausea, which is thought to be due to the high Cmax. Patients who receive DHE intravenously are often administered an anti-nausea medication at the same time. |
A survey of neurologists commissioned by us found that most neurologists are familiar with DHE and its mechanism of action as an acute therapy for migraine, and nearly all are interested in a new DHE delivery system.
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Our Solution: TRUDHESA
We believe TRUDHESA, if approved, has the potential to be a preferred therapy for the acute treatment of migraines. TRUDHESA delivers DHE to the richly-vascularized upper nasal cavity, offering the potential for rapid and consistent biodistribution without injection. We believe that TRUDHESA may provide patients with the following benefits when compared to existing migraine therapeutics:
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Rapid Onset. The delivery of DHE through our POD technology may offer rapid onset of pain relief similar to IV DHE and investigational pulmonary inhaled DHE (MAP0004). As observed in our completed studies, TRUDHESA administration resulted in a total plasma exposure of DHE in the first two hours of dosing similar to IV administration. |
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Long-lasting. DHE has been shown to interact with multiple receptors theorized to be implicated in migraine onset and duration. The durability of effect, as observed in our exploratory efficacy analyses by lower migraine recurrence with DHE (18%) versus triptans (45%), is likely attributable to longer-lasting effect at receptors such as 5-HT1B and 5HT-1D. In our Phase 1 clinical trial, TRUDHESA was observed to have similar blood levels of DHE compared to IV DHE from measurements at 20-minute through 48-hour. |
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Broad Target Population. Based on historical DHE use, TRUDHESA, like other forms of DHE, may provide a higher response rate than triptans and has the potential to treat patients who have not previously responded to triptans. Similar to other forms of DHE, TRUDHESA may also be effective against patients who suffer from morning migraine, severe and prolonged migraine, menstrual migraine or have cluster headache. Migraine treatment with DHE has also demonstrated efficacy, independent of when the migraine treatment is initiated, based on DHE reversing central sensitization, while triptans are ineffective once the migraine becomes centralized. |
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Convenient and Consistent Delivery. TRUDHESA is non-injectable, with the DHE dose delivered in 3/10ths of a second with minimal coordination from the patient. TRUDHESA has demonstrated more consistent blood levels than traditional nasal spray, yielding improved blood levels and a lower coefficient of variance with doses. Further, in our STOP301 trial, 84% of trial participants agreed or strongly agreed with the statement that TRUDHESA was easy to use. |
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Low Incidence of Side Effects. Nausea and vomiting related to DHE therapy are linked to the high Cmax related to IV administration. In our completed clinical trials, TRUDHESA has shown to be generally well-tolerated with few instances of nausea and vomiting. |
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Reducing the Need for Additional Healthcare Resources for Acute Treatment of Migraines. EAER data from our STOP301 trials showed a significant reduction in the usage of healthcare resources by patients treated with TRUDHESA versus their baseline. By reducing the need for emergency room visits for patients with migraines, TRUDHESA has the potential to improve patients quality of life and reduce resource strain on healthcare facilities. |
STOP301 Trial Results
Our STOP301 trial conducted in the United States evaluated the safety and tolerability of long-term, intermittent use of TRUDHESA in 354 patients for 24 weeks, with 74% of patients completing the treatment period, with a subset of 73 patients continuing for up to a total of 52 weeks, with 90% of continuing patients completing this extended treatment period. In total, 5,273 migraines were treated over the first 48 weeks and approximately 5,650 migraines were treated over the full trial. We completed the trial and announced positive top-line data in June 2020, and we submitted data from this trial, along with the Phase 1 pharmacokinetic trial, in our NDA submission in November 2020.
This trial consisted of a four-week screening period, a 24-week treatment period for all participants, a 28-week treatment period extension with a sufficient number of participants to ensure 150 and 50 evaluable data sets in the 24 and 52 week periods, respectively, and a two-week post-treatment follow-up period for all participants. This was an outpatient trial in patients who currently suffer a minimum of two migraines per month. During the trial, participants were instructed on how to self-administer TRUDHESA. The primary endpoints of the clinical trial were:
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treatment emergent adverse events, or TEAEs; |
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change in nasal mucosa as measured by focused, endoscopic nasal exams conducted by an ear, nose and throat physician following the Nasal Examination Manual; and |
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change in olfactory function as assessed by the University of Pennsylvania Smell Identification Test. |
In the trial, TRUDHESA was generally well-tolerated. There were seven SAEs among five patients (1.4%) over the 52-week study. Three patients had one SAE each, consisting of one event each of ovarian mass, intestinal obstruction and miscarriage. Two patients had more than one SAE: one patient with pulmonary embolism and visual impairment and one patient with clavicle and rib fractures. none of the SAEs were nasal-related and none of the SAEs were determined by the trial investigator to be related to TRUDHESA or led to withdrawal from the trial. There were also no clinically significant changes in olfactory function, and no abnormal findings from endoscopy examinations. The majority of TRUDHESA-related TEAEs were mild and transient, with the most frequent being nasal congestion (15.0%), nausea (6.8%), nasal discomfort (5.1%) and unpleasant taste (5.1%). There were no cardiac adverse events and the discontinuation rate due to adverse events was only 6.8%. While the 12-month trial extension was initiated to gather additional data on long term use of TRUDHESA, ultimately the extension was unnecessary per trial protocol due to lack of safety signals in the 6-month cohort.
Exploratory efficacy measures were captured consisting of reporting in an electronic diary the time of onset of an aura, a migraine and associated symptoms, such as nausea, vomiting, sound sensitivity and light sensitivity. After taking a dose of TRUDHESA, questions about the severity of and relief from all symptoms were repeated at 15 minutes, 30 minutes and 1, 2, 8, 24 and 48 hours post dosing. Patients were also required to undergo periodic evaluation using Migraine Disability Assessment, or MIDAS, and Headache Impact Test, or HIT-6, questionnaires.
The trial evaluated the acute treatment effects of TRUDHESA against the patients best previous migraine treatment and the long-term effects of TRUDHESA utilized by patients for six months as exploratory efficacy endpoints. While not powered for statistical significance, on their first dose of TRUDHESA, 38% of patients reported being pain free at two hours. This effect remained consistent with long-term administration as 39% of all patients treated with TRUDHESA through three months had pain freedom at two hours (2,559 total migraines), and 35% of all patients treated with TRUDHESA through six months had pain freedom at two hours (1,736 total migraines). TRUDHESA was also associated with a reduction in pain symptoms, as 52% of patients receiving TRUDHESA were free of their most bothersome migraine symptom at two hours. Further, as shown in the figure below, 16% of patients who were treated with TRUDHESA had pain relief within 15 minutes and 66% of patients had pain relief within 2 hours (N=354).
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The long-term nature of the STOP301 trial also provided notable long-term data on the continued administration of TRUDHESA in an exploratory efficacy analysis conducted as part of the trial. As reflected in the figure below, patients treated with TRUDHESA reported a 48% reduction in the frequency of their migraines over baseline during the 6-month trial.
Pain freedom was consistent across multiple attacks throughout the 52-week treatment period, with between 31%-39% of patients in each measurement period achieving pain freedom at two hours. Additionally, 98% and 95% of patients achieving pain freedom at two hours on TRUDHESA did not suffer a relapse in migraine or require a rescue medication at 24 hours and 48 hours, respectively, by weeks 21 to 24.
EAER data also showed a meaningful reduction in the usage of healthcare resources by patients treated with TRUDHESA versus their baseline. Specifically, emergency room visits were reduced by approximately 73% and hospitalizations and urgent care visits were reduced by 100%.
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Phase 1 Clinical Trial Results
We completed a randomized three-way crossover pivotal Phase 1 clinical trial in the fourth quarter of 2017. Thirty-six healthy volunteers in Australia were randomized, and 27 were included in the evaluation of pharmacokinetic measures and comparative bioavailability. Migranal and TRUDHESA were self-administered by the trial participants. Migranal is a FDA-approved nasal spray product using DHE. The primary endpoint was to compare the bioavailability of DHE following single dose administration of 1.45 mg TRUDHESA, 1mg IV DHE as a safety comparator and 2mg Migranal (a nasal pump administered DHE) as an efficacy comparator. Pharmacokinetic measures, which refers to the movement of drug through the body, were recorded from baseline through 48 hours, with measures taken at 5, 10, 20, 30, 40 50 and 60 minutes within the first hour. Secondary endpoints were to evaluate the safety and tolerability of single doses of TRUDHESA and to assess plasma concentrations of 8-hydroxy-dihydroergotamine, the primary metabolite of DHE.
Despite containing approximately 28% less DHE per dose than Migranal, TRUDHESA achieved blood levels comparable to IV DHE, which quickly separated from Migranal blood levels at five minutes, achieved Tmax more rapidly, achieved a four-fold increase in Cmax and a three-fold increase in AUC. After 20 minutes, TRUDHESA reached and sustained DHE levels similar to those seen with IV dosing through the next 48 hours. The following figure shows the pharmacokinetic measurements of DHE with TRUDHESA, IV DHE and Migranal for the first four hours after dosing.
Unlike standard bioequivalence studies, the intent of this trial was to investigate whether Cmax, AUC and Tmax of TRUDHESA lay between the 90% confidence intervals of IV DHE and Migranal. This would permit a bridge to the FDAs findings of safety data for the IV product with higher blood levels, and to the FDAs efficacy findings for Migranal with lower blood levels. As the following table indicates, TRUDHESA met the preplanned statistical endpoints to satisfy this recommendation from the FDA with statistical power in excess of 95% on all endpoints. Our proprietary POD technology demonstrated more consistent dosing than a traditional nasal spray as seen with the lower coefficient of variance measures of plasma levels compared to Migranal as highlighted in the table below.
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DHE Pharmacokinetics
Migranal
(2mg) |
TRUDHESA
(1.45mg) |
D.H.E.45 IV
(1mg) |
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AUC0-inf (pg*hr/ml) [%CV] |
2,199 [75%] | 6,275 [42%] | 7,490 [17%] | |||||||||
Cmax (pg/ml) [%CV] |
300 [92%] | 1,301 [51%] | 14,190 [37%] | |||||||||
Tmax, median (min) [%CV] |
47 [59%] | 30 [57%] | 5 [118%] | |||||||||
AUC0-2 (hr*pg/ml) |
388 | 1,603 | 3,022 |
TRUDHESA was generally well-tolerated, with no participants experiencing serious adverse events that were drug related. The most common treatment-related adverse events observed for TRUDHESA included drowsiness, headaches and muscle soreness. Participants of this trial were surveyed on preference in administration, and TRUDHESA was preferred three to one over Migranal. TRUDHESA was noted to have less dripping, less post-nasal drip, was viewed as easier to use and over two-thirds of the volunteers were quite satisfied or very satisfied with nasal delivery experience with our proprietary POD technology.
Optimized DHE delivery has been shown to yield rapid and sustained clinical benefit in pain relief and pain freedom in the acute treatment of migraines. AUC0-2hr is thought to be critical for achievement of pain relief. In a pharmacokinetic clinical trial of MAP0004, an investigational pulmonary inhaled DHE product that has not been approved by the FDA, an AUC0-2hr of 1,447 pg*hr/mL was observed.
Commercialization Strategy for TRUDHESA
If approved, we believe we can successfully commercialize TRUDHESA in the United States with specialty sales force beginning with approximately 60 representatives, and increasing to approximately 120 representatives, focusing in areas with increased demand. We intend to strategically pursue high value prescribers and early adopters, beginning with 8,000 of the highest volume migraine treatment prescribers. Based on recent migraine treatment product launches, such as ubrogepant and rimegepant, we believe this approach can be successful in accessing the concentrated prescriber bases in migraine. This target base includes approximately 4,000 neurologists and 4,000 high prescribing primary care physicians and headache specialists who have significant experience prescribing DHE. These groups make up 35% of the migraine treatment prescriptions written in 2020 in the United States. In particular, neurologist prescription productivity has grown an average of approximately 15% per year over the last two years, a growth figure aided by an increase in the number of patients seeking treatment from neurologists and primary care physicians for migraine. The planned scale up to 120 representatives is intended to allow us to target an additional 8,000 high prescribing physicians that we believe will enable us to expand coverage to 45% of all migraine treatment prescriptions in the United States. We intend to build a commercial infrastructure focused on distribution, access, promotion, education and customer support. Our market research indicates that over 70% of migraine sufferers are seeking better treatments, and physicians are willing to prescribe and payors support access at profitable price and rebate points. With approximately 72% of migraine prescriptions paid by commercial payors, we believe this market presents an attractive payor mix. We anticipate using a robust sample program to ensure trial with TRUDHESA for patients seeking better treatments and outcomes. Also, as part of our commercialization strategy, we plan to educate healthcare practitioners and patients, partner with national associations and actively support advocacy groups in the migraine market. These efforts will be supplemented with non-personal promotion to all targeted and non-targeted medium value physicians. To capture the maximum commercial opportunity of TRUDHESA, we may also selectively seek partners to commercialize the product outside of our target markets, including additional penetration within the broader primary care setting, as well as in geographies outside of the United States.
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INP105 for the Acute Treatment of Agitation and Aggression associated with Autism Spectrum Disorder
We are currently developing INP105 as an upper nasal formulation of olanzapine administered using our proprietary POD technology for the acute treatment of agitation and aggression associated with Autism Spectrum Disorder, or ASD. ASD is a neurodevelopmental disorder characterized by persistent difficulties in social communication and social interaction, coupled with restricted, repetitive patterns of behavior or interest. Research indicates that aggression rates may be higher in individuals with ASD compared to those with other developmental disabilities. Agitation and aggression are frequent and difficult to manage symptoms, and associated with negative outcomes for patients with ASD and their caregivers, including decreased quality of life, increased stress levels, and reduced availability of educational and social support. Based on a study of emergency room usage in Canada, which found that 18% of individuals with ASD aged 12 and up had visited the emergency room within the past year, and that approximately 34% of such visits were for mental health issues, we estimate that approximately 220,000 patients with ASD in the United States seek emergency room care due to mental health issues annually. In addition to patients with ASD, we believe there is potential utility to expand the label for INP105 for the acute treatment of agitation and aggression associated with bipolar disorder and schizophrenia.
We are developing INP105 as a potential acute treatment option for agitation and aggression events in this under-served population. We believe INP105 is well positioned to expand the treatment setting beyond the emergency room to new settings, such as inpatient treatment facilities and also into patients homes. Following additional discussion with the FDA, we plan to initiate a double-blind, placebo-controlled Phase 2 safety and efficacy trial of a single dose of INP105 in adolescents with ASD in the United States by the end of 2021.
Disease Overview and Market Opportunity
ASD is characterized by marked impairment in social and communicative functioning combined with restricted interests and repetitive behaviors. In March 2020, the CDC released its biennial update of autisms estimated prevalence among the nations children, stating that 1 in 54 children had a diagnosis of ASD by age 8 in 2016, a nearly 10 percent increase over 2014 when the estimate was 1 in 59. ASD is a serious neurodevelopmental disorder that currently affects approximately 3.5 million children and adults in the US. There is no single known cause, but it is hypothesized that genetic factors may play a role. There is no cure approved for ASD.
While there is no cure, intensive early treatment consisting of both psychotherapy and pharmacological treatment can make a big difference in the lives of many children. Approximately 58% of patients with ASD receive some kind of pharmacological treatment which targets non-core associated symptoms such as hyperactivity, agitation, aggression and self-injury.
We believe the potential value of INP105 would be in treating the approximately 1.5 million children and adolescent patients who receive pharmacological treatments for their ASD-related conditions, and in approximately 40% of such patients that exhibit agitation or aggression. There is a tremendous support from doctors, behavioral therapists, parents and payors to provide the caregivers of individuals with ASD with tools to manage the agitative and aggressive behaviors at home to avoid emergency department visits and hospitalization. ASD children have nine times more emergency department visits compared to non-ASD children due to psychiatric crises. Externalizing behaviors including aggression are the leading cause for these visits. Emergency department visits are associated with traumatic experience for the patient, loss of productivity for the parent and economic burden for the healthcare system. We believe INP105 has the potential to reduce emergency room visits for the approximately 220,000 ASD patients in the United States that we estimate seek care due to mental health issues annually.
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Agitation Associated with Autism Spectrum Disorder
Individuals with ASD have a high incidence of mood lability, self-injurious behavior and aggressiveness toward others. Approximately 50-70% of individuals with ASD exhibit psychological behaviors as reported by parents and caregivers, such as agitation, with a high prevalence of anxiety, attention-deficit/hyperactivity disorder and depression. Market research sponsored by us indicates approximately 40% of ASD patients had demonstrated agitation or aggression.
The Aberrant Behavior Checklist, or ABC, scale measured the emotional, social, irritability, agitation, speech, and behavioral symptoms of autism. The ABC-I (irritability, agitation, and crying) subscale includes symptoms of aggression towards others, deliberate self-injuriousness, temper tantrums, screams, and quickly changing moods. The ABC-I subscale has been used as a key primary measurement for efficacy assessment supporting the approval of a chronic treatment of risperidone and aripiprazole for the treatment of irritability in children and adolescents with ASD.
Aggression Associated with Autism Spectrum Disorder
Aggressive behaviors in ASD are the primary cause of residential placement and are associated with greater functional impairment and more intensive medical interventions. Additionally, aggressive behaviors in children with ASD are a frequent source of parental concern and are known to increase family stress, financial strain and demands on caregivers. Prevalence estimates of aggression in children with ASD vary based on the definitions used, but with certain finding that the prevalence of aggression in ASD may be up to 78.5%. Because of the variable nature of aggressive behavior, researchers have defined aggression in many different ways. Aggression is generally characterized as behavior that is threatening or likely to cause harm and may be verbal (e.g., threatening or cursing at another person) or physical (e.g., hitting, biting, or throwing objects at another person). A person can demonstrate one form of aggressive behavior or many, with variable frequency, intensity, and duration.
According to the ABC scale, aggression is a symptom categorized under the irritability, agitation, and crying subscale (ABC-I), and there are approved daily oral preventative products for irritability in ASD. However, recent studies have identified that irritability and aggression can be dissected. While DSM-V-defined argumentative and defiant behavior is associated with externalizing problems, angry/irritable symptoms predicted internalizing problems. It is important to distinguish between agitiative mood and acts of hostility or aggression, as their mechanisms may be different, suggesting aggression may need to be treated differently compared to irritable symptoms. Aggression is also a major cause of morbidity in subjects with ASD.
Current Agitation and Aggression Treatment Approaches and Their Limitations
The goal in treating agitation and aggression is to rapidly de-escalate the patient in crisis while ensuring no harm comes to the patient and the providers. Antipsychotics are currently the standard of care for the acute treatment of agitation and aggression in schizophrenia and bipolar I disorder but also have widespread utility, along with Behavioral Therapy, in treating agitation and aggression in ASD. Some atypical antipsychotics, such as olanzapine, have been shown to have fewer side effects and better adherence than traditional antipsychotics prescribed for the same indications.
The side effect profile of a chronic treatment and issues with efficacy in acute settings are the biggest unmet needs in the treatment of agitation and aggression of children and adolescent patients with ASD. We commissioned a market research survey of 64 ASD providers asking about the greatest unmet needs for treatment of agitation and/or aggression associated with autism, and respondents indicated a need for faster acting, easier to administer treatments with fewer side effects for adolescents and young adults with ASD-associated agitation and aggression.
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Our Solution: INP105
INP105 utilizes our proprietary POD technology to deliver olanzapine to the richly-vascularized upper nasal cavity. We believe that INP105 could be well positioned to disrupt the landscape in the acute treatment of ASD by rapidly delivering a preferred and widely used drug, olanzapine, in a non-invasive manner. We believe INP105 may provide the first viable treatment option that allows patients and providers the ability to treat agitation and aggression in patients with ASD before it escalates to the point of danger to the family/caregiver and patient him/herself, which may require police and/or emergency medical care intervention and/or hospital admission.
We are evaluating INP105 for its potential to provide the following specific benefits when compared to existing therapies acutely treating agitation and aggression in patients with ASD:
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Olanzapine for Agitation and Aggression. Olanzapine is a preferred drug to treat agitation and aggression events generally. Specifically, IM olanzapine can have a faster onset of action, greater efficacy and fewer adverse effects than other atypical antipsychotics and other types of drugs. |
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Rapid Onset of Action. In clinical trials, the delivery of olanzapine through our proprietary POD technology has demonstrated shorter time to peak blood level at five minutes compared to IM olanzapine, while achieving equivalent Cmax and AUC. |
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Non-invasive Delivery. Our proprietary POD technology delivered olanzapine with a pharmacokinetic profile similar to IM administration. Providing a non-invasive therapy helps secure the patient-caregiver trust and improve overall outcome for the patient by enabling the provider to intervene earlier during a period of agitation and/or aggression. INP105 utilizes our proprietary POD technology to deliver olanzapine to the upper nasal cavity in less than a 3/10th of a second with the push of a button. We believe it is well positioned to expand the treatment setting beyond the emergency department to administration in in-patient treatment facilities and patients homes by parents or caregivers. |
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Manageable Tolerability Profile. Our single ascending dose trial in healthy volunteers testing three doses of olanzapine (5mg, 10mg, and 15mg) was generally well-tolerated both systemically and locally with no serious adverse events. We intend to study the 5mg dose in adolescents/young adults with ASD. |
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Potential to avoid side effects associated with chronic treatment. In our single ascending dose trial in healthy volunteers, INP105 demonstrated a more rapid rate of olanzapine absorption as compared to the currently approved IM olanzapine and the oral disintegrating tablet treatment, which may allow some patients to reduce their chronic medication use. |
INP105 is intended to fulfill a major need for caregivers of ASD patients and is designed to be suitable for use in the home, in in-patient treatment facilities and, if necessary, in the emergency room.
INP105 Clinical Development Program
We have completed a dose ranging Phase 1b safety and pharmacokinetics trial with INP105 in healthy adults in Australia. We have also completed the formulation development and scale-up work with 12 months of stability data. We plan to initiate a Phase 2 proof-of-concept trial in adolescents with ASD in the United States by the end of 2021, with initial results expected in the second half of 2022. In this study we will be using the same dry powder POD device that was used successfully in the Phase 1b study.
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Phase 1b Clinical Trial Results
We conducted a randomized, double-blind, single ascending dose Phase 1b trial that evaluated INP105 (5mg, 10mg and 15mg), IM olanzapine (5mg and 10mg), olanzapine (10mg) orally disintegrating tablets, or ODT, and placebo in 40 healthy volunteers in Australia. Thirty-seven evaluable subjects self-administered INP105. The primary endpoints were the safety and tolerability and pharmacokinetic profile of three single-ascending doses of INP105. Secondary endpoints evaluated the pharmacodynamic effects, which refers to the effect of drugs on the body, of three single-ascending doses of INP105 as compared to those of IM and ODT olanzapine. Pharmacokinetic timepoints were recorded at baseline through 120 hours, with measures taken at 5, 10, 15, 20, 30, 45, and 60 minutes within the first hour and pharmacodynamic effects were measured with Visual Analog Scale, or VAS, the Digit Symbol Substitution Test, or DSST, and the Agitation Calmness Evaluation Scale, or ACES.
As shown in the table below, the adverse events observed in the Phase 1b trial were similar to the side effects generally observed with olanzapine, with the most common adverse events being dizziness, light-headedness and hypotension. The frequency of these adverse events with administration through our proprietary POD technology was similar compared to IM or ODT administration of olanzapine, and we observed no serious adverse events.
Olanzapine
5 mg IM n=20 |
Olanzapine
10 mg IM n=2 |
Olanzapine
ODT 10 mg n=18 |
POD-OLZ
5 mg n=10 |
POD-OLZ
10 mg n=9 |
POD-OLZ
15 mg n=8 |
POD-
Placebon=10 |
|||||||||||||||||||||||||||||
No. with at least one treatment related TEAE |
18 | 2 | 15 | 8 | 6 | 6 | 1 | ||||||||||||||||||||||||||||
(90%) | (100%) | (83%) | (80%) | (67%) | (75%) | (10%) | |||||||||||||||||||||||||||||
Dizziness + postural dizziness |
10 | 2 | 8 | 3 | 3 | 1 | 0 | ||||||||||||||||||||||||||||
(50%) | (100%) | (44%) | (30%) | (33%) | (13%) | (0%) | |||||||||||||||||||||||||||||
Presyncope (lightheadedness) |
1 | 0 | 1 | 0 | 1 | 1 | 0 | ||||||||||||||||||||||||||||
(5%) | (0%) | (6%) | (0%) | (11%) | (13%) | (0%) | |||||||||||||||||||||||||||||
Hypotension + orthostatic hypotension |
4 | 2 | 2 | 1 | 2 | 2 | 0 | ||||||||||||||||||||||||||||
(20%) | (100%) | (11%) | (10%) | (22%) | (25%) | (0%) |
Key pharmacokinetic and pharmacodynamic observations are provided in the figures below. INP105 achieved similar bioavailability compared to equivalent doses of IM olanzapine as measured by AUC and Cmax, and INP105 achieved peak observable concentration more rapidly than IM olanzapine. Olanzapine ODT was significantly slower to achieve Tmax (2 hours) and had a lower overall Cmax and AUC. After 60 minutes, INP105 achieved similar bioavailability compared to equivalent doses of IM olanzapine 120 minutes after dosing. Data from two patients were excluded due to non-matching plasma levels pursuant to clinical trial procedure.
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Olanzapine Pharmacokinetic Results, 0-1 Hour
Olanzapine Pharmacokinetic Results, 0-8 Hours
To measure pharmacodynamic effects of INP105 subjects were assessed using the DSST, ACES and VAS. As can be seen in the three graphs below, INP105 had a dose dependent effect on each of
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these pharmacodynamic measures similar to IM olanzapine, which further supports the novel and unique profile of INP105 to provide rapid onset of effect non-invasively.
ACES is a 9-point scale that evaluates levels of agitation/calmness. A decrease in ACES score represents a reduction in agitation and in increased tranquil or calm state. Although these healthy subjects were not in an agitated state before dose administration, the increase in score indicates a transition into a more tranquil or calm state. The preliminary ACES results from our INP105-101 trial in the figure below showed that INP105 had a similar effect as IM olanzapine and a greater effect than placebo.
ACES Results from INP105 Phase 1b Study
The DSST test is a measure of change in cognitive function. Atypical antipsychotic drugs would be expected to result in a negative change from baseline. The preliminary DSST results from our INP105-101 trial in the figure below showed that INP105 had a similar effect as IM olanzapine and a greater effect than placebo.
DSST Results from INP105 Phase 1b Trial
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Patients self-reported the VAS on three scales of 0-100 dosing feeling drowsy to alert, foggy to clear-headed and lethargic to energetic at baseline and at various times after dosing. A reduction, or negative change, in score from baseline in each measure indicates an increase in feelings of drowsiness, foggy-headedness and lethargy, respectively. The preliminary VAS results from our INP105-101 trial in the figure below showed that INP105 had a similar effect as IM olanzapine and a greater effect than placebo.
VAS Results from INP105 Phase 1b Trial
Commercialization Strategy for INP105
If approved, we believe we can successfully commercialize INP105 in the United States with a targeted, specialty sales force. We would intend to leverage the commercial and medical affairs infrastructure we would have in place for TRUDHESA for the acute treatment of migraine if approved. We plan to work with national autism associations, as well as inpatient treatment facilities to update treatment guidelines to include INP105 in treatment plans as part of behavior therapy plans for treating agitation and aggression in ASD. We plan to educate healthcare practitioners and patients, partner with national associations and actively support advocacy groups in the autism market.
INP107 for the Treatment of OFF Episodes in Parkinsons Disease
We are currently developing INP107 as an upper nasal formulation of carbidopa/levodopa, administered using our proprietary POD technology, for the treatment of OFF episodes in Parkinsons. Current standard of care for the symptomatic treatment of Parkinsons is oral levodopa, but when levodopa levels fall below their therapeutic range, patients may lose adequate control of motor symptoms, which are referred to as OFF episodes. Carbidopa is co-administered with levodopa to slow levodopas rapid metabolism thereby increasing the amount available for the symptoms of Parkinsons. INP107 is a non-invasive, self- or caregiver-administered, investigational upper nasal therapy designed to provide rapid delivery of levodopa to the brain for the treatment of OFF episodes. We have conducted a Phase 2a clinical trial with one dose of INP107 in Australia, and based on the trial results, we expect to further optimize the INP107 formulation prior to advancing into future clinical development.
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Disease Overview and Market Opportunity
Parkinsons is a progressive neurodegenerative disorder that results from the gradual death of certain dopamine producing neurons that aid in regulating motor control, among other functions. As the disease progresses, motor function gradually worsens until a patient is no longer able to perform normal daily tasks such as eating, bathing and dressing. In order to compensate for the loss of dopamine, patients are typically treated with oral carbidopa/levodopa therapy. However, as the disease progresses, dopamine levels fluctuate because of variable responses to oral treatment and insufficient levels of dopamine in the brain, causing OFF episodes.
Parkinsons is the second most common neurodegenerative disorder worldwide and over one million people in the United States currently suffer from Parkinsons. Its prevalence increases with age. It is estimated that over 350,000 Parkinsons patients in the United States deal with OFF episodes on a daily basis. The overall Parkinsons market is expected to grow to over $8.4 billion by 2026, with emerging treatments for OFF episodes contributing to that growth.
Current Parkinsons Treatment Approaches and Inherent Limitations
There is no cure or disease-modifying treatment currently available for Parkinsons. Current treatment strategies are focused on the management and reduction of the major symptoms of the disease and related disabilities. These therapies either aim to supplement dopamine levels in the brain, mimic the effect of dopamine in the brain by stimulating dopamine receptors or prevent the enzymatic breakdown of dopamine.
The standard of care regimen for symptomatic treatment of Parkinsons is the oral administration of levodopa, which was the first drug approved specifically for Parkinsons over 50 years ago. Levodopa remains the most efficacious and widely used treatment for Parkinsons. Levodopa improves motor function as long as its levels in the brain remain within an individuals therapeutic range.
Variations in levodopa concentrations outside of the therapeutic range are the determining factor for motor fluctuations. When levels are below the therapeutic range, patients do not experience adequate control of motor symptoms, which are referred to as OFF episodes. If levodopa levels exceed the therapeutic range, patients typically experience involuntary movements, which are referred to as dyskinesia. Using currently available oral treatment options, it is extremely challenging for physicians to create a customized patient-specific regimen that consistently maintains levodopa levels within a patients therapeutic range due to both the inherent nature of the levodopa chemical structure as well as the physiologic manifestations of the disease in patients.
The limitations to the use of oral levodopa include:
∎ |
Delayed and Variable Levodopa Clinical Effect. Levodopa blood levels are patient-specific and occasion-specific, but generally have peak blood levels at 1 to 2 hours after dosing. This delayed onset and variability lead to difficulties in planning levodopa dosing and frequently cause patients to be out of their therapeutic window. This variability is a significant contributor to the unreliability of oral levodopa and highlights the challenge that patients face every day in not knowing when their medication will take effect, if at all. |
∎ |
Reduced Absorption and Food Effect. Levodopa must be actively absorbed through the gastrointestinal, or GI, tract into the bloodstream and competes with food for active transport. GI transport is frequently slowed by meals, decreasing the amount of levodopa that can be absorbed when it is given orally near mealtime. The frequency with which levodopa is administered throughout the day complicates dosing, as patients have difficulty planning meals around their complex oral dose regimens in order to minimize the impact on their levodopa absorption. |
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∎ |
Challenges with Swallowing. Parkinsons patients frequently have difficulty swallowing oral medications. |
As a result of these challenges, more than 90% of Parkinsons patients experience at least one OFF episode per day. Nearly 65% of Parkinsons patients are OFF for two or more hours per day and 20% are OFF for more than four hours per day. Nearly half the patients experiencing OFF indicate the need to avoid or stop activities they can perform while ON. The average disability rating was almost twice when patients described their state as OFF when compared to being ON.
There is a lack of available therapies to address these OFF episodes. Injectable apomorphine has been used as a non-selective dopamine agonist and is effective in rapidly reducing OFF time, but its route of administration and significant nausea and vomiting hinder its utilization. Recently approved Inbrija, pulmonary inhaled levodopa, is indicated for the intermittent treatment of OFF episodes in Parkinsons patients currently being treated with another form of carbidopa/levodopa. Clinical data in support of Inbrija indicate peak clinical effect, reversal of OFF, at 30 minutes after dosing.
Limitations of OFF treatments in Parkinsons, which have resulted in unmet needs for Parkinsons patients, include:
∎ |
Route of Administration. Injectable apomorphine is invasive and challenging for a patient in an OFF episode to administer. Inhaled levodopa requires strong pulmonary function and a 30-second inhalation process. Oral levodopa, due to its route of administration, has significant GI delays and may have variability in absorption. |
∎ |
Requires a Baseline of Carbidopa/Levodopa. Inhaled levodopa must be used as an adjunct to oral carbidopa/levodopa to achieve maximum impact due to the high metabolism of levodopa absent a decarboxylase inhibitor. |
Our Solution: INP107
We are developing INP107 as a self- or caregiver- administered, upper nasal carbidopa/levodopa therapy. Co-administration of carbidopa with levodopa increases amounts of levodopa available in the CNS to be converted to dopamine by limiting peripheral conversion of levodopa in the blood. Additionally, reducing peripheral conversion to dopamine helps to avoid side effects such as nausea and low blood pressure.
We believe that INP107 has the potential to provide the following advantages:
∎ |
Rapid Onset and Pronounced Effect. Based on our initial PK and PD data, INP107 provided an encouraging bioavailability profile. |
∎ |
Self or Caregiver Administration. INP107 utilizes our proprietary POD technology to deliver carbidopa/levodopa to the upper nasal cavity with a propellant, which would enable either self or caregiver administration. |
∎ |
Delivery Without Breathing Coordination. INP107 is designed to deliver carbidopa/levodopa in a spray of 3/10ths of a second with no breathing coordination required. |
∎ |
Potential Treatment of Morning OFF. We have designed INP107 to potentially be utilized without oral or baseline administration of carbidopa, which could facilitate use for morning OFF episodes when the patients do not have any levodopa or carbidopa in their system. |
∎ |
Alternative to Oral Carbidopa/Levodopa Dosing. INP107 could be used to replace oral dosing and allow patients to better titrate their dosing due to its rapid uptake and without having to worry about food effects. |
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INP107 Clinical Development Program
We have completed a Phase 2a safety, tolerability and pharmacokinetics/pharmacodynamics trial in Parkinsons patients testing INP107 and a levodopa-only formulation. The next phase of the program will be to initiate a Phase 1 pharmacokinetic and tolerability trial in Australia or the United States in 2022 to inform dose selection for further clinical development of INP107.
INP107 Clinical Results
Our Phase 2a clinical trial, completed in 2019, was a randomized, double-blind, placebo controlled, trial to evaluate the safety, tolerability and pharmacokinetics/pharmacodynamics of both a levodopa-only formulation pretreated with an oral decarboxylase inhibitor and INP107 (7mg carbidopa/70mg levodopa) in the absence of a decarboxylase inhibitor in PD patients during an OFF episode. The trial enrolled 32 patients in Australia who were randomized into one of four cohorts, all versus a placebo. Three cohorts consisted of a levodopa-only formulation and the fourth cohort consisted of INP107.
Patients in this trial were required to be levodopa responsive, to stop taking all Parkinsons medications the evening before they arrived in clinic and were then confirmed to be in an OFF episode the morning of trial intervention. Once confirmed to be in an OFF episode, patients were randomized to either placebo or active treatment. Blood draws were completed at 4, 9, 14, 29, 44, 59, 89 and 119 minutes after dosing.
The primary endpoint of the trial was safety and tolerability over the immediate 240 minutes following dosing and over seven days of follow-up. In this trial, INP107 was generally well tolerated, with no serious adverse events reported. Secondary endpoints included evaluating the pharmacokinetic profile of levodopa and the pharmacodynamic effect of INP107 in the 120 minutes following dosing. The latter was measured by trained assessors using the Movement Disorder SocietyUnified Parkinsons Disease Rating Scale Part 3. Trial results showing INP107 plasma concentrations over time are shown in the figure below.
Levodopa Plasma Concentrations Over Time from
INP107 Phase 2a Interim Analysis
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INP107 (7mg carbidopa/70mg levodopa) plasma levels were observed to increase over time throughout the duration of blood draws and were significantly higher than placebo after the first five minutes. However, despite this increase in plasma levels, there was no significant improvement in the UPDRS Part III motor scores between INP107 and placebo. Based on this result, we intend to further develop the formulation to improve the overall plasma absorption and speed of absorption before advancing into further clinical development.
Manufacturing
All of our manufacturing processes are outsourced to third parties with oversight by our internal managers. We rely on third-party manufacturers to comply with cGMP and produce sufficient quantities of drug product for use in clinical trials. We intend to continue this practice for any future clinical trials and commercialization of TRUDHESA, INP105 and INP107 and for any other potential product candidates for which we retain significant development and commercialization rights.
The active pharmaceutical ingredient and drug formulation of TRUDHESA has been developed and manufactured by a CMO located in Europe. Our CMO has extensive experience manufacturing liquid formulation of dihydroergotamine mesylate under cGMP and has the capacity to manufacture at commercial scale. This CMO has manufactured Migranal, a drug that uses the same primary container and formulation as TRUDHESA, for over 20 years. The DHE batches used in the pivotal Phase 1 clinical trial, our registration lots, and our STOP301 trial were all produced by the same manufacturer, and on the same manufacturing lines that we expect will be used for commercial launch of TRUDHESA, if approved.
The TRUDHESA POD device is manufactured by third-party CMOs. This device has been used for the pivotal Phase 1 clinical trial, our registration lots, and our STOP301 trial and is the device intended for commercial launch of TRUDHESA. The plastic component manufacturing and sub-assembly, valve manufacture, canister manufacture and canister fill with final assembly are each performed by a different third-party CMO. Each have extensive experience with medical-grade clinical and commercial scale device manufacture under cGMP. We used the same assembly group through all stages of development and intend to utilize the same assembly lines and validated processes through the NDA approval and submission process.
The INP105 and INP107 product candidates are both powder drug formulations. They have both utilized the clinical stage POD device for initial clinical trials and are both expected to transition to a commercial stage POD device for pivotal studies and commercialization. The development work on the commercial stage device for INP105 is ongoing, while the formulation has been developed and produced at commercial scale with 12 months of stability data. Both of these drug formulations have been developed with our powder formulation CMO. This CMO has the capability to produce these formulations at all scales of development including through commercialization.
Competition
The pharmaceutical industry is highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations actively engaged in research and development of product candidates which may target the same markets as our product candidates. We expect any future product candidates we develop to compete on the basis of, among other things, product efficacy and safety, time to market, price, extent of adverse side effects experienced and convenience of administration and drug delivery.
For our product candidates, we are aware of the following competing efforts:
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TRUDHESA. Approved acute treatments for migraine include triptans, ditans, calcitonin gene-related peptides antagonists, or gepants, lasmiditan and alternative formulations of DHE, |
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such as Migranal, which is administered intranasally. Some of these competitor products have been launched by large pharmaceutical companies such as Eli Lilly & Co., Allergan plc, Alder Biopharmaceuticals, Inc., and other smaller companies. Some of these competitors are also developing product candidates that utilize alternative routes of administration, including Biohaven Pharmaceuticals, Inc., GlaxoSmithKline plc, OptiNose Inc., and Promius Pharma LLC, whose product candidates use nasal pumps or other nasal drug delivery technologies. |
∎ |
INP105. While there are no FDA-approved acute treatments for agitation and aggression in ASD, commonly prescribed treatments include mostly atypical (second generation) antipsychotics. These can include risperdone (Risperdal), olanzapine (Zyprexa), quetiapine (Seroquel), aripiprazole (Abilify), ziprasidone (Geodon) and others. |
∎ |
INP107. Approved treatments for the symptoms of OFF episodes in Parkinsons include carbidopa/levodopa (both short and long-acting oral forms), MAO-B inhibitors, COM-T inhibitors, dopamine agonists, amantadine such as Gocovri, apomorphine and inhaled levodopa, such as Inbrija. In addition, there are several product candidates under development by pharmaceutical companies such as Eli Lilly & Co., Intec Pharma Ltd. and AbbVie Inc. Some of these product candidates also utilize alternative routes of administration, such as Sunovion Pharmaceuticals, Inc., whose product candidate uses a sublingual film, and Acorda Therapeutics, Inc. whose product candidate uses a dry powder inhaler. |
Many of our competitors, either alone or with strategic partners, have substantially greater financial, technical and human resources than we do. Accordingly, our competitors may be more successful than us in obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments obsolete or non-competitive. Accelerated merger and acquisition activity in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. These companies also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials and acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunity could be substantially limited in the event that our competitors develop and commercialize product candidates that are more effective, safer, less toxic, more convenient or less expensive than our comparable product candidates. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of the entry of our product candidates. We believe the factors determining the success of our programs will be the efficacy, safety and convenience of our product candidates.
Intellectual Property
We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to our business, including seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties. Our policy is to seek to protect our proprietary position by, among other methods, pursuing and obtaining patent protection in the United States and in jurisdictions outside of the United States related to our proprietary technology, inventions, improvements, platforms and product candidates that are important to the development and implementation of our business. Our patent portfolio is intended to cover, but is not limited to, our POD technology, our product candidates and components thereof, their methods of use and processes for their manufacture, and any other inventions that are commercially important to our business. We expect to rely on data exclusivity, market exclusivity, patent term adjustment and patent term extensions when available. Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions, and improvements; to maintain our licenses to use intellectual property owned or controlled by third parties; to defend and enforce our proprietary rights, including our patents; to defend against and challenge the assertion by
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third parties of their purported intellectual property rights; and to operate without the unauthorized infringement on the valid and enforceable patents and other proprietary rights of third parties.
We believe that we have a strong global intellectual property position relating to our POD device and product candidates. Our patent portfolio as of December 31, 2020 contained four U.S. issued patents and 21 patents issued in ex-U.S. jurisdictions including Australia, Canada, China, Switzerland, Germany, France, Great Britain, Japan, and Russia and 16 U.S. pending applications as well as 55 patent applications pending in ex-U.S. jurisdictions including Australia, Brazil, Canada, China, Europe, Hong Kong, Israel, India, Japan, Korea, Mexico, New Zealand, Russia, South Africa and three pending international patent applications owned solely by us.
Our TRUDHESA product candidate is covered by five patent families: three of the families include claims relating to the POD device used for delivery of DHE to the upper nasal cavity; the other two families include claims relating to methods of delivering DHE to the upper nasal cavity. As of December 31, 2020, from the three device patent families, three U.S. patents have issued, 17 patents have issued in ex-US jurisdictions including Australia, China, Switzerland, Germany, France, Great Britain, Japan, and Russia, and 28 applications were pending in the U.S., Australia, Brazil, Canada, China, Europe, Hong Kong, Israel, India, Japan, Korea, Mexico, New Zealand, and South Africa. Upon FDA approval, we intend to list the issued U.S. patents on the FDA Orange Book. As of December 31, 2020, from the two method of use patent families, three applications were pending in the U.S., and nine applications were pending in ex-U.S. jurisdictions including Australia, Brazil, Canada, China, Europe, India, Japan, Korea, and Russia. Our issued patents, and any patents that may issue from our pending patent applications, are expected to expire between 2032 and 2039, absent any patent term adjustments or extensions.
Our INP105 product candidate is covered by three patent families: two of the families include claims relating to the POD device used for delivery of olanzapine to the upper nasal cavity; one patent family includes composition of matter claims covering our dry powder formulation and claims directed to methods of delivering olanzapine to the upper nasal cavity. As of December 31, 2020, from the two device patent families, two U.S. patents have issued, ten patents have issued in ex-US jurisdictions including Australia, China, Switzerland, Germany, France, Great Britain, Japan, and Russia, and six applications were pending in the U.S., Brazil, Canada, Europe, India, and a PCT international application. As of December 31, 2021, in the composition of matter and method of use patent family, nine applications were pending in the U.S. and ex-U.S. jurisdictions including Australia, Brazil, Canada, China, Europe, India, Japan and Korea. Our issued patents, and any patents that may issue from our pending patent applications, are expected to expire between 2032 and 2039, absent any patent term adjustments or extensions.
Our INP107 product candidate is covered by three patent families: two of the families include claims relating to the POD device used for delivery of a combination of levodopa and carbidopa to the upper nasal cavity; one patent family includes composition of matter claims covering our dry powder formulation and claims directed to methods of delivering a levodopa/carbidopa combination to the upper nasal cavity. As of December 31, 2020, from the two device patent families, two U.S. patents have issued, ten patents have issued in ex-US jurisdictions including Australia, China, Switzerland, Germany, France, Great Britain, Japan, and Russia, and six applications were pending in the U.S., Brazil, Canada, Europe, India, and a patent cooperation treaty, or PCT, international application. As of December 31, 2020, one application was pending in the U.S. in the composition of matter and method of use patent family and one PCT international application was pending. Our issued patents, and any patents that may issue from our pending patent applications, are expected to expire between 2032 and 2039, absent any patent term adjustments or extensions.
In addition, we have exclusively licensed a patent portfolio that as of December 31, 2020 contained two U.S. issued patents and nine patents issued in ex-U.S. jurisdictions including Canada, Italy, Great
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Britain, France, Spain, and Germany. This patent portfolio includes claims relating to a circumferential aerosol device for delivering drugs including to the olfactory epithelium and brain. Our issued patents that have been licensed are expected to expire between 2029 and 2031, absent any patent term adjustments or extensions. None of our licensed patents are material to our current pipeline product candidates.
We continually assess and refine our intellectual property strategy as we develop new platform technologies and product candidates. To that end, we are prepared to file additional patent applications if our intellectual property strategy requires such filings, or where we seek to adapt to competition or seize business opportunities. Further, we are prepared to file patent applications, as we consider appropriate under the circumst ances, relating to the new technologies that we develop. In addition to filing and prosecuting patent applications in the United States, we often file counterpart patent applications in Europe and in additional countries where we believe such foreign filing is likely to be beneficial.
The term of individual patents depends upon the laws of the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing of a non-provisional patent application. However, the term of U.S. patents may be extended for delays incurred encountered during prosecution that are caused by the USPTO or due to compliance with FDA requirements. For example, the Hatch-Waxman Act permits a patent term extension for FDA-approved drugs of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond five years, nor beyond a total of 14 years from the date of product approval, and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical product candidates receive FDA approval, we expect to apply for patent term extensions on patents covering those product candidates. We intend to seek patent term extensions of our issued patents in any jurisdiction where these are available; however, there is no guarantee that the applicable authorities, including the USPTO and FDA, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. Our currently issued patents, including those owned and exclusively licensed, will likely expire on dates ranging from 2029 to 2036. If patents are issued on our pending patent applications, including those owned and exclusively licensed, the resulting patents are projected to expire on dates ranging from 2032 to 2040, unless we receive patent term adjustment or patent term extension, or both. However, 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.
The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. No consistent policy regarding the scope of claims allowable in patents in the field of CNS diseases has emerged in the United States. The patent situation outside of the United States is even more uncertain. Changes in the patent laws and rules, either by legislation, judicial decisions, or regulatory interpretation in the United States and other countries may diminish our ability to protect our inventions and enforce our intellectual property rights, and more generally could affect the value of our intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing any of our patented inventions, either directly or indirectly, will depend in part on our success in obtaining, defending, and enforcing patent claims that cover our technology, inventions, and improvements. With respect to both licensed and company-owned intellectual property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our platforms and product candidates and the methods used to manufacture those platforms and product candidates.
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Our issued patents and those that may issue in the future may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related platforms or product candidates or limit the length of the term of patent protection that we may have for our POD device and product candidates. In addition, the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies. For these reasons, we may have competition for our POD device and product candidates. Moreover, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent. For this and more comprehensive risks related to our proprietary technology, inventions, improvements, platforms and product candidates, please see the section titled Risk FactorsRisks Related to Intellectual Property.
Moreover, even our issued patents do not guarantee us the right to practice our technology in relation to the commercialization of our platforms product candidates. Third parties may have, or may obtain, blocking patents that could be used to prevent us from commercializing our POD device and product candidates and practicing our proprietary technology.
We own trademark registrations and pending applications for use in connection with our product candidates in several jurisdictions, including the United States. The IMPEL mark is registered in Austria, Canada, China, the European Union, India, Japan, South Korea, United Kingdom, and the United States, and we own a pending application in Mexico. The IMPEL mark in simplified Chinese characters mark is registered in China. The IMPEL mark with the Impel NeuroPharma logo is registered in Australia. The Impel NeuroPharma logo is registered in Australia, China, the European Union, India, Japan, Mexico, South Korea, United Kingdom, and the United States, and we own a pending application in Canada. The POD mark is registered in Australia, the European Union, India, United Kingdom, and the United States. The IMPELPOD mark is registered in China, Japan, Mexico, and South Korea, and we own pending applications in Canada and Mexico. The TRUDHESA mark is registered in Australia, China, the European Union, India, Japan, South Korea, and the United Kingdom, and we own pending applications in Canada, Mexico, and the United States. We own pending applications for the TULIFTA mark and the TRUDHESA logo in the United States.
It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individuals relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, and which are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In many cases our confidentiality and other agreements with consultants, outside scientific collaborators, sponsored researchers and other advisors require them to assign or grant us licenses to inventions they invent as a result of the work or services they render under such agreements or grant us an option to negotiate a license to use such inventions.
We also seek to preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical security of our premises and physical and electronic security of our information technology systems. Although we have confidence in these individuals, organizations, and systems, agreements or security measures may be breached and we may not have adequate
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remedies for any breach. To the extent that our employees, contractors, consultants, collaborators, and advisors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting inventions.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or FDCA, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products and medical devices. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as a clinical hold, FDA refusal to approve a pending NDA, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. 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 or disease.
Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product CMC, and a proposed clinical trial protocol. Long-term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practices, or GCPs, which are standards meant to protect the rights and health of patients and 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. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
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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 patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an IRB for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRBs requirements, or may impose other conditions.
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 drug into healthy human subjects or patients, the drug 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 drug for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial may be sufficient in rare instances, including (1) where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible or (2) when in conjunction with other confirmatory evidence.
The manufacturer of an investigational drug in a Phase 2 or 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access.
After completion of 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 preclinical, clinical, and other testing and a compilation of data relating to the products 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, currently exceeding $2,875,000 for Fiscal Year 2021. The manufacturer or sponsor under an approved NDA is also subject to an annual program fee, currently exceeding $336,000 for each prescription drug product for Fiscal Year 2021. These fees are typically increased annually.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agencys threshold determination that it is sufficiently complete to permit substantive review. 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 applications for standard review drug products that are not new molecular entities, or NMEs, are reviewed within ten months of the date of submission of the NDA to the FDA; most applications for priority review drugs that are not NMEs are reviewed within six months of the date of submission of the NDA to the FDA. Priority review can be applied to drugs that the FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists. 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.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committeetypically a panel that includes clinicians and
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other expertsfor 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 will generally inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with cGMPs is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDAs satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. 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 a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drugs safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.
Section 505(b)(2) New Drug Applications
An alternative to the 505(b)(1) NDA pathway described above is an NDA submitted under Section 505(b)(2) of the FDCA, which enables the applicant to rely, in part, on the FDAs prior findings in approving a similar product or published literature in support of its application.
505(b)(2) NDAs often provide an alternate path to FDA approval for modified formulations, new routes of administration, or new uses of previously approved products.
Section 505(b)(2) permits the submission of an NDA where at least some of the safety and efficacy information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on the FDAs prior findings of safety or effectiveness is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all, or some, of the indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
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Fast Track Designation and Accelerated Approval
The FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the Fast Track program, the sponsor of a new drug candidate may request that the FDA designate the drug candidate for a specific indication as a Fast Track drug concurrent with, or after, the filing of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies for Fast Track Designation within 60 days of receipt of the sponsors request.
Under the Fast Track program, the FDA may grant Fast Track Designation for a drug if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors.
If a submission is granted Fast Track Designation, the sponsor may engage in more frequent interactions with the FDA, and the FDA may initiate review of sections of the NDA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDAs time period goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, Fast Track Designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon adequate and well-controlled clinical trials establishing that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the drug has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.
A drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval trials, or confirm a clinical benefit during post-marketing trials, will allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information on ClinicalTrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss 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.
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Pediatric Information
Under the Pediatric Research Equity Act, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers or deferrals for submission of data.
The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month extension of any exclusivitypatent or nonpatentfor a drug if certain conditions are met. Conditions for exclusivity include the FDAs determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.
Post-Approval Requirements
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.
Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging, and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
The FDA strictly regulates marketing, labeling, advertising and promotion of drugs that are placed on the market. Advertising and promotion of drugs must be in compliance with the FDCA and its implementing regulations and only for the approved indications and in a manner consistent with the approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including investigation by federal and state authorities.
The Hatch-Waxman Act
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicants product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDAs Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an Abbreviated New Drug
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Application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as generic equivalents to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDAs Orange Book. Specifically, the applicant must certify that (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a statement certifying that its proposed ANDA label does not contain (or carve out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the already approved products listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
To the extent that a Section 505(b)(2) applicant is relying on the FDAs prior findings of safety or effectiveness for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Thus, approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.
Exclusivity
Upon NDA approval of a new chemical entity, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot receive any ANDA seeking approval of a generic version of that drug. An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period. Certain changes to a drug, such as the addition of a new indication to the package insert, can be the subject of a three-year period of exclusivity if the application contains reports of new clinical investigations (other than bioavailability studies) conducted or sponsored by the sponsor that were essential to approval of the application. FDA cannot approve an ANDA for a generic drug that includes the change during the exclusivity period.
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The FDCA alternatively provides three years of marketing exclusivity for an NDA or supplement to an existing 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 new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Patent Term Extension
After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drugs testing phase (the time between IND application 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, and only one patent can be extended. 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 United States Patent and Trademark Office must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Combination Products
A combination product is a product comprising (i) two or more regulated components, i.e., drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity; (ii) two or more separate products packaged together in a single package or as a unit and comprising drug and device products, device and biological products, or biological and drug products; (iii) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, or effect and where upon approval of the proposed product the labeling of the approved product would need to be changed, for example, to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or (iv) any investigational drug, device, or biological product packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.
The FDA is divided into various branches, or Centers, by product type. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combination product, the FDA must decide which Center should be responsible for the review. FDA regulations require that the FDA determine the combination products primary mode of action, which is the single mode of a combination product that provides the most important therapeutic action of the combination product. The Center that regulates that portion of the product becomes the lead evaluator. When evaluating an application, a lead Center may consult other Centers but still retain complete reviewing authority, or it may collaborate with another Center, by which the Center assigns review of a specific section of the application to another Center, delegating its review authority for that section. Typically, an applicant submits a single marketing application to the Center selected to be the lead evaluator, although separate applications for each constituent part may be submitted to the applicable Centers.
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One reason to submit multiple evaluations is if the applicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multiple applications are submitted, each may be evaluated by a different lead Center.
In a drug/device combination product, where the device component is a prefilled drug delivery device, the primary mode of action is typically a drug mode of action with the Center for Drug Evaluation and Research, or CDER, as the lead Center. CDER would review the NDA in consultation with the Center for Devices and Radiological Health on device-specific issues. For co-packaged or single-entity combination products, such as pre-filled drug-delivery devices, there are two ways to comply with cGMP requirements. Manufacturers can either (i) demonstrate compliance with all cGMP regulations applicable to each of the constituent parts in the combination product or (ii) in the case of drug-device combination products, demonstrate compliance with either the drug cGMP regulations or the device QSR and also demonstrate compliance with additional provisions from the other of these two sets of cGMP requirements, as specified in the combination products regulations.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions: warning or untitled letters, fines, injunctions, civil or criminal penalties, recall or seizure of current or future products, operating restrictions, partial suspension or total shutdown of production, refusal or denial of submissions for new products, or withdrawal of clearance, authorization, or approval.
Other Healthcare Laws
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain general business and marketing practices in the pharmaceutical industry. These laws include anti-kickback statutes, false claims, transparency, and health information privacy laws and other healthcare laws and regulations.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. The Affordable Care Act, or ACA, amended the intent element of the federal statute so that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to commit a violation. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers, among others, on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor.
Federal civil and criminal false claims laws, including the federal civil False Claims Act, prohibit any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicare and Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Additionally, the
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ACA amended the federal Anti-Kickback Statute such that a violation of that statute can serve as a basis for liability under the federal False Claims Act. Most states also have statutes or regulations similar to the federal Anti-Kickback Statute and civil False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits, among other things, the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offeror or payor knows or should know is likely to influence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and the additional federal criminal statutes created by the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations or promises any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items or services.
In addition, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, including the Final Omnibus Rule published on January 25, 2013, impose obligations on certain healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, as well as their business associates that perform certain services involving the storage, use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information. HITECH increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws 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 certain circumstances, many of which differ from each other in significant ways and may not have the same effect, and often are not preempted by HIPAA.
Further, pursuant to the ACA, the CMS has issued a final rule that requires manufacturers of prescription drugs to collect and annually report information on certain payments or transfers of value to physicians and teaching hospitals, as well as investment interests held by physicians and their immediate family members. The reported data is made available in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties. Effective January 1, 2022, reporting on payments and transfers of value made in the previous year to covered recipients will be expanded to include physician assistants, nurse practitioners clinical nurse specialists, certified registered nurse anesthetists and anesthesiologist assistants, and certified nurse-midwives.
In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual healthcare practitioners in these states. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals. Still other states require the posting of information relating to clinical studies and their outcomes. Some states require the reporting of certain pricing information, including information pertaining to and justifying price increases, or prohibit prescription drug price gouging. In addition, certain states require pharmaceutical companies to implement compliance programs or marketing codes. Certain states and local jurisdictions also require the
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registration of pharmaceutical sales representatives. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties.
Efforts to ensure that business arrangements with third parties comply with applicable healthcare laws and regulations involve substantial costs. If a drug companys operations are found to be in violation of any such requirements, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other federal or state government healthcare programs, including Medicare and Medicaid, integrity oversight and reporting obligations, imprisonment, and reputational harm. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action for an alleged or suspected violation can cause a drug company to incur significant legal expenses and divert managements attention from the operation of the business, even if such action is successfully defended.
Reimbursement
The regulations that govern pricing and reimbursement for new drugs and therapeutic biologics vary widely from country to country. Some countries require approval of the sale price of a drug or therapeutic biologic before it can be marketed. In many countries, the pricing review period begins after marketing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, a drug company can obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of that product.
A drug companys ability to commercialize any products successfully will also depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government authorities, private health insurers and other organizations. Even if one or more products are successfully brought to the market, these products may not be considered cost-effective, and the amount reimbursed for such products may be insufficient to allow them to be sold on a competitive basis. Increasingly, third-party payors who reimburse patients or healthcare providers, such as government and private insurance plans, are requiring that drug companies provide them with predetermined discounts from list prices, and are seeking to reduce the prices charged or the amounts reimbursed for pharmaceutical products.
Significant delays can occur in obtaining reimbursement for newly-approved drugs or therapeutic biologics, and coverage may be more limited than the purposes for which the drug or therapeutic biologic is approved by the FDA or similar foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug or therapeutic biologic will be reimbursed in all cases or at a rate that covers a drug companys costs, including research, development, manufacture, sale and distribution.
Interim reimbursement levels for new drugs or therapeutic biologics, if applicable, may also be insufficient to cover a drug companys costs and may not be made permanent. Reimbursement rates may be based on payments allowed for lower cost drugs or therapeutic biologics that are already reimbursed, may be incorporated into existing payments for other services and may reflect budgetary constraints or imperfections in Medicare data. Net prices for drugs or therapeutic biologics 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 or therapeutic biologics from countries where they may be sold at lower prices than in the United States. Further, no uniform policy for coverage and reimbursement exists in the United States. Third-party payors often
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rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations. Therefore, coverage and reimbursement can differ significantly from payor to payor.
U.S. Healthcare Reform
In the United States there have been, and continue to be, proposals by the federal government, state governments, regulators and third-party payors to control or manage the increased costs of health care and, more generally, to reform the U.S. healthcare system. The pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the ACA was enacted, which was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The ACA substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, (i) subjected therapeutic biologics to potential competition by lower-cost biosimilars by creating a licensure framework for follow-on biologic products, (ii) established a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and therapeutic biologics that are inhaled, infused, instilled, implanted or injected, (iii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, (iv) established annual nondeductible fees and taxes on manufacturers of certain branded prescription drugs and therapeutic biologics, apportioned among these entities according to their market share in certain government healthcare programs, (v) established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs and therapeutic biologics to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers outpatient drugs and therapeutic biologics to be covered under Medicare Part D, which has since been increased to 70% by the BBA, (vi) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals 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, (vii) expanded the entities eligible for discounts under the Public Health program (viii) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research, and (ix) established 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.
Since its enactment, there have been executive, judicial, and Congressional challenges to certain aspects of the ACA. The Tax Reform Act, among other things, included a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA 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. In November 2020, the United States Supreme Court held oral arguments on the Fifth Circuit U.S. Court of Appeals decision that held that the individual mandate is unconstitutional. The Supreme Court is expected to issue a decision by mid-2021. It is uncertain how the Supreme Court will rule on this case. In January 2021, President Biden issued an executive order to initiate a special enrollment period to allow people to obtain health insurance coverage through the ACA marketplace, and instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, among others. We cannot predict how the Supreme Court ruling, other litigation, or the healthcare reform measures of the Biden administration will impact
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our business. We are continuing to monitor any changes to the ACA that, in turn, may potentially impact our business in the future. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated Cadillac tax on certain high-cost employer-sponsored insurance plans and the medical device excise tax, and effective January 1, 2021, also eliminates the health insurer tax. The BBA, among other things, also amended the ACA, effective January 1, 2019, by increasing from 50% to 70% the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and closing the coverage gap in most Medicare drug plans, commonly referred to as the donut hole. In addition, CMS published a final rule that would give states greater flexibility, effective January 1, 2020, in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislations automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in 2013 and will remain in effect through 2030, with the exception of a temporary suspension implemented under various COVID-19 relief legislation from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken. Congress recently introduced a bill to extend the moratorium on 2% Medicare sequester cuts through the end of 2021. We are continuing to monitor the status of this bill. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Further, there have been several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMSs policy change that was effective January 1, 2019. In 2020, the U.S. Department of Health and Human Services (HHS) and the CMS issued various rules that are expected to impact, among others, price reductions from pharmaceutical manufacturers to plan sponsors under Part D, fee arrangements between pharmacy benefit managers and manufacturers, manufacturer price reporting requirements under the Medicaid Drug Rebate Program, including regulations that affect manufacturer-sponsored patient assistance programs subject to pharmacy benefit manager accumulator programs and Best Price reporting related to certain value-based purchasing arrangements. Multiple lawsuits have been brought against the HHS challenging various aspects of the rules. In January 2021, the Biden administration issued a regulatory freeze memorandum that directs department and agency heads to review new or pending rules of the prior administration. It is unclear whether these new regulations will be withdrawn or when they will become fully effective under the current administration. The impact of these lawsuits as well as legislative, executive, and administrative actions of the current administration on us and the pharmaceutical industry as a whole is unclear.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement
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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.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for any product candidates we may develop or additional pricing pressures. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates if approved. Complying with any new legislation and regulatory changes could be time-intensive and expensive, resulting in a material adverse effect on our business.
Employees and Human Capital Resources
Employees
As of December 31, 2020, we had 59 full-time employees and four full-time contract employees. Of these employees, 15 have an M.D. or a Ph.D. From time to time, we also retain consultants to support our organization. As of December 31, 2020, we had 18 consultants. None of our employees are represented by a labor union or covered by collective bargaining agreements, and we believe our relationship with our employees is good.
Diversity and Inclusion
We are committed to creating and maintaining a workplace free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression or any other status protected by applicable law. Our management team and employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace.
Competitive Pay & Benefits
We strive to provide pay, comprehensive benefits and services that help meet the varying needs of our employees. Our total rewards package includes competitive pay; comprehensive healthcare benefits package for employees. In addition, we offer every full-time employee, both exempt and non-exempt, the benefit of equity ownership in the company through stock option grants.
Employee Development & Training
We focus on attracting, retaining, and cultivating talented individuals. We emphasize employee development and training by providing access to a wide range of online and instructor led development and continual learning programs. Employees are encouraged to attend scientific, clinical and technological meetings and conferences and have access to broad resources they need to be successful.
Properties and Facilities
Our principal executive office is located in Seattle, Washington, where we lease a total of approximately 11,256 square feet of office and laboratory space that we use for our administrative, research and development and other activities. Our lease expires in August 2022.
Legal Proceedings
From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of management,
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would have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm, and other factors.
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Executive Officers and Directors
The following table provides information regarding our executive officers, key employee and directors as of March 15, 2021:
Name |
Age |
Position |
||||
Executive Officers: | ||||||
Adrian Adams |
70 | President, Chief Executive Officer and Chairman | ||||
John Hoekman, Ph.D. |
40 | Chief Scientific Officer and Director | ||||
John Leaman, M.D. |
48 | Chief Financial Officer | ||||
Stephen Shrewsbury, M.B. ChB. |
64 | Chief Medical Officer | ||||
Leonard S. Paolillo |
42 | Chief Commercial Officer | ||||
Key Employee: | ||||||
Lynn Gold, Ph.D. |
64 | Senior Vice President, Regulatory Affairs | ||||
Non-Employee Directors: | ||||||
David Allison, Ph.D. |
39 | Director | ||||
Robert Mittendorff, M.D. |
44 | Director | ||||
Timothy S. Nelson |
57 | Director | ||||
H. Stewart Parker |
65 | Director | ||||
Aaron Royston, M.D. |
36 | Director | ||||
Ali Satvat |
43 | Director | ||||
Mahendra G. Shah, Ph.D. |
76 | Director | ||||
Diane E. Wilfong |
59 | Director |
(1) |
Member of the Audit Committee. |
(2) |
Member of the Compensation Committee. |
(3) |
Member of the Nominating and Governance Committee. |
(4) |
Lead Independent Director |
(5) |
Each of Drs. Hoekman, Mittendorff and Royston has notified us that he will resign from our board of directors effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part. |
Executive Officers
Adrian Adams has served as Chairman of our Board of Directors since January 2020, and as our Chief Executive Officer and President since May 2020. Prior to serving as our Chief Executive Officer, from February 2016 to January 2019, Mr. Adams served as Chief Executive Officer of Aralez Pharmaceuticals Inc., a specialty pharmaceutical company, after the merger between Pozen, Inc. and Tribute Pharmaceuticals Canada, Inc., and as a member of the Aralez board of directors. From May 2015 to January 2016, Mr. Adams served as Chief Executive Officer and a member of the board of directors of Aralezs predecessor, Pozen, Inc. Prior to joining Pozen, Inc., Mr. Adams served as Chief Executive Officer and President of Auxilium Pharmaceuticals, Inc., a specialty biopharmaceutical company, from December 2011 until its acquisition by Endo International plc in January 2015. Prior to joining Auxilium, from September 2011 until November 2011, Mr. Adams served as Chairman and Chief Executive Officer of Neurologix, Inc. a biotechnology company. Before Neurologix, Mr. Adams served as President and Chief Executive Officer of Inspire Pharmaceuticals, Inc., where he led the company through a strategic acquisition by global pharmaceutical leader Merck & Co., Inc. in May 2011. Prior to Inspire, Mr. Adams served as President and Chief Executive Officer of Sepracor, Inc. from December 2006 until February 2010, when it was acquired by Dainippon Sumitomo Pharma Co. Mr. Adams currently serves as the Chairman of the board of directors at AcelRx Pharmaceuticals, Inc., and Chairman of the board of directors at Akebia Therapeutics, Inc. Mr. Adams graduated from the Royal Institute of Chemistry at Salford University in the United Kingdom. We believe that Mr. Adams is qualified to
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serve on our board of directors because of his experience as our Chief Executive Officer and his extensive corporate development experience in the pharmaceutical and biotechnology industries.
John Hoekman, Ph.D., our co-founder, has served as our Chief Scientific Officer since July 2008. Prior to co-founding our company, Dr. Hoekman was a researcher at the Alzheimers Research Center in St. Paul, Minnesota from April 2004 to June 2006. Dr. Hoekman holds a B.S. in Physics from the University of Minnesota and a Ph.D. in Pharmaceutics from the University of Washington. We believe that Dr. Hoekman is qualified to serve on our board of directors because of his extensive research experience and expertise in upper nasal drug delivery.
John H. Leaman, M.D. has served as our Chief Financial Officer since June 2019. From October 2017 to March 2019, Dr. Leaman served as the Chief Financial Officer and Head of Corporate Development at Selecta Biosciences Inc. From June 2016 to September 2017, he served as Head of Corporate Development at InfaCare Pharmaceutical Corp., a specialty pharmaceutical company, until it was acquired by Mallinckrodt plc. in September 2017. From August 2014 to March 2016, Dr. Leaman was the Chief Financial Officer of Medgenics Inc. He also previously held senior roles at Shire plc. and Devon Park Bioventures, a venture capital fund targeting investments in therapeutics companies, and began his career serving a range of life sciences companies as an Associate Principal at McKinsey & Company. He received an M.D. from the Perelman School of Medicine at the University of Pennsylvania, an M.B.A. from the Wharton School at the University of Pennsylvania, a B.A. in psychology, philosophy and physiology from Oriel College, University of Oxford while completing a Rhodes Scholarship, and a B.S. in biology from Elizabethtown College.
Leonard S. Paolillo has served as our Chief Commercial Officer since March 2021. Prior to that, Mr. Paolillo served from August 2019 to February 2021 as Executive Vice President and Chief Commercial Officer of Kyowa Kirin Inc., the North American affiliate of Kyowa Kirin Co. Ltd., a global specialty pharmaceutical company based in Tokyo, as well as in other roles from March 2014 to July 2019. Prior, from May 2011 to January 2014 he served as senior director of sales at Warner Chilcott Pharmaceuticals where he led the womens healthcare, osteoporosis and urology sales forces. Mr. Paolillo began his healthcare career at EURO RSCG LIFE LM&P, a full-service healthcare advertising agency, before joining Warner Chilcott in March 2003, and holds a B.S. in business administration from Manhattan College.
Stephen Shrewsbury, M.B. ChB., has served as our Chief Medical Officer since March 2017. Prior to that, Dr. Shrewsbury was the Executive Vice President, Development, and Chief Medical Officer at Fortuna Fix Inc., a clinical biotechnology company, from June 2016 to December 2016. From April 2013 to June 2016, Dr. Shrewsbury was the Chief Medical Officer and Senior Vice President, Clinical Development of Aquinox Pharmaceuticals Inc., a pharmaceutical company focused on treating inflammation, inflammatory pain, and blood cancers. Prior to that, Dr. Shrewsbury served in executive positions at various other pharmaceutical companies, including MAP Pharmaceuticals, Inc., AVI BioPharma, Inc. and Adamas Pharmaceuticals. Dr. Shrewsbury holds an M.B. ChB. from the University of Liverpool, an MRCGP from the Royal College of General Practitioners and a Diploma in Pharmaceutical Medicine from the Royal College of Physicians.
Key Employee
Lynn Gold, Ph.D., has served as our Senior Vice President, Regulatory Affairs since July 2018. From November 2008 to June 2018, Dr. Gold served as Vice President, Scientific and Regulatory Affairs, at Camargo Pharmaceutical Services, LLC. Dr. Gold holds a B.S. in Chemistry from the State University of New York at Buffalo and a Ph.D. in Chemistry from the University of Rochester.
Non-Employee Directors
David Allison, Ph.D., has served as a member of our board of directors since June 2019. Dr. Allison has served as a Partner at 5AM Venture Management, LLC since July 2018, and was previously a
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Principal at 5AM Venture Management, LLC since August 2016. Dr. Allison previously served as a Principal at Versant Ventures from April 2014 to August 2016. Prior to Versant Ventures, Dr. Allison worked at Split Rock Partners as a Principal from August 2009 to August 2014, and at PTV Healthcare Capital as a Senior Associate from 2006 to 2009. Before his venture career, he worked in the diagnostics and drug discovery business unit at SurModics in 2004 and was a National Science Foundation Research Fellow at The Cleveland Clinic Foundations Heart Valve Laboratory. Dr. Allison currently serves on the boards of directors of various private companies. Dr. Allison received a Ph.D. in Bioengineering from Rice University with a focus in Cell Biology and Extracellular Matrix in Cardiovascular Disease. He received a B.S.E in Biomedical Engineering from The University of Iowa. We believe that Dr. Allison is qualified to serve on our board of directors based on his expertise in corporate governance, financing and financial matters and his investment experience in the health care industry.
Robert Mittendorff, M.D., has served as a member of our board of directors since December 2018. Dr. Mittendorff is a general partner and head of the healthcare group at B Capital Group, a venture firm, which he joined in March 2021. Dr. Mittendorff previously served as a partner at Norwest Venture Partners from 2012 until March 2021 and currently serves as a consultant to Norwest. He has previously served as a board member at Silk Road Medical, Inc., a public medical device company, from July 2017 until July 2020 and currently serves on the boards of various private companies, including Avalyn Pharma Inc., Neocis, Inc., Qventus, Inc., TigerConnect, Inc. and VisitPay LLC. He was previously also a board member at iCardiac Technologies, Inc., a pharmaceutical services company, and a board observer at iRhythm Technologies, Inc. Prior to Norwest, Dr. Mittendorff was the Vice President of Marketing and Business Development at Hansen Medical Inc. He has prior experience with the Boston Consulting Group and Merck. Dr. Mittendorff is a board certified emergency physician who completed his residency training at Stanford. He received his M.D. from Harvard Medical School and his M.B.A. from Harvard Business School, and his B.S. in biomedical engineering (general and departmental honors) from Johns Hopkins University. He has completed fellowships under the Howard Hughes Medical Institute (neuroscience), MIT Sloan School of Management, and Harvard Business School. We believe that Dr. Mittendorff is qualified to serve on our board of directors because of his medical training and his extensive investment, business and board experience in the healthcare and medical device industries.
Timothy S. Nelson has served on our board of directors since February 2017. Mr. Nelson previously served on the boards of directors of SurModics, Inc. a medical technologies company, from February 2014 to March 2015, and of MAP Pharmaceuticals, Inc., a development stage neurological company, from April 2005 to March 2013. Mr. Nelson has also served as Chairman of the board of Xoc Pharmaceuticals, a private biotechnology company since January 2018, and Civitas Therapeutics, Inc., a private pharmaceutical company, from December 2013 to October 2014. Mr. Nelson also serves on the board of directors of Dermavant, a private biopharmaceutical company, since April 2019. Prior to that, Mr. Nelson also held various senior management positions at other life sciences companies, including Medtronic plc, a multinational medical device company. Mr. Nelson holds a Bachelor of Chemical Engineering from the University of Minnesota and a Master of Management with distinction from the J.L. Kellogg Graduate School of Management at Northwestern University. We believe that Mr. Nelson is qualified to serve on our board of directors because of his extensive experience in the pharmaceuticals industry and as a director of a public company.
H. Stewart Parker has served as a member of our board of directors since May 2014. From March 2011 to June 2014, Ms. Parker served in various roles at the Infectious Disease Research Institute, including as its Chief Executive Officer, strategic advisor and a member of the board of directors. Since January 2009, Ms. Parker has also served as a Principal at Parker BioConsulting, a biotechnology consulting firm. Prior to that, Ms. Parker has also served in various roles of leadership at other biopharmaceutical companies since 1992, including as Chief Executive Officer of Targeted Genetics Corporation, a biopharmaceutical company. Since August 2017, Ms. Parker has served on the board of directors of Achieve Life Sciences, Inc., a pharmaceutical company. Ms. Parker has also served on the
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board of directors of Armata Pharmaceuticals, Inc. (formerly C3J Therapeutics, Inc.) since 2010. Since June 2014, Ms. Parker has served on the board of directors of Sangamo Therapeutics, Inc., a genomic therapies company. Ms. Parker also currently serves on the board of directors of various private companies. Ms. Parker holds a B.A. in Slavic Language & Literature and an M.B.A. in Finance and International Business from the University of Washington. We believe that Ms. Parker is qualified to serve on our board of directors because of her extensive experience in the life sciences industry and as a director of other public companies.
Aaron Royston, M.D., has served as a member of our board of directors since November 2016. Dr. Royston is a Managing Partner at venBio Partners, a life sciences investment firm and has also been with venBio Partners since 2015. Prior to joining venBio Partners, Dr. Royston worked for Vivo Capital, a global life sciences investment firm from July 2014 to November 2015, Previously, Dr. Royston worked at Bain & Company, Inc. from July 2013 to July 2014 where he advised biotechnology companies on a broad range of strategic and operational issues. Earlier in his career, Dr. Royston coordinated clinical research at Mount Sinai Medical Center, where his research has been published and presented in multiple medical journals and conferences. In 2011, Dr. Royston was recognized by the Obama Administration as a Champion of Change for his work in technology and innovation. Dr. Royston previously served on the boards of directors of Akero Therapeutics, a biotechnology company, from June 2018 to August 2019 and Menlo Therapeutics Inc., a biotechnology company, from June 2017 to August 2019. Dr. Royston currently serves on the board of directors of several private companies. Dr. Royston received a B.S. in biological sciences from Duke University, and an M.D. and M.B.A. from the University of Pennsylvania. We believe that Dr. Royston is qualified to serve on our board of directors because of his clinical and biotechnology industry experience.
Ali Satvat has served as a member of our board of directors since December 2018. Mr. Satvat joined Kohlberg Kravis Roberts & Co. L.P., a global investment firm (together with its affiliates, KKR), in January 2012 and is a Partner and Co-Head of the Health Care industry team within KKRs Americas Private Equity platform, for which he is a member of the Investment Committee and the Portfolio Management Committee. Mr. Satvat is also Global Head of KKRs Health Care Strategic Growth platform, for which he chairs the Investment Committee and the Portfolio Management Committee. Mr. Satvat has served as a member of the boards of directors of BridgeBio Pharma, Inc., a biopharmaceutical company, since March 2016, Coherus BioSciences, Inc., a biopharmaceutical company, since May 2014, Eidos Therapeutics, Inc., a biopharmaceutical company, from June 2018 through January 2021, PRA Health Sciences, Inc., a global contract research organization, from September 2013 through April 2018, and multiple privately held companies. Prior to joining KKR, Mr. Satvat was a Principal with Apax Partners, where he invested in health care from 2006 to 2012. Previously, Mr. Satvat held various positions with Johnson & Johnson Development Corporation, Audax Group, and The Blackstone Group. Mr. Satvat holds an A.B. in History and Science from Harvard College and a M.B.A. in Health Care Management and Entrepreneurial Management from the Wharton School of the University of Pennsylvania. Mr. Satvat previously served as a member of the board of directors of the Healthcare Private Equity Association. We believe that Mr. Satvat is qualified to serve on our board of directors because of his extensive investment and board experience with public and private companies in the health care industry.
Mahendra G. Shah, Ph.D., has served as a member of our board of directors since November 2016. Since March 2010, Dr. Shah has served in various roles with Vivo Capital, a healthcare focused investment firm, most recently as Managing Director. Dr. Shah is also the founder and executive chairman of Semnur Pharmaceuticals, Inc. (acquired by Scilex Pharmaceuticals Inc.). Dr. Shah previously served as a board member of Soleno Therapeutics Inc., a biopharmaceutical company, from March 2018 to April 2019, Crinetics Pharmaceuticals, Inc., a clinical stage pharmaceutical company, from October 2015 to January 2018, and Homology Medicines, Inc., a genetic medicines company, from July 2017 to June 2019. Since July 2016, Dr. Shah has served as a member of the board of
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directors of Verona Pharma PLC, a biopharmaceutical company. Dr. Shah also currently serves on the boards of directors of various private companies. Dr. Shah holds a Ph.D. in Pharmaceutical Sciences from St. Johns University and a B.S. and M.S. in Pharmacy from L.M. College of Pharmacy in Gujarat, India. We believe that Dr. Shah is qualified to serve on our board of directors because of his vast experience as a finance professional in the biomedical and pharmaceutical industries.
Diane E. Wilfong has served as a member of our board of directors since September 2019. Since February 2016, Ms. Wilfong has served as Senior Vice President, Controller and Chief Accounting Officer at Gilead Sciences, Inc., a biotechnology company. From November 2014 to February 2016, Ms. Wilfong served as Vice President, Controller and Principal Accounting Officer at Computer Sciences Corporation, a technology company. Prior to that, Ms. Wilfong held various finance roles at other companies since 1983. Ms. Wilfong, a certified public accountant since 1985, holds a B.S.B.A. in Accounting from the Kenan-Flagler Business School, University of North Carolina at Chapel Hill. We believe that Ms. Wilfong is qualified to serve on our board of directors because of her vast experience as a finance professional in the technology and biotechnology industries.
Disclosed Legal Proceedings
From February 2016 to January 2019, Mr. Adams served as Chief Executive Officer of Aralez Pharmaceuticals Inc., a specialty pharmaceutical company, after the merger between Pozen, Inc. and Tribute Pharmaceuticals Canada, Inc., and as a member of the Aralez board of directors. From May 2015 to January 2016, Mr. Adams served as Chief Executive Officer and a member of the board of directors of Aralezs predecessor, Pozen, Inc. In August 2018, Aralez voluntarily commenced restructuring proceedings in Canadian Court and its U.S.-based subsidiaries, including POZEN, Inc., filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code.
From September 2011 until November 2011, Mr. Adams also served as Chairman and Chief Executive Officer of Neurologix, Inc. a biotechnology company which filed for bankruptcy under Chapter 7 in 2012.
Election of Officers
Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no family relationships among any of our directors or executive officers.
Board Composition
Our board of directors currently consists of ten members. Pursuant to our current voting agreement and certificate of incorporation, Adrian Adams, David Allison, John Hoekman, Robert Mittendorff, Timothy S. Nelson, H. Stewart Parker, Aaron Royston, Ali Satvat, Mahendra G. Shah, and Diane E. Wilfong, have been designated to serve as members of our board. Ms. Parker was designated by the holders of our Series A-1 and Series A-2 redeemable convertible preferred stock. Messrs. Shah, Royston and Allison were designated by the holders of our Series C redeemable convertible preferred stock. Messrs. Mittendorff and Satvat were designated by the holders of our Series D redeemable convertible preferred stock. Mr. Nelson and Ms. Wilfong were designated by agreement of all of the members of the board of directors and at least 60% of the holders of our Series C and Series D redeemable convertible preferred stock. Mr. Hoekman was elected by the holders of all of our capital stock, voting together as a single class on an as-converted basis. Mr. Adams was elected by the holders of our common stock.
The voting agreement and the provisions of our current certificate of incorporation that govern the election and designation of our directors will terminate in connection with this offering, after which no contractual obligations will concern the election of our directors. Each of our current directors will continue to serve until the election and qualification of his successor, or until his earlier death, resignation or removal.
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Classified Board of Directors
In accordance with the terms of our restated certificate of incorporation and restated bylaws that will become effective upon the completion of this offering, our board of directors will be divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be subject to re-election for a three-year term. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. 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 first annual meeting of stockholders held following the completion of the offering; |
∎ |
the Class II directors will be , and and their terms will expire at the second annual meeting of stockholders held following the completion of the offering; and |
∎ |
the Class III directors will be , and and their terms will expire at the third annual meeting of stockholders held following the completion of the offering. |
Each directors term continues until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Our restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering authorize only our board of directors to fill vacancies on our board of directors. Any increase or decrease 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. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company. See the section titled Description of Capital StockAnti-Takeover ProvisionsRestated Certificate of Incorporation and Restated Bylaw Provisions.
Director Independence
In connection with this offering, we intend to list our common stock on Nasdaq. Under the rules of Nasdaq, independent directors must comprise a majority of a listed companys board of directors within a specified period following the completion of this offering. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed companys audit, compensation and nominating and governance committees be independent. Under the rules of Nasdaq, a director will only qualify as an independent director if, in the opinion of that companys board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (i) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (ii) be an affiliated person of the listed company or any of its subsidiaries. We intend to satisfy the audit committee independence requirements of Rule 10A-3 as of the completion of this offering. Additionally, compensation committee members must not have a relationship with us that is material to the directors ability to be independent from management in connection with the duties of a compensation committee member.
Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that all of our directors, except for , are independent directors as defined under the applicable rules and regulations of the SEC and the listing requirements and rules of Nasdaq. In making these determinations, our board of directors reviewed and discussed information
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provided by the directors and us with regard to each directors business and personal activities and relationships as the may relate to us and our management, including the beneficial ownership of our capital stock by each non-employee director and then transactions involving them described in the section titled Certain Relationships and Related Party Transactions.
Committees of the Board of Directors
Our board of directors has an audit committee, a compensation committee and a nominating and governance committee, each of which will have the composition and responsibilities described below as of the completion of this offering. Each of the below committees has a written charter approved by our board of directors. Members serve on these committees will serve until their resignation or until otherwise determined by our board of directors. Upon completion of this offering, copies of each charter will be posted on our website at www.Impelnp.com. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of such website address in this prospectus is an inactive textual reference only.
Audit Committee
Our audit committee is comprised of , and , with the chairman of our audit committee. The composition of our audit committee meets the requirements for independence under the current Nasdaq and SEC rules and regulations. Each member of our audit committee is financially literate. In addition, our board of directors has determined that is an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act of 1933, as amended, or the Securities Act. This designation does not impose on such person any duties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is directly responsible for, among other things:
∎ |
selecting and hiring our independent registered public accounting firm; |
∎ |
the qualifications, independence and performance of our independent auditors; |
∎ |
the preparation of the audit committee report to be included in our annual proxy statement; |
∎ |
our compliance with legal and regulatory requirements; |
∎ |
our accounting and financial reporting processes, including our financial statement audits and the integrity of our financial statements; and |
∎ |
reviewing and approving related-person transactions. |
Compensation Committee
Our compensation committee is comprised of , and , with as the chairman of our compensation committee. Each member of our compensation committee is a non-employee director, as defined by Rule 16b-3 promulgated under the Exchange Act and meets the requirements for independence under the current Nasdaq listing standards and SEC rules and regulations. Our compensation committee is responsible for, among other things:
∎ |
evaluating, recommending, approving and reviewing executive officer compensation arrangements, plans, policies and programs; |
∎ |
evaluating and recommending non-employee director compensation arrangements for determination by our board of directors; |
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administering our cash-based and equity-based compensation plans; and |
∎ |
overseeing our compliance with regulatory requirements associated with the compensation of directors, officers and employees. |
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Nominating and Governance Committee
Our nominating and governance committee is comprised of , and , with as the chairman of our nominating and governance committee. Each member of our nominating and governance committee meets the requirements for independence under the current Nasdaq listing standards. Our nominating and governance committee is responsible for, among other things:
∎ |
identifying, considering and recommending candidates for membership on our board of directors; |
∎ |
overseeing the process of evaluating the performance of our board of directors; and |
∎ |
advising our board of directors on other corporate governance matters. |
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time been one of our officers or employees, and none of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation committee during the year ended December 31, 2020. Prior to establishing the compensation committee, our full board of directors made decisions relating to the compensation of our officers.
Code of Business Conduct and Ethics
Prior to the completion of this offering, our board of directors will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer and other executive and senior officers. The full text of our code of business conduct and ethics will be available on our website at www.Impelnp.com. Information contained on or accessible through such website is not a part of this prospectus, and the inclusion of the website address in this prospectus is an inactive textual reference only. We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of these provisions, on our website or in public filings to the extent required by the applicable rules.
Non-Employee Director Compensation
Mr. Congleton, Mr. Adams and Dr. Hoekman did not receive any compensation for their services as directors during fiscal year 2020, while also serving as our former Chief Executive Officer, our current Chief Executive and our Chief Scientific Officer, respectively. Please see the section entitled Executive Compensation of ImpelSummary Compensation Table for a summary of payments made to each of Mr. Congleton and Mr. Adams. Dr. Hoekman is an executive officer but not a named executive officer and does not receive any additional compensation for services provided as a director. Other than as described below, none of our non-employee directors received any fees or reimbursement of any expenses (other than customary expenses in connection with the attendance of meetings of our board of directors) or any equity or non-equity awards in the year ended December 31, 2020.
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2020 Director Compensation Table
The following table presents the total compensation earned by each of our non-employee directors in the year ended December 31, 2020.
Name |
Fees Earned
or Paid in Cash(1) |
Option
Awards(3) |
All Other
Compensation |
Total | ||||||||||||
David Allison, Ph.D. |
| | | | ||||||||||||
Robert Mittendorff, M.D. |
| | | | ||||||||||||
Timothy S. Nelson |
$ | 30,000 | | $ | 78,000 | (2) | $ | 108,000 | ||||||||
H. Stewart Parker |
$ | 40,000 | | | $ | 40,000 | ||||||||||
Aaron Royston, M.D. |
| | | | ||||||||||||
Ali Satvat |
| | | | ||||||||||||
Mahendra G. Shah, Ph.D. |
| | | | ||||||||||||
Diane E. Wilfong. |
$ | 30,000 | | | $ | 30,000 |
(1) |
The amounts reported in this column represent fees earned for service on our board of directors. |
(2) |
In 2020, Mr. Nelson received $78,000 pursuant to his consulting agreement with us, pursuant to which he provides strategic business consulting services. |
(3) |
The following table sets forth the aggregate number of shares of our common stock subject to outstanding options held by our non-employee directors as of December 31, 2020: |
Name |
Number of Shares
Underlying Options Held as of December 31, 2020 |
|||
David Allison, Ph.D.. |
| |||
Robert Mittendorff, M.D. |
| |||
Timothy S. Nelson |
1,624,206 | (a) | ||
H. Stewart Parker |
1,225,475 | (b) | ||
Aaron Royston, M.D. |
| |||
Ali Satvat |
| |||
Mahendra G. Shah, Ph.D. |
| |||
Diane E. Wilfong |
513,410 | (c) |
(a) |
This amount reflects (i) options to purchase 201,444 shares, 1/4th of which vested on February 14, 2018, the one-year anniversary of the vesting commencement date, and 1/48th of which vest monthly thereafter, (ii) options to purchase 1,007,222 shares, all of which are vested, (iii) options to purchase 50,000 shares, 1/4th of which vested on February 13, 2019, the one-year anniversary of the vesting commencement date, and 1/48th of which vest monthly thereafter and (iv) options to purchase 365,540 shares, 1/4th of which vested on February 8, 2020, the one-year anniversary of the vesting commencement date, and 1/48th of which vest monthly thereafter. |
(b) |
This amount reflects (i) options to purchase 100,000 shares, all of which are vested, (ii) options to purchase 200,000 shares, all of which are vested, (iii) options to purchase 305,000 shares, 1/4th of which vested on March 9, 2018, the one-year anniversary of the vesting commencement date, and 1/48th of which vest monthly thereafter, (iv) options to purchase 175,000 shares, 1/4th of which vested on February 13, 2019, the one-year anniversary of the vesting commencement date, and 1/48th of which vest monthly thereafter and (v) options to purchase 445,475 shares, 1/4th of which vested on February 8, 2020, the one-year anniversary of the vesting commencement date, and 1/48th of which vest monthly thereafter. In May 2019, our board of directors approved an amendment to Ms. Parkers options referenced in clauses (iii), (iv) and (v) above, such that in the event of an initial public offering, a combination |
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transaction, an acquisition or other such combination, all of such options will accelerate and become fully vested. Upon this initial public offering, these options will become fully vested. |
(c) |
This amount reflects options to purchase 513,410 shares, 1/4th of which vested on September 20, 2020, the one-year anniversary of the vesting commencement date, and 1/48th of which vest monthly thereafter. |
Non-Employee Director Compensation Policy
In connection with this offering, we intend to adopt a non-employee director compensation policy that will become effective as of the completion of this offering that will be designed to enable us to attract and retain, on a long-term basis, highly qualified non-employee directors.
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Executive Compensation Overview
The following tables and accompanying narrative disclosure set forth information about the compensation earned by our named executive officers during the year ended December 31, 2020, who are Jon Congleton, our former principal executive officer, Adrian Adams, our current principal executive officer, John H. Leaman, M.D., our Chief Financial Officer, and Stephen Shrewsbury, M.D., our Chief Medical Officer.
In May 2020, Mr. Congleton resigned as our President, Chief Executive Officer and Director, and Mr. Adams, who was at that time a Director of our company, was appointed to those executive officer roles.
The named executive officers compensation primarily consists of (1) base salary, (2) annual performance-based cash bonus and (3) equity incentive awards, as well as perquisites described below. Our named executive officers, during their employment with us, are also eligible to participate in the same retirement and health and welfare benefit plans as our other full-time employees.
2020 Summary Compensation Table
The following table presents summary information regarding the total compensation for services rendered in all capacities that was awarded to and earned by our named executive officers during the year ended December 31, 2020.
Name and Principal Position |
Salary ($) | Option Awards($)(1) |
Non-Equity
Incentive Plan Compensation ($)(2) |
All Other
Compensation ($) |
Total ($) | |||||||||||||||
Adrian Adams President & Chief Executive Officer |
266,041 | 3,348,910 | 95,544 | (3) | 15,330 | (4) | 3,725,825 | |||||||||||||
Jon Congleton(5) Former President & Chief Executive Officer |
173,548 | | | 1,924,378 | (6) | 2,097,926 | ||||||||||||||
John Leaman, M.D. Chief Financial Officer |
415,231 | | 123,463 | | 538,694 | |||||||||||||||
Stephen Shrewsbury, M.B. Ch B. Chief Medical Officer |
361,526 | | 112,163 | 44,839 | (7) | 518,528 |
(1) |
Amounts represent the aggregate grant date fair value of the stock options awarded to the named executive officer during 2020 in accordance with FASB Accounting Standards Codification Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in the Option Awards column are set forth in Note 9 of the notes to our financial statements included in this prospectus. Such grant-date fair market value does not take into account any estimated forfeitures related to service-based vesting conditions. |
(2) |
The amounts reported reflect the annual performance-based cash bonus amounts awarded to our named executive officers for their service in 2020. For additional information regarding the non-equity incentive plan compensation, see Non-Equity Incentive Plan Awards. |
(3) |
Mr. Adams declined in full the non-equity incentive plan compensation he was entitled to for 2020. |
(4) |
This amount reflects the compensation that Mr. Adams received for his service as a non-employee director prior to his appointment as our President and Chief Executive Officer as set forth in the 2020 Director Compensation Table contained elsewhere in this prospectus. Since becoming our Chief Executive Officer, Mr. Adams has not received any compensation in his capacity as a director. |
(5) |
Mr. Congleton resigned as our President and Chief Executive Officer effective May 4, 2020. |
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(6) |
This amount reflects (i) the payments Mr. Congleton received or will receive in connection with his resignation as our Chief Executive Officer, which included (A) an aggregate severance amount of $433,102, which is being paid monthly for a period of 12 months from May 12, 2020, (B) a lump sum payment to be paid in 2021 of $59,329, which is equal to his target bonus for 2020, as pro-rated for his period of service in 2020, (C) payments by us for premiums required to maintain his healthcare insurance for up to 12 months, the aggregate cost of which we estimate will be $26,455 (which is based on the payment of COBRA premiums after Mr. Congletons termination date starting June 2020 through December 2020 in the aggregate amount of $15,114, and the estimated payment of monthly COBRA premiums of $2,268 per month for the remaining 5 months), and (D) full acceleration of a portion of Mr. Congletons previously granted options, with an incremental value of $1,393,209, (ii) $3,259 for travel, (iii) $361 for internet services, (iv) $5,054 for rental housing expenses paid on behalf of Mr. Congleton, whose residence is in Pennsylvania, in conjunction with his regular duties in our Seattle, Washington corporate offices, and (v) $3,609 for moving costs. |
(7) |
This amount reflects (i) our matching contributions of $8,839 made on behalf of Dr. Shrewsbury under our 401(k) plan and (ii) $36,000 for living expenses paid to Dr. Shrewsbury. |
Narrative Disclosure to the Summary Compensation Table
Non-Equity Incentive Plan Awards
Annual bonuses for our named executive officers are based on the achievement of corporate performance objectives. For the 2020 bonuses, the target annual bonuses for Mr. Adams, Dr. Leaman and Dr. Shrewsbury were equal to 40%, 35% and 35%, respectively, of their respective annual base salaries. In January 2021, based on the achievement of corporate performance objectives, our board of directors determined to award bonuses for 2020 equal to 85% of each of Mr. Adams, Dr. Leaman and Dr. Shrewsburys target bonuses, as set forth in the table above. Mr. Adams declined acceptance of his cash bonus for 2020.
Employment Agreements with our Executive Officers
Each of our current named executive officers is employed at-will and their compensation is reviewed periodically and subject to the discretion of our board of directors and compensation committee.
We intend to enter into new employment agreements with each of our executive officers. We expect that each of these agreements will provide for at-will employment and include each officers base salary, a discretionary annual incentive bonus opportunity and standard employee benefit plan participation. We also expect these agreements to provide for severance benefits upon termination of employment or a change in control of our business.
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Outstanding Equity Awards at 2020 Fiscal Year-End
The following table sets forth information concerning outstanding equity awards held by each of our named executive officers as of December 31, 2020.
Option Awards | ||||||||||||||||||||||||
Name |
Grant
Date(1) |
Vesting
Commencement Date |
Number of
Securities Underlying Unexercised Options Exercisable |
Number of
Securities Underlying Unexercised Options Unexercisable |
Option
Exercise Price ($/share) |
Option
Expiration Date |
||||||||||||||||||
Adrian Adams |
1/23/2020 | (2) | 1/8/2020 | | 962,961 | $ | 0.50 | 1/23/2030 | ||||||||||||||||
5/4/2020 | (2) | 5/4/2020 | | 11,712,789 | (3) | 0.48 | 5/4/2030 | |||||||||||||||||
John Leaman, M.D.(5) |
6/24/2019 | (4) | 6/24/2019 | 1,443,965 | 2,406,609 | 0.41 | 6/23/2029 | |||||||||||||||||
Stephen Shrewsbury, M.B., Ch.B. |
2/14/2017 | (4) | 2/14/2017 | 386,101 | 16,788 | 0.12 | 2/14/2027 | |||||||||||||||||
10/18/2017 | (4) | 9/1/2017 | 196,625 | 45,375 | 0.12 | 10/18/2027 | ||||||||||||||||||
3/9/2018 | (4) | 2/13/2018 | 60,208 | 24,792 | 0.15 | 3/9/2028 | ||||||||||||||||||
2/8/2019 | (4) | 2/8/2019 | 626,934 | 740,921 | 0.18 | 2/7/2029 |
(1) |
Outstanding equity awards granted prior to November 30, 2018, the effective date of our 2018 Equity Incentive Plan, were granted under our 2008 Equity Incentive Plan. |
(2) |
1/4th of the option will vest on the one-year anniversary of the vesting commencement date and an additional 1/48th will vest monthly thereafter. |
(3) |
On May 4, 2020, our board of directors approved the grant of Mr. Adrians options, which also provided for (i) full vesting acceleration upon an involuntary termination within 12 months following a change in control or (ii) if an involuntary termination occurs prior to a change in control, vesting acceleration as to the number of then-unvested shares subject to the option which would have vested in the 12-month period following termination had Mr. Adams remained as our chief executive officer. |
(4) |
1/4th of the option vested on the one-year anniversary of the vesting commencement date and an additional 1/48th vests monthly thereafter. |
(5) |
On October 30, 2019, our board of directors approved an amendment of Dr. Leamans options granted on June 24, 2019 to provide for full vesting acceleration upon an involuntary termination within 12 months following a change in control. |
Equity Compensation Plans and Other Benefit Plans
2008 Equity Incentive Plan
Our 2008 Plan was initially adopted by our board of directors and approved by our stockholders in September 2008, and was amended most recently in February 2018. The 2008 Plan allows for the grant of stock options and restricted stock, as described below. As of December 31, 2020, we had shares of our common stock reserved for issuance pursuant to awards granted under our 2008 Plan, of which no shares remained available for future grants. We terminated our 2008 Plan effective November 30, 2018 and transitioned to our 2018 Plan. Any awards granted under the 2008 Plan that remain outstanding as of such date will continue to be subject to the terms of our 2008 Plan and applicable award agreements until such awards are exercised or until they terminate or expire by their terms.
Administration. Our 2008 Plan is administered by our board of directors or a committee appointed by our board of directors. Subject to the terms of the 2008 Plan, our board of directors has the
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authority to, among other things, select the persons to whom awards will be granted, construe and interpret our 2008 Plan as well as to prescribe, amend, and rescind rules and regulations relating to the 2008 Plan and awards granted pursuant to the 2008 Plan.
Eligibility. Pursuant to the 2008 Plan, we may grant incentive stock options only to our employees (including officers and directors who are also employees). We may grant non-statutory stock options and restricted stock to our employees, directors, and consultants.
Options. The 2008 Plan provides for the grant of both (i) incentive stock options, which are intended to qualify for tax treatment as set forth under Section 422 of the Code, and (ii) non-statutory stock options to purchase shares of our common stock, each at a stated exercise price. The exercise price of each incentive stock option must be at least equal to the fair market value of our common stock on the date of grant, except that incentive stock options granted to any individual who owns more than ten percent of the total combined voting power of all classes of our capital stock must have an exercise price at least equal to 110% of the fair market value of our common stock on the date of grant. The maximum term of options granted under our 2008 Plan is ten years from the date of grant, except that the maximum permitted term of incentive stock options granted to an individual who owns stock representing more than ten percent of the total combined voting power of all classes of our capital stock is five years from the date of grant. As of December 31, 2020, options to purchase 6,574,424 shares of common stock had been exercised and options to purchase 10,394,180 shares of common stock remained outstanding under our 2008 Plan, with a weighted-average exercise price of $0.124 per share.
Restricted Stock Awards. Awards of restricted stock represent an offer by us to sell shares of our common stock subject to restrictions which may lapse based on terms and conditions determined by our board of directors or applicable committee. Holders of restricted stock are entitled to vote and, unless otherwise determined by the board of directors, are entitled to receive all dividends and distributions with respect to such shares. Any dividends or stock distributions paid pursuant to any unvested shares of restricted stock will be subject to the same restrictions on transferability and forfeiture as the restricted stock. As of December 31, 2020, no shares of restricted stock have been issued under the 2008 Plan.
Transferability. Unless otherwise determined by the board of directors, awards granted under the 2008 Plan may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will, the laws of descent and distribution or qualified domestic relations orders.
Change of Control and Dissolution or Liquidation. In the event of a merger, a combination transaction (as defined in the 2008 Plan), an asset sale or a dissolution or liquidation of us, the 2008 Plan provides that outstanding awards will be treated in the manner determined by our board of directors, and may (i) be assumed, converted, substituted or replaced by a successor corporation with substantially equivalent awards of any successor corporation or affiliate, with appropriate adjustments as to the number of shares and exercise or purchase prices, or provided with substantially similar consideration as was provided to our stockholders; or (ii) be terminated upon, or immediately prior to the consummation of the transaction.
Adjustments. In the event of a dividend or other distribution (whether in the form of cash, shares of our common stock or other securities or property), recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, or similar change in our corporate structure affecting the shares of common stock issued under the 2008 Plan, our board of directors will adjust the number and class of shares that may be delivered under 2008 Plan and/or the number, class and price of shares covered by each outstanding award, in order to prevent diminution or enlargement of benefits or potential benefits intended to be made available under the 2008 Plan.
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2018 Equity Incentive Plan
Our 2018 Plan was adopted by our board of directors and approved by our stockholders in November 2018. The 2018 Plan allows for the grant of stock options, stock appreciation rights, restricted stock, and restricted stock units, or RSUs, as described below. As of December 31, 2020, we had 36,058,532 shares of our common stock reserved for issuance pursuant to awards under our 2018 Plan, of which 5,639,902 shares remained available for grant. We expect to terminate the 2018 Plan upon the effective date of the Equity Incentive Plan, which will be the date immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part. Any awards granted under the 2018 Plan that remain outstanding as of such date will continue to be subject to the terms of our 2018 Plan and applicable award agreements until such awards are exercised or until they terminate or expire by their terms.
Administration. Our 2018 Plan is administered by our board of directors or a committee appointed by our board of directors. Subject to the terms of the 2018 Plan, our board of directors has the authority to, among other things, select the persons to whom awards will be granted, construe and interpret our 2018 Plan as well as to prescribe, amend, and rescind rules and regulations relating to the 2018 Plan and awards granted pursuant to the 2018 Plan.
Eligibility. Pursuant to the 2018 Plan, we may grant incentive stock options only to our employees (including officers and directors who are also employees). We may grant non-statutory stock options, stock appreciation rights, restricted stock, and restricted stock units to our employees, directors, and consultants.
Options. The 2018 Plan provides for the grant of both (i) incentive stock options, which are intended to qualify for tax treatment as set forth under Section 422 of the Code, and (ii) non-statutory stock options to purchase shares of our common stock, each at a stated exercise price. The exercise price of each incentive stock option must be at least equal to the fair market value of our common stock on the date of grant, except that incentive stock options granted to any individual who owns more than ten percent of the total combined voting power of all classes of our capital stock must have an exercise price at least equal to 110% of the fair market value of our common stock on the date of grant. The maximum term of options granted under our 2018 Plan is ten years from the date of grant, except that the maximum permitted term of incentive stock options granted to an individual who owns stock representing more than ten percent of the total combined voting power of all classes of our capital stock is five years from the date of grant. As of December 31, 2020, 829,798 options to purchase shares of common stock had been exercised and 29,588,832 options to purchase shares of common stock remained outstanding under our 2018 Plan, with a weighted-average exercise price of $0.383 per share.
Restricted Stock Awards. Awards of restricted stock represent an offer by us to sell shares of our common stock subject to restrictions which may lapse based on terms and conditions determined by our board of directors or applicable committee. Holders of restricted stock are entitled to vote and, unless otherwise determined by the board of directors, are entitled to receive all dividends and distributions with respect to such shares. Any dividends or stock distributions paid pursuant to any unvested shares of restricted stock will be subject to the same restrictions on transferability and forfeiture as the restricted stock. As of December 31, 2020, no shares of restricted stock had been issued under the 2018 Plan.
Other Awards. The 2018 Plan also provides for the grant of stock appreciation rights and restricted stock units, neither of which has been granted as of December 31, 2020.
Transferability. Unless otherwise determined by the board of directors, awards granted under the 2018 Plan may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will, the laws of descent and distribution or qualified domestic relations orders.
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Acquisition or Other Combination. In the event of an acquisition (as defined in the 2018 Plan), or other combination (as defined in the 2018 Plan), the 2018 Plan provides that outstanding awards will be treated in the manner determined by our board of directors, and may (i) be continued, assumed or substituted with substantially equivalent awards of any successor corporation or affiliate, with appropriate adjustments as to the number of shares and exercise or purchase prices; (ii) become vested or exercisable, in full or in part; (iii) be terminated for no consideration or in exchange for an amount of cash or securities property followed by the cancellation of such awards; or (iv) any combination of the foregoing. After giving effect to the foregoing, any awards outstanding under the 2018 Plan that are not assumed or substituted will terminate if not exercised, as applicable, immediately following the consummation of the acquisition or other combination.
Adjustments. In the event of a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, or other change in our corporate structure affecting the shares of common stock issued under the 2018 Plan, our board of directors will adjust the number and class of shares that may be delivered under 2018 Plan and/or the number, class and price of shares covered by each outstanding award, in order to prevent diminution or enlargement of benefits or potential benefits intended to be made available under the 2018 Plan.
Dissolution or Liquidation. In the event of a proposed dissolution or liquidation, the 2018 Plan provides that each outstanding award will terminate if not exercised prior to the dissolution or liquidation event.
2021 Equity Incentive Plan
We intend to adopt our 2021 Plan that will become effective on the date immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part and will serve as the successor to our 2018 Plan. Our 2021 Plan authorizes the award of stock options, RSUs, restricted stock awards, stock bonus awards, stock appreciation rights, performance awards, and cash awards. We intend to initially reserve shares of our common stock, plus any reserved shares not issued or subject to outstanding grants under the 2018 Plan on the effective date of the 2021 Plan, for issuance pursuant to awards granted under our 2021 Plan. The number of shares reserved for issuance under our 2021 Plan will increase automatically on January 1 of each of 2022 through 2031 by the number of shares equal to the lesser of % of the total number of outstanding shares of all classes of our common stock as of the immediately preceding December 31, or a number as may be determined by our board of directors. In addition, the following shares of our common stock will be available for grant and issuance under our 2021 Plan:
∎ |
shares subject to awards granted under our 2008 Plan and/or 2018 Plan, or the Prior Plans, that cease to be subject to such awards by forfeiture or otherwise after the effective date; |
∎ |
shares issued under our Prior Plans before or after the effective date pursuant to the exercise of stock options that are forfeited after the effective date; |
∎ |
shares issued pursuant to outstanding awards under our Prior Plans that are forfeited or repurchased by us at the original issue price after the effective date of the 2021 Plan; |
∎ |
shares subject to options or other awards under the Prior Plans that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award; |
∎ |
shares subject to issuance upon exercise of an option or SAR granted under the 2021 Plan but which cease to be subject to the option or SAR for any reason other than exercise of the option or SAR; |
∎ |
shares subject to outstanding awards under our 2021 Plan that are forfeited or repurchased by us at the original issue price; |
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∎ |
shares subject to awards under our 2021 Plan that otherwise terminate without such shares being issued; and |
∎ |
shares subject to awards under our 2021 Plan that are surrendered pursuant to an exchange program. |
The following is a description of the material terms of the 2021 Plan. The summary below does not contain a complete description of all provisions of the 2021 Plan and is qualified in its entirety by reference to the 2021 Plan, a copy of which will be included as an exhibit to the registration statement to which this prospectus forms a part.
Administration. Our 2021 Plan will be administered by our compensation committee or by our board of directors acting in place of our compensation committee. Subject to the terms and conditions of the 2021 Plan, the compensation committee will have the authority, among other things, to select the persons to whom awards may be granted, construe and interpret our 2021 Plan as well as to determine the terms of such awards and prescribe, amend, and rescind the rules and regulations relating to the plan or any award granted thereunder. The 2021 Plan provides that our board of directors or compensation committee may delegate its authority, including the authority to grant awards, to one or more officers to the extent permitted by applicable law, provided that awards granted to non-employee directors may only be determined by our board of directors.
Eligibility. Our 2021 Plan provides for the grant of awards to our employees, directors, and consultants. No non-employee director may receive awards under our 2021 Plan that, when combined with cash compensation received for service as a non-employee director, exceed $ in value (measured as of the date of grant) in any calendar year.
Options. The 2021 Plan provides for the grant of both incentive stock options intended to qualify under Section 422 of the Code, and non-statutory stock options to purchase shares of our Common Stock at a stated exercise price. Incentive stock options may only be granted to our employees, including our officers and directors who are also employees. The exercise price of incentive stock options granted under the 2021 Plan must be at least equal to the fair market value of our Common Stock on the date of grant. Incentive stock options granted to an individual who holds, directly or by attribution, more than ten percent of the total combined voting power of all classes of our capital stock must have an exercise price of at least 110% the fair market value of our Common Stock on the date of grant. Subject to stock splits, dividends, recapitalizations or similar events, no more than shares may be issued pursuant to the exercise of incentive stock options granted under the 2021 Plan.
Options may vest based on service or achievement of performance conditions. Our compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable, with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under our 2021 Plan is ten years from the date of grant, except that the maximum permitted term of incentive stock options granted to an individual who holds, directly or by attribution, more than ten percent of the total combined voting power of all classes of our capital stock is five years from the date of grant.
Restricted Stock Awards. An award of restricted stock is an offer by us to sell shares of our Common Stock subject to restrictions that may lapse based on the satisfaction of service or achievement of performance conditions. The price, if any, of an award of restricted stock will be determined by the compensation committee. Unless otherwise determined by the compensation committee, holders of restricted stock will be entitled to vote and to receive any dividends or stock distributions paid pursuant to any unvested shares of restricted stock. If any such dividends or
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distributions are paid in shares of common stock, the shares will be subject to the same restrictions on transferability and forfeiture as the shares of restricted stock with respect to which they were paid.
Stock Appreciation Rights. A SAR provides for a payment, in cash or shares of our Common Stock (up to a specified maximum of shares, if determined by our compensation committee), to the holder based upon the difference between the fair market value of our Common Stock on the date of exercise and a pre-determined exercise price, multiplied by the number of shares with respect to which the SAR is being exercised. The exercise price of a SAR must be at least the fair market value of a share of our Common Stock on the date of grant. SARs may vest based on service or achievement of performance conditions, and may not have a term that is longer than ten years from the date of grant.
Restricted Stock Units. RSUs represent the right to receive shares of our Common Stock at a specified date in the future, and may be subject to vesting based on service or achievement of performance conditions. Payment of earned RSUs may be made as soon as practicable after the date determined at the time of grant or on a deferred basis in the discretion of the committee, and may be settled in cash, shares of our common stock or a combination of both. No RSU may have a term that is longer than ten years from the date of grant.
Performance Awards. Performance awards granted to pursuant to the 2021 Plan may be in the form of a cash bonus, or an award of performance shares or performance units denominated in shares of our Common Stock, that may be settled in cash, property or by issuance of those shares subject to the satisfaction or achievement of specified performance conditions.
Stock Bonus Awards. A stock bonus award provides for payment in the form of cash, shares of our Common Stock or a combination thereof, based on the fair market value of shares subject to such award as determined by our compensation committee. The awards may be subject to vesting restrictions based on continued service or performance conditions.
Cash Awards. A cash award is an award that is denominated in, or payable to an eligible participant solely in, cash.
Dividend Equivalent Rights. Dividend equivalent rights may be granted at the discretion of our compensation committee and represent the right to receive the value of dividends, if any, paid by us in respect of the number of shares of our Common Stock underlying an award. Dividend equivalent rights will be subject to the same vesting or performance conditions as the underlying award and will be paid only at such time as the underlying award has become fully vested. Dividend equivalent rights may be settled in cash, shares or other property, or a combination of thereof as determined by the compensation committee.
Corporate Transaction. In the event of a corporate transaction (which includes a merger, consolidation or asset sale), the 2021 Plan provides that outstanding awards will be treated in the manner determined by our board of directors, and may (i) be assumed, converted, replaced, or substituted with substantially equivalent awards of any successor corporation or affiliate, (ii) become vested or exercisable, in full or in part, (iii) be settled in cash, cash equivalents, or securities of any successor entity followed by the cancellation of such awards, or (iv) be cancelled for no consideration. In the event any successor corporation refuses to assume, convert, replace, or substitute awards, then immediately prior to such corporate transaction all awards shall expire. Awards need not all be treated in the same manner in a corporate transaction. Notwithstanding the foregoing, the vesting of all awards granted to our non-employee directors will accelerate and such awards will become exercisable (to the extent applicable) in full prior to the consummation of a corporate transaction.
Adjustment. In the event of a change in the number of outstanding shares of our Common Stock without consideration by reason of a stock dividend, extraordinary dividend or distribution,
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recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, spin-off or similar change in our capital structure, appropriate proportional adjustments will be made to (i) the number and class of shares reserved for issuance under our 2021 Plan and the incentive stock option limit; (ii) the exercise prices of options and SARs; (iii) number and class of shares subject to outstanding awards; and (iv) any applicable maximum award limits pursuant to the 2021 Plan.
Clawback; Transferability. All awards will be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by our board of directors or required by law to the extent set forth in such policy or applicable agreement. Except in limited circumstances, awards granted under our 2021 Plan may generally not be transferred in any manner prior to vesting other than by will or by the laws of descent and distribution.
Amendment and Termination; Exchange Program. Our board of directors may amend our 2021 Plan at any time, subject to stockholder approval as may be required. Our 2021 Plan will terminate ten years from the date our board of directors adopted the plan, unless it is terminated earlier by our board of directors. No termination or amendment of the 2021 Plan may adversely affect any then-outstanding award without the consent of the affected participant, except as is necessary to comply with applicable laws. Subject to the foregoing, the compensation committee may at any time increase or decrease the exercise price applicable to outstanding options or SARs or pay cash or issue new awards in exchange for the surrender and cancellation of any, or all, outstanding awards.
No awards under our 2021 Plan have been made prior to the date hereof.
Employee Stock Purchase Plan
We intend to adopt our ESPP that will become effective upon the effectiveness of the registration statement of which this prospectus forms a part in order to enable eligible employees to purchase shares of our common stock at a discount with accumulated payroll deductions. Our ESPP is intended to qualify under Section 423 of the Code.
The following is a description of the material terms of the ESPP. The summary below does not contain a complete description of all provisions of the ESPP and is qualified in its entirety by reference to the ESPP, a copy of which will be included as an exhibit to the registration statement to which this prospectus forms a part.
Share Reserve. We intend to initially reserve shares of our common stock for sale under our ESPP. The aggregate number of shares reserved for sale under our ESPP will increase automatically on January 1st of each fiscal year following the fiscal year that contains the first offering date (as defined in the ESPP) by the number of shares equal to the lesser of % of the total number of shares of all classes of our common stock issued and outstanding on each December 31st immediately prior to the date of increase or a lower number of shares as may be determined by our board of directors or compensation committee in any particular year. The aggregate number of shares issued over the term of our ESPP, subject to adjustment due to stock-splits, recapitalizations or similar events, may not exceed shares of our common stock.
Administration. Our compensation committee will administer our ESPP subject to the terms and conditions of the ESPP. Among other things, the compensation committee will have the authority to determine eligibility for participation in the ESPP, designate separate offerings under the plan, and construe, interpret and apply the terms of the plan.
Eligibility. Employees eligible to participate in any offering pursuant to the ESPP generally include any employee that is employed by us at the beginning of the offering period. While our employees generally are eligible to participate in our ESPP, our compensation committee may in its discretion
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elect to exclude employees who do not meet eligibility criteria chosen by the compensation committee. In addition, employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in our ESPP, are ineligible to participate in our ESPP. We may impose additional restrictions on eligibility within the limits permitted by the Code.
Offering Periods; Enrollment. Under our ESPP, eligible employees will be offered the option to purchase shares of our common stock at a discount over a series of offering periods. Each offering period may itself consist of one or more purchase periods. No offering period may be longer than 27 months and each offering period will be determined by our compensation committee. When the first offering period commences, our employees who meet the eligibility requirements for participation in that offering period will be eligible to enroll. For subsequent offering periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic in subsequence offering periods. An employees participation automatically ends upon a termination of employment for any reason.
Offerings; Payroll Deductions; Limitations. Under our ESPP, eligible employees will be offered the option to purchase shares of our common stock at a discount over a series of offering periods by accumulating funds through payroll deductions of between 1% and 15% of their compensation. The purchase price for shares of our common stock purchased under the ESPP will be 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the date of purchase. However, no participant may purchase more than shares on any one purchase date. Our compensation committee, in its discretion, may set a lower maximum number of shares which may be purchased. In addition, no participant will have the right to purchase our shares in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar years, that has a fair market value of more than $25,000, determined as of the first day of the applicable offering period, for each calendar year in which that right is outstanding.
Adjustments upon Recapitalization. If the number of outstanding shares of our common stock is changed by stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, or similar change in our capital structure without consideration, then our compensation committee will proportionately adjust the number and class of common stock that is available under the ESPP, the purchase price and number of shares any participant has elected to purchase as well as the maximum number of shares which may be purchased by participants.
Corporate Transaction. If we experience a corporate transaction (which includes a merger, consolidation or asset sale), then any offering period for each outstanding right to purchase common stock will be shortened by setting a new purchase date and will end on the new purchase date. The new purchase date shall occur on or prior to the consummation of the corporate transaction, as determined by the committee, and the ESPP shall terminate on the consummation of the corporate transaction.
Transferability. No participant may assign, transfer, pledge, or otherwise dispose of payroll deductions credited to his or her account, or any rights with regard to an election to purchase shares pursuant to the ESPP other than by will or the laws of descent or distribution.
Amendment; Termination. The compensation committee may amend, suspend, or terminate the ESPP at any time without stockholder consent, except as required by law. Our ESPP will continue until the earlier to occur of (i) termination of the ESPP by the board of directors, (ii) issuance of all of the shares reserved for issuance under the ESPP, or (iii) the tenth anniversary of the effective date under the ESPP.
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401(k) Plan
We sponsor a retirement savings plan established in January 1, 2018 that is intended to qualify for favorable tax treatment under Section 401(a) of the IRC, and contains a cash or deferred feature that is intended to meet the requirements of Section 401(k) of the IRC. Participants may make pre-tax and certain after-tax (Roth) salary deferral contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit under the IRC. Participants who are 50 years of age or older may contribute additional amounts based on the statutory limits for catch-up contributions. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. The plan provides for employer safe harbor matching contributions equal to 100% of an employees salary deferrals that do not exceed 4% of the employees compensation. An employees interest in his or her deferrals and safe harbor matching contributions is 100% vested when contributed.
Other Benefits
Our named executive officers, if and while employed by us, are eligible to participate in our employee benefit plans on the same basis as our other employees, including our health and welfare plans.
Limitations on Liability and Indemnification Matters
Our restated certificate of incorporation that will become effective in connection with the completion of this offering contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the DGCL. 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 directors 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 DGCL; or |
∎ |
any transaction from which the director derived an improper personal benefit. |
Our restated certificate of incorporation and our restated bylaws that will become effective in connection with the completion of this offering require us to indemnify our directors and officers to the maximum extent not prohibited by the DGCL and allow us to indemnify other employees and agents as set forth in the DGCL.
We have entered, and intend to continue to enter, into separate indemnification agreements with our directors, officers and certain of our key employees, in addition to the indemnification provided for in our restated certificate of incorporation and restated bylaws. These agreements, among other things, require us to indemnify our directors, officers and key employees for certain expenses, including attorneys fees, judgments, penalties, fines and settlement amounts actually incurred by these individuals in any action or proceeding arising out of their service to us or any of our subsidiaries or any other company or enterprise to which these individuals provide services at our request. Subject to certain limitations, our indemnification agreements also require us to advance expenses incurred by our directors, officers and key employees for the defense of any action for which indemnification is required or permitted.
We believe that these indemnification provisions and agreements are necessary to attract and retain qualified directors, officers and key employees. We also maintain directors and officers liability insurance.
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The limitation of liability and indemnification provisions in our restated certificate of incorporation and restated bylaws 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 other stockholders. Further, a stockholders investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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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, 2018 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 5% of our capital stock, or an affiliate or immediate family member of the foregoing persons, had or will have a direct or indirect material interest. |
Other than as described below, there have not been, nor are there any currently proposed, transactions or series of similar transactions to which we have been or will be a party other than compensation arrangements, which are described where required under the section titled Executive Compensation.
Series D Redeemable Convertible Preferred Stock Financing
In December 2018, we sold an aggregate of 95,191,755 shares of our Series D redeemable convertible preferred stock at a purchase price of $0.7091 per share for an aggregate purchase price of approximately $67.5 million. Each share of our Series D redeemable convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering.
The following table summarizes the Series D redeemable convertible preferred stock purchased by members of our board of directors or their affiliates and holders of more than 5% of our outstanding capital stock:
Name of Stockholder |
Shares of Series D
Redeemable Convertible Preferred Stock |
Total Purchase Price | ||||||
Norwest Venture Partners XIV, LP(1) |
35,256,206 | $ | 24,999,999 | |||||
KKR Iris Investors LLC(2) |
42,307,448 | 30,000,000 | ||||||
Entities affiliated with Vivo Capital LLC(3) |
5,876,033 | 4,166,666 | ||||||
venBio Global Strategic Fund II, L.P.(4) |
5,876,034 | 4,166,666 | ||||||
5AM Ventures V, L.P.(5) |
5,876,034 | 4,166,666 |
(1) |
Norwest Venture Partners XIV, LP, or Norwest Venture Partners, holds more than 5% of our outstanding capital stock. NVP Associates, LLC is the managing member of Genesis VC Partners XIV, LLC, which is the general partner of Norwest Venture Partners. Robert Mittendorff, M.D., a member of our board of directors, is a partner at Norwest Venture Partners. |
(2) |
KKR Iris Investors LLC, or KKR Iris, holds more than 5% of our outstanding capital stock. Ali Satvat, a member of our board of directors, is a partner at Kohlberg Kravis Roberts & Co. L.P. |
(3) |
Consists of shares purchased by Vivo Capital Fund VIII, L.P., or Vivo VIII, and Vivo Capital Surplus Fund VIII, L.P., or Vivo Surplus, which collectively hold more than 5% of our outstanding capital stock. Vivo Capital VIII, LLC is the general partner of Vivo VIII and Vivo Surplus. Mahendra Shah, Ph.D., a member of our board of directors, is a managing director at Vivo Capital LLC, an affiliate of Vivo Capital VIII, LLC. |
(4) |
venBio Global Strategic Fund II, L.P., or venBio Strategic Fund, holds more than 5% of our outstanding capital stock. Aaron Royston, M.D., a member of our board of directors, is a partner at venBio Partners LLC, an affiliate of venBio Strategic Fund. |
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(5) |
5AM Ventures V, L.P., or 5AM Ventures, holds more than 5% of our outstanding capital stock. David Allison, Ph.D., a member of our board of directors, is a partner at 5AM Venture Management, LLC. |
Series C-3 Redeemable Convertible Preferred Stock Financing
In February 2018, we sold an aggregate of 24,605,790 shares of our Series C-3 redeemable convertible preferred stock at a purchase price of $0.6096 per share for an aggregate purchase price of approximately $15.0 million. Each share of our Series C-3 redeemable convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering.
The following table summarizes the Series C-3 redeemable convertible preferred stock purchased by members of our board of directors or their affiliates and holders of more than 5% of our outstanding capital stock:
Name of Stockholder |
Shares of Series C-3
Redeemable Convertible Preferred Stock |
Total Purchase Price | ||||||
Entities affiliated with Vivo Capital LLC(1) |
8,201,930 | $ | 5,000,000 | |||||
venBio Global Strategic Fund II, L.P.(2) |
8,201,930 | 5,000,000 | ||||||
5AM Ventures V, L.P.(3) |
8,201,930 | 5,000,000 |
(1) |
Consists of shares purchased by Vivo VIII and Vivo Surplus, which collectively hold more than 5% of our outstanding capital stock. Vivo Capital VIII, LLC is the general partner of Vivo VIII and Vivo Surplus. Mahendra Shah, Ph.D., a member of our board of directors, is a managing director at Vivo Capital LLC, an affiliate of Vivo Capital VIII, LLC. |
(2) |
venBio Strategic Fund holds more than 5% of our outstanding capital stock. Aaron Royston, M.D., a member of our board of directors, is a partner at venBio Partners LLC, an affiliate of venBio Strategic Fund. |
(3) |
5AM Ventures V, L.P. holds more than 5% of our outstanding capital stock. David Allison, Ph.D., a member of our board of directors, is a partner at 5AM Venture Management, LLC. |
Series C-2 Redeemable Convertible Preferred Stock Financing
In February 2018, we sold an aggregate of 26,537,826 shares of Series C-2 redeemable convertible preferred stock at a purchase price of $0.5652 per share, for an aggregate purchase price of approximately $15.0 million. Each share of our Series C-2 redeemable convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering.
The following table summarizes the Series C-2 redeemable convertible preferred stock purchased by members of our board of directors or their affiliates and holders of more than 5% of our outstanding capital stock:
Name of Stockholder |
Shares of Series C-2
Redeemable Convertible Preferred Stock |
Total Purchase Price | ||||||
Entities affiliated with Vivo Capital LLC(1) |
8,845,942 | $ | 5,000,000 | |||||
venBio Global Strategic Fund II, L.P.(2) |
8,845,942 | 5,000,000 | ||||||
5AM Ventures V, L.P.(3) |
8,845,942 | 5,000,000 |
(1) |
Consists of shares purchased by Vivo VIII and Vivo Surplus, which collectively hold more than 5% of our outstanding capital stock. Vivo Capital VIII, LLC is the general partner of Vivo VIII and Vivo Surplus. Mahendra Shah, Ph.D., a member of our board of directors, is a managing director at Vivo Capital LLC, an affiliate of Vivo Capital VIII, LLC. |
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(2) |
venBio Strategic Fund holds more than 5% of our outstanding capital stock. Aaron Royston, M.D., a member of our board of directors, is a partner at venBio Partners LLC, an affiliate of venBio Strategic Fund. |
(3) |
5AM Ventures V, L.P. holds more than 5% of our outstanding capital stock. David Allison, Ph.D., a member of our board of directors, is a partner at 5AM Venture Management, LLC. |
Convertible Notes Financing
In March 2021, we issued convertible promissory notes to various investors for an aggregate amount of $7.5 million. The notes bear interest at a rate of 5.0% per annum and mature on the earlier of (a) December 31, 2021 and (b) a change of control. The notes will automatically convertible into shares of our common stock upon the closing of this offering at 90% of the public offering price set forth on the cover page of this prospectus. The notes are also convertible at the holders option or upon a change of control into shares of our Series D redeemable convertible preferred stock at the Series D original issuance price or, upon a new redeemable convertible preferred stock financing, into shares of redeemable preferred stock issued in such financing at 90% of the price per share.
The following table summarizes the convertible promissory notes purchased by members of our board of directors or their affiliates and holders of more than 5% of our outstanding capital stock:
Name of Stockholder |
Principal Amount
of Convertible Notes |
|||
KKR Iris Investors LLC(1) |
1,591,072 | |||
5AM Ventures V, L.P.(2) |
1,359,799 | |||
venBio Global Strategic Fund II, L.P.(3) |
1,359,799 | |||
Entities affiliated with Vivo Capital LLC(4) |
1,359,799 | |||
Norwest Venture Partners XIV, LP(5) |
$ | 1,325,893 |
(1) |
KKR Iris holds more than 5% of our outstanding capital stock. Ali Satvat, a member of our board of directors, is a partner at Kohlberg Kravis Roberts & Co. L.P. |
(2) |
5AM Ventures holds more than 5% of our outstanding capital stock. David Allison, Ph.D., a member of our board of directors, is a partner at 5AM Venture Management, LLC. |
(3) |
venBio Strategic Fund holds more than 5% of our outstanding capital stock. Aaron Royston, M.D., a member of our board of directors, is a partner at venBio Partners LLC, an affiliate of venBio Strategic Fund. |
(4) |
Consists of notes purchased by Vivo VIII and Vivo Surplus, which collectively hold more than 5% of our outstanding capital stock. Vivo Capital VIII, LLC is the general partner of Vivo VIII and Vivo Surplus. Mahendra Shah, Ph.D., a member of our board of directors, is a managing director at Vivo Capital LLC, an affiliate of Vivo Capital VIII, LLC. |
(5) |
Norwest Venture Partners holds more than 5% of our outstanding capital stock. NVP Associates, LLC is the managing member of Genesis VC Partners XIV, LLC, which is the general partner of Norwest Venture Partners. Robert Mittendorff, M.D., a member of our board of directors, is a partner at Norwest Venture Partners. |
Amended and Restated Investors Rights Agreement
We have entered into an amended and restated investors rights agreement, dated December 4, 2018, with certain holders of our redeemable convertible preferred stock, including entities affiliated with Norwest Venture Partners, KKR Iris, Vivo Capital, venBio Strategy Fund and 5AM Venture Management, LLC. These stockholders are entitled to rights with respect to the registration of their shares following this offering under the Securities Act. For a description of these registration rights, see the section titled Description of Capital StockRegistration Rights.
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Equity Grants to Executive Officers and Directors
We have granted stock options to our executive officers and certain directors, as more fully described in the sections titled Executive Compensation and ManagementNon-Employee Director Compensation, respectively.
Director and Executive Officer Compensation
Please see the sections titled ManagementNon-Employee Director Compensation and Executive Compensation for information regarding the compensation of our directors and executive officers.
Employment Agreements
We have entered into employment agreements with our executive officers. For more information regarding these agreements, see the section titled Executive CompensationEmployment Agreements.
Indemnification Agreements
In connection with this offering, we intend to enter into new indemnification agreements with each of our directors and executive officers. The indemnification agreements, our restated certificate of incorporation and our restated bylaws will require us to indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers. For more information regarding these agreements, see the section titled Executive CompensationLimitations on Liability and Indemnification Matters for information on our indemnification arrangements with our directors and executive officers.
Policies and Procedures for Related Party Transactions
Upon consummation of this offering, we will adopt a written related person transaction policy that provides that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of our common stock, and any members of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a material related person transaction with us without the review and approval of our audit committee, or a committee composed solely of independent directors in the event it is inappropriate for our audit committee to review such transaction due to a conflict of interest.
The policy will provide that any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of our common stock or with any of their immediate family members or affiliates in which the amount involved exceeds $120,000 will be presented to our audit committee (or the committee composed solely of independent directors, if applicable) for review, consideration and approval. In approving or rejecting any such proposal, we expect that our audit committee (or the committee composed solely of independent directors, if applicable) will consider the relevant facts and circumstances available and deemed relevant to the audit committee (or the committee composed solely of independent directors, if applicable), including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related persons interest in the transaction.
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The following table and accompanying footnotes set forth certain information with respect to the beneficial ownership of our common stock on December 31, 2020, and as adjusted to reflect the shares of common stock to be issued and sold in this offering, for:
∎ |
each of our directors; |
∎ |
each of our named executive officers; |
∎ |
all of our current directors and executive officers as a group; and |
∎ |
each person, or group of affiliated persons, who beneficially owned more than 5% of our outstanding shares of common stock. |
We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially owned, subject to applicable community property laws.
Beneficial ownership prior to this offering is based on shares of common stock outstanding as of December 31, 2020, assuming the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into common stock in connection with this offering. Beneficial ownership after this offering is based on shares of common stock outstanding, assuming (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into common stock as described above, (ii) the automatic exchange of a warrant held by Avenue into 1,762,810 shares upon completion of this offering, (iii) the issuance of shares, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range reflected on the cover of this prospectus, upon the expected net exercise of warrants outstanding at December 31, 2020 that would otherwise expire upon the completion of this offering, (iv) the automatic conversion of convertible notes we issued in March 2021 into shares of common stock immediately prior to the completion of this offering and (v) the issuance and sale of shares of common stock in this offering.
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In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options and warrants held by that person or entity that are currently exercisable or that will become exercisable within 60 days of December 31, 2020. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Impel NeuroPharma, Inc., 201 Elliott Avenue West, Suite 260, Seattle, Washington 98119.
Beneficial Ownership
Prior to this Offering |
Beneficial Ownership
After this Offering |
|||||||||||||||
Name of Beneficial Owner |
Number | Percent | Number | Percent | ||||||||||||
Directors and Named Executive Officers: |
||||||||||||||||
Adrian Adams(1) |
260,802 | |||||||||||||||
Jon Congleton |
5,285,499 | |||||||||||||||
Stephen Shrewsbury, M.B., Ch.B.(2) |
1,362,317 | |||||||||||||||
John Leaman, M.D.(3) |
1,604,406 | |||||||||||||||
David Allison, Ph.D. |
| |||||||||||||||
John Hoekman, Ph.D. (4) |
7,160,829 | |||||||||||||||
Robert Mittendorff, M.D. |
| |||||||||||||||
Timothy S. Nelson(5) |
1,428,936 | |||||||||||||||
H. Stewart Parker(6) |
1,278,175 | |||||||||||||||
Aaron Royston, M.D. |
| |||||||||||||||
Ali Satvat |
| |||||||||||||||
Mahendra Shah, Ph.D. |
| |||||||||||||||
Diane E. Wilfong(7) |
181,833 | |||||||||||||||
All executive officers and directors as a group (13 persons) |
13,277,298 | |||||||||||||||
Other 5% Stockholders: |
||||||||||||||||
5AM Ventures V, L.P.(8) |
36,157,791 | |||||||||||||||
KKR Iris Investors LLC(9) |
42,307,448 | |||||||||||||||
Norwest Venture Partners XIV, LP(10) |
35,256,206 | |||||||||||||||
venBio Global Strategic Fund II, L.P.(11) |
36,157,791 | |||||||||||||||
Entities affiliated with Vivo Capital LLC(12) |
36,157,790 |
* |
Represents beneficial ownership of less than one percent. |
(1) |
Represents 260,802 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2020. |
(2) |
Represents 1,362,317 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2020. |
(3) |
Represents 1,604,406 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2020. |
(4) |
Represents (i) 1,768,227 shares of common stock, (ii) 5,384,349 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2020, and (iii) 8,253 shares underlying warrants to purchase common stock that are exercisable within 60 days of December 31, 2020. |
(5) |
Represents 1,428,936 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2020. |
(6) |
Represents (i) 264,523 shares of common stock, (ii) 952,633 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2020 and (iii) 61,019 shares underlying warrants to purchase common stock that are exercisable within 60 days of December 31, 2020. |
(7) |
Represents 181,833 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2020. |
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(8) |
Represents 36,157,791 shares of common stock held by 5AM Ventures V, L.P., or 5AM Ventures V. David Allison, a member of our board of directors, is a partner at 5AM Venture Management, LLC and has no voting or dispositive power over the shares held by 5AM Ventures V. Andrew Schwab, Kush Parmar and Scott Rocklage are the managing members of 5AM Partners V, LLC, which is the general partner of 5AM Ventures V. Messrs. Schwab, Parmar and Rocklage may be deemed to share voting and dispositive power over the shares held by 5AM Ventures V. The address of 5AM Venture Management, LLC and its affiliates is 501 2nd Street, Suite 350, San Francisco, California 94107. |
(9) |
Represents 42,307,448 shares of common stock held by KKR Iris Investors LLC, or KKR Iris. Each of KKR Health Care Strategic Growth Fund L.P. (as the managing member of KKR Iris); KKR Associates HCSG L.P. (as the general partner of KKR Health Care Strategic Growth Fund L.P.); KKR HCSG GP LLC (as the general partner of KKR Associates HCSG L.P.); KKR Group Partnership L.P. (as the sole member of KKR HCSG GP LLC); KKR Group Holdings Corp. (as the general partner of KKR Group Partnership L.P.); KKR & Co. Inc. (as the sole shareholder of KKR Group Holdings Corp.); KKR Management LLP (as the Series I preferred stockholder of KKR & Co. Inc.); and Messrs. Henry R. Kravis and George R. Roberts (as the founding partners of KKR Management LLP) may be deemed to share voting and dispositive power over the shares held by KKR Iris. The principal business address of each of the entities and persons identified in this footnote, except Mr. Roberts, is c/o Kohlberg Kravis Roberts & Co. L.P., 30 Hudson Yards, New York, New York 10001. The principal business address for Mr. Roberts is c/o Kohlberg Kravis Roberts & Co. L.P., 2800 Sand Hill Road, Suite 200, Menlo Park, CA 94025. |
(10) |
Represents 35,256,206 shares of common stock held by Norwest Venture Partners XIV, LP, or Norwest XIV. Robert Mittendorff, a member of our board of directors, is a partner at Norwest Ventures and has no voting or dispositive power over the shares held by Norwest XIV. Genesis VC Partners XIV, LLC, or Genesis XIV, is the general partner of Norwest XIV and may be deemed to have sole voting and dispositive power over the shares held by Norwest XIV. NVP Associates, LLC, or NVP Associates, is the managing member of Genesis XIV. Promod Haque, Jeffrey Crowe and Jon E. Kossow, the co-chief executive officers of NVP Associates, may be deemed to share voting and dispositive power over the shares held by Norwest XIV. Each of such individuals, together with NVP Associates and Genesis XIV, disclaims beneficial ownership over the shares held by Norwest XIV except to the extent of their pecuniary interest therein. The address of Norwest is 525 University Avenue, Suite 800, Palo Alto, California 94301. |
(11) |
Represents 36,157,791 shares of common stock held by venBio Global Strategic Fund II, L.P., or venBio II. Aaron Royston, a member of our board of directors, is a partner at venBio Partners and has no voting or dispositive power over the shares held by venBio II. venBio Global Strategic GP II, Ltd., or venBio Ltd., is the general partner of venBio Global Strategic GP II, L.P., or venBio L.P., which is the general partner of VenBio II. Corey Goodman and Robert Adelman are the directors of venBio Ltd. and may be deemed to share voting and dispositive power over the shares held by venBio II. Each of such individuals, together with venBio Ltd. and venBio L.P., disclaims beneficial ownership over the shares held by venBio II except to the extent of their pecuniary interest therein. The address of venBio is 1700 Owens Street, Suite 595, San Francisco, California 94158. |
(12) |
Represents (i) 31,769,993 shares of common stock held by Vivo Capital Fund VIII, L.P., or Vivo VIII, and (ii) 4,387,797 shares of common stock held by Vivo Capital Surplus Fund VIII, L.P., or Vivo Surplus. Mahendra Shah, a member of our board of directors, is a managing director of Vivo Capital LLC and has no voting or dispositive power over the shares held by each of Vivo VIII or Vivo Surplus. Frank Kung, Edgar Engleman and Shan Fu are the managing members of Vivo Capital VIII, LLC, or Vivo LLC, which is the general partner of each of Vivo VIII and Vivo Surplus. Messrs. Kung, Engleman and Fu may be deemed to share voting and dispositive power over the shares held by each of Vivo VIII and Vivo Surplus. Each of such individuals disclaims beneficial ownership over the shares held by each of Vivo VIII and Vivo Surplus except to the extent of their pecuniary interest therein. The address of the each of Vivo VIII and Vivo Surplus is 192 Lytton Avenue, Palo Alto California 94301. |
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The following description summarizes the most important terms of our capital stock, as they will be in effect following this offering. Because it is only a summary, it does not contain all the information that may be important to you. We expect to adopt a restated certificate of incorporation and restated bylaws that will become effective upon the completion of this offering, and this description summarizes provisions that are expected to be included in these documents. For a complete description, please refer to our restated certificate of incorporation and restated bylaws, copies of which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law.
Upon the completion of this offering, our authorized capital stock will consist of shares of common stock, $0.001 par value per share, and shares of undesignated preferred stock, $0.001 par value per share.
Pursuant to the provisions of our current certificate of incorporation, all of the outstanding redeemable convertible preferred stock will automatically convert into common stock in connection with the completion of this offering. Each outstanding share of our redeemable convertible preferred stock will convert at a ratio of , with the exception of our Series B redeemable convertible preferred stock, which will convert at a ratio of . Assuming the effectiveness of this conversion as of December 31, 2020, there were shares of our common stock issued, held by approximately 86 stockholders of record, and no shares of our redeemable convertible preferred stock outstanding. Our board of directors is authorized, without stockholder approval, to issue additional shares of our capital stock.
Common Stock
Voting Rights
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our restated certificate of incorporation, which means that holders of a majority of the shares of our common stock will be able to elect all of our directors.
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See the section titled Dividend Policy.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
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Preferred Stock
Following the completion of this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of their qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors will also be able to increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.
Warrants
As of December 31, 2020, we had outstanding the following warrants to purchase shares of our capital stock:
Type of Capital Stock Underlying Warrant |
Total Number
of Shares Subject to Warrants |
Exercise
Price Per Share(1) |
||||||
Series A-2 Redeemable Convertible Preferred Stock |
862,471 | $ | 0.4996 | |||||
Series C-1 Redeemable Convertible Preferred Stock |
1,124,877 | 0.5289 | ||||||
Series D Redeemable Convertible Preferred Stock |
1,762,810 | 0.7091 |
(1) |
The exercise price of these warrants may be paid either in cash or by surrendering the right to receive shares having a value equal to the exercise price. These warrants will expire immediately prior to the completion of this offering if not exercised. |
Stock Options
As of December 31, 2020, we had outstanding options to purchase an aggregate of shares of our common stock, with a weighted-average exercise price of $ .
Registration Rights
Following the completion of this offering, the holders of an aggregate of shares of our common stock or their permitted transferees will be entitled to rights with respect to the registration of the offer and sale of such shares under the Securities Act. These rights are provided under the terms of an amended and restated investors rights agreement between us and the holders of these shares, which was entered into in connection with our redeemable convertible preferred stock financings, and include demand registration rights, Form S-3 registration rights, and piggyback registration rights. In any registration made pursuant to such amended and restated investors rights agreement, up to $50,000 of fees, costs, and expenses of underwritten registrations will be borne by us and all selling expenses, including estimated underwriting discounts, selling commissions and stock transfer taxes, will be borne by the holders of the shares being registered.
The registration rights terminate five years following the completion of this offering or, with respect to any particular stockholder, at the time that stockholder can sell all of its shares during any 90-day period pursuant to Rule 144 of the Securities Act.
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Demand Registration Rights
The holders of registration rights are entitled to demand registration rights at any time after the earlier of (i) five years after the date of the amended and restated investors rights agreement and (ii) 180 days after the effective date of the registration statement for this offering. Under the terms of the amended and restated investors rights agreement, we will be required, upon the written request of holders of at least 25% of the shares that are entitled to registration rights under the amended and restated investors rights agreement, to file a registration statement on Form S-1 to register, as soon as practicable and in any event within 90 days of the date of the request, all or a portion of these shares for public resale, if the aggregate price to the public of the shares offered is at least $5 million, net of selling expenses. We are required to effect only two registrations pursuant to this provision of the amended and restated investors rights agreement. We may postpone the filing of a registration statement for up to 90 days in a 12-month period if our board of directors determines that the filing would be materially detrimental to us. We are not required to effect a demand registration under certain additional circumstances specified in the amended and restated investors rights agreement, including at any time earlier than 180 days after the effective date of this offering.
Form S-3 Registration Rights
The holders of registration rights are also entitled to Form S-3 registration rights. The holders of at least 331/3% of the outstanding shares having registration rights can request that we register all or part of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public of the shares offered is at least $1 million, net of selling expenses. We will be required, as soon as practicable and in any even within 45 days of the request, to file a registration statement on Form S-3 to register these shares for public resale. The holders may only require us to effect at most two registration statements on Form S-3 in any 12-month period. We may postpone the filing of a registration statement for up to 90 days in a 12-month period if our board of directors determines that the filing would be materially detrimental to us. We are not required to effect a demand registration under certain additional circumstances specified in the amended and restated investors rights agreement.
Piggyback Registration Rights
If we register any of our common stock for public sale under the Securities Act and solely for cash, the holders of registration rights will have the right to include their shares in the registration statement. However, this right does not apply to a registration relating to employee benefit plans, a registration relating to an SEC Rule 145 transaction, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the common stock, or a registration in which the only common stock being registered is common stock issuable upon conversion of debt securities that are also being registered. The underwriters of any underwritten offering will have the right to limit the number of shares registered by these holders if they determine that marketing factors require limitation, in which case the number of shares to be registered will be apportioned among the holders in such other proportion as shall mutually be agreed to by all such selling holders. However, the number of shares to be registered by these holders cannot be reduced (i) unless all other securities (other than securities to be sold by our company) are first excluded from the offering or (ii) below 25% of the total shares covered by the registration statement, other than in the initial public offering.
Anti-Takeover Provisions
The provisions of DGCL, our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, could have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our
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board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Washington Law
We may also be subject to the provisions of Chapter 23B.19 of the Washington Business Corporation Act, or WBCA, which imposes restrictions on certain transactions between a corporation and certain significant stockholders. The WBCA generally prohibits a target corporation (as defined in the WBCA) from engaging in certain significant business transactions with an acquiring person, which is defined as a person or group of persons that beneficially owns 10% or more of the voting securities of the target corporation, for a period of five years after such acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the target corporations board of directors prior to the time of the acquisition or at or subsequent to the acquiring persons share acquisition time, such significant business transaction is approved by a majority of the members of the target corporations board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 662/3% of the outstanding voting shares, except for shares beneficially owned by or under the voting control of the acquiring person. Such prohibited transactions include, among other things:
∎ |
a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from the acquiring person; |
∎ |
termination of five percent or more of the employees of the target corporation as a result of the acquiring persons acquisition of 10% or more of the shares; or |
∎ |
allowing the acquiring person to receive any disproportionate benefit as a stockholder. |
After the five-year period, a significant business transaction may occur if it complies with fair price provisions specified in the statute. A corporation may not opt out of this statute and, therefore, we anticipate this statute will apply to us. Depending upon whether we meet the definition of a target corporation, Chapter 23B.19 of the WBCA may have the effect of delaying, deferring, or preventing a change in control.
Delaware Law
We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:
∎ |
prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
∎ |
the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (i) shares owned by persons who are directors and also officers and(ii) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
∎ |
at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66.67% of the outstanding voting stock that is not owned by the interested stockholder. |
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Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. 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 corporations outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Restated Certificate of Incorporation and Restated Bylaw Provisions
Our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our company, including the following:
∎ |
Board of Directors Vacancies. Our restated certificate of incorporation and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors is permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management. |
∎ |
Classified Board. Our restated certificate of incorporation and restated bylaws will provide that our board of directors is classified into three classes of directors, each with staggered three-year terms. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See the section titled ManagementBoard Composition. |
∎ |
Stockholder Action; Special Meetings of Stockholders. Our restated certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our restated bylaws. Further, our restated bylaws will provide that special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors, our Chief Executive Officer or our President, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors. |
∎ |
Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our restated bylaws also will specify certain requirements regarding the form and content of a stockholders notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company. |
∎ |
No Cumulative Voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporations certificate of incorporation |
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provides otherwise. Our restated certificate of incorporation and restated bylaws will not provide for cumulative voting. |
∎ |
Directors Removed Only for Cause. Our restated certificate of incorporation will provide that stockholders may remove directors only for cause and only by the affirmative vote of the holders of at least two-thirds of our outstanding common stock. |
∎ |
Amendment of Charter Provisions. Any amendment of the above expected provisions in our restated certificate of incorporation would require approval by holders of at least two-thirds of our outstanding common stock. |
∎ |
Issuance of Undesignated Preferred Stock. Our board of directors has the authority, without further action by the stockholders, to issue up to shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by merger, tender offer, proxy contest or other means. |
∎ |
Choice of Forum. Our restated certificate of incorporation will provide that, to the fullest extent permitted by law, 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 arising pursuant to the DGCL, our restated certificate of incorporation, or our restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. Our restated bylaws will provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, which we refer to as a Federal Forum Provision. Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal courts or state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. While neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Exchange Act, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder also must be brought in federal court. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder. Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit a stockholders ability to bring a claim in a judicial forum of their choosing for disputes with us or our directors, executive officers or other employees, which may discourage lawsuits against us and our directors, executive officers, and other employees. |
Transfer Agent and Registrar
Upon the completion of this offering, the transfer agent and registrar for our common stock will be . The transfer agents address is and its telephone number is .
The Nasdaq Global Market Listing
We intend to list our common stock on Nasdaq under the symbol IMPL.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options and warrants, in the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.
Upon the completion of this offering, based on the number of shares of our capital stock outstanding as of December 31, 2020, we will have a total of shares of our common stock outstanding, assuming (i) the automatic conversion of all outstanding shares of our convertible preferred stock as of December 31, 2020 into an aggregate of 206,399,763 shares of our common stock immediately prior to the completion of this offering, (ii) the automatic exchange of a warrant held by Avenue into 1,762,810 shares upon completion of this offering, (iii) the issuance of shares of common stock pursuant to the net exercise of warrants to purchase 1,987,348 shares of redeemable convertible preferred stock outstanding as of December 31, 2020 that would otherwise expire upon completion of this offering, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, (iv) the automatic conversion of convertible notes we issued in March 2021 into shares of common stock immediately prior to the completion of this offering and (v) the issuance of shares of common stock, based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range reflected on the cover of this prospectus. Of these outstanding shares, all of the shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act can only be sold in compliance with the Rule 144 limitations described below.
The remaining outstanding shares of our common stock will be deemed restricted securities as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 promulgated under the Securities Act, which rules are summarized below. In addition, substantially all of our security holders have, or will have, entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. As a result of these agreements and the provisions of our amended and restated investors rights agreement described above under the section titled Description of Capital StockRegistration Rights, subject to the provisions of Rule 144 or Rule 701, shares will be available for sale in the public market as follows:
∎ |
beginning on the date of this prospectus, all of the shares sold in this offering will be immediately available for sale in the public market; and |
∎ |
beginning 181 days after the date of this prospectus, additional shares will become eligible for sale in the public market, of which shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below. |
Lock-Up/Market Standoff Agreements
All of our directors and officers and substantially all of our security holders are, or will be, subject to lock-up agreements or market standoff provisions that prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options or warrants to acquire shares of our common stock or any security or
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instrument related to our common stock, or entering into any swap, hedge or other arrangement that transfers any of the economic consequences of ownership of our common stock, for a period of 180 days following the date of this prospectus without the prior written consent of Cowen and Company, LLC and Guggenheim Securities, LLC, subject to certain exceptions. See the section titled Underwriting.
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the three months preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, 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 our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up and market standoff agreements described above, within any three-month period, a number of shares that does not exceed the greater of:
∎ |
1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; and |
∎ |
the average reported weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. |
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 and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding three months to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701 and are subject to the lock-up and market standoff agreements described above.
Form S-8 Registration Statement
In connection with this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of our common stock subject to outstanding options and the shares of our common stock reserved for issuance under our stock plans. We expect to file this registration statement as soon as permitted under the Securities Act. However, the shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice and public information requirements of Rule 144 and will not be eligible for resale until expiration of the lock-up and market standoff agreements to which they are subject. Of the shares of our common stock
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that were subject to options outstanding as of December 31, 2020, options to purchase shares of common stock were vested as of December 31, 2020. Shares of our common stock underlying outstanding options will not be eligible for sale until expiration of the 180 day lock-up and market standoff agreements to which they are subject.
Registration Rights
We have granted demand, piggyback and Form S-3 registration rights to certain of our stockholders to sell our common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For a further description of these rights, see the section titled Description of Capital StockRegistration Rights.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following summary describes the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock acquired in this offering by Non-U.S. Holders (as defined below). This discussion does not address all aspects of U.S. federal income taxes, does not discuss the potential application of the alternative minimum tax, the special tax accounting rules under Section 451(b) of the Code, or the Medicare Contribution tax on net investment income and does not deal with state or local tax laws, U.S. federal non-income tax laws, such as gift and estate tax laws, except to the limited extent provided below, or any non-U.S. tax laws that may be relevant to Non-U.S. Holders in light of their particular circumstances.
Special rules different from those described below may apply to certain Non-U.S. Holders that are subject to special treatment under the Internal Revenue Code of 1986, as amended, or the Code, such as:
∎ |
insurance companies, banks, investment funds and other financial institutions; |
∎ |
tax-exempt organizations (including private foundations) and tax-qualified retirement plans; |
∎ |
foreign governments and international organizations; |
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broker-dealers and traders in securities; |
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U.S. expatriates and certain former citizens or long-term residents of the United States; |
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qualified foreign pension funds as defined in Section 897(l)(2) of the Code and entities, all of the interests of which are held by qualified foreign pension funds; |
∎ |
persons that own, or are deemed to own, more than 5% of our capital stock; |
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controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax; |
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persons that hold our common stock as part of a straddle, hedge, conversion transaction, synthetic security or integrated investment or other risk reduction strategy; |
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persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes); and |
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partnerships and other entities or arrangements treated as pass-through or disregarded entities for U.S. federal income tax purposes, and investors in such entities (regardless of their places of organization or formation). |
Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
Furthermore, the discussion below is based upon the provisions of the Code, and U.S. Treasury Regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified, possibly retroactively, or could be subject to differing interpretations which could result in U.S. federal income tax consequences different from those discussed below. We have not requested a ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will not take a contrary position regarding the tax consequences described herein, or that any such contrary position would not be sustained by a court.
PERSONS CONSIDERING THE PURCHASE OF OUR COMMON STOCK PURSUANT TO THIS OFFERING SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF OUR COMMON STOCK IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION, INCLUDING ANY STATE,
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LOCAL OR NON-U.S. TAX CONSEQUENCES OR ANY U.S. FEDERAL NON-INCOME TAX CONSEQUENCES, AND THE POSSIBLE APPLICATION OF TAX TREATIES.
For the purposes of this discussion, a Non-U.S. Holder is a beneficial owner of common stock, other than a partnership or other entity or arrangement treated as a pass-through entity, that is not, for U.S. federal income tax purposes, (a) an individual who is a citizen or resident of the United States, (b) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes), created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (c) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (d) 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 (within the meaning of Section 7701(a)(30) of 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.
If you are an individual non-U.S. citizen, you may, in some cases, be deemed to be a resident alien (as opposed to a nonresident alien) by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. Generally, for this purpose, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year, are counted.
Resident aliens are generally subject to U.S. federal income tax as if they were U.S. citizens. Individuals who are uncertain of their status as resident or nonresident aliens for U.S. federal income tax purposes are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of the ownership or disposition of our common stock.
Distributions
We do not expect to make any distributions on our common stock in the foreseeable future. If we do make distributions on our common stock, however, such distributions will constitute dividends for U.S. tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a Non-U.S. Holders adjusted tax basis in our common stock. Any remaining excess will be treated as gain realized on the sale or exchange of our common stock as described below under the section entitled Gain on Disposition of Our Common Stock.
Subject to the discussions below under the sections entitled Backup Withholding and Information Reporting and Foreign Accounts, any distribution on our common stock that is treated as a dividend paid to a Non-U.S. Holder that is not effectively connected with the Non-U.S. Holders conduct of a trade or business in the United States will generally be subject to U.S. federal withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and the Non-U.S. Holders country of residence. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to provide the applicable withholding agent with a properly executed IRS Form W-8BEN, IRS Form W-8BEN-E or other appropriate form, certifying the Non-U.S. Holders entitlement to benefits under that treaty. Such form must be provided prior to the payment of dividends and must be updated periodically. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holders behalf, the holder will be required to provide appropriate documentation to such agent. The holders agent may then be required to provide certification to the applicable withholding agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. withholding tax under an income tax treaty, you should consult with your own tax advisor to determine if you are able to obtain a refund of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS.
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We generally are not required to withhold tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that the holder maintains in the United States) if a properly executed IRS Form W-8ECI, stating that the dividends are so connected, is furnished to the applicable withholding agent. In general, such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the same rates applicable to U.S. persons. A corporate Non-U.S. Holder receiving effectively connected dividends may also be subject to an additional branch profits tax, which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) on the corporate Non-U.S. Holders effectively connected earnings and profits, subject to certain adjustments.
See also the section below entitled Foreign Accounts for additional withholding rules that may apply to dividends paid to certain foreign financial institutions or non-financial foreign entities.
Gain on Disposition of Our Common Stock
Subject to the discussions below under the sections entitled Backup Withholding and Information Reporting and Foreign Accounts, a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax with respect to gain realized on a sale or other disposition of our common stock unless (a) 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 permanent establishment that the holder maintains in the United States), (b) the Non-U.S. Holder is a nonresident alien who is an individual and is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (c) we are or have been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code at any time within the shorter of the five-year period preceding such disposition or the Non-U.S. Holders holding period in the common stock.
If you are a Non-U.S. Holder described in (a) above, you will be required to pay tax on the net gain derived from the sale at the same U.S. federal income tax rates applicable to U.S. persons. Corporate Non-U.S. Holders described in (a) above may also be subject to the additional branch profits tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. If you are an individual Non-U.S. Holder described in (b) above, you will be required to pay a flat 30% tax on the gain derived from the sale, which gain may be offset by certain U.S. source capital losses (even though you are not considered a resident of the United States), provided you have timely filed U.S. federal income tax returns with respect to such losses. With respect to (c) above, in general, we would be a United States real property holding corporation if our U.S. real property interests, as defined in the Code and the U.S. Treasury Regulations, comprised (by fair market value) at least half of our worldwide real property interests plus our other assets used or held for use in a trade or business. We believe that we are not, and do not anticipate becoming, a United States real property holding corporation. However, there can be no assurance that we will not become a United States real property holding corporation in the future. Even if we were to be treated as a United States real property holding corporation, gain realized by a Non-U.S. Holder on a disposition of our common stock would not be subject to U.S. federal income tax so long as (1) the Non-U.S. Holder owned, directly, indirectly or constructively, no more than five percent of our common stock at all times within the shorter of (i) the five-year period preceding the disposition or (ii) the Non-U.S. Holders holding period and (2) our common stock is regularly traded on an established securities market. There can be no assurance that our common stock will qualify as regularly traded on an established securities market.
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U.S. Federal Estate Tax
The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and, therefore, will be included in the taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedents country of residence provides otherwise. The terms resident and nonresident are defined differently for U.S. federal estate tax purposes than for U.S. federal income tax purposes. Investors are urged to consult their own tax advisors regarding the U.S. federal estate tax consequences of the ownership or disposition of our common stock.
Backup Withholding and Information Reporting
Generally, we or certain financial middlemen must report information to the IRS with respect to any dividends we pay on our common stock including the amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder to whom any such dividends are paid. Pursuant to tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipients country of residence.
Dividends paid by us (or our paying agents) to a Non-U.S. Holder may also be subject to U.S. federal backup withholding. U.S. federal backup withholding generally will not apply to a Non-U.S. Holder who provides a properly executed IRS Form W-8BEN, IRS Form W-8BEN-E, or other IRS Form W-8, as applicable, or otherwise establishes an exemption, provided that the applicable withholding agent does not have actual knowledge or reason to know the holder is a U.S. person.
Under U.S. federal income tax law, U.S. information reporting and backup withholding requirements generally will apply to the proceeds of a disposition of our common stock effected by or through a U.S. office of any broker, U.S. or non-U.S., unless the Non-U.S. Holder provides a properly executed IRS Form W-8BEN, IRS Form W-8BEN-E, or other IRS Form W-8, as applicable, or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding requirements will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. Information reporting and backup withholding requirements may, however, apply to a payment of disposition proceeds if the broker has actual knowledge, or reason to know, that the holder is, in fact, a U.S. person. For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers.
Backup withholding is not an additional tax. If backup withholding is applied to you, you should consult with your own tax advisor to determine whether you have overpaid your U.S. federal income tax, and whether you are able to obtain a tax refund or credit of the overpaid amount.
Foreign Accounts
In addition, U.S. federal withholding taxes may apply under the Foreign Account Tax Compliance Act, and the Treasury Regulations and other official IRS guidance issued thereunder, or FATCA, on certain types of payments, including dividends paid to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on our common stock paid to a foreign financial institution or a non-financial foreign entity (each as defined in the Code), unless (1) the foreign financial institution agrees to undertake certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any substantial United States owners (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. The 30% federal withholding tax described in this paragraph cannot be reduced under an income tax treaty with the United States. If the payee is a
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foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain specified United States persons or United States-owned foreign entities (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States may be subject to different rules. Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally also would apply to payments of gross proceeds from the sale or other disposition of common stock. Under proposed regulations, however, no withholding will apply with respect to payments of gross proceeds. The preamble to the proposed regulations specifies that taxpayers are permitted to rely on such proposed regulations pending finalization.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, NON-U.S. OR U.S. FEDERAL NON-INCOME TAX LAWS SUCH AS ESTATE AND GIFT TAX OR UNDER ANY APPLICABLE TAX TREATY.
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We and the underwriters for the offering named below have entered into an underwriting agreement with respect to the common stock being offered. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase from us the number of shares of our common stock set forth opposite its name below. Cowen and Company, LLC and Guggenheim Securities, LLC are the representatives of the underwriters.
Underwriter |
Number of
Shares |
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Cowen and Company, LLC |
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Guggenheim Securities, LLC |
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Wedbush Securities Inc. |
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|
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Total |
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|
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The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to certain conditions precedent and that the underwriters will agree, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased, other than those shares covered by the overallotment option to purchase additional shares described below. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be required to make in respect thereof.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
We have granted to the underwriters an option to purchase up to additional shares of common stock at the public offering price, less the underwriting discounts and commissions. This option is exercisable for a period of 30 days. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, made in connection with the sale of common stock offered hereby. To the extent that the underwriters exercise this option, the underwriters will purchase additional shares from us in approximately the same proportion as shown in the table above.
The following table shows the public offering price, underwriting discounts and commissions and proceeds, before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
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We estimate that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ and are payable by us. We have agreed to reimburse the underwriters for up to $ for their FINRA counsel fee. In accordance with FINRA Rule 5110, this reimbursed fee is deemed underwriting compensation for this offering.
Total | ||||||||||||
Per Share |
Without Over-
Allotment Option |
With Over
Allotment Option |
||||||||||
Public offering price |
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Underwriting discounts and commissions |
||||||||||||
Proceeds, before expenses, to us |
The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover of this prospectus. The underwriters may offer the shares of common stock to securities dealers at the public offering price less a concession not in excess of $ per share. If all of the shares are not sold at the public offering price, the underwriters may change the offering price and other selling terms.
The underwriters do not intend to confirm sales of the shares to any accounts over which they have discretionary authority.
Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In addition to prevailing market conditions, the factors to be considered in these negotiations will include:
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the history of, and prospects for, our company and the industry in which we compete; |
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our past and present financial information; |
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an assessment of our management; its past and present operations, and the prospects for, and timing of, our future revenues; |
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the present state of our development; and |
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the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. |
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
We intend to list our common stock on The Nasdaq Global Market under the symbol IMPL.
In connection with this offering, the underwriters may engage in stabilizing transactions, overallotment transactions, syndicate covering transactions, penalty bids and purchases to cover positions created by short sales.
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Stabilizing transactions permit bids to purchase shares of common stock so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. |
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Overallotment transactions involve sales by the underwriters of shares of common stock in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is |
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not greater than the number of shares that they may purchase in the overallotment option. In a naked short position, the number of shares involved is greater than the number of shares in the overallotment option. The underwriters may close out any short position by exercising their overallotment option and/or purchasing shares in the open market. |
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Syndicate covering transactions involve purchases of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the overallotment option. If the underwriters sell more shares than could be covered by exercise of the overallotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering. |
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Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by that syndicate member is purchased in stabilizing or syndicate covering transactions to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected on The Nasdaq Global Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Pursuant to certain lock-up agreements, we, our officers and directors, and holders of substantially all of our capital stock and options have agreed that, subject to specified exceptions, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Cowen and Company, LLC and Guggenheim Securities, LLC, dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. Cowen and Company, LLC and Guggenheim Securities, LLC, in their sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice.
Other Relationships
Certain of the underwriters and their affiliates have provided, and may in the future provide, various investment banking, commercial banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees.
Selling Restrictions
Canada
The common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
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Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers 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.
Switzerland
The securities will not be offered, directly or indirectly, to the public in Switzerland and this prospectus does not constitute a public offering prospectus as that term is understood pursuant to article 652a or 1156 of the Swiss Federal Code of Obligations.
European Economic Area
In relation to each Member State of the European Economic Area (each, a Member State), no shares have been offered or will be offered pursuant to the offering to the public in that Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Member State or, where appropriate, approved in another Member State and notified to the competent authority in that Member State, all in accordance with the Prospectus Regulation, except that shares may be offered to the public in that Member State at any time:
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to any legal entity which is a qualified investor as defined under Article 2 the Prospectus Regulation; |
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to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 the Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or |
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in any other circumstances falling within Article 1(4) of the Prospectus Regulation, |
provided that no such offer of the shares shall require us or any of the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an offer to the public in relation to shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares, and the expression Prospectus Regulation means Regulation (EU) 2017/1129.
United Kingdom
No shares have been offered or will be offered pursuant to the offering to the public in the United Kingdom prior to the publication of a prospectus in relation to the shares which has been approved by the Financial Conduct Authority, except that the shares may be offered to the public in the United Kingdom at any time:
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to any legal entity which is a qualified investor as defined under Article 2 of the UK Prospectus Regulation; |
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to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the UK Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or |
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in any other circumstances falling within Section 86 of the FSMA, |
provided that no such offer of the shares shall require the Issuer or any Manager to publish a prospectus pursuant to Section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation. For the purposes of this provision, the expression an offer to the public in relation to the shares in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares and the expression UK Prospectus Regulation means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.
Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the SFO) of Hong Kong and any rules made thereunder; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong) (the CO), or which do not constitute an offer to the public within the meaning of the CO. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the SFO and any rules made thereunder.
Singapore
Each underwriter has acknowledged that this prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each underwriter has represented and agreed that it has not offered or sold any shares or caused the shares to be made the subject of an invitation for subscription or purchase and will not offer or sell any shares or cause the shares to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares, whether directly or indirectly, to any person in Singapore other than:
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to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the SFA)) pursuant to Section 274 of the SFA; |
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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 |
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otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. |
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Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: |
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a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
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a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries rights and interest (however described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
∎ |
to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
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where no consideration is or will be given for the transfer; |
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where the transfer is by operation of law; |
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as specified in Section 276(7) of the SFA; or |
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as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018. |
Singapore SFA Product ClassificationIn connection with Section 309B of the SFA and the CMP Regulations 2018, unless otherwise specified before an offer of shares, we have determined, and hereby notify all relevant persons (as defined in Section 309A(1) of the SFA), that the shares are prescribed capital markets products (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Israel
In the State of Israel this prospectus shall not be regarded as an offer to the public to purchase shares of common stock under the Israeli Securities Law, 57281968, which requires a prospectus to be published and authorized by the Israel Securities Authority, if it complies with certain provisions of Section 15 of the Israeli Securities Law, 57281968, including, inter alia, if: (i) the offer is made, distributed or directed to not more than 35 investors, subject to certain conditions (the Addressed Investors); or (ii) the offer is made, distributed or directed to certain qualified investors defined in the First Addendum of the Israeli Securities Law, 57281968, subject to certain conditions (the Qualified Investors). The Qualified Investors shall not be taken into account in the count of the Addressed Investors and may be offered to purchase securities in addition to the 35 Addressed Investors. The company has not and will not take any action that would require it to publish a prospectus in accordance with and subject to the Israeli Securities Law, 57281968. We have not and will not distribute this prospectus or make, distribute or direct an offer to subscribe for our common stock to any person within the State of Israel, other than to Qualified Investors and up to 35 Addressed Investors.
Qualified Investors may have to submit written evidence that they meet the definitions set out in of the First Addendum to the Israeli Securities Law, 57281968. In particular, we may request, as a condition to be offered common stock, that Qualified Investors will each represent, warrant and certify to us and/or to anyone acting on our behalf: (i) that it is an investor falling within one of the categories listed in the First Addendum to the Israeli Securities Law, 57281968; (ii) which of the categories listed in the First Addendum to the Israeli Securities Law, 57281968 regarding Qualified Investors is applicable to it; (iii) that it will abide by all provisions set forth in the Israeli Securities Law, 57281968 and the regulations promulgated thereunder in connection with the offer to be issued common stock; (iv) that the shares of common stock that it will be issued are, subject to exemptions available under the Israeli Securities Law, 57281968: (a) for its own account; (b) for investment purposes only; and (c) not issued with a view to resale within the State of Israel, other than in accordance with the provisions of the Israeli Securities Law, 57281968; and (v) that it is willing to provide further evidence of its Qualified Investor status. Addressed Investors may have to submit written evidence in respect of
182
their identity and may have to sign and submit a declaration containing, inter alia, the Addressed Investors name, address and passport number or Israeli identification number.
We have not authorized and do not authorize the making of any offer of securities through any financial intermediary on our behalf, other than offers made by the underwriters and their respective affiliates, with a view to the final placement of the securities as contemplated in this document. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of shares on our behalf or on behalf of the underwriters.
Electronic Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
183
The validity of the shares of common stock offered by this prospectus will be passed upon for us by Fenwick & West LLP, Seattle, Washington. As of the date of this prospectus, individuals and entities associated with Fenwick & West LLP beneficially own equity interests collectively representing approximately 0.1% of our outstanding shares of capital stock as of December 31, 2020.
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Seattle, Washington, is representing the underwriters in connection with this offering.
Ernst & Young LLP, independent registered public accounting firm, has audited our financial statements as of December 31, 2019 and 2020 and for each of the two years in the period ended December 31, 2020, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about the Companys ability to continue as a going concern as described in Note 1 to the consolidated financial statements). We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLPs report, given on their authority as experts in accounting and auditing.
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 filed therewith. For further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits 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 in each instance we refer you to the copy of such contract or other document filed as an exhibit to the registration statement.
We currently do not file periodic reports with the SEC. Upon the completion of this offering, we will be required to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
We also maintain a website at http://impelnp.com. Upon completion of this offering, you may access these materials at our website free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
184
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Impel NeuroPharma, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Impel NeuroPharma, Inc. (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and stockholders deficit and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
The Companys Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has recurring losses from operations, and has stated that substantial doubt exists about the Companys ability to continue as a going concern. Managements evaluation of the events and conditions and managements plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys 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 Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and performing procedures that respond to those risks. Such procedures included 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 Companys auditor since 2017.
Seattle, Washington
March 23, 2021
F-2
IMPEL NEUROPHARMA, INC.
(In thousands, except share and per share data)
December 31, | ||||||||
2019 | 2020 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash |
$ | 37,001 | $ | 7,095 | ||||
Prepaid expenses and other current assets |
2,524 | 1,077 | ||||||
|
|
|
|
|||||
Total current assets |
39,525 | 8,172 | ||||||
Property and equipment, net |
2,740 | 3,700 | ||||||
Other assets |
| 187 | ||||||
|
|
|
|
|||||
Total assets |
$ | 42,265 | $ | 12,059 | ||||
|
|
|
|
|||||
Liabilities, redeemable convertible preferred stock and stockholders deficit |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 2,725 | $ | 4,314 | ||||
Accrued liabilities |
4,231 | 3,173 | ||||||
Redeemable convertible preferred stock warrant liabilities |
1,366 | 2,622 | ||||||
Short-term debt |
| 417 | ||||||
|
|
|
|
|||||
Total current liabilities |
8,322 | 10,526 | ||||||
|
|
|
|
|||||
Long-term debt |
| 7,994 | ||||||
|
|
|
|
|||||
Total liabilities |
8,322 | 18,520 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note 5) |
||||||||
Redeemable convertible preferred stock, $0.001 par value; 204,198,489 shares authorized at December 31, 2019 and 2020; 201,335,862 and 202,009,981 shares issued and outstanding at December 31, 2019 and 2020, respectively; aggregate liquidation preference of $128,353 and $128,922 at December 31, 2019 and 2020, respectively, |
125,647 | 127,039 | ||||||
Stockholders deficit: |
||||||||
Common stock, $0.001 par value; 256,704,917 and 266,833,885 shares authorized at December 31, 2019 and 2020, respectively; 5,896,550 and 12,370,104 shares issued and outstanding at December 31, 2019 and 2020, respectively |
6 | 12 | ||||||
Additional paid-in capital |
754 | 4,750 | ||||||
Accumulated deficit |
(92,464 | ) | (138,262 | ) | ||||
|
|
|
|
|||||
Total stockholders deficit |
(91,704 | ) | (133,500 | ) | ||||
|
|
|
|
|||||
Total liabilities, redeemable convertible preferred stock and stockholders deficit |
$ | 42,265 | $ | 12,059 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
IMPEL NEUROPHARMA, INC.
Consolidated Statement of Operations and Comprehensive Loss
(In thousands, except share and per share data)
Year Ended
December 31, |
||||||||
2019 | 2020 | |||||||
Operating expenses: |
||||||||
Research and development |
$ | 28,812 | $ | 27,285 | ||||
General and administrative |
12,754 | 18,049 | ||||||
|
|
|
|
|||||
Total operating expenses |
41,566 | 45,334 | ||||||
|
|
|
|
|||||
Loss from operations |
(41,566 | ) | (45,334 | ) | ||||
Interest income (expense), net |
417 | (55 | ) | |||||
Other expense, net |
(680 | ) | (408 | ) | ||||
|
|
|
|
|||||
Loss before income taxes |
(41,829 | ) | (45,797 | ) | ||||
Provision for income taxes |
(30 | ) | (1 | ) | ||||
|
|
|
|
|||||
Net loss and comprehensive loss |
(41,859 | ) | (45,798 | ) | ||||
Accretion on redeemable convertible preferred stock |
(505 | ) | (518 | ) | ||||
|
|
|
|
|||||
Net loss attributable to common stockholders |
$ | (42,364 | ) | $ | (46,316 | ) | ||
|
|
|
|
|||||
Net loss per share attributable to common stockholders, basic and diluted |
$ | (7.46 | ) | $ | (5.56 | ) | ||
|
|
|
|
|||||
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted |
5,682,463 | 8,328,911 | ||||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
IMPEL NEUROPHARMA, INC.
Consolidated Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders Deficit
(In thousands, except share data)
Redeemable Convertible
Preferred Stock |
Common Stock |
Additional
Paid-In Capital |
Accumulated
Deficit |
Total
Stockholders Deficit |
||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||
BalanceDecember 31, 2018 |
201,335,862 | $ | 125,142 | 5,666,167 | $ | 6 | $ | 444 | $ | (50,605 | ) | $ | (50,155 | ) | ||||||||||||||||||||||
Accretion to redemption value on redeemable convertible preferred stock |
| 505 | | | (505 | ) | | (505 | ) | |||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 794 | | 794 | |||||||||||||||||||||||||||||
Issuance of common stock upon the exercise of stock options |
| | 230,383 | | 21 | | 21 | |||||||||||||||||||||||||||||
Net loss and comprehensive loss |
| | | | | (41,859 | ) | (41,859 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
BalanceDecember 31, 2019 |
201,335,862 | $ | 125,647 | 5,896,550 | $ | 6 | $ | 754 | $ | (92,464 | ) | $ | (91,704 | ) | ||||||||||||||||||||||
Accretion to redemption value on redeemable convertible preferred stock |
| 518 | | | (518 | ) | | (518 | ) | |||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 3,641 | | 3,641 | |||||||||||||||||||||||||||||
Issuance of common stock upon the exercise of stock options |
| | 6,473,554 | 6 | 873 | | 879 | |||||||||||||||||||||||||||||
Issuance of Series A-2 redeemable convertible preferred stock upon exercise of Series A-2 warrants |
296,008 | 271 | | | | | | |||||||||||||||||||||||||||||
Issuance of Series B redeemable convertible preferred stock upon exercise of Series B warrants |
378,111 | 603 | | | | | | |||||||||||||||||||||||||||||
Net loss and comprehensive loss |
| | | | | (45,798 | ) | (45,798 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
BalanceDecember 31, 2020 |
202,009,981 | $ | 127,039 | 12,370,104 | $ | 12 | $ | 4,750 | $ | (138,262 | ) | $ | (133,500 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
IMPEL NEUROPHARMA, INC.
Consolidated Statement of Cash Flows
(In thousands)
Year Ended
December 31, |
||||||||
2019 | 2020 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (41,859 | ) | $ | (45,798 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
722 | 1,077 | ||||||
Stock-based compensation |
794 | 3,641 | ||||||
Change in fair value of redeemable convertible preferred stock warrant liabilities |
642 | 153 | ||||||
Amortization of debt discount |
| 208 | ||||||
Changes in operating assets and liabilities: |
||||||||
Prepaid expenses and other current assets |
(960 | ) | 1,447 | |||||
Other assets |
325 | (187 | ) | |||||
Accounts payable |
1,424 | 1,498 | ||||||
Accrued liabilities |
2,425 | (1,222 | ) | |||||
|
|
|
|
|||||
Net cash used in operating activities |
(36,487 | ) | (39,183 | ) | ||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(1,523 | ) | (1,782 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(1,523 | ) | (1,782 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock upon exercise of stock options |
21 | 879 | ||||||
Proceeds from issuance of debt |
| 9,701 | ||||||
Proceeds from issuance of redeemable convertible preferred stock upon the exercise of redeemable convertible preferred stock warrants |
| 479 | ||||||
Proceeds from Paycheck Protection Program loan |
| 1,100 | ||||||
Repayment of Paycheck Protection Program loan |
| (1,100 | ) | |||||
|
|
|
|
|||||
Net cash provided by financing activities |
21 | 11,059 | ||||||
|
|
|
|
|||||
Net decrease in cash |
(37,989 | ) | (29,906 | ) | ||||
CashBeginning of period |
74,990 | 37,001 | ||||||
|
|
|
|
|||||
CashEnd of period |
$ | 37,001 | $ | 7,095 | ||||
|
|
|
|
|||||
Supplemental disclosures of cash flow information: |
||||||||
Recognition of fair value of warrants issued in connection with issuance of debt |
$ | | $ | 1,498 | ||||
|
|
|
|
|||||
Property and equipment included in accounts payable and accrued liabilities |
$ | 114 | $ | 369 | ||||
|
|
|
|
|||||
Reclassification of redeemable convertible preferred stock warrant liability to redeemable convertible preferred stock upon exercise of warrants |
$ | | $ | 395 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
1. |
Organization and Description of Business |
Impel Neuropharma, Inc., or the Company, is a late-stage pharmaceutical company focused on the development and commercialization of transformative therapies for patients suffering from diseases with high unmet medical needs, with an initial focus on diseases of the central nervous system, or CNS. The Companys strategy is to pair its proprietary Precision Olfactory Delivery, or POD, upper nasal delivery technology with well-understood therapeutics or other therapeutics where rapid vascular absorption is preferred to drive therapeutic benefit, improve patient outcomes, reduce drug development risk and expand the commercial opportunity within its target diseases. The Company was incorporated under the laws of the State of Delaware on July 24, 2008, maintains its headquarters and principal operations in Seattle, Washington, and performs certain of its research and development activities in Australia.
Liquidity |
and Capital Resources |
The Company has incurred losses since its inception and had an accumulated deficit of $138.3 million as of December 31, 2020. The Company had a cash balance of $7.1 million as of December 31, 2020 and cash used in operations totaled $39.2 million for the year ended December 31, 2020. The Company believes that its cash as of December 31, 2020 will not be sufficient for the Company to continue as a going concern for at least one year from the issuance date of its financial statements. The Company believes that this raises substantial doubt about its ability to continue as a going concern. As a result, the Company will be required to raise additional capital. If sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce its operating expenses and delay, reduce the scope of or eliminate one or more of its development programs. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Companys ability to achieve its intended business objectives. 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 accompanying 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.
2. |
Summary of Significant Accounting Policies |
Basis |
of Presentation and Consolidation |
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The consolidated financial statements include the operations of Impel Neuropharma, Inc., and its wholly owned Australian subsidiary. All intercompany balances and transactions have been eliminated upon consolidation.
Use |
of Estimates |
The preparation of consolidated 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. On an ongoing basis, management evaluates such estimates and assumptions for continued reasonableness. In particular, management makes estimates with respect to the fair values of common stock, redeemable convertible preferred stock warrant liabilities, stock-based compensation expense, and income taxes. Appropriate adjustments, if any, to the
F-7
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates.
Segments |
|
The Companys chief operating decision maker is its Chief Executive Officer. The Chief Executive Officer reviews financial information on an aggregate basis for the purposes of evaluating financial performance and allocating the Companys resources. Accordingly, the Company has determined that it operates in one segment.
Cash |
|
The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. At December 31, 2019 and 2020, cash consisted of cash in bank deposits held at financial institutions.
Concentration |
of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Companys cash is deposited with high credit quality financial institutions. At times such deposits may be in excess of the Federal Depository Insurance Corporation insured limits.
Other |
Assets |
The Company generated $134,000 and $15,000 of fully refundable research and development credits in 2019 and 2020, respectively, based on 43.5% of qualified research and development expenditures of its Australian subsidiary. Amounts due are recorded as an offset to research and development expense in the accompanying consolidated statements of operations. The amount receivable of $39,000 as of December 31, 2019 and $57,000 as of December 31, 2020 is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.
Property |
and Equipment, Net |
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets, ranging from three to four years. Property and equipment are primarily comprised of laboratory and platform equipment used to support research and development activities. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statement of operations in the year of disposition. Additions and improvements that increase the value or extend the life of an asset are capitalized. Repairs and maintenance costs are expensed as incurred. Leasehold improvements are amortized over the remaining term of the lease or the assets useful life, whichever is shorter.
Impairment |
of Long-Lived Assets |
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group.
F-8
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the estimated discounted future cash flows of the asset or asset group. There have been no such impairments of long-lived assets for any of the periods presented.
Fair |
Value Measurement |
Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying amounts reflected in the accompanying consolidated balance sheets for cash, other current assets, accounts payable, and accrued liabilities approximate their fair values, due to their short-term nature.
Redeemable |
Convertible Preferred Stock Warrant Liabilities |
Freestanding warrants to purchase shares of the Companys redeemable convertible preferred stock are accounted for as liabilities at fair value, because the shares underlying the warrants contain contingent redemption features outside the control of the Company. Warrants classified as liabilities are recorded on the Companys consolidated balance sheets at their fair value on the date of issuance and remeasured to fair value on each subsequent reporting period, with the changes in fair value recognized as a component of other expense, net in the accompanying consolidated statements of operations. The Company will continue to adjust the liability for changes in the fair value of these warrants until the earlier of the exercise of the warrants, the expiration of the warrants, or until such time as the warrants are no longer considered liability instruments.
F-9
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
Leases |
|
The Company leases office space and laboratory facilities under non-cancelable operating leases. The Company recognizes rent expense on a straight-line basis over the noncancelable lease period and records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. When leases contain escalation clauses, rent abatements and landlord or tenant incentives or allowances, these terms are applied in the determination of straight-line rent expense over the lease period.
Research |
and Development |
Research and development costs are expensed as incurred and consist primarily of salaries, benefits and other staff-related costs, including associated stock-based compensation, laboratory supplies, nonclinical and clinical studies and trials and related clinical manufacturing costs, costs related to manufacturing preparation, fees paid to other entities that conduct certain research and development activities on the Companys behalf. Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses until the related goods are delivered or services are performed. Such payments are evaluated for current or long-term classification based on when such services are expected to be received.
Advance |
Payments for Research and Development Services and Accruals |
As part of the process of preparing its consolidated financial statements, the Company is required to estimate its expenses resulting from its obligation under contracts with vendors and consultants and clinical site agreements in connection with its research and development efforts. The financial terms of these contracts are subject to negotiations which vary 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 Companys objective is to reflect the appropriate research and development expenses in its consolidated financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of its research and development efforts. The Company determines advance payments for research and development services and accrual estimates through discussion with applicable personnel and outside service providers as to the progress of clinical trials, or other services completed. The Company adjusts its rate of research and development expense recognition if actual results differ from its estimates. The Company makes estimates of its advance payments and accrued expenses as of each balance sheet date in its consolidated financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. Through December 31, 2020, there had been no material adjustments to the Companys prior period estimates of advance payments and accruals for research and development expenses. The Companys research and development advance payments and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.
F-10
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
General |
and Administrative Costs |
General and administrative costs are expensed as incurred and include employee-related expenses including salaries, benefits, travel and non-cash stock-based compensation for the Companys personnel in executive, legal, finance and accounting, human resources, and other administrative functions, as well as fees paid for accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. Legal costs include general corporate legal fees and costs related to filing and pursuing patent applications.
Stock-Based |
Compensation |
The Company recognizes stock-based compensation expense for stock options and restricted stock unit awards on a straight-line basis over the requisite service period. The Companys stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes-Merton option pricing model. This model utilizes as inputs the estimated fair value of the underlying common stock at the measurement date, the estimated term of the stock options (weighted-average period of time that the options granted are expected to be outstanding), risk-free interest rates, expected dividends, and the expected volatility of the Companys common stock. The Company has elected to recognize forfeitures of share-based payment awards as they occur.
The Company recognizes stock-based compensation expense for stock options granted to nonemployees based on the estimated fair value of the award as it is more readily measurable than the fair value of the services received.
Income |
Taxes |
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts or existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment. The Company records a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.
The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based on the merits of the position. The Company does not believe any uncertain tax positions currently pending will have a material adverse effect on its consolidated financial statements nor does the Company expect any material change in its position in the next 12 months. The Companys 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.
Net |
Loss Per Share Attributable to Common Stockholders |
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company.
F-11
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
Comprehensive |
Loss |
Comprehensive loss represents the change in the Companys stockholders deficit from all sources other than investments by or distributions to stockholders. The Company has no items of other comprehensive loss; as such, net loss equals comprehensive loss.
Recent |
Accounting Pronouncements |
In February 2016, the FASB issued ASU No. 2016-02, Leases, or Topic 842, which supersedes the guidance in former ASC 840, Leases. This standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. In May 2020, the FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which deferred the effective dates for non-public entities. Therefore, this standard is effective for annual reporting periods, and interim periods within those years, for public entities beginning after December 15, 2018 and for private entities beginning after December 15, 2021. Originally, a modified retrospective transition approach was required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued guidance to permit an alternative transition method for Topic 842, which allows transition to the new lease standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities may elect to apply either approach. There are also a number of optional practical expedients that entities may elect to apply. The Company is currently assessing the impact of this standard on its consolidated financial statements. The Company expects to record a material right-of-use asset and lease liability in connection with adopting this standard on January 1, 2022.
Recently |
Adopted Pronouncements |
In August 2018, the FASB issued ASU No. 2018-13, Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The Company adopted this standard on January 1, 2020 and the adoption of the standard did not have a significant impact on its consolidated financial statements.
3. |
Fair Value Measurements |
The following table summarizes the fair value of the Companys financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
December 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: |
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Redeemable convertible preferred stock warrant liabilities |
$ | | $ | | $ | 1,366 | $ | 1,366 | ||||||||
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Total financial liabilities |
$ | | $ | | $ | 1,366 | $ | 1,366 | ||||||||
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F-12
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
December 31, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: |
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Redeemable convertible preferred stock warrant liabilities |
$ | | $ | | $ | 2,622 | $ | 2,622 | ||||||||
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Total financial liabilities |
$ | | $ | | $ | 2,622 | $ | 2,622 | ||||||||
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The following table summarizes the change in the fair value of the redeemable convertible preferred stock warrant liabilities for the years ended December 31, 2019 and 2020 (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Beginning balance |
$ | 724 | $ | 1,366 | ||||
Losses from changes in fair value |
642 | 153 | ||||||
Exercise of warrants |
| (395 | ) | |||||
Issuance of warrants |
| 1,498 | ||||||
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Ending balance |
$ | 1,366 | $ | 2,622 | ||||
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Fair values of the Companys redeemable convertible preferred stock warrant liabilities are based on significant inputs not observed in the market, and thus represent a Level 3 measurement. Refer to Note 7 for the valuation techniques and assumptions used in estimating the fair value of the warrants.
4. |
Balance Sheet Components |
Prepaid |
Expenses and Other Current Assets |
Prepaid expenses and other current assets consisted of the following (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Refundable clinical deposits |
$ | 1,891 | $ | 672 | ||||
Tax refund receivable |
201 | 229 | ||||||
Refundable security deposit |
187 | | ||||||
Prepaid insurance |
61 | 47 | ||||||
Other prepaids and current assets |
184 | 129 | ||||||
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Total prepaid expenses and other current assets |
$ | 2,524 | $ | 1,077 | ||||
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F-13
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
Property |
and Equipment, Net |
The cost and accumulated depreciation and amortization of property and equipment were as follows (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Laboratory and platform equipment |
$ | 3,500 | $ | 4,613 | ||||
Furniture and office equipment |
100 | 100 | ||||||
Leasehold improvements |
198 | 198 | ||||||
Construction in progress |
683 | 1,607 | ||||||
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Total property and equipment, gross |
4,481 | 6,518 | ||||||
Less: accumulated depreciation and amortization |
(1,741 | ) | (2,818 | ) | ||||
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Total property and equipment, net |
$ | 2,740 | $ | 3,700 | ||||
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Depreciation and amortization expense totaled $722,000 and $1.1 million for the years ended December 31, 2019 and 2020, respectively.
Accrued |
Liabilities |
Accrued liabilities consisted of the following (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Accrued professional services |
$ | 2,187 | $ | 192 | ||||
Accrued compensation |
1,864 | 2,393 | ||||||
Accrued other liabilities |
180 | 333 | ||||||
Accrued construction in progress |
| 255 | ||||||
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Total accrued liabilities |
$ | 4,231 | $ | 3,173 | ||||
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5. |
Commitments and Contingencies |
Operating |
Leases |
The Company leases office and laboratory space in Seattle, Washington.
In September 2017, the Company entered into a non-cancelable operating lease for 11,256 square feet of office and laboratory space. Rent is payable monthly, increasing by approximately 3% each year. As of December 31, 2020, the remaining future minimum lease payments were $1.2 million through the expiration date of August 31, 2022.
Rent expense for the years ended December 31, 2019 and 2020 was $601,000 and $632,000, respectively.
Legal |
Proceedings |
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable
F-14
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount.
On November 19, 2019, a lawsuit was filed in the King County Superior Court for the State of Washington against the Company. The plaintiff, a former investment advisor, alleged that he was entitled to payment in connection with the Companys December 2016 financing round. The lawsuit asserted, among other things, causes of action against the Company for breach of implied/quasi contract. Plaintiff sought monetary damages, attorneys fees, and equitable relief. On November 5, 2020, the Company and Plaintiff entered into a confidential settlement agreement that was not material.
Indemnifications |
|
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company intends to enter into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors and officers insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
COVID-19 |
|
In March 2020, the COVID-19 disease was declared a pandemic by the World Health Organization. Management continues to evaluate the potential impacts of the COVID-19 pandemic on the development of its product candidates, and business. The Company is working closely with its manufacturing vendors to maintain adequate product supply and with healthcare providers as future studies are planned to mitigate risk to patients while adhering to regulatory, institutional and government guidance and policies. The Company remains committed to its development plans and acknowledges the potential risk for delays in the product supply chain and in anticipated timelines for its preclinical studies and clinical trials.
6. |
Debt |
Payroll |
Protection Program |
In April 2020, the Company borrowed $1.1 million from the U.S. Small Business Administration Payroll Protection Program, or PPP, as provided by the Coronavirus Aid, Relief, and Economic Security Act. The PPP loans are intended to assist companies impacted by the COVID-19 pandemic to fund certain types of expenditures, including payroll costs, rent and utility payments. The Company repaid the loan in full on May 5, 2020.
F-15
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
Term |
Loan |
On November 5, 2020 the Company entered into a debt and equity financing agreement with Avenue Venture Opportunities Fund, L.P., or Avenue. The agreement provides for a 36-month term loan of up to $20.0 million, of which $10.0 million was funded at close and (b) an additional $10.0 million is available at the Companys request until December 31, 2021, subject to (i) completion of an underwritten public offering with gross proceeds of at least $75.0 million, or a Qualified Public Offering, (ii) receipt of FDA approval of TRUDHESA and (iii) approval by Avenues investment committee. The term loan bears interest at the higher of the prime rate or 11%.
Under the agreement, Avenue also has the right to invest up to $10.0 million in a private placement concurrent with an IPO (at the IPO price) or special purpose acquisition company, or SPAC, transaction (at the effective price per share), in each case, subject to mutual agreement and Avenue investment committee approval.
Payments for the term loan are interest only for the initial 12 months and can be extended to (i) 24 months upon achieving a qualified IPO with gross proceeds of at least $75.0 million or (ii) 36 months upon achieving the first interest only period extension and FDA approval of TRUDHESA. The term loan will amortize in equal payments of principal from the end of the interest only period to the expiration of the 36-month term on November 1, 2023 and includes a final payment of $450,000 due upon the maturity of the term loan. In connection with the agreement, the Company granted Avenue warrants for the purchase of shares of 1,762,810 shares of Series D redeemable convertible preferred stock, as disclosed in Note 7. Avenue is eligible to receive additional warrants upon the draw down of the remaining $10.0 million under the agreement.
The Companys obligations are secured by a security interest in substantially all of the Companys assets. The agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, including on intellectual property, guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. The agreement provides for events of default customary for term loans of this type, including but not limited to non-payment, breaches or defaults in the performance of covenants, insolvency and bankruptcy.
The net proceeds from the issuance of the term loan were initially allocated to the warrants at an amount equal to their fair value of $1.5 million and the remainder to the term loan. The Company incurred financing costs of $299,000 which, together with the fair value of the warrants and the final payment, are recorded as a debt discount and are being amortized over the contractual term using the effective interest method. During the year ended December 31, 2020, the Company recorded interest expense of $303,000.
The term loan consists of the following (in thousands):
December 31,
2020 |
||||
Face value of term loan |
$ | 10,000 | ||
Final payment |
450 | |||
Unamortized debt discount associated with final payment, issuance date warrant fair value, and financing costs |
(2,039 | ) | ||
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Total debt, net |
8,411 | |||
Less: short-term debt |
417 | |||
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Long-term debt |
$ | 7,994 | ||
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F-16
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
7. |
Redeemable Convertible Preferred Stock Warrant Liabilities |
The key terms of the outstanding redeemable convertible preferred stock warrant liabilities as of December 31, 2019 are summarized in the following table:
Number of shares
as of December 31, |
Exercise
Price |
Expiration | ||||||||||||||
Exercisable into: |
2019 | 2020 | ||||||||||||||
Series A-2 redeemable convertible preferred stock |
1,248,551 | 862,471 | $ | 0.4996 |
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March 31, 2021 |
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Series B redeemable convertible preferred stock |
378,111 | | 0.8737 | September 3, 2020 | ||||||||||||
Series C-1 redeemable convertible preferred stock |
1,124,877 | 1,124,877 | 0.5289 | November 16, 2021 | ||||||||||||
Series D redeemable convertible preferred stock |
| 1,762,810 | 0.7091 | October 31, 2030 | ||||||||||||
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Total |
2,751,539 | 3,750,158 | ||||||||||||||
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During 2020, warrants for the purchase of 296,008 shares of Series A-2 redeemable convertible preferred stock were exercised at various dates prior to expiring and 90,072 shares expired unexercised. Warrants for the purchase of 378,111 shares of Series B redeemable convertible preferred stock were exercised in August 2020 prior to expiring. Additionally, subsequent to the period end, warrants for the purchase of 862,471 shares of Series A-2 redeemable convertible preferred stock were extended through September 30, 2021.
The fair value of the warrants was determined using an option pricing model. Under this model, the estimated equity value of the Company as of the measurement date is allocated to various classes of financial instruments (such as common and redeemable convertible preferred stock and warrants to purchase redeemable convertible preferred stock) based on their rights and preferences in an assumed liquidity scenario, which was estimated to occur in two years. Other assumptions used included stock volatility ranging from 46% to 58% during 2019 and 46% to 116% during 2020, and risk-free interest rates ranging from 1.6% to 2.5% during 2019 and 0.1% to 2.8% during 2020. The Company will continue to adjust the redeemable convertible preferred stock warrant liabilities for changes in fair value until the earlier of the exercise, conversion or expiration of the warrants or the completion of a deemed liquidation event.
F-17
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
8. |
Redeemable Convertible Preferred Stock |
Redeemable convertible preferred stock as of December 31, 2019 consisted of the following (in thousands, except share amounts):
Redeemable Convertible Preferred Stock |
Shares
Authorized |
Shares Issued
and Outstanding |
Carrying
Value at December 31, 2019 |
Aggregate
Liquidation Preference |
||||||||||||
Series A-1 |
746,426 | 746,426 | $ | 238 | $ | 305 | ||||||||||
Series A-2 |
9,869,218 | 8,509,579 | 3,876 | 4,251 | ||||||||||||
Series B |
3,968,775 | 3,590,664 | 3,234 | 4,000 | ||||||||||||
Series C-1 |
43,278,699 | 42,153,822 | 20,648 | 22,297 | ||||||||||||
Series C-2 |
26,537,826 | 26,537,826 | 15,390 | 15,000 | ||||||||||||
Series C-3 |
24,605,790 | 24,605,790 | 14,965 | 15,000 | ||||||||||||
Series D |
95,191,755 | 95,191,755 | 67,296 | 67,500 | ||||||||||||
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Total |
204,198,489 | 201,335,862 | $ | 125,647 | $ | 128,353 | ||||||||||
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Redeemable convertible preferred stock as of December 31, 2020 consisted of the following (in thousands, except share amounts):
Redeemable Convertible Preferred Stock |
Shares
Authorized |
Shares Issued
and Outstanding |
Carrying
Value at December 31, 2020 |
Aggregate
Liquidation Preference |
||||||||||||
Series A-1 |
746,426 | 746,426 | $ | 238 | $ | 305 | ||||||||||
Series A-2 |
9,869,218 | 8,805,587 | 4,147 | 4,399 | ||||||||||||
Series B |
3,968,775 | 3,968,775 | 3,980 | 4,421 | ||||||||||||
Series C-1 |
43,278,699 | 42,153,822 | 20,975 | 22,297 | ||||||||||||
Series C-2 |
26,537,826 | 26,537,826 | 15,390 | 15,000 | ||||||||||||
Series C-3 |
24,605,790 | 24,605,790 | 14,973 | 15,000 | ||||||||||||
Series D |
95,191,755 | 95,191,755 | 67,336 | 67,500 | ||||||||||||
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Total |
204,198,489 | 202,009,981 | $ | 127,039 | $ | 128,922 | ||||||||||
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The holders of redeemable convertible preferred stock have various rights and preferences as follows:
Conversion |
Rights |
Each share of redeemable convertible preferred stock is convertible into such number of fully paid shares of common stock as is determined by dividing the original issue price by the conversion price in effect at the time of conversion. As of December 31, 2019 and 2020, each share of Series A-1, A-2, C-1, C-2, C-3, and D preferred stock is convertible into one share of common stock. Each share of Series B preferred stock is convertible into 2.10608 shares of common stock. The conversion rates are subject to adjustment upon any future stock splits or stock combinations, reclassifications or exchanges of similar stock, or upon a reorganization, merger or consolidation of the Company. In addition, the conversion rate for each series of preferred stock will be reduced upon the issuance or sale by the Company of common shares or instruments convertible or exercisable into common shares, for consideration or with an exercise price that is less than the conversion price applicable to such series. Such reduction may result in recognition by the Company of a deemed dividend to preferred stockholders, if the resulting conversion price is less than the fair value per share of common stock as of the date preferred stock was issued.
F-18
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
Conversion can occur at any time at the option of each holder. In addition, all shares of preferred stock will convert automatically upon (1) the closing of a firm-commitment underwritten public offering, at a per share price of at least $1.0636, resulting in at least $50.0 million in net proceeds, or a Qualified Public Offering, or (2) by vote or written consent of the holders of a majority of the then outstanding shares of Series B, C-1, C-2, C-3 and D preferred stock.
Dividends |
|
The holders of shares of Series A-1, A-2, B, C-1, C-2, C-3 and D preferred stock are entitled to receive 8% dividends, when, if, and as declared by the Companys board of directors. Dividends are non-cumulative, and none were declared as of December 31, 2019. Preferred stockholders are also entitled to participate on an as-converted into common stock, pari-passu together with common stockholders, in distributions of any additional dividends.
Liquidation |
|
In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of Series C-1, C-2, C-3 and D preferred stock are entitled to receive, pro rata, prior and in preference to distributions to the holders of any other shares, an amount equal to the original issuance price ($0.5289, $0.5652, $0.6096 and $0.7091, respectively) per share plus all declared but unpaid dividends, if any. After the payment in full to the holders of Series C-1, C-2, C-3 and D preferred stock, the holders of Series B preferred stock are entitled to receive, pro rata, prior and in preference to distributions to the holders of any other shares, an amount equal to the original issuance price ($1.1140) per share plus all declared but unpaid dividends, if any. After the payment in full to the holders of Series B preferred stock, the holders of Series A-1 and Series A-2 preferred stock shares are entitled to receive, pro rata, prior and in preference to distributions to the holders of common shares, an amount equal to the original issuance price ($0.4091 for Series A-1 and $0.4996 for Series A-2) per share plus all declared but unpaid dividends, if any. In each case, the amounts to be distributed are subject to adjustment for stock splits, stock dividends or distributions, recapitalizations, and similar events. Upon completion of the payment of the full liquidation preference of preferred stock, the remaining assets of the Company, if any, will be distributed among the holders of preferred stock and common stock, pro rata on an as-converted basis, subject to maximum participation amounts for each class of preferred shares. A change in control of the Company or a sale of all or substantially all of its assets is deemed to be an event triggering payment of liquidation preferences.
Redemption |
|
Series B, C-1, C-2 and C-3 preferred stock can be redeemed upon election, at any time on or after December 3, 2023, by the holders of a majority, voting together as a single class on an as-converted basis, of the outstanding shares of Series B and Series C-1, C-2 and C-3 preferred stock. Series D preferred stock can be redeemed upon election, at any time on or after December 3, 2023, by the holders of a majority of the outstanding shares of Series D preferred stock. Redemption amounts will equal the original issue price of such shares, plus any declared but unpaid dividends, and will occur in three annual installments commencing not more than sixty days after the receipt by the Company of the redemption election.
Voting |
Rights |
Each share of preferred stock has a number of votes equal to the number of shares of common stock into which it is convertible. The holders of Series A-1 and Series A-2 preferred stock, voting together, are entitled to elect one member of the Companys board of directors. The holders of Series
F-19
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
C-1, C-2 and C-3 preferred stock, voting together, are entitled to elect three members of the Companys board of directors. The holders of Series D preferred stock are entitled to elect two members of the Companys board of directors. The holders of common stock have the right to elect one member of the Companys board of directors. The holders of common stock and preferred stock, voting together as a single class on an as-converted basis, are entitled to elect the remaining members of the board of directors.
Classification |
|
The Company has classified its redeemable convertible preferred stock as mezzanine equity on the consolidated balance sheets as the shares are contingently redeemable with passage of time or upon deemed liquidation events, such as a change in control. As only the passage of time is required for Series B, C-1, C-2, C-3, and D preferred stock to become redeemable, the Company is accreting the carrying value of the preferred stock shares to their redemption value, using the effective interest method, over the period from issuance to the earliest payment dates. With respect to Series A-1 and A-2, no accretion was recorded during 2019 and 2020, as a deemed liquidation event was not probable. Amounts recorded for the accretion of redeemable convertible preferred stock during the years ended December 31, 2019 and 2020 were $505,000 and $518,000, respectively. The accretion is recorded as a deemed dividend and a charge to additional paid-in capital.
9. |
Common Stock |
Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends have been declared by the board of directors from inception.
The Company has reserved the following shares of common stock for issuance, on an as-converted basis, as follows:
December 31, | ||||||||
2019 | 2020 | |||||||
Stock incentive plans |
42,331,184 | 45,622,914 | ||||||
Redeemable convertible preferred stock |
205,307,423 | 206,399,763 | ||||||
Redeemable convertible preferred stock warrants |
3,169,760 | 3,750,158 | ||||||
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|
|
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Total |
250,808,367 | 255,772,835 | ||||||
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10. |
Stock Incentive Plan |
2008 |
Plan |
In September 2008, the Companys board of directors adopted the 2008 Stock Incentive Plan, or the 2008 Plan, which provides for the granting of incentive stock options, nonqualified stock options, and restricted stock awards to its employees, directors and consultants. Options granted or shares issued under the 2008 Plan that were outstanding on the date the 2018 Equity Incentive Plan, or the 2018 Plan, became effective will remain subject to the terms of the 2008 Plan. The 2008 Plan terminated in 2018 as it reached its ten-year term. New grants issued after the termination of the 2008 plan will be under the 2018 plan. At December 31, 2019, and 2020, options to purchase 16,911,771 and 10,394,180 shares, respectively, under the 2008 plan remained outstanding.
F-20
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
2018 |
Plan |
In November 2018, the Companys board of directors adopted the 2018 Equity Incentive Plan. The 2018 Plan provides for the granting of incentive stock options, nonqualified stock options, restricted stock units, and other forms of stock awards to its employees, directors and consultants.
The 2018 Plan is administered by the board of directors or a committee appointed by the board of directors, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. The exercise price of incentive stock options and nonqualified stock options will be no less than 100% of the fair value per share of the Companys common stock on the date of grant. If an individual owns capital stock representing more than 10% of the voting shares and the grant is an incentive stock option, the price of each share will be at least 110% of the fair value on the date of grant. Options expire after 10 years (five years for incentive stock options granted to stockholders owning greater than 10% of the voting stock). The term and vesting periods for options granted under the 2018 Plan are determined by the Companys board of directors or a committee appointed by the board of directors. Options granted generally vest over four years. Options must be exercised within a 10-year period or sooner if so specified within the option agreement. Under the 2018 Plan, the Company initially reserved 12,339,671 shares of common stock for issuance. In addition, any authorized shares not issued or subject to outstanding grants under the 2008 Plan and any shares subject to outstanding stock options that are cancelled without being exercised or expire under the 2008 Plan are added to the shares authorized and reserved for issuance under the 2018 Plan. At December 31, 2019, and 2020, options to purchase 21,318,328 and 29,588,832 shares, respectively, under 2018 Plan remained outstanding. The Company had 4,101,085 and 5,639,902 shares available for future grant under the 2018 Plan as of December 31, 2019 and 2020, respectively.
Stock |
Option Activity |
A summary of the Companys stock option activity under its stock option plans was as follows (in thousands, except share and per share data and years):
Options Outstanding | ||||||||||||||||||||
Shares
Available for Grant |
Number of
Options |
Weighted-
Average Exercise Price |
Remaining
Contractual Term (Years) |
Aggregate
Intrinsic Value |
||||||||||||||||
BalanceDecember 31, 2019 |
4,101,085 | 38,230,099 | $ | 0.20 | 8.37 | $ | 11,441 | |||||||||||||
Authorized |
9,765,284 | | ||||||||||||||||||
Granted |
(14,777,834 | ) | 14,777,834 | $ | 0.49 | |||||||||||||||
Exercised |
| (6,473,554 | ) | $ | 0.14 | |||||||||||||||
Cancelled |
6,551,367 | (6,551,367 | ) | $ | 0.20 | |||||||||||||||
|
|
|
|
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BalanceDecember 31, 2020 |
5,639,902 | 39,983,012 | $ | 0.32 | 8.02 | $ | 14,844 | |||||||||||||
|
|
|
|
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ExercisableDecember 31, 2020 |
15,692,099 | $ | 0.18 | 9.76 | $ | 8,101 | ||||||||||||||
|
|
In May 2020, the Companys board of directors increased the pool of stock options available for future grant by 9,765,284 shares and appointed an existing member of the board of directors as the Companys Chief Executive Officer. In connection with this change, the Company granted 11,712,789 stock options to its Chief Executive Officer at an exercise price of $0.48 per share that will vest ratably
F-21
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
over 48 months. Vesting of the Chief Executive Officers options accelerate upon a termination without cause. The Company recognized $2.1 million of expense related to a modification upon the acceleration of the former Chief Executive Officers outstanding options upon his departure from the Company. The Company granted 4,532,879 stock options in total subsequent to the period end with an exercise price range of $0.70 to $0.84 per share.
The total intrinsic value of options exercised was $94,000 and $3.7 million during the years ended December 31, 2019 and 2020, respectively. The intrinsic value is the difference between the estimated fair value of the Companys common stock at the time of exercise, as determined by the board of directors, and the exercise price of the stock option.
The total fair value of options that vested during the years ended December 31, 2019 and 2020 was $451,000 and $1.1 million, respectively.
The grant date fair value of options granted during the years ended December 31, 2019 and 2020 was $3.1 million and $3.9 million, respectively. The weighted-average grant date fair value of employee options granted during the years ended December 31, 2019 and 2020 was $0.14 and $0.26 per share, respectively.
Stock-Based |
Compensation Expense |
Stock-based compensation expense recognized was as follows (in thousands):
Year Ended
December 31, |
||||||||
2019 | 2020 | |||||||
Research and development |
$ | 341 | $ | 488 | ||||
General and administrative |
453 | 3,153 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 794 | $ | 3,641 | ||||
|
|
|
|
As of December 31, 2020, there was $5.3 million of total unrecognized compensation cost related to unvested options that are expected to vest. The cost is expected to be recognized over a weighted-average period of 3.0 years.
In determining the fair value of the stock options granted, the Company uses the Black-Scholes-Merton option-pricing model and assumptions discussed below. Each of these inputs is subjective.
Fair Value of Common StockGiven the absence of a public trading market, the Companys board of directors with input from management considered numerous objective and subjective factors to determine the fair value of common stock. The factors included, but were not limited to: (1) third-party valuations of the Companys common stock; (2) the Companys stage of development; (3) the status of research and development efforts; (4) the rights, preferences and privileges of the Companys preferred stock relative to those of the Companys common stock; (5) the Companys operating results and financial condition, including the Companys levels of available capital resources; and (6) equity market conditions affecting comparable public companies; (7) general U.S. market conditions; and (8) the lack of marketability of the Companys common stock.
Expected TermThe Companys expected term represents the period that the Companys stock-based awards are expected to be outstanding. The Company used the simplified method (based on the mid-point between the vesting date and the end of the contractual term) to determine the expected term.
F-22
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
Expected VolatilitySince the Company is privately held and does not have any trading history for its common stock, the expected volatility was estimated based on the average historical volatilities for comparable publicly traded pharmaceutical 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 and area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.
Risk-Free Interest RateThe 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.
Expected DividendThe Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.
The fair value of stock option awards granted to employees was estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following assumptions:
Year Ended
December 31, |
||||
2019 | 2020 | |||
Expected term (in years) |
6.1 | 6.1 | ||
Expected volatility |
54.3% 57.7% | 56.4% 60.9% | ||
Risk-free interest rate |
1.62% 2.44% | 0.27% 1.55% | ||
Expected dividends |
% | % |
11. |
Income Taxes |
The components of loss before taxes were as follows (in thousands):
Year Ended
December 31, |
||||||||
2019 | 2020 | |||||||
Domestic |
$ | (42,039 | ) | $ | (45,801 | ) | ||
Foreign |
210 | 4 | ||||||
|
|
|
|
|||||
Total loss before provision for income tax |
$ | (41,829 | ) | $ | (45,797 | ) | ||
|
|
|
|
The provision for income taxes consisted of the following (in thousands):
Year Ended
December 31, |
||||||||
2019 | 2020 | |||||||
Current: |
||||||||
Federal |
$ | | $ | | ||||
State |
1 | 1 | ||||||
Foreign |
29 | | ||||||
|
|
|
|
|||||
Total current tax expense |
$ | 30 | $ | 1 | ||||
|
|
|
|
F-23
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
Reconciliation of income tax computed at federal statutory rates to the reported provision for income taxes was as follows (in thousands):
Year Ended
December 31, |
||||||||
2019 | 2020 | |||||||
Tax provision at U.S. statutory rate |
$ | (8,784 | ) | $ | (9,617 | ) | ||
Permanent differences |
321 | 695 | ||||||
Change in valuation allowance |
9,609 | 9,374 | ||||||
Research and development credits |
(985 | ) | (849 | ) | ||||
Other |
(131 | ) | 398 | |||||
|
|
|
|
|||||
Provision for income taxes |
$ | 30 | $ | 1 | ||||
|
|
|
|
Significant components of the Companys deferred income taxes at December 31, 2019 and 2020 are shown below (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Deferred tax assets: |
||||||||
Net operating losses |
$ | 17,199 | $ | 25,239 | ||||
Research and development and other tax credits |
3,533 | 4,740 | ||||||
Other |
1,120 | 1,244 | ||||||
|
|
|
|
|||||
Gross deferred tax assets |
21,852 | 31,223 | ||||||
Less valuation allowance |
(21,849 | ) | (31,223 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets |
3 | | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Fixed assets |
(3 | ) | | |||||
|
|
|
|
|||||
Gross deferred tax liabilities |
(3 | ) | | |||||
|
|
|
|
|||||
Net deferred tax asset |
$ | | $ | | ||||
|
|
|
|
In accordance with the authoritative guidance for income taxes under ASC 740, a deferred tax asset or liability is recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities.
At December 31, 2020, the Company had federal net operating loss, or NOL, and research and development credit carryforwards of approximately $21.4 million and $6.5 million, respectively. These carryforwards begin to expire in 2028 and 2029, respectively. In addition, the Company has $98.7 million of post 2017 federal NOL carryforwards that carry forward indefinitely. Utilization of the post 2017 federal NOL carryforwards is limited to eighty-percent of taxable income generated in a given tax year.
Under Sections 382 and 383 of the Internal Revenue Code of 1986 as amended, or IRC, the Companys NOL and research and development credit carryforwards and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any rolling three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of NOL and credit carryforwards. If a change in ownership were to have occurred, the annual limitation
F-24
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
may result in the expiration of NOL carryforwards and credits before utilization. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.
In evaluating its valuation allowance, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Due to uncertainty with respect to ultimate realizability of deferred tax assets, the Company has provided a valuation allowance against the U.S. deferred tax assets. The valuation allowance increased by $9.6 million and $9.4 million during the years ended December 31, 2019 and 2020, respectively, primarily due to NOLs incurred.
The following table presents a reconciliation of the changes in the unrecognized tax benefit (in thousands):
Balance as of December 31, 2018 |
$ | 892 | ||
Increases related to prior year tax positions |
94 | |||
Increases related to current year tax positions |
619 | |||
|
|
|||
Balance as of December 31, 2019 |
1,605 | |||
Increases related to prior year tax positions |
9 | |||
Increases related to current year tax positions |
534 | |||
|
|
|||
Balance as of December 31, 2020 |
$ | 2,148 | ||
|
|
The Company does not anticipate the amount of unrecognized tax benefits to significantly change within the next 12 months. Due to the valuation allowance recorded against the Companys deferred tax assets, none of the total unrecognized tax benefits as of December 31, 2019 and 2020, would reduce the effective tax rate if recognized. As of December 31, 2019 and 2020, there are no penalties or accrued interest recorded in the consolidated financial statements. The Companys policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit.
The Company files tax returns with the U.S. federal, California state, and Australian tax authorities. The Company currently has no years under examinations by any jurisdiction; however, the Company is subject to income tax examinations by Federal, California and Australian tax authorities for years beginning in 2016, 2017, and 2016, respectively. Further, to the extent allowed by law, the taxing authorities may have the right to examine prior originating periods when NOLs and tax credits are being utilized in the current year.
The Company has made the accounting policy election to recognize the impact of Global Intangible Low-Tax Income as a period cost.
12. |
Defined Contribution Plan |
The Company has a defined contribution retirement savings plan under Section 401(k) of the IRC. This plan allows eligible employees to defer a portion of their annual compensation on a pre-tax or after-tax basis. The Company makes discretionary matching contributions of up to 4% of a participating employees salary. For the years ended December 31, 2019 and 2020, the amount expensed under the plan was $197,000 and $277,000, respectively.
F-25
IMPEL NEUROPHARMA, INC.
Notes to Consolidated Financial Statements
13. |
Net Loss Per Share Attributable to Common Stockholders |
The following outstanding shares of potentially dilutive securities were excluded from the computation of the diluted net loss per share attributable to common stockholders for the periods presented because their effect would have been anti-dilutive:
Year Ended
December 31, |
||||||||
2019 | 2020 | |||||||
Redeemable convertible preferred stock on an as-converted basis |
205,307,423 | 206,399,763 | ||||||
Redeemable convertible preferred stock warrants on an as-converted basis |
3,169,760 | 3,750,158 | ||||||
Stock options to purchase common stock |
38,230,099 | 39,983,012 | ||||||
|
|
|
|
|||||
Total |
246,707,282 | 250,132,933 | ||||||
|
|
|
|
14. |
Subsequent Events |
For the year ended December 31, 2020, the Company evaluated its consolidated financial statements for subsequent events through March 23, 2021, the date the consolidated financial statements were issued. The Company has concluded that no events or transactions have occurred that require adjustment to or disclosure in the accompanying financial statements, other than the following:
a) |
In March 2021, the Company issued convertible promissory notes to various investors for an aggregate amount of $7.5 million. The notes bear interest at a rate of 5.0% per annum and mature on the earlier of (a) December 31, 2021 and (b) a change of control. The notes are (i) automatically convertible into shares of the Companys common stock upon a Qualified Public Offering or a SPAC transaction at 90% of the price per share in such transactions, (ii) convertible at the holders option or upon a change of control into shares of Series D redeemable convertible preferred stock at the Series D original issuance price, and (iii) convertible at the holders option upon a new redeemable convertible preferred stock financing into shares of redeemable preferred stock issued in such financing at 90% of the price per share. |
b) |
In the first quarter of 2021, the Company granted 4,532,879 stock options at exercise prices ranging from $0.70 to $0.84 that will vest over 48 months. |
F-26
Shares
Impel NeuroPharma, Inc.
Common Stock
PROSPECTUS
Joint Book-running Managers
Cowen | Guggenheim Securities |
Lead Manager
Wedbush PacGrow
, 2021
Until , 2021, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses, other than underwriting discounts and commissions, paid or payable by the registrant in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the Financial Industry Regulatory Approval, or FINRA, filing fee and Nasdaq listing fee:
Amount
Paid or To Be Paid |
||||
SEC registration fee |
$ | 8,183 | ||
FINRA filing fee |
11,750 | |||
Nasdaq listing fee |
* | |||
Printing and engraving expenses |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Blue Sky, qualification fees and expenses |
* | |||
Transfer agent and registrar fees and expenses |
* | |||
Miscellaneous expenses |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* |
To be completed by amendment. |
Item 14. Indemnification of Directors and Officers.
Section 145 of the DGCL authorizes a court to award, or a corporations board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the DGCL are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.
As permitted by the DGCL, the registrants restated certificate of incorporation to be effective in connection with the completion of this offering contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:
∎ |
any breach of the directors duty of loyalty to the registrant or its stockholders; |
∎ |
acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; |
∎ |
under Section 174 of the DGCL (regarding unlawful dividends and stock purchases); or |
∎ |
any transaction from which the director derived an improper personal benefit. |
As permitted by the DGCL, the registrants restated bylaws to be effective in connection with the completion of this offering, provide that:
∎ |
the registrant is required to indemnify its directors and executive officers to the fullest extent permitted by the DGCL, subject to limited exceptions; |
∎ |
the registrant may indemnify its other employees and agents as set forth in the DGCL; |
II-1
∎ |
the registrant is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the DGCL, subject to limited exceptions; and |
∎ |
the rights conferred in the restated bylaws are not exclusive. |
Prior to the completion of this offering, the registrant intends to enter into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the registrants restated certificate of incorporation and restated bylaws and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of the registrant for which indemnification is sought. Reference is also made to the underwriting agreement to be filed as Exhibit 1.1 to this registration statement, which provides for the indemnification of executive officers, directors and controlling persons of the registrant against certain liabilities. The indemnification provisions in the registrants restated certificate of incorporation, restated bylaws and the indemnification agreements entered into or to be entered into between the registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the registrants directors and executive officers for liabilities arising under the Securities Act.
The registrant has directors and officers liability insurance for securities matters.
Item 15. Recent Sales of Unregistered Securities.
The following lists set forth information regarding all securities sold or granted by the registrant from March 31, 2018 through March 31, 2021 that were not registered under the Securities Act, and the consideration, if any, received by the registrant for such securities:
(a) Stock Option Grants
From March 31, 2018 through March 31, 2021, the registrant granted to its employees, directors, consultants and other service providers options to purchase an aggregate of 41,224,944 shares of common stock under its 2008 Equity Incentive Plan, or 2008 Plan, and 2018 Equity Incentive Plan, or 2018 Plan, with exercise prices ranging from $0.15 to $0.84 per share.
From March 31, 2018 through March 31, 2021, employees, directors, consultants and other service providers of the registrant exercised options granted under the 2008 Plan and the 2018 Plan for an aggregate of 6,836,553 shares of common stock with exercise prices ranging from $0.08 to $0.50 per share for an aggregate exercise price of $918,801.67.
(b) Warrants to Purchase Preferred Stock
In October 2020, we entered into a debt and equity financing agreement with Avenue Venture Opportunities Fund, L.P., or Avenue. In connection with this agreement, we also granted Avenue a warrant to purchase 1,762,810 shares of our Series D redeemable convertible preferred stock at an exercise price of $0.709095 per share. The warrant has an expiration date of October 31, 2030. The warrant will be automatically exchanged for 1,762,810 shares upon our initial public offering.
(c) Exercise of Warrants to Purchase Preferred Stock
From March 31, 2018 through March 31, 2021, warrants to purchase 296,008 shares of Series A-2 Preferred stock were exercised at an exercise price of $0.4996 per share.
(d) Preferred Stock
In February 2018, the registrant issued and sold to four accredited investors an aggregate of 26,537,826 shares of C-2 convertible preferred stock at a purchase price of $0.5652 per share, for aggregate consideration of $14,999,999.
II-2
In February 2018, the registrant issued and sold to four accredited investors an aggregate of 24,605,790 shares of C-3 convertible preferred stock at a purchase price of $0.6096 per share, for aggregate consideration of $15,000,000.
In December 2018, the registrant issued and sold to six accredited investors an aggregate of 95,191,755 shares of D convertible preferred stock at a purchase price of $0.7091 per share, for aggregate consideration of $67,499,998.
(e) Convertible Notes
In March 2021, the registrant issued and sold to various accredited investors convertible promissory notes in an aggregate principal amount of $7.5 million.
Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (or Regulation D or Regulation S promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed on the stock certificates issued in each of the foregoing transactions.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering, and the registrant believes each transaction was exempt from the registration requirements of the Securities Act as stated above. All recipients of the foregoing transactions either received adequate information about the registrant or had access, through their relationships with the registrant, to such information. Furthermore, the registrant affixed appropriate legends to the share certificates and instruments issued in each foregoing transaction setting forth that the securities had not been registered and the applicable restrictions on transfer.
II-3
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibit
|
Description of Document |
|
1.1* | Form of Underwriting Agreement. | |
3.1 | Restated Certificate of Incorporation, as amended to date, as currently in effect. | |
3.2* | Form of Restated Certificate of Incorporation to be effective upon the completion of this offering. | |
3.3 | Bylaws, as currently in effect. | |
3.4* | Form of Restated Bylaws to be effective upon the completion of this offering. | |
4.1* | Form of Common Stock Certificate. | |
4.2 | Amended and Restated Investors Rights Agreement, dated December 4, 2018, by and among the registrant and certain of its stockholders. | |
4.3 | Form of 2021 Convertible Promissory Note | |
5.1* | Opinion of Fenwick & West LLP. | |
10.1* | Form of Indemnity Agreement. | |
10.2 | 2008 Equity Incentive Plan, as amended, and forms of award agreements. | |
10.3 | 2018 Equity Incentive Plan and forms of award agreements. | |
10.4* | 2021 Equity Incentive Plan, to become effective on the date immediately prior to the date the registration statement is declared effective, and forms of award agreements. | |
10.5* | 2021 Employee Stock Purchase Plan, to become effective on the date the registration statement is declared effective, and forms of award agreements. | |
10.6* | Employment Agreement, effective as of , by and between the registrant and Adrian Adams. | |
10.7* | Employment Agreement, effective as of , by and between the registrant and Stephen Shrewsbury. | |
10.8* | Employment Agreement, effective as of , by and between the registrant and John Leaman. | |
10.9^ | BMR-201 Elliott Avenue LLC Lease, dated July 19, 2017, by and between the registrant and BMR-201 Elliott Avenue LLC. | |
10.10^ | Loan and Security Agreement, dated November 5, 2020, by and between the registrant and Avenue Venture Opportunities Fund, L.P., as amended | |
10.11 | Warrant Agreement, dated November 5, 2020, by and between the registrant and Avenue Venture Opportunities Fund, L.P. | |
21.1 | Subsidiaries of the registrant. | |
23.1 | Consent of Ernst & Young LLP, independent registered public accounting firm. | |
23.2* | Consent of Fenwick & West LLP (included in Exhibit 5.1). | |
24.1 | Power of Attorney (included in the signature page to this registration statement). |
* |
To be filed by amendment. |
^ |
Registrant has omitted schedules and exhibits pursuant to Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request. |
II-4
(b) Financial Statement Schedules.
No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or notes.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(i) 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.
(ii) 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-5
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on the 2nd day of April, 2021.
IMPEL NEUROPHARMA, INC. |
||
By: |
/s/ Adrian Adams |
|
Adrian Adams Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Adrian Adams and John Leaman as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution and resubstitution and full power to act without the other, for him or her in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Adrian Adams Adrian Adams |
Chief Executive Officer and Director (Principal Executive Officer) |
April 2, 2021 | ||
/s/ John Leaman, M.D. John Leaman, M.D. |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
April 2, 2021 | ||
/s/ John Hoekman, Ph.D. John Hoekman, Ph.D. |
Chief Scientific Officer and Director | April 2, 2021 | ||
/s/ David Allison, Ph.D. David Allison, Ph.D. |
Director | April 2, 2021 | ||
/s/ Robert Mittendorff, M.D. Robert Mittendorff, M.D. |
Director | April 2, 2021 |
Signature |
Title |
Date |
||
/s/ Timothy S. Nelson Timothy S. Nelson |
Director |
April 2, 2021 |
||
/s/ H. Stewart Parker H. Stewart Parker |
Director | April 2, 2021 | ||
/s/ Aaron Royston, M.D. Aaron Royston, M.D. |
Director | April 2, 2021 | ||
/s/ Ali Satvat Ali Satvat |
Director | April 2, 2021 | ||
/s/ Mahendra G. Shah, Ph.D. Mahendra G. Shah, Ph.D. |
Director | April 2, 2021 | ||
/s/ Diane E. Wilfong Diane E. Wilfong |
Director | April 2, 2021 |
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
IMPEL NEUROPHARMA, INC.
(a Delaware corporation)
Pursuant to Section 242 of the General Corporation Law of the State of Delaware, Impel NeuroPharma, Inc., a corporation organized and existing under the General Corporation Law (the General Corporation Law) of the State of Delaware (the Corporation), does hereby certify that:
FIRST: The Corporation was incorporated pursuant to the General Corporation Law on July 24, 2008. The following amendment to the Corporations Restated Certificate of Incorporation, filed with the Delaware Secretary of State on December 3, 2018 (the Restated Certificate) has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, with the approval of such amendment by the Corporations stockholders having been given by written consent without a meeting in accordance with Sections 228(d) and 242 of the Delaware General Corporation Law.
SECOND: The initial paragraph of Article IV of the Restated Certificate is hereby amended and restated to read in its entirety as follows:
The total number of shares of all classes of stock which the Corporation shall have authority to issue is 460,903,406 consisting of (a) 256,704,917 shares of Common Stock, $0.001 par value per share (Common Stock), and (b) 204,198,489 shares of Preferred Stock, $0.001 par value per share (Preferred Stock). As of the effective date of this Restated Certificate of Incorporation (this Restated Certificate), 746,426 shares of the authorized Preferred Stock of the Corporation are hereby designated Series A-1 Preferred Stock, 9,869,218 shares of the authorized Preferred Stock of the Corporation are hereby designated Series A-2 Preferred Stock (together with the Series A-1 Preferred Stock, the Series A Preferred Stock), 3,968,775 shares of the authorized Preferred Stock of the Corporation are hereby designated Series B Preferred Stock, 43,278,699 shares of the authorized Preferred Stock of the Corporation are hereby designated Series C-1 Preferred Stock, 26,537,826 shares of the authorized Preferred Stock of the Corporation are hereby designated Series C-2 Preferred Stock, 24,605,790 shares of the authorized Preferred Stock of the Corporation are hereby designated Series C-3 Preferred Stock (together with the Series C-1 Preferred Stock and Series C-2 Preferred Stock, the Series C Preferred Stock), and 95,191,755 shares of the authorized Preferred Stock of the Corporation are hereby designated Series D Preferred Stock.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, said Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer this 18th day of March, 2019 and the foregoing facts stated herein are true and correct.
IMPEL NEUROPHARMA, INC. | ||
By: |
/s/ Jon Congleton |
|
Name: | Jon Congleton | |
Title: | Chief Executive Officer |
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IMPEL NEUROPHARMA, INC.
RESTATED CERTIFICATE OF INCORPORATION
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Impel NeuroPharma, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the General Corporation Law), does hereby certify as follows.
1. The name of this corporation is Impel NeuroPharma, Inc. This corporation was originally incorporated pursuant to the General Corporation Law on July 24, 2008.
2. This Restated Certificate of Incorporation of the corporation attached hereto as Exhibit A, which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation as previously amended or supplemented, has been duly adopted by the corporations Board of Directors and stockholders holding the requisite majorities of shares in accordance with Sections 242 and 245 of the General Corporation Law, with the approval of the corporations stockholders having been given by written consent without a meeting in accordance with Section 228 of the General Corporation Law.
3. This Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this corporations Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 3rd day of December, 2018.
By: |
/s/ Jon Congleton |
|
Jon Congleton, Chief Executive Officer |
Exhibit A
IMPEL NEUROPHARMA, INC.
RESTATED CERTIFICATE OF INCORPORATION
ARTICLE I: NAME.
The name of this corporation is Impel NeuroPharma, Inc. (the Corporation).
ARTICLE II: REGISTERED OFFICE.
The address of the registered office of the Corporation in the State of Delaware is 160 Greentree Drive, Suite 101, in the City of Dover, County of Kent, Delaware 19904. The name of its registered agent at such address is National Registered Agents, Inc.
ARTICLE III: PURPOSE.
The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
ARTICLE IV: AUTHORIZED SHARES.
The total number of shares of all classes of stock which the Corporation shall have authority to issue is 446,602,138 consisting of (a) 242,403,649 shares of Common Stock, $0.001 par value per share (Common Stock), and (b) 204,198,489 shares of Preferred Stock, $0.001 par value per share (Preferred Stock). As of the effective date of this Restated Certificate of Incorporation (this Restated Certificate), 746,426 shares of the authorized Preferred Stock of the Corporation are hereby designated Series A-1 Preferred Stock, 9,869,218 shares of the authorized Preferred Stock of the Corporation are hereby designated Series A-2 Preferred Stock (together with the Series A-1 Preferred Stock, the Series A Preferred Stock), 3,968,775 shares of the authorized Preferred Stock of the Corporation are hereby designated Series B Preferred Stock, 43,278,699 shares of the authorized Preferred Stock of the Corporation are hereby designated Series C-1 Preferred Stock, 26,537,826 shares of the authorized Preferred Stock of the Corporation are hereby designated Series C-2 Preferred Stock, 24,605,790 shares of the authorized Preferred Stock of the Corporation are hereby designated Series C-3 Preferred Stock (together with the Series C-1 Preferred Stock and Series C-2 Preferred Stock, the Series C Preferred Stock), and 95,191,755 shares of the authorized Preferred Stock of the Corporation are hereby designated Series D Preferred Stock.
The following is a statement of the designations and the rights, powers and preferences, and the qualifications, limitations or restrictions thereof, in respect of each class of capital stock of the Corporation.
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A. |
COMMON STOCK |
1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.
2. Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of this Restated Certificate) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law and without a separate class vote of the holders of the Common Stock.
B. |
PREFERRED STOCK |
The following rights, powers and preferences, and restrictions, qualifications and limitations, shall apply to the Preferred Stock. Unless otherwise indicated, references to Sections in this Part B of this Article IV refer to sections of this Part B.
1. Dividends.
1.1 Preferred Stock Dividend Preference.
(a) Subject to Section 1.1(b) below, the holders of each series of Preferred Stock shall be entitled to receive dividends at the rate of eight percent (8%) of the Original Issue Price (as defined below) applicable for such series of Preferred Stock, per share of such Preferred Stock (as adjusted for any stock dividends, combinations, recapitalizations or splits with respect to such shares) per annum, payable out of funds legally available therefor. Such dividends shall be payable when, as and if declared by the board of directors of the Corporation (the Board) acting in its sole discretion and in accordance with Section 1.1(b) below. The right to receive dividends shall not be cumulative.
(b) No dividend shall be paid or declared and set aside in any period with respect to the Series A Preferred Stock, Series B Preferred Stock or the Common Stock (other than dividends on shares of Common Stock payable in shares of Common Stock) unless and until dividends have been paid or declared and set aside for payment in such period with respect to the Series C Preferred Stock and Series D Preferred Stock, in an amount equal to the applicable dividend rate pursuant to Section 1.1(a). No dividend shall be paid or declared and set aside in any period with respect to the Series A Preferred Stock or the Common Stock (other than dividends on shares of Common Stock payable in shares of Common Stock) unless and until dividends have been paid or declared and set aside for payment in such period with respect to the Series B Preferred Stock, in an amount equal to the applicable dividend rate pursuant to Section 1.1(a). No dividend shall be paid or declared and set aside in any period with respect to
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the Common Stock (other than dividends on shares of Common Stock payable in shares of Common Stock) unless and until dividends have been paid or declared and set aside for payment in such period with respect to the Series A Preferred Stock, in an amount equal to the applicable dividend rate pursuant to Section 1.1(a).
(c) The Original Issue Price shall mean (i) $0.4091 per share for the Series A-1 Preferred Stock (the Series A-1 Original Issue Price), (ii) $0.4996 per share for the Series A-2 Preferred Stock (the Series A-2 Original Issue Price), (iii) $1.1140001 per share for the Series B Preferred Stock (the Series B Original Issue Price), (iv) $0.52894518 per share for the Series C-1 Preferred Stock (the Series C-1 Original Issue Price), (v) $0.56523089 per share for the Series C-2 Preferred Stock (the Series C-2 Original Issue Price), (vi) $0.6096126 per share for the Series C-3 Preferred Stock (the Series C-3 Original Issue Price), and (vii) $0.709095 per share for the Series D Preferred Stock (the Series D Original Issue Price) subject in each case to appropriate adjustment in the event of any stock splits and combinations of shares and for dividends paid on such series of Preferred Stock in shares of such stock.
1.2 Participation. If, after dividends in the full preferential amount specified in Section 1.1 for the Preferred Stock have been paid or set apart for payment in any calendar year of the Corporation, the Board shall declare additional dividends out of funds legally available therefor in that calendar year, then such additional dividends shall be declared pro rata on the Common Stock and the Preferred Stock on a pari passu basis according to the number of shares of Common Stock held by such holders. For this purpose each holder of shares of Preferred Stock is to be treated as holding the greatest whole number of shares of Common Stock then issuable upon conversion of all shares of Preferred Stock held by such holder pursuant to Sections 4 and 5.
1.3 Non-Cash Dividends. Whenever a dividend provided for in this Section 1 shall be payable in property other than cash, the value of such dividend shall be deemed to be the fair market value of such property as determined in good faith by the Board.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
2.1 Preferential Payments to Holders of Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or any Deemed Liquidation Event (as defined below), the funds and assets that may be legally distributed to the Corporations stockholders (the Available Funds and Assets) shall be distributed in the following manner:
2.1.1 Prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Series B Preferred Stock, Series A Preferred Stock or Common Stock, (i) the holders of each share of Series C-1 Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, an amount per share equal to the Series C-1 Original Issue Price plus all declared but unpaid dividends on such Series C-1 Preferred Stock, (ii) the holders of each share of Series C-2 Preferred Stock then outstanding shall be entitled to be paid, out of the
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Available Funds and Assets, an amount per share equal to the Series C-2 Original Issue Price plus all declared but unpaid dividends on such Series C-2 Preferred Stock, (iii) the holders of each share of Series C-3 Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, an amount per share equal to the Series C-3 Original Issue Price plus all declared but unpaid dividends on such Series C-3 Preferred Stock, and (iv) the holders of each share of Series D Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, an amount per share equal to the Series D Original Issue Price plus all declared but unpaid dividends on such Series D Preferred Stock. If upon any liquidation, dissolution or winding up of the Corporation or any Deemed Liquidation Event, the Available Funds and Assets shall be insufficient to permit the payment to holders of the Series C Preferred Stock and Series D Preferred Stock of their full preferential amounts described in this subsection, then the entire Available Funds and Assets shall be distributed among the holders of the then outstanding Series C Preferred Stock and Series D Preferred Stock pro rata in proportion to the full preferential amounts that each holder is otherwise entitled to receive under this Section 2.1.1.
2.1.2 If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Series C Preferred Stock and Series D Preferred Stock of their full preferential amounts described above in Section 2.1.1, the holders of each share of Series B Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Series A Preferred Stock or Common Stock, an amount per share equal to the Series B Original Issue Price plus all declared but unpaid dividends on such Series B Preferred Stock. If upon any liquidation, dissolution or winding up of the Corporation or any Deemed Liquidation Event, the Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Series C Preferred Stock and Series D Preferred Stock of their full preferential amounts described above in Section 2.1.1 shall be insufficient to permit the payment to holders of the Series B Preferred Stock of their full preferential amounts described in this subsection, then such Available Funds and Assets shall be distributed among the holders of the then outstanding Series B Preferred Stock pro rata in proportion to the full preferential amounts that each holder is otherwise entitled to receive under this Section 2.1.2.
2.1.3 If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Series C Preferred Stock and Series D Preferred Stock of their full preferential amounts described above in Section 2.1.1 and the Series B Preferred Stock of their full preferential amounts described above in Section 2.1.2, prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Common Stock, (i) the holders of each share of Series A-1 Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, an amount per share equal to the Series A-1 Original Issue Price plus all declared but unpaid dividends on such Series A-1 Preferred Stock and (ii) the holders of each share of Series A-2 Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, an amount per share equal to the Series A-2 Original Issue Price plus all declared but unpaid dividends on such Series A-2 Preferred Stock. If upon any liquidation, dissolution or winding up of the Corporation or any Deemed Liquidation Event, the Available Funds and Assets remaining after
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the payment or distribution (or the setting aside for payment or distribution) to the holders of the Series C Preferred Stock, Series D Preferred Stock and Series B Preferred Stock of their full preferential amounts described above in Sections 2.1.1 and 2.1.2 shall be insufficient to permit the payment to holders of the Series A Preferred Stock of their full preferential amounts described in this subsection, then such Available Funds and Assets shall be distributed among the holders of the then outstanding Series A Preferred Stock pro rata in proportion to the full preferential amounts that each holder is otherwise entitled to receive under this Section 2.1.3.
2.2 Participating Distribution of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation, after the payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock as provided in Section 2.1, the Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock shall be distributed among the holders of the shares of Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all shares of Preferred Stock as if they had been converted to Common Stock pursuant to the terms of this Restated Certificate immediately prior to such dissolution, liquidation, winding up or Deemed Liquidation Event of the Corporation; provided, however,
2.2.1 that if the aggregate amount the holders of Series D Preferred Stock are entitled to receive under Sections 2.1 and 2.2 shall exceed three times the Series D Original Issue Price (the Series D Maximum Participation Amount), each holder of Series D Preferred Stock shall only be entitled to receive upon such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation the greater of (a) the Series D Maximum Participation Amount or (b) the amount such holder would have received if all shares of Series D Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation;
2.2.2 that if the aggregate amount the holders of Series C-1 Preferred Stock are entitled to receive under Sections 2.1 and 2.2 shall exceed three times the Series C-1 Original Issue Price (the Series C-1 Maximum Participation Amount), each holder of Series C-1 Preferred Stock shall only be entitled to receive upon such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation the greater of (a) the Series C-1 Maximum Participation Amount or (b) the amount such holder would have received if all shares of Series C-1 Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation;
2.2.3 that if the aggregate amount the holders of Series C-2 Preferred Stock are entitled to receive under Sections 2.1 and 2.2 shall exceed three times the Series C-2 Original Issue Price (the Series C-2 Maximum Participation Amount), each holder of Series C-2 Preferred Stock shall only be entitled to receive upon such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation the greater of (a) the Series C-2 Maximum Participation Amount or (b) the amount such holder would have received if all shares of Series C-2 Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation;
2.2.4 that if the aggregate amount the holders of Series C-3 Preferred Stock are entitled to receive under Sections 2.1 and 2.2 shall exceed three times the Series C-3
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Original Issue Price (the Series C-3 Maximum Participation Amount), each holder of Series C-3 Preferred Stock shall only be entitled to receive upon such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation the greater of (a) the Series C-3 Maximum Participation Amount or (b) the amount such holder would have received if all shares of Series C-3 Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation;
2.2.5 that if the aggregate amount the holders of Series A-1 Preferred Stock are entitled to receive under Sections 2.1 and 2.2 shall exceed two times the Series A-1 Original Issue Price (the Series A-1 Maximum Participation Amount), each holder of Series A-1 Preferred Stock shall only be entitled to receive upon such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation the greater of (a) the Series A-1 Maximum Participation Amount or (b) the amount such holder would have received if all shares of Series A-1 Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation;
2.2.6 that if the aggregate amount the holders of Series A-2 Preferred Stock are entitled to receive under Sections 2.1 and 2.2 shall exceed two times the Series A-2 Original Issue Price (the Series A-2 Maximum Participation Amount), each holder of Series A-2 Preferred Stock shall only be entitled to receive upon such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation the greater of (a) the Series A-2 Maximum Participation Amount or (b) the amount such holder would have received if all shares of Series A-2 Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation; and
2.2.7 that if the aggregate amount the holders of Series B Preferred Stock are entitled to receive under Sections 2.1 and 2.2 shall exceed two times the Series B Original Issue Price (the Series B Maximum Participation Amount), each holder of Series B Preferred Stock shall only be entitled to receive upon such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation the greater of (a) the Series B Maximum Participation Amount or (b) the amount such holder would have received if all shares of Series B Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event of the Corporation.
2.3 Deemed Liquidation Events.
2.3.1 Definition. Each of the following events shall be considered a Deemed Liquidation Event unless (i) solely with respect to the Series A Preferred Stock, the Series B Preferred Stock, and the Series C Preferred Stock, the holders of a majority of the then outstanding shares of Series B Preferred Stock and Series C Preferred Stock, consenting or voting together as a single class on an as-converted basis elect otherwise by written notice sent to the Corporation at least five days prior to the effective date of any such event and (ii) solely with respect to the Series D Preferred Stock, the holders of not less than a majority of the then outstanding shares of Series D Preferred Stock elect otherwise by written notice sent to the Corporation at least five days prior to the effective date of any such event:
(a) a merger or consolidation (each a Combination) in which (i) the Corporation is a constituent party or (ii) a subsidiary of the Corporation is a
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constituent party and the Corporation issues shares of its capital stock pursuant to such Combination (other than any such securities that are held by an Acquiring Stockholder, as defined below), except (A) any such Combination involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such Combination continue to represent, or are converted into or exchanged for equity securities that represent, immediately following such Combination, a majority, by voting power, of the equity securities of (1) the surviving or resulting party or (2) if the surviving or resulting party is a wholly owned subsidiary of another party immediately following such Combination, the parent of such surviving or resulting party, including securities of such surviving or resulting party (or its parent) that are held by the Acquiring Stockholder, (B) a Combination effected exclusively to change the domicile of the Corporation, or (C) an equity financing transaction of the Corporation pursuant to which the Corporation sells equity securities for the primary purpose of raising working capital; provided that, for the purpose of this Section 2.3.1, all shares of Common Stock issuable upon exercise of Options (as defined in Section 5 below) outstanding immediately prior to such Combination or upon conversion of Convertible Securities (as defined in Section 5 below) outstanding immediately prior to such Combination shall be deemed to be outstanding immediately prior to such Combination and, if applicable, deemed to be converted or exchanged in such Combination on the same terms as the actual outstanding shares of Common Stock are converted or exchanged;
(b) the issuance, sale, exchange or transfer of shares of capital stock (by the Corporation or by holders of such capital stock) that represents, immediately following such issuance, sale, exchange or transfer, a majority, by voting power, of the capital stock of the Corporation, other than (i) any such issuance, sale, exchange or transfer of the Corporations capital stock effected exclusively to change the domicile of the Corporation, or (ii) an equity financing transaction of the Corporation pursuant to which the Corporation sells equity securities for the primary purpose of raising working capital; or
(c) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary or subsidiaries of the Corporation, of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole (or, if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by one or more subsidiaries, the sale or disposition (whether by consolidation, merger, conversion or otherwise) of such subsidiaries of the Corporation), except where such sale, lease, transfer, exclusive license, or other disposition is made to the Corporation or one or more wholly owned subsidiaries of the Corporation (an Asset Disposition).
For purposes of this Section 2.3.1, an Acquiring Stockholder means a stockholder or stockholders of the Corporation that (i) merges or combines with the Corporation in such Combination or (ii) owns or controls a majority of another corporation that merges or combines with the Corporation in such Combination.
2.3.2 Allocation of Escrow. In the event of a Deemed Liquidation Event, if any portion of the consideration payable to the stockholders of the Corporation is
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payable only upon satisfaction of contingencies (the Additional Consideration), the definitive transaction agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the Initial Consideration) shall be allocated among the holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Section 2.3.2, consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.
2.3.3 Amount Deemed Paid or Distributed. The funds and assets deemed paid or distributed to the holders of capital stock of the Corporation upon any such Combination or Asset Disposition shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. If the amount deemed paid or distributed under this Section 2.3.3 is made in property other than in cash, the value of such distribution shall be the fair market value of such property, as determined in good faith by the Board; provided, however, that the following shall apply. For securities not subject to investment letters or other similar restrictions on free marketability:
(i) if traded on a securities exchange or the NASDAQ Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or market over the 30-day period ending three days prior to the closing of such transaction;
(ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three days prior to the closing of such transaction; or
(iii) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board.
The method of valuation of securities subject to investment letters or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a stockholders status as an affiliate or former affiliate) shall take into account an appropriate discount (as determined in good faith by the Board) from the market value as determined pursuant to clauses (i) or (ii) above so as to reflect the approximate fair market value thereof.
3. Voting.
3.1 General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Fractional votes shall
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not be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). Except as provided by law or by the other provisions of this Restated Certificate, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class on an as-converted basis, shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders meeting in accordance with the Bylaws of the Corporation.
3.2 Election of Directors.
3.2.1 Election. The Board shall be comprised of not less than nine (9) directors. For so long as at least 4,400,000 shares of Series A Preferred Stock remain outstanding (as such number is adjusted for stock splits and combinations of shares and for dividends paid on the Preferred Stock in shares of such stock), the holders of record of the shares of Series A Preferred Stock, exclusively and voting together as a separate class on an as-converted to Common Stock basis, shall be entitled to elect one (1) director of the Corporation. For so long as at least 10,000,000 shares of Series C Preferred Stock remain outstanding (as such number is adjusted for stock splits and combinations of shares and for dividends paid on the Preferred Stock in shares of such stock), the holders of record of the shares of Series C Preferred Stock, exclusively and as a separate class, shall be entitled to elect three (3) directors of the Corporation (the Series C Preferred Directors). For so long as at least 10,000,000 shares of Series D Preferred Stock remain outstanding (as such number is adjusted for stock splits and combinations of shares and for dividends paid on the Preferred Stock in shares of such stock), the holders of record of the shares of Series D Preferred Stock, exclusively and as a separate class, shall be entitled to elect two (2) directors of the Corporation (Series D Preferred Directors and, together with the Series C Preferred Directors, the Preferred Directors). The holders of record of the shares of Common Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation. The holders of record of the shares of Common Stock and of every other class or series of voting stock (including the Preferred Stock), voting together as a single class on an as-converted basis, shall be entitled to elect the remaining number of directors of the Corporation. For administrative convenience, the initial Series D Preferred Directors may also be appointed by the Board without a separate action by the holders of a majority of Series D Preferred Stock.
3.2.2 Vacancies Not Caused by Removal. If there is any vacancy, not due to the removal of a director, in the office of any director elected or to be elected by the holders of the outstanding shares of a specified class, classes or series of stock given the right to elect such director pursuant to Section 3.2.1 above (the Specified Stock), such vacancy may be filled (either contingently or otherwise) by either: (i) the remaining director or directors (if any) in office that were so elected by the holders of such Specified Stock by the affirmative vote of a majority of such directors or by the sole remaining director elected by the holders of such Specified Stock if there be but one or (ii) the required vote of holders of the shares of such Specified Stock specified in this Section 3.2 that are entitled to elect such director.
3.2.3 Vacancies Caused by Removal. Any director elected as provided in the preceding sentences may be removed without cause by, and any vacancy in the office of any such removed director may be filled by, and only by, the affirmative vote of the holders of the shares of the Specified 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.
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3.2.4 Procedure. 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 Specified Stock entitled to elect such director shall constitute a quorum for the purpose of electing such director and the candidate or candidates to be elected by such Specified Stock shall be those who receive the highest number of affirmative votes (on an as-converted basis) of the outstanding shares of such Specified Stock. In the case of an action taken by written consent without a meeting, the candidate or candidates to be elected by such Specified Stock shall be those who are elected by the written consent of the holders of a majority of such Specified Stock.
3.3 Preferred Stock Protective Provisions. For so long as at least 10,000,000 shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock in the aggregate remain outstanding (as such number is adjusted for stock splits and combinations of shares and for dividends paid on the Preferred Stock in shares of such stock), the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Restated Certificate) the written consent, or affirmative vote at a meeting and evidenced in writing, of the holders of a majority of the then outstanding shares of Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock, consenting or voting together as a single class on an as-converted basis (the Requisite Holders) and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:
(a) increase the authorized number of shares of Common Stock or Preferred Stock;
(b) amend, alter, restate, waive or repeal any provision of this Restated Certificate or the bylaws of the Corporation in a manner that adversely affects the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series C Preferred Stock or Series D Preferred Stock;
(c) authorize, create (by reclassification or otherwise) or issue any new class or series of capital stock having rights, powers or preferences set forth in the Restated Certificate, as then in effect, that are senior to or on a parity with the Series C Preferred Stock or Series D Preferred Stock, or authorize or create (by reclassification or otherwise) any security convertible into or exercisable for any such new class or series of capital stock;
(d) redeem or repurchase any shares of Common Stock or Preferred Stock, other than (1) pursuant to employee or consultant agreements giving the Corporation the right to repurchase shares at no greater than the original cost thereof upon the termination of services, (2) redemptions of shares as expressly authorized in Section 6 of this Restated Certificate, (3) an exercise of a right of first refusal in favor of the Corporation pursuant to an agreement with any person, which exercise has been approved by the Board, and (4) redemptions of shares of Series B Preferred Stock pursuant to a Compliance Put (as such term is defined in that certain Series B Preferred Stock Purchase Agreement dated September 3, 2015, as amended);
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(e) declare or pay any dividend or otherwise make a distribution to holders of Preferred Stock or Common Stock (other than dividends payable solely in shares of Common Stock);
(f) increase or decrease the authorized number of directors constituting the Board;
(g) other than equipment leases or bank loans or lines of credit, authorize or issue any debt security or incur any indebtedness for borrowed money if the aggregate indebtedness of the Corporation for borrowed money (other than intercompany indebtedness) following such issuance would exceed $1,000,000 in the aggregate;
(h) authorize or make any loan or guarantee any obligation of any other person in excess of $1,000,000;
(i) enter into any transaction with any stockholder, director, or officer of the Corporation or any associate (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended) of such person, other than employment agreements, equity incentive transactions, the transactions contemplated by the Purchase Agreement (as defined below), and transactions approved by a majority of the disinterested members of the Board;
(j) change the principal business activities of the Corporation from the development of drug-device combination pharmaceutical products;
(k) liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any Deemed Liquidation Event, or consent, agree or commit to any of the foregoing without conditioning such consent, agreement or commitment upon obtaining the approval required by this Section 3.3; or
(l) amend this Section 3.3.
3.4 Series B Stock Protective Provisions. For so long as at least at least 1,014,885 shares of Series B Preferred Stock remain outstanding (as such number is adjusted for stock splits and combinations of shares and for dividends paid on the Preferred Stock in shares of such stock), the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Restated Certificate) the written consent, or affirmative vote at a meeting and evidenced in writing, of the holders of a majority of the then outstanding shares of Series B Preferred Stock and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:
(a) increase or decrease the authorized number of shares of Series B Preferred Stock; or
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(b) amend, alter, restate, waive or repeal any provision of this Restated Certificate or the bylaws of the Corporation in a manner that adversely and disproportionately affects the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series B Preferred Stock, in each case different from the other series of Preferred Stock.
3.5 Series C Stock Protective Provisions. For so long as at least at least 10,000,000 shares of Series C Preferred Stock remain outstanding (as such number is adjusted for stock splits and combinations of shares and for dividends paid on the Preferred Stock in shares of such stock), the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Restated Certificate) the written consent, or affirmative vote at a meeting and evidenced in writing, of the holders of a majority of the then outstanding shares of Series C-1 Preferred Stock and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:
(a) increase or decrease the authorized number of shares of Series C Preferred Stock; or
(b) amend, alter, restate, waive or repeal any provision of this Restated Certificate or the bylaws of the Corporation in a manner that adversely and disproportionately affects the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series C Preferred Stock in each case different from the other series of Preferred Stock.
3.6 Series D Stock Protective Provisions. For so long as at least at least 10,000,000 shares of Series D Preferred Stock remain outstanding (as such number is adjusted for stock splits and combinations of shares and for dividends paid on the Preferred Stock in shares of such stock), the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Restated Certificate) the written consent, or affirmative vote at a meeting and evidenced in writing, of the holders of a majority of the then outstanding shares of Series D Preferred Stock and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:
(a) adversely affect the rights, preference or privileges of the holders of the Series D Preferred Stock in a manner different than the other classes of Preferred Stock;
(b) increase or decrease the authorized number of shares of Series D Preferred Stock;
(c) amend, alter, restate, waive or repeal any provision of this Restated Certificate or the bylaws of the Corporation in a manner that adversely and disproportionately affects the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series D Preferred Stock in each case different from the other series of Preferred Stock;
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(d) effect a Deemed Liquidation Event in which the holders of Series D Preferred Stock receive per share proceeds (consisting of cash and/or freely tradable securities) in connection with such Deemed Liquidation Event less than two times the Series D Original Issue Price or consent, agree or commit to such Deemed Liquidation Event; or
(e) authorize or issue any debt security or incur any indebtedness for borrowed money if the aggregate indebtedness of the Corporation for borrowed money (other than intercompany indebtedness) following such issuance would exceed $25,000,000 in the aggregate.
4. Conversion Rights. The holders of the Preferred Stock shall have conversion rights as follows (the Conversion Rights):
4.1 Right to Convert.
4.1.1 Conversion Ratio. Each share of a series of Preferred Stock shall be convertible, at the option of the holder thereof, at any time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price for such series of Preferred Stock by the Conversion Price (as defined below) for such series of Preferred Stock in effect at the time of conversion. The Conversion Price for the Series A-1 Preferred Stock shall initially mean the Series A-1 Original Issue Price, the Conversion Price for the Series A-2 Preferred Stock shall initially mean the Series A-2 Original Issue Price, the Conversion Price for the Series C-1 Preferred Stock shall initially mean the Series C-1 Original Issue Price, the Conversion Price for the Series C-2 Preferred Stock shall initially mean the Series C-2 Original Issue Price, the Conversion Price for the Series C-3 Preferred Stock shall initially mean the Series C-3 Original Issue Price, and the Conversion Price for the Series D Preferred Stock shall initially mean the Series D Original Issue Price. The Conversion Price for the Series B Preferred Stock shall initially mean $0.52894518. Such initial Conversion Price, and the rate at which shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided in Section 5.
4.1.2 Notice of Conversion. In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that any such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent (a Contingency Event). Such notice shall state such holders name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form reasonably satisfactory to the Corporation, duly executed by the
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registered holder or such holders attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice (or, if later, the date on which all Contingency Events have occurred) shall be the time of conversion (the Conversion Time), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such time. The Corporation shall, as soon as practicable after the Conversion Time, (a) issue and deliver to such holder of Preferred Stock, or to such holders nominee(s), a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (b) pay in cash such amount as provided in Section 5.7.3 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (c) pay all declared but unpaid dividends on the shares of Preferred Stock converted.
4.1.3 Effect of Voluntary Conversion. All shares of Preferred Stock that shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Section 5.7.3 and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued.
4.2 Mandatory Conversion.
4.2.1 Automatic Conversion. Upon (a) the closing of the Corporations first sale of shares of Common Stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the Securities Act), at a per share offering price of at least $1.0636 (as adjusted for any stock dividends, combinations, recapitalizations or splits with respect to such shares), resulting in at least $50,000,000 of net proceeds to the Corporation (a Qualified Public Offering), or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the Requisite Holders (the time of such closing, the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the Mandatory Conversion Time), (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the applicable ratio described in Section 4.1.1 as the same may be adjusted from time to time in accordance with Section 5 and (ii) such shares may not be reissued by the Corporation. Notwithstanding the foregoing, (A) if the conversion is in connection with a Deemed Liquidation Event and the holders of Series B Preferred Stock would receive less in consideration for the shares of Common Stock issuable upon conversion of the Series B Preferred Stock than they would have received for their Series B Preferred Stock, the outstanding shares of Series B Preferred Stock shall not automatically be converted into shares of Common Stock pursuant to clause (b) of this Section 4.2.1 without the approval of the holders of a majority of the outstanding shares of the Series B Preferred Stock at the time of such vote or consent, (B) if the conversion is in connection with a Deemed Liquidation Event and the holders of Series C Preferred Stock would receive less in consideration for the shares of Common Stock
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issuable upon conversion of the Series C Preferred Stock than they would have received for their Series C Preferred Stock, the outstanding shares of Series C Preferred Stock shall not automatically be converted into shares of Common Stock pursuant to clause (b) of this Section 4.2.1 without the approval of the holders of a majority of the outstanding shares of the Series C Preferred Stock at the time of such vote or consent, and (C) the outstanding shares of Series D Preferred Stock shall not automatically be converted into shares of Common Stock pursuant to clause (b) of this Section 4.2.1 without the approval of the holders of a majority of the outstanding shares of the Series D Preferred Stock.
4.2.2 Mandatory Conversion Procedural Requirements.
(a) All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to Sections 4.2.1 and 10. Unless otherwise provided in this Restated Certificate, such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Preferred Stock shall surrender such holders certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Section 4.2.
(b) If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form reasonably satisfactory to the Corporation, duly executed by the registered holder or by such holders attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to this Section 4.2, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender the certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Section 4.2.2(b). As soon as practicable after the Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Preferred Stock, the Corporation shall issue and deliver to such holder, or to such holders nominee(s), a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in Section 5.7.3 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock (and the applicable series thereof) accordingly.
4.3 Termination of Conversion Rights. In the event of a notice of redemption is given with respect to any shares of Series B Preferred Stock, Series C Preferred Stock, and
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Series D Preferred Stock pursuant to Section 6, the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. Subject to Section 4.1.2 in the case of a Contingency Event, in the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the third day preceding the date fixed for the first payment of any funds and assets distributable on such event to the holders of Preferred Stock.
5. Adjustments to Conversion Price.
5.1 Adjustments for Diluting Issuances.
5.1.1 Special Definitions. For purposes of this Article IV, the following definitions shall apply:
(a) Option shall mean any right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities from the Corporation.
(b) Original Issue Date for a series of Preferred Stock shall mean the date on which the first share of such series of Preferred Stock was issued.
(c) Convertible Securities shall mean any evidences of indebtedness, shares or other securities issued by the Corporation that are directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(d) Additional Shares of Common Stock with respect to a series of Preferred Stock shall mean all shares of Common Stock issued (or, pursuant to Section 5.1.2 below, deemed to be issued) by the Corporation after the Original Issue Date for the Series D Preferred Stock, other than the following shares of Common Stock and shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (collectively as to all such shares and shares deemed issued, Exempted Securities):
(i) shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on such series of Preferred Stock;
(ii) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on or subdivision of shares of Common Stock that is covered by Section 5.2, 5.3, 5.4, 5.5 or 5.6;
(iii) shares of Common Stock or Options to acquire shares of Common Stock, including but not limited to stock appreciation rights payable in shares of Common Stock or in Options or Convertible Securities, issued to service providers pursuant to a plan, agreement or arrangement approved by the Board, including a majority of the Preferred Directors, which such majority shall include at least one of the Series D Preferred Directors;
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(iv) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options, or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided that such issuance is pursuant to the terms of such Option or Convertible Security;
(v) shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions pursuant to a debt financing, commercial credit arrangement, equipment leasing or similar transaction approved by the Board, including a majority of the Preferred Directors, which such majority shall include at least one of the Series D Preferred Directors;
(vi) shares of Common Stock, Options or Convertible Securities issued pursuant to a bona fide acquisition of another entity by the Corporation by merger or consolidation with, purchase of substantially all of the assets of, or purchase of more than fifty percent of the outstanding equity securities of, the other entity, or issued pursuant to a bona fide joint venture agreement; provided, that such issuances are approved by the Board, including a majority of the Preferred Directors, which such majority shall include at least one of the Series D Preferred Directors;
(vii) shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board, including a majority of the Preferred Directors, which such majority shall include at least one of the Series D Preferred Directors;
(viii) shares of Common Stock, Options or Convertible Securities issued as a result of a decrease in the Conversion Price of any series of Preferred Stock resulting from the operation of Section 5.1.3;
(ix) shares of Common Stock issued in an offering to the public pursuant to a registration statement filed under the Securities Act with, and declared effective by, the Securities and Exchange Commission, in connection with which all outstanding shares of Preferred Stock are converted to Common Stock;
(x) with respect to the Conversion Price of the Series C Preferred Stock only, the issuance or deemed issuance of Common Stock if the Corporation receives written notice from the holders of at least 60% of the then outstanding shares of the Series C-1 Preferred Stock, Series C-2 Preferred Stock, or Series C-3 Preferred Stock, as applicable, on an as-converted basis agreeing that no adjustment shall be made to the Conversion Price of the Series C-1 Preferred Stock, Series C-2 Preferred Stock, or Series C-3 Preferred Stock, as applicable as a result of the issuance or deemed issuance;
(xi) with respect to the Conversion Price of the Series D Preferred Stock only, the issuance or deemed issuance of Common Stock if the
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Corporation receives written notice from the holders of at least a majority of the then outstanding shares of the Series D Preferred Stock agreeing that no adjustment shall be made to the Conversion Price of the Series D Preferred Stock as a result of the issuance or deemed issuance;
(xii) with respect to the Conversion Price of the Series B Preferred Stock only, the issuance or deemed issuance of Common Stock if the Corporation receives written notice from the holders of at least 66-2/3% of the then outstanding shares of Series B Preferred Stock on an as-converted basis agreeing that no adjustment shall be made to the Conversion Price of the Series B Preferred Stock as a result of the issuance or deemed issuance;
(xiii) with respect to the Conversion Price of the Series A Preferred Stock only, the issuance or deemed issuance of Common Stock if the Corporation receives written notice from the holders of a majority of the then outstanding shares of Series A Preferred Stock on an as-converted basis agreeing that no adjustment shall be made to the applicable Conversion Price of the Series A Preferred Stock as a result of the issuance or deemed issuance; or
(xiv) shares of Series D Preferred Stock issued pursuant to that certain Series D Preferred Stock Purchase Agreement by and between the Corporation and the Purchasers identified therein, dated as of or about December 3, 2018 (the Purchase Agreement).
5.1.2 Deemed Issue of Additional Shares of Common Stock.
(a) If the Corporation at any time or from time to time after the date upon which this Restated Certificate is accepted for filing by the Secretary of State of the State of Delaware (the Filing Date) shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability (including the passage of time) but without regard to any provision contained therein for a subsequent adjustment of such number including by way of anti-dilution adjustment) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Section 5.1.3, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (i) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of
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any such Option or Convertible Security or (ii) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Conversion Price of such series of Preferred Stock computed upon the original issuance of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Conversion Price of such series of Preferred Stock as would have obtained had such revised terms been in effect upon the original date of issue of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this Section 5.1.2(b) shall have the effect of increasing the Conversion Price of a series of Preferred Stock to an amount which exceeds the lower of (1) the Conversion Price for such series of Preferred Stock in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (2) the Conversion Price for such series of Preferred Stock that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities that are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Section 5.1.3 (either because the consideration per share (determined pursuant to Section 5.1.4) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Conversion Price of such series of Preferred Stock then in effect, or because such Option or Convertible Security was issued before the Original Issue Date of the Series D of Preferred Stock), are revised after such Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (i) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (ii) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Section 5.1.2(a)) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) that resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Section 5.1.3, the Conversion Price of such series of Preferred Stock shall be readjusted to such Conversion Price of such series of Preferred Stock as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.
(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Conversion Price of a series of Preferred
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Stock provided for in this Section 5.1.2 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in Sections 5.1.2(b) and 5.1.2(c)). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to such Conversion Price that would result under the terms of this Section 5.1.2 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to such Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
5.1.3 Issuance of Additional Shares of Common Stock.
General Adjustments. In the event the Corporation shall at any time after the Original Issue Date of the Series D Preferred Stock issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 5.1.2, but excluding any Additional Shares of Common Stock issued pursuant to Section 5.1.3(b)), without consideration or for a consideration per share less than the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue (a Triggering Issuance), then such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-thousandth of a cent) determined in accordance with the following formula:
CP2 = CP1 × (A + B) ÷ (A + C).
For purposes of the foregoing formula, the following definitions shall apply:
CP2 shall mean the applicable Conversion Price in effect immediately after such issue or deemed issue of Additional Shares of Common Stock
CP1 shall mean the applicable Conversion Price in effect immediately prior to such issue or deemed issue of Additional Shares of Common Stock;
A shall mean the number of shares of Common Stock outstanding immediately prior to such issue or deemed issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);
B shall mean the number of shares of Common Stock that would have been issued or deemed issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and
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C shall mean the number of such Additional Shares of Common Stock actually issued or deemed issued in such transaction.
5.1.4 Determination of Consideration. For purposes of this Section 5.1, the consideration received by the Corporation for the issue or deemed issue of any Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property: Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board; and
(iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board.
(b) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 5.1.2, relating to Options and Convertible Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
5.1.5 Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Section 5.1.2 and such issuance dates occur
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within a period of no more than 120 days after the first such issuance to the final such issuance, then, upon the final such issuance, the Conversion Price of such series of Preferred Stock shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period that are a part of such transaction or series of related transaction).
5.2 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Original Issue Date for the Series D of Preferred Stock effect a subdivision of the outstanding Common Stock, the Conversion Price for each series of Preferred Stock in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Original Issue Date for the Series D Preferred Stock combine the outstanding shares of Common Stock, the Conversion Price for each series of Preferred Stock in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this section shall become effective at the close of business on the date the subdivision or combination becomes effective.
5.3 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date for the Series D Preferred Stock shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Conversion Price for any series of Preferred Stock in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying such Conversion Price then in effect by a fraction:
(a) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(b) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (i) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, such Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter such Conversion Price shall be adjusted pursuant to this section as of the time of actual payment of such dividends or distributions; and (ii) no such adjustment shall be made if the holders of such series of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.
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5.4 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date for the Series D Preferred Stock shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock), then and in each such event the holders of any series of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities in an amount equal to the amount of such securities as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.
5.5 Adjustment for Reclassification, Exchange and Substitution. If, at any time or from time to time after the Original Issue Date for the Series D Preferred Stock, the Common Stock issuable upon the conversion of any series of Preferred Stock is changed into the same or a different number of shares of any class or classes of stock of the Corporation, whether by recapitalization, reclassification or otherwise (other than by a stock split or combination, dividend, distribution, merger or consolidation covered by Sections 5.2, 5.3, 5.4 or 5.6 or by Section 2.3 regarding a Deemed Liquidation Event), then in any such event each holder of such series of Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change.
5.6 Adjustment for Merger or Consolidation. Subject to the provisions of Section 2.3, if there shall occur any consolidation or merger involving the Corporation in which the Common Stock (but not a series of Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Sections 5.1, 5.3, 5.4 or 5.5), then, following any such consolidation or merger, provision shall be made that 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 which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of such series of Preferred Stock immediately prior to such consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board) shall be made in the application of the provisions in Section 4 and this Section 5 with respect to the rights and interests thereafter of the holders of such series of Preferred Stock, to the end that the provisions set forth in Section 4 and this Section 5 shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of such series of Preferred Stock.
5.7 General Conversion Provisions.
5.7.1 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price of a series of Preferred Stock pursuant to this
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Section 5, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than 15 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which such series of Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of any series of Preferred Stock (but in any event not later than 10 days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (a) the Conversion Price of such series of Preferred Stock then in effect and (b) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of such series of Preferred Stock.
5.7.2 Reservation of Shares. The Corporation shall at all times while any share of Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Restated Certificate. Before taking any action that would cause an adjustment reducing the Conversion Price of a series of Preferred Stock below the then par value of the shares of Common Stock issuable upon conversion of such series of Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price.
5.7.3 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair value of a share of Common Stock as determined in good faith by the Board. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
5.7.4 No Further Adjustment after Conversion. Upon any conversion of shares of Preferred Stock into Common Stock, no adjustment to the Conversion Price of the applicable series of Preferred Stock shall be made with respect to the converted shares for any declared but unpaid dividends on such series of Preferred Stock or on the Common Stock delivered upon conversion.
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6. Redemption.
6.1 General. Unless prohibited by Delaware law governing distributions to stockholders, (i) shares of Series B Preferred Stock shall be redeemed by the Corporation at a price per share equal to the Series B Original Issue Price, plus all declared but unpaid dividends thereon as of the date of the Companys receipt of the Redemption Request (the Series B Redemption Price), shares of Series C-1 Preferred Stock shall be redeemed by the Corporation at a price per share equal to the Series C-1 Original Issue Price, plus all declared but unpaid dividends thereon as of the date of the Companys receipt of the Redemption Request (the Series C-1 Redemption Price), shares of Series C-2 Preferred Stock shall be redeemed by the Corporation at a price per share equal to the Series C-2 Original Issue Price, plus all declared but unpaid dividends thereon as of the date of the Companys receipt of the Redemption Request (the Series C-2 Redemption Price), and shares of Series C-3 Preferred Stock shall be redeemed by the Corporation at a price per share equal to the Series C-3 Original Issue Price, plus all declared but unpaid dividends thereon as of the date of the Companys receipt of the Redemption Request (the Series C-3 Redemption Price) in three (3) annual installments commencing not more than sixty (60) days after receipt by the Corporation at any time on or after December 3, 2023 (but in no event prior to the expiration of the Series D Notice Period (as defined below)), from the holders of a majority of the then outstanding shares of Series B Preferred Stock and Series C Preferred Stock, voting together as a single class on an as-converted basis, of written notice requesting redemption of all shares of Series B Preferred Stock and Series C Preferred Stock (the Redemption Request) and (ii) shares of Series D Preferred Stock shall be redeemed by the Corporation at a price per share equal to the Series D Original Issue Price, plus all declared but unpaid dividends thereon as of the date of the Companys receipt of the Series D Redemption Request (the Series D Redemption Price, together, with the Series B Redemption Price, the Series C-1 Redemption Price, the Series C-2 Redemption Price, and the Series C-3 Redemption Price, the Redemption Price) in three (3) annual installments commencing not more than sixty (60) days after receipt by the Corporation at any time on or after December 3, 2023 (but in no event prior to the expiration of the Notice Period (as defined below)), from the holders of a majority of the outstanding shares of the Series D Preferred Stock of written notice requesting redemption of all shares of Series D Preferred Stock (the Series D Redemption Request). The date of each such installment shall be referred to as a Redemption Date. On each Redemption Date, the Corporation shall redeem, on a pro rata basis in accordance with the number of shares of Series B Preferred Stock, Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred Stock, and/or Series D Preferred Stock, as applicable, owned by each holder, that number of outstanding shares of Series B Preferred Stock, Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred Stock, and Series D Preferred Stock determined by dividing (i) the total number of shares of Series B Preferred Stock, Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred Stock, and/or Series D Preferred Stock, as applicable, outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies). If on any Redemption Date Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable, to be redeemed, the Corporation shall ratably redeem the maximum number of shares that it may redeem consistent with such law, and shall redeem the remaining shares as soon as it may lawfully do so under such law.
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6.2 Notice of Election.
(a) In the event that a Redemption Request is submitted, the Corporation shall send prompt written notice of such Redemption Request to the holders of record of Series D Preferred Stock as of the date of the Redemption Request. Such holders of Series D Preferred Stock shall have fifteen (15) days from receipt of such notice to provide the Corporation with a Series D Redemption Request (such period, the Series D Notice Period) in accordance with Subsection 6.1. In the event a Series D Redemption Request is made within the Series D Notice Period, the Corporation shall treat the Redemption Request and Series D Redemption Request to have been made on the same day and, accordingly, the Redemption Dates with respect to the Series B Preferred Stock and Series C Preferred Stock and the Series D Preferred Stock shall be the same.
(b) In the event that a Series D Redemption Request is submitted, the Corporation shall send prompt written notice of such Redemption Request to the holders of record of Series B Preferred Stock and Series C Preferred Stock as of the date of the Series D Redemption Request. Such holders of Series B Preferred Stock and Series C Preferred Stock shall have fifteen (15) days from receipt of such notice to provide the Corporation with a Redemption Request (such period, the Notice Period) in accordance with Subsection 6.1. In the event a Redemption Request is made within the Notice Period, the Corporation shall treat the Series D Redemption Request and Redemption Request to have been made on the same day and, accordingly, the Redemption Dates with respect to the Series D Preferred Stock and the Series B Preferred Stock and Series C Preferred Stock shall be the same.
6.3 Redemption Notice. The Corporation shall send written notice of the mandatory redemption (the Redemption Notice) to each holder of record of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable, not less than forty (40) days prior to each Redemption Date. Each Redemption Notice shall state:
(a) the number of shares of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable, held by the holder that the Corporation shall redeem on the Redemption Date specified in the Redemption Notice;
(b) the Redemption Date and the Redemption Price;
(c) the date upon which the holders right to convert such shares terminates (as determined in accordance with Subsection 4.3); and
(d) for holders of shares in certificated form, that the holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable, to be redeemed.
6.4 Surrender of Certificates; Payment. On or before the applicable Redemption Date, each holder of shares of Series B Preferred Stock, Series C Preferred Stock,
26
and/or Series D Preferred Stock, as applicable, to be redeemed on such Redemption Date, unless such holder has exercised his, her or its right to convert such shares as provided in Section 4 or has provided written notice to the Company that he, she or it elects to retain his, her or its shares of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable (an Electing Holder), shall, if a holder of shares in certificated form, surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable, represented by a certificate are redeemed, a new certificate, instrument, or book entry representing the unredeemed shares of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable, shall promptly be issued to such holder.
6.5 Rights Subsequent to Redemption. If the Redemption Notice or Series D Redemption Notice shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the shares of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable, to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that any certificates evidencing any of the shares of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable, so called for redemption (other than such shares held by Electing Holders) shall not have been surrendered, dividends with respect to such shares of Series B Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock, as applicable, shall cease to accrue after such Redemption Date and all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of any such certificate or certificates therefor.
7. No Reissuance of Redeemed or Otherwise Acquired Preferred Stock. Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights, powers and preferences granted to the holders of Preferred Stock following the close of business on the third day preceding the Redemption Date for such shares.
8. Waiver. Unless otherwise specified herein, any of the rights, powers, preferences and other terms of a series of the Preferred Stock or the Preferred Stock as a class that are set forth herein may be waived on behalf of all holders of such series of Preferred Stock or the Preferred Stock as a class by the affirmative written consent or vote of the holders of a majority of the shares of such series of Preferred Stock or such Preferred Stock as a class that are then outstanding, treating any convertible Preferred Stock as-if converted to Common Stock.
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9. Notice of Record Date. In the event:
(a) the Corporation shall set a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will send or cause to be sent to the holders of the Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or subscription right, and the amount and character of such dividend, distribution or subscription right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Preferred Stock and the Common Stock. Such notice shall be sent (A) at least 20 days prior to the earlier of the record date or effective date for the event specified in such notice or (B) such fewer number of days as may be approved the holders of a majority of the outstanding shares of Preferred Stock acting as a single class on an as-converted basis.
10. Notices. Except as otherwise provided herein, any notice required or permitted by the provisions of this Article IV to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation for such holder, given by the holder to the Corporation for the purpose of notice or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission. If no such address appears or is given, notice shall be deemed given at the place where the principal executive office of the Corporation is located.
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ARTICLE V: PREEMPTIVE RIGHTS.
No stockholder of the Corporation shall have a right to purchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such a right may from time to time be set forth in a written agreement between the Corporation and any stockholder.
ARTICLE VI: BYLAW PROVISIONS.
A. AMENDMENT OF BYLAWS. Subject to any additional vote required by this Restated Certificate or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
B. NUMBER OF DIRECTORS. Subject to Article IV, Part B, Section 3.2 and subject to any additional vote required by this Restated Certificate, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.
C. BALLOT. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
D. MEETINGS AND BOOKS. Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the Bylaws of the Corporation.
ARTICLE VII: DIRECTOR LIABILITY.
A. LIMITATION. To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article VII to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended. Any repeal or modification of the foregoing provisions of this Article VII by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
B. INDEMNIFICATION. To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.
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C. MODIFICATION. Any amendment, repeal or modification of the foregoing provisions of this Article VII shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.
ARTICLE VIII: CREDITOR AND STOCKHOLDER COMPROMISES
Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of §291 of Title 8 of the General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under §279 of Title 8 of the General Corporation Law order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.
ARTICLE IX: CORPORATE OPPORTUNITY
The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation 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 (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, Covered Persons), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Persons capacity as a director of the Corporation.
* * * * * * * * * * *
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IMPEL NEUROPHARMA, INC.
a Delaware Corporation
BYLAWS
TABLE OF CONTENTS
Page | ||||||
ARTICLE I: |
STOCKHOLDERS |
1 | ||||
Section 1.1: |
Annual Meetings |
1 | ||||
Section 1.2: |
Special Meetings |
1 | ||||
Section 1.3: |
Notice of Meetings |
1 | ||||
Section 1.4: |
Adjournments |
1 | ||||
Section 1.5: |
Quorum |
2 | ||||
Section 1.6: |
Organization |
2 | ||||
Section 1.7: |
Voting; Proxies |
2 | ||||
Section 1.8: |
Fixing Date for Determination of Stockholders of Record |
2 | ||||
Section 1.9: |
List of Stockholders Entitled to Vote |
3 | ||||
Section 1.10: |
Action by Written Consent of Stockholders |
3 | ||||
Section 1.11: |
Inspectors of Elections |
5 | ||||
ARTICLE II: |
BOARD OF DIRECTORS |
6 | ||||
Section 2.1: |
Number; Qualifications |
6 | ||||
Section 2.2: |
Election; Resignation; Removal; Vacancies |
6 | ||||
Section 2.3: |
Regular Meetings |
6 | ||||
Section 2.4: |
Special Meetings |
6 | ||||
Section 2.5: |
Remote Meetings Permitted |
6 | ||||
Section 2.6: |
Quorum; Vote Required for Action |
7 | ||||
Section 2.7: |
Organization |
7 | ||||
Section 2.8: |
Written Action by Directors |
7 | ||||
Section 2.9: |
Powers |
7 | ||||
Section 2.10: |
Compensation of Directors |
7 | ||||
ARTICLE III: |
COMMITTEES |
7 | ||||
Section 3.1: |
Committees |
7 | ||||
Section 3.2: |
Committee Rules |
8 | ||||
ARTICLE IV: |
OFFICERS |
8 | ||||
Section 4.1: |
Generally |
8 | ||||
Section 4.2: |
Chief Executive Officer |
8 | ||||
Section 4.3: |
Chairperson of the Board |
9 | ||||
Section 4.4: |
President |
9 | ||||
Section 4.5: |
Vice President |
9 | ||||
Section 4.6: |
Chief Financial Officer |
9 | ||||
Section 4.7: |
Treasurer |
9 | ||||
Section 4.8: |
Secretary |
9 | ||||
Section 4.9: |
Delegation of Authority |
9 | ||||
Section 4.10: |
Removal |
9 |
- i -
TABLE OF CONTENTS
(continued)
Page | ||||||
ARTICLE V: |
STOCK |
10 | ||||
Section 5.1: |
Certificates |
10 | ||||
Section 5.2: |
Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates |
10 | ||||
Section 5.3: |
Other Regulations |
10 | ||||
ARTICLE VI: |
INDEMNIFICATION |
10 | ||||
Section 6.1: |
Indemnification of Officers and Directors |
10 | ||||
Section 6.2: |
Advance of Expenses |
11 | ||||
Section 6.3: |
Non-Exclusivity of Rights |
11 | ||||
Section 6.4: |
Indemnification Contracts |
11 | ||||
Section 6.5: |
Right of Indemnitee to Bring Suit |
12 | ||||
Section 6.6: |
Nature of Rights |
12 | ||||
ARTICLE VII: |
NOTICES |
13 | ||||
Section 7.1: |
Notice |
13 | ||||
Section 7.2: |
Waiver of Notice |
13 | ||||
ARTICLE VIII: |
INTERESTED DIRECTORS |
14 | ||||
Section 8.1: |
Interested Directors |
14 | ||||
Section 8.2: |
Quorum |
14 | ||||
ARTICLE IX: |
MISCELLANEOUS |
14 | ||||
Section 9.1: |
Fiscal Year |
14 | ||||
Section 9.2: |
Seal |
14 | ||||
Section 9.3: |
Form of Records |
14 | ||||
Section 9.4: |
Reliance upon Books and Records |
14 | ||||
Section 9.5: |
Certificate of Incorporation Governs |
15 | ||||
Section 9.6: |
Severability |
15 | ||||
ARTICLE X: | AMENDMENT | 15 |
- ii -
IMPEL NEUROPHARMA, INC.
a Delaware Corporation
BYLAWS
As Adopted September 3, 2008
ARTICLE I: STOCKHOLDERS
Section 1.1: Annual Meetings. Unless members of the Board of Directors of the Corporation (the Board) are elected by written consent in lieu of an annual meeting, as permitted by Section 211 of the Delaware General Corporation Law (the DGCL) and these Bylaws, an annual meeting of stockholders shall be held for the election of directors at such date and time as the Board shall each year fix. The meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine. Any proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President, the holders of shares of the Corporation that are entitled to cast not less than ten percent (10%) of the total number of votes entitled to be cast by all stockholders at such meeting, or by a majority of the Whole Board, which shall mean the total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships. Special meetings may not be called by any other person or persons. If a special meeting of stockholders is called by any person or persons other than by a majority of the members of the Board, then such person or persons shall request such meeting by delivering a written request to call such meeting to each member of the Board, and the Board shall then determine the time and date of such special meeting, which shall be held not more than one hundred twenty (120) days nor less than thirty-five (35) days after the written request to call such special meeting was delivered to each member of the Board. The special meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine.
Section 1.3: Notice of Meetings. Notice of all meetings of stockholders shall be given in writing or by electronic transmission in the manner provided by law (including, without limitation, as set forth in Section 7.1.1 of these Bylaws) stating the date, time and place, if any, of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation (the Certificate of Incorporation), such notice shall be given not less than ten (10), nor more than sixty (60), days before the date of the meeting to each stockholder of record entitled to vote at such meeting.
Section 1.4: Adjournments. The chairperson of the meeting shall have the power to adjourn the meeting to another time, date and place (if any). Any meeting of stockholders may adjourn from time to time, and notice need not be given of any such adjourned meeting if the time, date and place (if any) thereof and the means of remote communications (if any) by which stockholders and proxy holders may be deemed to be present in person and vote at such
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adjourned meeting are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) days, or if a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. To the fullest extent permitted by law, the Board may postpone or reschedule any previously scheduled special or annual meeting of stockholders before it is to be held, in which case notice shall be provided to the stockholders of the new date, time and place, if any, of the meeting as provided in Section 1.3 above.
Section 1.5: Quorum. At each meeting of stockholders the holders of a majority of the voting power of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, unless otherwise required by applicable law. If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the Corporations stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporations stock held by it in a fiduciary capacity and to count such shares for purposes of determining a quorum.
Section 1.6: Organization. Meetings of stockholders shall be presided over by such person as the Board may designate, or, in the absence of such a person, the Chairperson of the Board, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the voting power of the shares entitled to vote who are present, in person or by proxy, at the meeting. Such person shall be chairperson of the meeting and, subject to Section 1.11 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in such persons absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Each stockholder entitled to vote at a meeting of stockholders, or to take corporate action by written consent without a meeting, may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Except as may be required in the Certificate of Incorporation, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the voting power of the shares of stock entitled to vote on such matter that are present in person or represented by proxy at the meeting and are voted for or against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
1.8.1 Generally. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or to take corporate action by written
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consent without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, except as otherwise required by law, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which shall not be more than sixty (60), nor less than ten (10), days before the date of such meeting, nor, except as provided in Section 1.8.2 below, more than sixty (60) days prior to any other action. If no record date is fixed by the Board, then the record date shall be as provided by applicable law. To the fullest extent provided by law, 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 may fix a new record date for the adjourned meeting.
1.8.2 Stockholder Request for Action by Written Consent. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice to the Secretary of the Corporation, request the Board to fix a record date for such consent. Such request shall include a brief description of the action proposed to be taken. Unless a record date has previously been fixed by the Board for the written consent pursuant to this Section 1.8, the Board shall, within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. Such record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board within ten (10) days after the date on which such a request is received, then the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board 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 as required by law. If no record date has been fixed by the Board and prior action by the Board is required by applicable law, then 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 date on which the Board adopts the resolution taking such prior action.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either on a reasonably accessible electronic network as permitted by law (provided that the information required to gain access to the list is provided with the notice of the meeting) or during ordinary business hours at the principal place of business of the Corporation. If the meeting is held at a location where stockholders may attend in person, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. If the meeting is held solely by means of remote communication, then the list shall be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access the list shall be provided with the notice of the meeting.
Section 1.10: Action by Written Consent of Stockholders.
1.10.1 Procedure. Unless otherwise provided by the Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may
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be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed in the manner permitted by law by the holders of outstanding stock having not less than the number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, to its principal place of business or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the agent of the Corporations registered office in the State of Delaware shall be by hand or by certified or registered mail, return receipt requested. Written stockholder consents shall bear the date of signature of each stockholder who signs the consent in the manner permitted by law and shall be delivered to the Corporation as provided in Section 1.10.2 below. No written consent shall be effective to take the action set forth therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner required by law, written consents signed by a sufficient number of stockholders to take the action set forth therein are delivered to the Corporation in the manner required by law.
1.10.2 Form of Consent. A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxy holder, or a person or persons authorized to act for a stockholder or proxy holder, 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 (a) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxy holder or by a person or persons authorized to act for the stockholder or proxy holder and (b) the date on which such stockholder or proxy holder 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 Corporations 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. 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.
1.10.3 Notice of Consent. Prompt notice of the taking of corporate action by stockholders without a meeting by less than unanimous written consent of the stockholders shall be given to those stockholders who have not consented thereto in writing 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 holders to take the action were delivered to the Corporation as required by law. If the action which is consented to is such as would have required the filing of a certificate under the DGCL
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(the Certificate of Action) if such action had been voted on by stockholders at a meeting thereof, then if the DGCL so requires, the certificate so filed shall state, in lieu of any statement required by the DGCL concerning any vote of stockholders, that written stockholder consent has been given in accordance with Section 228 of the DGCL.
Section 1.11: Inspectors of Elections.
1.11.1 Applicability. Unless otherwise required by the Certificate of Incorporation or by the DGCL, the following provisions of this Section 1.11 shall apply only if and when the Corporation has a class of voting stock that is: (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than two thousand (2,000) stockholders. In all other cases, observance of the provisions of this Section 1.11 shall be optional, and at the discretion of the Board.
1.11.2 Appointment. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.
1.11.3 Inspectors Oath. Each inspector of election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspectors ability.
1.11.4 Duties of Inspectors. At a meeting of stockholders, the inspectors of election shall (a) ascertain the number of shares outstanding and the voting power of each share, (b) determine the shares represented at a meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
1.11.5 Opening and Closing of Polls. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the chairperson of the meeting at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
1.11.6 Determinations. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with any information provided pursuant to Section 211(a)(2)(B)(i) of the DGCL, or Sections 211(e) or 212(c)(2) of the DGCL, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other
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reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.11 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors belief that such information is accurate and reliable.
ARTICLE II: BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board shall consist of not less than one or more than nine Directors, the specific number to be set by resolutions of the Board from time to time. The initial number of directors shall be three (3), and, thereafter, unless otherwise required by law or the Certificate of Incorporation, shall be fixed from time to time by resolution of a majority of the Whole Board or the stockholders of the Corporation holding at least a majority of the voting power of the Corporations outstanding stock then entitled to vote at an election of directors. No decrease in the authorized number of directors constituting the Board shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board shall initially consist of the person or persons elected by the incorporator or named in the Corporations initial Certificate of Incorporation. Each director shall hold office until the next annual meeting of stockholders and until such directors successor is elected and qualified, or until such directors earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Subject to the rights of any holders of Preferred Stock then outstanding: (a) any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors and (b) any vacancy occurring in the Board for any reason, and any newly created directorship resulting from any increase in the authorized number of directors to be elected by all stockholders having the right to vote as a single class, may be filled by the stockholders, by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board may be held at such places, within or without the State of Delaware, and at such times as the Board may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board.
Section 2.4: Special Meetings. Special meetings of the Board may be called by the Chairperson of the Board, the President or a majority of the members of the Board then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally, in writing or by electronic transmission (including electronic mail), by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile, electronic mail or other means of electronic transmission. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.
Section 2.5: Remote Meetings Permitted. Members of the Board, or any committee of the Board, may participate in a meeting of the Board or such committee 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 pursuant to conference telephone or other communications equipment shall constitute presence in person at such meeting.
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Section 2.6: Quorum; Vote Required for Action. At all meetings of the Board a majority of the Whole Board shall constitute a quorum for the transaction of business. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time without further notice thereof. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board.
Section 2.7: Organization. Meetings of the Board shall be presided over by the Chairperson of the Board, or in such persons absence by the President, or in such persons absence by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in such persons absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
Section 2.8: Written Action by Directors. Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee, respectively, in the minute books of the Corporation. 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 2.9: Powers. The Board may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and manage and direct all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Members of the Board, as such, may receive, pursuant to a resolution of the Board, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board.
ARTICLE III: COMMITTEES
Section 3.1: Committees. The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board 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. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board, shall have and may exercise all the powers and authority of the Board 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 that may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving, adopting, or recommending to the stockholders any action or matter (other than the election or removal of members of the Board) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation.
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Section 3.2: Committee Rules. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV: OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of a Chief Executive Officer (who may be the Chairperson of the Board or the President), a Secretary and a Treasurer and may consist of such other officers, including a Chief Financial Officer and one or more Vice Presidents, as may from time to time be appointed by the Board. All officers shall be elected by the Board; provided, however, that the Board may empower the Chief Executive Officer of the Corporation to appoint any officer other than the Chairperson of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Each officer shall hold office until such persons successor is appointed or until such persons earlier resignation, death or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board.
Section 4.2: Chief Executive Officer. Subject to the control of the Board and such supervisory powers, if any, as may be given by the Board, the powers and duties of the Chief Executive Officer of the Corporation are:
(a) To act as the general manager and, subject to the control of the Board, to have general supervision, direction and control of the business and affairs of the Corporation;
(b) Subject to Article I, Section 1.6, to preside at all meetings of the stockholders;
(c) Subject to Article I, Section 1.2, to call special meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the Board shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board has not designated any other officer to be the Chief Executive Officer, then the Chairperson of the Board shall be the Chief Executive Officer.
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Section 4.3: Chairperson of the Board. The Chairperson of the Board shall have the power to preside at all meetings of the Board and shall have such other powers and duties as provided in these Bylaws and as the Board may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive Officer of the Corporation unless the Board shall have designated another officer as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board to the Chairperson of the Board, and/or to any other officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board.
Section 4.5: Vice President. Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board or the Chief Executive Officer. A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive Officers absence or disability.
Section 4.6: Chief Financial Officer. The Chief Financial Officer shall be the Treasurer of the Corporation unless the Board shall have designated another officer as the Treasurer of the Corporation. Subject to the direction of the Board and the Chief Executive Officer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of Chief Financial Officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all moneys and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board or the Chief Executive Officer may from time to time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board or the Chief Executive Officer may from time to time prescribe.
Section 4.9: Delegation of Authority. The Board may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.
Section 4.10: Removal. Any officer of the Corporation shall serve at the pleasure of the Board and may be removed at any time, with or without cause, by the Board; provided that if the Board has empowered the Chief Executive Officer to appoint any Vice Presidents of the Corporation, then such Vice Presidents may be removed by the Chief Executive Officer. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.
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ARTICLE V: STOCK
Section 5.1: Certificates. The shares of capital stock of the Corporation shall be represented by certificates; provided, however, that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock may be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation (or the transfer agent or registrar, as the case may be). Notwithstanding the adoption of such resolution by the Board, every holder of stock that is a certificated security shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairperson or Vice-Chairperson of the Board, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. If any holder of uncertificated shares elects to receive a certificate, the Corporation (or the transfer agent or registrar, as the case may be) shall, to the extent permitted under applicable law and rules, regulations and listing requirements of any stock exchange or stock market on which the Corporations shares are listed or traded, cease to provide annual statements indicating such holders holdings of shares in the Corporation.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock, or uncertificated shares, in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, , upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owners legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and registration of stock certificates and uncertificated securities shall be governed by such other regulations as the Board may establish.
ARTICLE VI: INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding), by reason of the fact that such person (or a person of whom such person is the legal representative), is or was a member of the Board or officer of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or a Reincorporated Predecessor as a member of the board of directors, officer or trustee of another corporation, or of
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a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (for purposes of this Article VI, an Indemnitee), shall be indemnified and held harmless by the Corporation to the fullest extent permitted by applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith, provided such Indemnitee acted in good faith and in a manner that the Indemnitee 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 the Indemnitees conduct was unlawful. Such indemnification shall continue as to an Indemnitee who has ceased to be a director or officer and shall inure to the benefit of such Indemnitees heirs, executors and administrators. Notwithstanding the foregoing, the Corporation shall indemnify any such Indemnitee seeking indemnity in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board or such indemnification is authorized by an agreement approved by the Board. As used herein, the term the Reincorporated Predecessor means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger; (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses (including attorneys fees) incurred by such an Indemnitee in defending any such Proceeding as they are incurred in advance of its final disposition; provided, however, that (a) if the DGCL then so requires, the payment of such expenses incurred by such an Indemnitee in advance of the final disposition of such Proceeding 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 should be determined ultimately by final judicial decision from which there is no appeal that such Indemnitee is not entitled to be indemnified under this Article VI or otherwise; and (b) the Corporation shall not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a Proceeding, alleging that such person has breached such persons duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification or advancement rights to such person. Such rights may be greater than those provided in this Article VI.
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Section 6.5: Right of Indemnitee to Bring Suit. The following shall apply to the extent not in conflict with any indemnification contract provided for in Section 6.4 above.
6.5.1 Right to Bring Suit. If a claim under Section 6.1 or 6.2 of this Article VI is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the Indemnitee has not met any applicable standard for indemnification set forth in applicable law.
6.5.2 Effect of Determination. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in applicable law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit.
6.5.3 Burden of Proof. In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI, or otherwise, shall be on the Corporation.
Section 6.6: Nature of Rights. The rights conferred upon Indemnitees in this Article VI shall be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the Indemnitees heirs, executors and administrators. Any amendment, repeal or modification of any provision of this Article VI that adversely affects any right of an Indemnitee or an Indemnitees successors shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification.
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ARTICLE VII: NOTICES
Section 7.1: Notice.
7.1.1 Form and Delivery. Except as otherwise specifically required in these Bylaws (including, without limitation, Section 7.1.2 below) or by law, all notices required to be given pursuant to these Bylaws shall be in writing and may, (a) in every instance in connection with any delivery to a member of the Board, be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, cablegram, overnight express courier, facsimile, electronic mail or other form of electronic transmission and (b) be effectively be delivered to a stockholder when given by hand delivery, by depositing such notice in the mail, postage prepaid or, if specifically consented to by the stockholder as described in Section 7.1.2 of this Article VII by sending such notice by telegram, cablegram, facsimile, electronic mail or other form of electronic transmission. Any such notice shall be addressed to the person to whom notice is to be given at such persons address as it appears on the records of the Corporation. The notice shall be deemed given (a) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (b) in the case of delivery by mail, upon deposit in the mail, (c) in the case of delivery by overnight express courier, when dispatched, and (d) in the case of delivery via telegram, cablegram, facsimile, electronic mail or other form of electronic transmission, when dispatched.
7.1.2 Electronic Transmission. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given in accordance with Section 232 of the DGCL. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (a) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (b) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this Section 7.1.2 shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of such posting and the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder.
7.1.3 Affidavit of Giving Notice. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has been given in writing or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
Section 7.2: Waiver of Notice. Whenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation or these Bylaws, a written waiver of notice, signed by the person entitled to notice, or waiver by electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or
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convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any waiver of notice.
ARTICLE VIII: INTERESTED DIRECTORS
Section 8.1: Interested Directors. No contract or transaction between the Corporation and one or more of its members of the Board or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are members of the board of directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (b) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof, or the stockholders.
Section 8.2: Quorum. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.
ARTICLE IX: MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board.
Section 9.2: Seal. The Board may provide for a corporate seal, which may have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board.
Section 9.3: Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on or by means of, or be in the form of, diskettes, CDs, or any other information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to any provision of the DGCL.
Section 9.4: Reliance upon Books and Records. A member of the Board, or a member of any committee designated by the Board shall, in the performance of such persons duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporations officers or employees, or committees of the Board, or by any other person as to matters the member reasonably believes are within such other persons professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
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Section 9.5: Certificate of Incorporation Governs. In the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws, the provisions of the Certificate of Incorporation shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.
ARTICLE X: AMENDMENT
Unless otherwise required by the Certificate of Incorporation, stockholders of the Corporation holding at least a majority of the voting power of the Corporations outstanding voting stock then entitled to vote at an election of directors shall have the power to adopt, amend or repeal Bylaws. To the extent provided in the Certificate of Incorporation, the Board shall also have the power to adopt, amend or repeal Bylaws of the Corporation.
These Bylaws were adopted by the Board of Directors on September 3, 2008.
/s/ John D. Hoekman |
John D. Hoekman, Secretary |
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EXHIBIT 4.2
IMPEL NEUROPHARMA, INC.
AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
This Amended and Restated Investors Rights Agreement (this Agreement) is made as of December 4, 2018, by and among Impel NeuroPharma, Inc., a Delaware corporation (the Company), the investors listed on Schedule A hereto (the Investors or Holders).
WHEREAS, the Company, the Key Holders (as defined therein) and certain of the Investors have previously entered into that certain Amended and Restated Investors Rights Agreement dated as of February 13, 2018, as amended (the Prior Agreement);
WHEREAS, the Company and certain of the Investors are parties to the Series D Preferred Stock Purchase Agreement of even date herewith by and among the Company and such Investors, as it may be amended from time to time (the Purchase Agreement); and
WHEREAS, in order to induce the Company to enter into the Purchase Agreement and to induce such Investors to invest funds in the Company pursuant to the Purchase Agreement, the undersigned parties to the Prior Agreement hereby agree that this Agreement shall govern the rights of the Investors to cause the Company to register shares of Common Stock issuable to the Investors, to receive certain information from the Company, and to participate in future equity offerings by the Company, and shall govern certain other matters as set forth in this Agreement, in lieu of the rights created under the Prior Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
Affiliate means, with respect to any specified Person, or any other Person who or which, directly or indirectly, controls, is controlled by, or is under common control with such Person including without limitation any general partner, managing partner, managing member, officer or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person. For purposes of this definition, the terms controlling, controlled by, or under common control with shall mean the possession, directly or indirectly, of (a) the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise, or (b) the power to elect or appoint at least fifty percent (50%) of the directors, managers, general partners, or persons exercising similar authority with respect to such Person.
Automatic Shelf Registration Statement shall have the meaning given to that term in SEC Rule 405.
business day means a weekday on which banks are open for general banking business in Seattle, Washington.
Code means the Internal Revenue Code of 1986, as amended.
Common Stock means shares of the Companys common stock, par value $0.001 per share.
Damages means any loss, damage, or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, or liability (or any action in respect thereof) arises out of or is based upon (a) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, and any free-writing prospectus and any issuer information (as defined in Rule 433 of the Securities Act) filed or required to be filed pursuant to Rule 433(d) under the Securities Act or any other document incident to such registration prepared by or on behalf of the Company or used or referred to by the Company; (b) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (c) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.
Deemed Liquidation Event has the meaning set forth for such term in the certificate of incorporation of the Company most recently filed with the Delaware Secretary of State that contains such a definition, whether or not the Requisite Holders (as defined in such certificate of incorporation) or holders of Series D Preferred Stock elect otherwise by written notice sent to the Company as provided in such definition.
Demand Notice means notice sent by the Company to the Holders specifying that a demand registration has been requested as provided in Section 3.1.1 or Section 3.1.2.
Derivative Securities means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including options and warrants.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Excluded Registration means (a) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to an equity incentive, stock option, stock purchase, or similar plan; (b) a registration relating to an SEC Rule 145 transaction; (c) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (d) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
Form S-1 means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.
Form S-3 means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.
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Free Writing Prospectus means a free-writing prospectus, as defined in Rule 405 under the Securities Act.
Fully Exercising Investor shall have the meaning set forth in Section 4.
GAAP means generally accepted accounting principles in the United States.
Holder means any holder of Registrable Securities who is a party to this Agreement.
Immediate Family Member means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a natural person referred to herein.
Initiating Holders means, collectively, Holders who properly initiate a registration request under this Agreement.
Investor Notice shall have the meaning set forth in Section 4.
IPO means the Companys first underwritten public offering of its Common Stock under the Securities Act.
Major Investor means any Investor that, individually or together with such Investors Affiliates, holds at least 3,590,664 Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof); provided, however, that (i) 3M Company (3M) shall be considered a Major Investor for purposes of this Agreement for so long as 3M continues to hold at least 1,795,332 shares of Series B Preferred Stock originally purchased pursuant to that certain Series B Preferred Stock and Warrant Purchase Agreement by and between the Company and 3M, dated September 3, 2015, (ii) Vivo Capital, LLC (Vivo) shall be considered a Major Investor for purposes of this Agreement for so long as Vivo and its Affiliates continue to hold at least 3,590,664 shares of Series C-1 Preferred Stock originally purchased pursuant to the Series C Purchase Agreement, (iii) venBio Partners LLC (venBio) shall be considered a Major Investor for purposes of this Agreement for so long as venBio and its Affiliates continue to hold at least 3,590,664 shares of Series C-1 Preferred Stock originally purchased pursuant to the Series C Purchase Agreement, (iv) 5AM Venture Management LLC (5AM) shall be considered a Major Investor for purposes of this Agreement for so long as 5AM and its Affiliates continue to hold at least 3,590,664 shares of Series C-1 Preferred Stock originally purchased pursuant to the Series C Purchase Agreement, (v) Norwest Venture Partners XIV, LP (Norwest) shall be considered a Major Investor for purposes of this Agreement for so long as Norwest and its Affiliates continue to hold at least 3,590,664 shares of Series D Preferred Stock originally purchased pursuant to the Purchase Agreement and (vi) KKR Iris Investors LLC ( KKR) shall be considered a Major Investor for purposes of this Agreement for so long as KKR and its Affiliates continue to hold at least 3,590,664 shares of Series D Preferred Stock originally purchased pursuant to the Purchase Agreement.
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New Securities means, collectively, equity securities of the Company, whether or not currently authorized, Derivative Securities and any rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable (in each case, directly or indirectly) for such equity securities; provided however, that New Securities shall exclude: (a) Exempted Securities (as defined in the Restated Certificate); and (b) shares of Common Stock issued in the IPO.
Offer Notice shall have the meaning set forth in Section 4.
Person means any individual, corporation, partnership, trust, limited liability company, association or other entity.
Preferred Stock means shares of the Companys Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred Stock, and Series D Preferred Stock.
Pro Rata Amount means, for each Major Investor, that portion of the New Securities identified in an Offer Notice which equals the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by such Major Investor bears to the total Common Stock of the Company then outstanding (assuming full conversion and/or exercise, as applicable, of all Preferred Stock and other Derivative Securities).
Registrable Securities means (a) the Common Stock issuable or issued upon conversion of shares of the Preferred Stock held by the Investors and (b) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (a) and (b) above; excluding in all cases, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Section 7.1 and excluding for purposes of Section 3 any shares for which registration rights have terminated pursuant to Section 6.2 of this Agreement. Notwithstanding the foregoing, the Company shall in no event be obligated to register any Preferred Stock of the Company, and Holders of Registrable Securities will not be required to convert their Preferred Stock into Common Stock in order to exercise the registration rights granted hereunder, until immediately before the closing of the offering to which the registration relates.
Registrable Securities then outstanding means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.
Restated Certificate means the Companys Restated Certificate of Incorporation (as may be amended from time to time).
Restricted Securities means the securities of the Company required to bear the legend set forth in Section 3.12.2 hereof.
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Sanctioned Person means a Person that is (a) the subject of Sanctions, (b) resident in, located in, or organized under the laws of a country or territory which is the subject of country- or territory-wide Sanctions (including without limitation Cuba, Iran, North Korea, Syria, or the Crimea region), or (c) majority-owned or controlled by any of the foregoing.
Sanctions means those trade, economic and financial sanctions laws, regulations, embargoes, and restrictive measures (in each case having the force of law) administered, enacted or enforced from time to time by the United States (including without limitation the Department of Treasury, Office of Foreign Assets Control) and other similar governmental bodies with regulatory authority over the Company and its operations from time to time.
SEC means the Securities and Exchange Commission.
SEC Rule 144 means Rule 144 promulgated by the SEC under the Securities Act.
SEC Rule 145 means Rule 145 promulgated by the SEC under the Securities Act.
SEC Rule 405 means Rule 405 promulgated by the SEC under the Securities Act.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Selling Expenses means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Section 3.6.
Selling Holder Counsel means one counsel for the selling Holders.
Series A-1 Preferred Stock means shares of the Companys Series A-1 Preferred Stock, par value $0.001 per share.
Series A-2 Preferred Stock means shares of the Companys Series A-2 Preferred Stock, par value $0.001 per share.
Series B Preferred Stock means shares of the Companys Series B Preferred Stock, par value $0.001 per share.
Series C Purchase Agreement means that certain Series C Preferred Stock Purchase Agreement by and among the Company and the purchasers listed on Exhibit A thereto, dated November 16, 2016.
Series C-1 Preferred Stock means shares of the Companys Series C-1 Preferred Stock, par value $0.001 per share.
Series C-2 Preferred Stock means shares of the Companys Series C-2 Preferred Stock, par value $0.001 per share.
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Series C-3 Preferred Stock means shares of the Companys Series C-3 Preferred Stock, par value $0.001 per share.
Series D Preferred Stock means shares of the Companys Series D Preferred Stock, par value $0.001 per share.
Service Provider means any employee, consultant, director or other service provider to the Company or any of its wholly owned subsidiaries.
Standoff Period means the period commencing on the date of the final prospectus relating to an underwritten public offering of the Companys Common Stock under the Securities Act and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days).
2. INFORMATION AND OBSERVER RIGHTS.
2.1 Delivery of Financial Statements.
2.1.1 Information to be Delivered. The Company shall deliver the following to each Major Investor:
(a) As soon as practicable, but in any event within one hundred twenty (120) after the end of each fiscal year of the Company, (a) a balance sheet as of the end of such year, (b) statements of income and of cash flows for such year, and (c) a statement of stockholders equity as of the end of such year, all of which shall be audited and certified by independent public accountants selected by the Company.
(b) As soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (a) be subject to normal year-end audit adjustments and (b) not contain all notes thereto that may be required in accordance with GAAP).
(c) As soon as practicable, but in any event no later than thirty (30) days before the end of each fiscal year, an operating budget forecasting the Companys revenues, expenses, and cash position on a month-to-month basis for the next fiscal year (collectively, the Budget) and, promptly after prepared, any other budgets or revised budgets prepared by the Company.
(d) As soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any.
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(e) Such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as any Major Investor (provided that the Board of Directors has not reasonably determined that such Major Investor is a competitor of the Company, provided, that none of KKR, Norwest, Vivo, venBio or 5AM shall be considered competitors of the Company) may from time to time reasonably request; provided, however, that the Company shall not be obligated under this Section 2.1.1(e) to provide information (i) that the Company reasonably determines in good faith to be a trade secret; (ii) that constitutes confidential and proprietary information of a third party (unless covered by an enforceable confidentiality agreement to which the representative of such Major Investor for purposes of this Section 2.1.1(e) is bound; or (iii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
2.1.2 Consolidation. If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to Section 2.1.1 shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
2.1.3 Suspension or Termination. Notwithstanding anything else in this Section 2.1 to the contrary but subject to Section 6.1, the Company may cease providing the information set forth in this Section 2.1 during the period starting with the date sixty (60) days before the Companys good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Companys covenants under this Section 2.1 shall be reinstated at such time as the Company is no longer actively employing its reasonable efforts to cause such registration statement to become effective.
2.2 Inspection. The Company shall permit each Major Investor (provided that the Board of Directors has not reasonably determined that such Major Investor is a competitor of the Company, provided, that none of KKR, Norwest, Vivo, venBio or 5AM shall be considered competitors of the Company), at such Major Investors expense, and on such Major Investors written request, to visit and inspect the Companys properties, examine its books of account and records, and discuss the Companys affairs, finances and accounts with its officers during normal business hours of the Company as may be reasonably requested by the Major Investor for the purposes of evaluating such Major Investors investment in the Company; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information (a) that it reasonably and in good faith considers to be a trade secret, (b) that constitutes confidential and proprietary information of a third party (unless covered by an enforceable confidentiality agreement to which the representative of such Major Investor for purposes of this Section 2.2 is bound) or (c) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
2.3 Observer Rights.
2.3.1 As long as Vivo and its Affiliates continue to own beneficially at least 3,590,664 shares of the Series C-1 Preferred Stock it purchased under the Series C Purchase Agreement (or an equivalent amount of Common Stock issued upon conversion thereof), the Company shall invite a representative of Vivo to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all
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notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree in writing to be bound by the provisions of Section 2.4 below and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel, result in disclosure of trade secrets or a conflict of interest, if such Investor or its representative is a competitor of the Company, or to protect confidential or proprietary information of a third party or for other similar reasons.
2.3.2 As long as 5AM and its Affiliates continue to own beneficially at least 3,590,664 shares of the Series C-1 Preferred Stock it purchased under the Series C Purchase Agreement (or an equivalent amount of Common Stock issued upon conversion thereof), the Company shall invite a representative of 5AM to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree in writing to be bound by the provisions of Section 2.4 below and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel, result in disclosure of trade secrets or a conflict of interest, if such Investor or its representative is a competitor of the Company, or to protect confidential or proprietary information of a third party or for other similar reasons.
2.3.3 As long as venBio and its Affiliates continue to own beneficially at least 3,590,664 shares of the Series C-1 Preferred Stock it purchased under the Series C Purchase Agreement (or an equivalent amount of Common Stock issued upon conversion thereof), the Company shall invite a representative of venBio to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree in writing to be bound by the provisions of Section 2.4 below and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel, result in disclosure of trade secrets or a conflict of interest, if such Investor or its representative is a competitor of the Company, or to protect confidential or proprietary information of a third party or for other similar reasons.
2.3.4 As long as Norwest and its Affiliates continue to own beneficially at least 2,586,141 shares of the Series D Preferred Stock it purchased under the Purchase Agreement (or an equivalent amount of Common Stock issued upon conversion thereof), the Company shall invite a representative of Norwest to attend all meetings of its Board of Directors
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in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree in writing to be bound by the provisions of Section 2.4 below and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel, result in disclosure of trade secrets or a conflict of interest, if such Investor or its representative is a competitor of the Company, or to protect confidential or proprietary information of a third party or for other similar reasons.
2.3.5 As long as KKR and its Affiliates continue to own beneficially at least 2,586,141 shares of the Series D Preferred Stock it purchased under the Purchase Agreement (or an equivalent amount of Common Stock issued upon conversion thereof), the Company shall invite a representative of KKR to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree in writing to be bound by the provisions of Section 2.4 below and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel, result in disclosure of trade secrets or a conflict of interest, if such Investor or its representative is a competitor of the Company, or to protect confidential or proprietary information of a third party or for other similar reasons.
2.4 Confidentiality. Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Section 2 unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 2.4 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Companys confidential information, or (c) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any existing Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, but only if such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iii) as may otherwise be required by law if the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
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3. REGISTRATION RIGHTS.
3.1 Demand Registration.
3.1.1 Form S-1 Demand. If at any time after the earlier of (a) five (5) years after the date of this Agreement or (b) one hundred eighty (180) days after the effective date of the registration statement for the IPO, the Company receives a request from Holders of at least twenty-five percent (25%) of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to any Registrable Securities then outstanding (and the Registrable Securities subject to such request have an anticipated aggregate offering price, net of Selling Expenses, of at least $5 million), then the Company shall (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) use commercially reasonable efforts to as soon as practicable, and in any event within ninety (90) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section 3.1.3 and Section 3.3.
3.1.2 Form S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from the Holders of at least thirty-three and one-third percent (33 1/3%) of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least $1 million, then the Company shall (a) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (b) use commercially reasonable efforts to as soon as practicable, and in any event within forty-five (45) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section 3.1.3 and Section 3.3.
3.1.3 Delay. Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section 3.1 a certificate signed by the Companys chief executive officer stating that in the good faith judgment of the Companys Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (a) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (b) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (c) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than ninety (90) days after the request of the Initiating Holders is given; provided, however, that (i) the Company may not invoke this right more than once in any twelve (12) month period and (ii) the Company shall not register any securities for its own account or that of any other stockholder during such ninety (90) day period other than an Excluded Registration.
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3.1.4 Limitations. The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 3.1.1: (a) during the period that is sixty (60) days before the Companys good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration, provided, that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (b) after the Company has effected two registrations pursuant to Section 3.1.1; or (c) 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 3.1.2. The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 3.1.2: (i) during the period that is thirty (30) days before the Companys good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration, provided, that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Section 3.1.2 within the twelve (12) month period immediately preceding the date of such request. A registration shall not be counted as effected for purposes of this Section 3.1.4 until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one registration on Form S-1 or S-3, as applicable, pursuant to Section 3.6, in which case such withdrawn registration statement shall be counted as effected for purposes of this Section 3.1.4.
3.2 Company Registration. If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Section 3.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 3.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Section 3.6.
3.3 Underwriting Requirements.
3.3.1 Inclusion. If, pursuant to Section 3.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 3.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company. In such event, the right of any Holder to include such Holders Registrable Securities in such registration shall be conditioned upon such Holders participation
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in such underwriting. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 3.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Section 3.3, if the managing underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned or held by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable Securities owned or held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.
3.3.2 Underwriter Cutback. In connection with any offering involving an underwriting of shares of the Companys capital stock pursuant to Section 3.2, the Company shall not be required to include any of the Holders Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned or held by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. Notwithstanding the foregoing, in no event shall (a) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering or (b) the number of Registrable Securities included in the offering be reduced below twenty-five percent (25%) of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholders securities are included in such offering. For purposes of the provision in this Section 3.3.2 concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single selling Holder, and any pro rata reduction with respect to such selling Holder shall be based upon the aggregate number of Registrable Securities owned or held by all Persons included in such selling Holder, as defined in this sentence.
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3.3.3 Registration Not Effected. For purposes of Section 3.1, a registration shall not be counted as effected if, as a result of an exercise of the underwriters cutback provisions in Section 3.3.1, fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.
3.4 Obligations of the Company. Whenever required under this Section 3 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective as promptly as practicable, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such 120-day period shall be extended for up to sixty (60) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;
(b) prepare and file with the SEC such amendments and supplements to such registration statement, the prospectus and, if required, any Free Writing Prospectus used in connection with such registration statement as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;
(c) furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus and any Free Writing Prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;
(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;
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(f) use its reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
(h) promptly make available for inspection by the selling Holders, any managing underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Companys officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;
(i) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus or Free-Writing Prospectus forming a part of such registration statement has been filed;
(j) after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus or Free-Writing Prospectus;
(k) use its commercially reasonable efforts to obtain for the underwriters one or more cold comfort letters, dated the effective date of the related registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the Companys independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters;
(l) use its commercially reasonable efforts to obtain for the underwriters on the date such securities are delivered to the underwriters for sale pursuant to such registration a legal opinion of the Companys outside counsel with respect to the registration statement, each amendment and supplement thereto, the prospectus included therein (including the preliminary prospectus) and such other documents relating thereto in customary form and covering such matters of the type customarily covered by legal opinions of such nature;
(m) to the extent the Company is a well-known seasoned issuer (as defined in SEC Rule 405 at the time any request for registration is submitted to the Company in accordance with Section 3.1.2, if so requested, file an Automatic Shelf Registration Statement to effect such registration; and
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(n) if at any time when the Company is required to re-evaluate its well-known seasoned issuer status for purposes of an outstanding Automatic Shelf Registration Statement used to effect a request for registration in accordance with Section 3.1.2 the Company determines that it is not a well-known seasoned issuer and (i) the registration statement is required to be kept effective in accordance with this Agreement and (ii) the registration rights of the applicable Holders have not terminated, use commercially reasonable efforts to promptly amend the registration statement on a form the Company is then eligible to use or file a new registration statement on such form, and keep such registration statement effective in accordance with the requirements otherwise applicable under this Agreement.
3.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 3 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holders Registrable Securities.
3.6 Expenses of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 3, including all registration, filing, and qualification fees; printers and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements of the Selling Holder Counsel, collectively not to exceed $50,000, shall be borne and paid by the Company; provided, however, that (a) the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 3.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Section 3.1.1 or Section 3.1.2, as the case may be, and (b) if, at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition, business, or prospects of the Company not known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Section 3.1.1 or Section 3.1.2. All Selling Expenses relating to Registrable Securities registered pursuant to this Section 3 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.
3.7 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 3.
3.8 Indemnification. If any Registrable Securities are included in a registration statement under this Section 3:
3.8.1 Company Indemnification. To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each
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such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 3.8.1 shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, conditioned, or delayed nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.
3.8.2 Selling Holder Indemnification. To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that (a) the indemnity agreement contained in this Section 3.8.2 shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld, conditioned or delayed, and (b) that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Sections 3.8.2 and 3.8.4 exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.
3.8.3 Procedures. Promptly after receipt by an indemnified party under this Section 3.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 3.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due
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to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 3.8, solely to the extent that such failure prejudices the indemnifying partys ability to defend such action.
3.8.4 Contribution. To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (a) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 3.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Section 3.8 provides for indemnification in such case, or (b) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 3.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that:
(i) in any such case, (A) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (B) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and
(ii) in no event shall a Holders liability pursuant to this Section 3.8.4, when combined with the amounts paid or payable by such Holder pursuant to Section 3.8.2, exceed the proceeds from the offering received by such Holder (net of any Selling Expenses) paid by such Holder), except in the case of fraud or willful misconduct by such Holder.
3.8.5 Underwriting Agreement Controls. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
3.8.6 Survival. Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 3.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 3, and otherwise shall survive the termination of this Agreement.
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3.9 Reports under the Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:
(a) use commercially reasonable efforts to make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;
(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and
(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); and (ii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).
3.10 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder to include such securities in any registration if such agreement (a) would allow such holder or prospective holder to include a portion of its securities in any piggyback registration if such inclusion could reduce the number of Registrable Securities that selling Holders could be entitled to include in such registration under Sections 3.2 and 3.3.2 hereof or (b) would allow such holder or prospective holder to initiate a demand for registration of any of its securities at a time earlier than the Holders of Registrable Securities can demand registration under Section 3.1 hereof.
3.11 Market Stand-off Agreement. Each Holder hereby agrees that, during the Standoff Period, such Holder will not, without the prior written consent of the Company or the managing underwriter:
(a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase
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or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock, or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock, held immediately before the effective date of the registration statement for such offering; or
(b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in this clause (b) or clause (a) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise.
The foregoing provisions of this Section 3.11 shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement. This Section 3.11 shall be applicable to the Holders only if all officers, directors and stockholders owning more than 1% of the Companys outstanding Common Stock are subject to the same restrictions. For purposes of this Section 3.11, the term Company shall include any wholly-owned subsidiary of the Company into which the Company merges or consolidates. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section and to impose stop transfer instructions with respect to any shares of Common Stock, or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock, until the end of such period. The underwriters in connection with such registration are intended third-party beneficiaries of this Section 3.11 and shall have the right, power, and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 3.11 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.
3.12 Restrictions on Transfer.
3.12.1 Agreement Binding. The Preferred Stock and the Registrable Securities (together, the Stock) shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall issue stop-transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Stock held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.
3.12.2 Legends. Each certificate or instrument representing the Stock and any other securities issued in respect of the Stock, upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Section 3.12.3) be stamped or otherwise imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
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1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Section 3.12.
3.12.3 Procedure. The holder of each certificate representing Restricted Securities, by acceptance thereof, agrees to comply in all respects with the provisions of Sections 3.11 and 3.12. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the Holder thereof shall give notice to the Company of such Holders intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holders expense by either (a) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (b) a no action letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (c) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or no action letter (i) in any transaction in compliance with SEC Rule 144 or (ii) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that each transferee agrees in writing to be subject to the terms of this Section 3.12. Each certificate or instrument evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Section 3.12.2, except that such certificate shall not bear such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act. Until the IPO, no Holder shall transfer any Restricted Securities to any Person that is determined to be a competitor of the Company, in the good faith judgment of the Board of Directors.
4. RIGHTS TO FUTURE STOCK ISSUANCES. Subject to the terms and conditions of this Section 4 and applicable securities laws, if the Company proposes to sell any New Securities, the Company shall offer to sell a portion of New Securities to each Major Investor as described in this Section 4. A Major Investor shall be entitled to apportion the right of first refusal hereby granted to it among itself and its Affiliates in such proportions as it deems appropriate. The right of first refusal in this Section 4 shall not be applicable with respect to any Major Investor, if at the time of such subsequent securities issuance, the Major Investor is not an accredited investor, as that term is then defined in Rule 501(a) under the Securities Act.
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4.1 Company Notice. The Company shall give notice (the Offer Notice) to each Major Investor, stating (a) its bona fide intention to sell such New Securities, (b) the number of such New Securities to be sold and (c) the price and terms, if any, upon which it proposes to sell such New Securities.
4.2 Investor Right. By written notice (the Investor Notice) to the Company within twenty (20) days after the Offer Notice is given, each Major Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to such Major Investors Pro Rata Amount. In addition, each Major Investor that elects to purchase or acquire all of its Pro Rata Amount (each, a Fully Exercising Investor) may, in the Investor Notice, elect to purchase or acquire, in addition to its Pro Rata Amount, a portion of the New Securities, if any, for which other Major Investors were entitled to subscribe but that are not subscribed for by such Major Investors. The amount of such overallotment that each Fully Exercising Investor shall be entitled to purchase is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Stock then held and any other Derivative Securities, by such Fully Exercising Investor bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares A Major Investors election may be conditioned on the consummation of the transaction described in the Offer Notice. The closing of any sale pursuant to this Section 4.2 shall occur on the earlier of one hundred twenty (120) days after the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Section 4.3.
4.3 Sale of Securities. If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Section 4.2, the Company may, during the ninety (90) day period following the expiration of the periods provided in Section 4.2, offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Section 4.
4.4 Alternate Procedure. Notwithstanding any provision hereof to the contrary, in lieu of complying with the provisions of Sections 4.1 and 4.2, the Company may elect to give notice to the Major Investors within thirty (30) days after the issuance of New Securities. Such notice shall describe the type, price, and terms of the New Securities, and the identities of the Persons to whom the New Securities were sold. Each Major Investor shall have twenty (20) days after the date the Companys notice is given to elect, by giving notice to the Company, to purchase up to the number of New Securities that such Major Investor would otherwise have the right to purchase pursuant to Section 4.2 above had the Company complied with the provisions of Sections 4.1 and 4.2 in connection with the issuance of such New Securities under the terms and conditions set forth in the Companys notice pursuant to this Section 4.4.
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Any Major Investors electing to purchase such New Securities shall also have rights of oversubscription to purchase New Securities that were purchasable by other Major Investors pursuant to the foregoing sentence but were not so purchased, and such rights of oversubscription shall be apportioned in a manner consistent with the apportionment among Fully Exercising Investors described in Section 4.2. The closing of such sale shall occur within sixty (60) days of the date notice is given to the Major Investors.
5. ADDITIONAL COVENANTS.
5.1 Employee Agreements. The Company will cause each officer or Key Employee (as such term is defined in the Purchase Agreement) now or hereafter employed by it or by any subsidiary to enter into a customary nondisclosure and proprietary rights assignment agreement or an employment agreement containing substantially similar terms, including in each case a one-year non-competition and non-solicitation agreement, each in a form reasonably acceptable to Vivo and substantially in a form approved by the Board of Directors.
5.2 Employee Vesting. Unless otherwise approved by the Board of Directors, including a majority of the Preferred Directors (as defined in the Restated Certificate), which such majority shall include at least one (1) Series D Preferred Director (as defined in the Restated Certificate), all employees and consultants of the Company or its subsidiaries who purchase, receive options to purchase, or receive awards of shares of the Companys capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service (or the date of grant in the case of a grant to an existing employee or consultant), and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months.
5.3 Anti-Corruption and Sanctions. The Company represents that it shall not (and shall not permit any of its subsidiaries or Affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to) (a) promise, authorize or make any payment to, or otherwise contribute any item of value to, directly or indirectly, to any third party, including any Non-U.S. Official (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the FCPA)), in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law, or (b) engage in any dealings or transactions with or for the benefit of any Sanctioned Person, nor otherwise violate Sanctions. Upon request, the Company agrees to provide responsive information regarding its compliance policies and procedures and/or certifications concerning its compliance with applicable anti-corruption laws and Sanctions; provided that nothing herein shall require the Company to provide such information if the Company determines in its sole discretion that the disclosure of such information would adversely affect the attorney-client privilege. The Company shall promptly notify each Investor if the Company becomes aware of any allegation, voluntary disclosure, investigation, prosecution or other enforcement action related to the FCPA, any other anti-corruption law, or Sanctions. The Company shall, and shall cause any direct or indirect subsidiary or entity controlled by it, whether now in existence or formed in the future, to implement policies and procedures satisfactory to KKR, Norwest ,Vivo and 3M that are reasonably designed to ensure compliance with the FCPA, other applicable anti-bribery or anti-corruption laws, and Sanctions. The Company shall use its best efforts to cause any direct or indirect subsidiary, whether now in existence or formed in the future, to comply in all material respects with all applicable laws.
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5.4 Restrictions on Publicity.
5.4.1 The Company shall not use the name or logo of 3M or its Affiliates, or refer to 3M or its Affiliates, directly or indirectly, in connection with 3Ms or its Affiliates relationship, agreements or arrangements with the Company in any advertisement, press release, professional or trade publication, or in any other manner, except (a) as may be required by law (including, without limitation, any rule or regulation promulgated by the SEC or any other regulatory authority), (b) on a confidential basis to potential financing sources including lenders, investors, investment bankers or acquirors but only as to the fact of 3Ms equity investment in the Company and documentation relating thereto, (c) on a confidential basis to the Companys lawyers, contractors, accountants and other advisors who have a need to have access and knowledge of such information, (d) with 3Ms prior written consent, which may be withheld in 3Ms sole discretion, or (e) as otherwise set forth herein. If the Company believes public disclosure of 3Ms or its Affiliates relationship, agreements or arrangements with the Company is required by law, the Company shall at a reasonable time before making any such disclosure (including, without limitation, filing any document or material with the SEC, or any other regulatory authority, which contains a reference to 3M or its Affiliates), consult with 3M regarding such disclosure, permit 3M to review such disclosure not less than ten (10) business days prior to its proposed disclosure (unless the Company is legally obligated to make such disclosure on fewer than ten (10) business days notice, in which case the Company shall give 3M as much time to review such disclosure as is commercially reasonable, but in any event not less than two (2) business days), revise such disclosure as reasonably requested by 3M, and if requested by 3M, seek confidential treatment for any portion of any agreements or documents intended to be filed with the SEC or other regulatory authority as may be reasonably requested by 3M.
5.4.2 The Company shall not use the name or logo of KKR or its Affiliates, or refer to KKR or its Affiliates, directly or indirectly, in connection with KKRs or its Affiliates relationship, agreements or arrangements with the Company in any advertisement, press release, professional or trade publication, or in any other manner, except (a) as may be required by law (including, without limitation, any rule or regulation promulgated by the SEC or any other regulatory authority), (b) on a confidential basis to potential financing sources including lenders, investors, investment bankers or acquirors but only as to the fact of KKRs equity investment in the Company and documentation relating thereto, (c) on a confidential basis to the Companys lawyers, contractors, accountants and other advisors who have a need to have access and knowledge of such information, (d) with KKRs prior written consent, which may be withheld in KKRs sole discretion, or (e) as otherwise set forth herein. If the Company believes public disclosure of KKRs or its Affiliates relationship, agreements or arrangements with the Company is required by law, the Company shall at a reasonable time before making any such disclosure (including, without limitation, filing any document or material with the SEC, or any other regulatory authority, which contains a reference to KKR or its Affiliates), consult with KKR regarding such disclosure, permit KKR to review such disclosure not less than ten (10) business days prior to its proposed disclosure (unless the Company is legally obligated to make such disclosure on fewer than ten (10) business days notice, in which case the Company shall
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give KKR as much time to review such disclosure as is commercially reasonable, but in any event not less than two (2) business days), revise such disclosure as reasonably requested by KKR, and if requested by KKR, seek confidential treatment for any portion of any agreements or documents intended to be filed with the SEC or other regulatory authority as may be reasonably requested by KKR.
5.5 Board Matters. The Company shall reimburse the nonemployee directors and board observers for all reasonable out-of-pocket travel expenses incurred (consistent with the Companys travel policy) in connection with attending meetings of the Board of Directors.
5.6 Qualified Small Business Stock. The Company shall use commercially reasonable efforts to cause the shares of Series C-1 and/or Series C-2 Preferred Stock issued pursuant to the Series C Purchase Agreement, as well as any shares into which such shares are converted, within the meaning of Section 1202(f) of the Code, to constitute qualified small business stock as defined in Section 1202(c) of the Code; provided, however, that such requirement shall not be applicable if the Board of Directors determines, in its good-faith business judgment, that such qualification is inconsistent with the best interests of the Company. The Company shall submit to its stockholders (including the Investors) and to the Internal Revenue Service any reports that may be required under Section 1202(d)(1)(C) of the Code and the regulations promulgated thereunder. In addition, within twenty (20) business days after any Investors written request therefor, the Company shall, at its option, either (i) deliver to such Investor a written statement indicating whether (and what portion of) such Investors interest in the Company constitutes qualified small business stock as defined in Section 1202(c) of the Code or (ii) deliver to such Investor such factual information in the Companys possession as is reasonably necessary to enable such Investor to determine whether (and what portion of) such Investors interest in the Company constitutes qualified small business stock as defined in Section 1202(c) of the Code.
5.7 Successor Indemnification. If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Companys Bylaws, its Certificate of Incorporation, or elsewhere, as the case may be.
5.8 Indemnification Matters. The Company hereby acknowledges that one (1) or more of the directors nominated to serve on the Board of Directors by the Investors (each a Fund Director) may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more of the Investors and certain of their affiliates (collectively, the Fund Indemnitors). The Company hereby agrees (a) that it is the indemnitor of first resort (i.e., its obligations to any such Fund Director are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Fund Director are secondary), (b) that it shall be required to advance the full amount of expenses incurred by such Fund Director and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of any such Fund Director to the extent legally permitted and as required by the
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Companys Certificate of Incorporation or Bylaws of the Company (or any agreement between the Company and such Fund Director), without regard to any rights such Fund Director may have against the Fund Indemnitors, and (c) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of any such Fund Director with respect to any claim for which such Fund Director has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Fund Director against the Company.
5.9 Right to Conduct Activities. The Company hereby agrees and acknowledges that KKR, Norwest, Vivo, venBio, and 5AM (together with their respective Affiliates) are professional investment funds, and as such, invest in numerous portfolio companies, some of which may be deemed competitive with the Companys business (as currently conducted or as currently propose to be conducted). The Company hereby agrees that, to the extent permitted under applicable law, KKR, Norwest, Vivo, venBio, and 5AM shall not be liable to the Company for any claim arising out of, or based upon, (i) the investment by KKR, Norwest, Vivo, venBio, and 5AM in any entity competitive with the Company, or (ii) actions taken by any partner, officer or other representative of KKR, Norwest, Vivo, venBio, and 5AM to assist any such competitive company, whether or not such action was taken as a member of the board of directors of such competitive company or otherwise, and whether or not such action has a detrimental effect on the Company; provided, however, that the foregoing shall not relieve (x) any of the Investors from liability associated with the unauthorized disclosure of the Companys confidential information obtained pursuant to this Agreement, or (y) any director or officer of the Company from any liability associated with his or her fiduciary duties to the Company.
5.10 Insurance.
5.10.1 The Company shall use commercially reasonable efforts to cause its Directors and Officers liability insurance (including employment practices coverage) with at least $2,000,000 in coverage limits to be maintained until such time as the Board (including at least one of the Norwest Designee or the KKR Designee (each as defined in that certain Amended and Restated Voting Agreement by and among the Company and the Stockholders identified therein, dated on or around the date hereof (the Voting Agreement))) determines that such insurance should be discontinued.
5.10.2 The Company shall use its commercially reasonable efforts to promptly obtain from a financially sound and reputable insurer key person life insurance for key executives designated by the Board, with proceeds payable to the Company.
5.11 Equity Incentive Plan. So long as Norwest and/or KKR is entitled to elect a director pursuant to the Voting Agreement, the Company hereby covenants and agrees with each of the Investors that it shall not, without approval of the Board, which approval must include the affirmative vote of at least one of the Norwest Designee or the KKR Designee, increase the number of shares of Common Stock subject to issuance under any stock plan or arrangement for the benefit of Service Providers or create any new stock plan or arrangement for the benefit of Service Providers.
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6. TERMINATION.
6.1 Generally. The covenants set forth in Section 2.1, Section 2.2, Section 2.3, Section 4, and Section 5 (with the exception of Section 5.7) shall terminate and be of no further force or effect upon the earliest to occur of: (a) immediately before the consummation of the Companys Qualified Public Offering (as defined in the Restated Certificate); (b) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act; or (c) upon a Deemed Liquidation Event where the consideration payable to the Investors consists solely of cash and/or securities that may be immediately resold on a national securities exchange.
6.2 Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section 3.1 or Section 3.2 shall terminate upon the earliest to occur of: (a) when all of such Holders Registrable Securities could be sold without any restriction on volume or manner of sale in any three-month period under SEC Rule 144 or any successor; (b) upon a Deemed Liquidation Event where the consideration payable to the Investors consists solely of cash and/or securities that may be immediately resold on a national securities exchange; and (c) the fifth (5th) anniversary of the IPO.
7. GENERAL PROVISIONS.
7.1 Successors and Assigns. The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (a) is an Affiliate, partner, member, limited partner, retired or former partner, retired or former member, or stockholder of a Holder or such Holders Affiliate; (b) is a Holders Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holders Immediate Family Members; (c) after such transfer, holds at least 3,000,000 shares of Registrable Securities (or if the transferring Holder owns less than 3,000,000 Registrable Securities, then all Registrable Securities held by the transferring Holder); or (d) is a venture capital fund that is controlled by or under common control with one or more general partners or managing partners or managing members of, or shares the same management company with, the Holder; provided, however, that (i) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (ii) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Section 3.11. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (A) that is an Affiliate, limited partner, retired or former partner, member, retired or former member, or stockholder of a Holder or such Holders Affiliate; (B) who is a Holders Immediate Family Member; or (C) that is a trust for the benefit of an individual Holder or such Holders Immediate Family Member shall be aggregated together and with those of the transferring Holder. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.
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7.2 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws.
7.3 Counterparts; Facsimile. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
7.4 Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.
7.5 Notices. All notices, requests, and other communications given, made or delivered pursuant to this Agreement shall be in writing and shall be deemed effectively given, made or delivered upon the earlier of actual receipt or: (a) personal delivery to the party to be notified; (b) when sent, if sent by facsimile during the recipients normal business hours, and if not sent during normal business hours, then on the recipients next business day; (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such address or facsimile number as subsequently modified by written notice given in accordance with this Section 7.5. If notice is given to the Company, it shall be sent to 201 Elliott Avenue West, Suite 260, Seattle, Washington 98119, Attention: President; and a copy (which shall not constitute notice) shall also be sent to Fenwick & West, LLP, 1191 Second Avenue, 10th Floor, Seattle, Washington 98101 Attn: Alan C. Smith. If no facsimile number is listed on Schedule A for a party (or above in the case of the Company), notices and communications given or made by facsimile shall not be deemed effectively given to such party.
7.6 Amendments and Waivers. This Agreement may only be amended or terminated and the observance of any term hereof may be waived (either generally or in a particular instance, and either retroactively or prospectively) only by a written instrument executed by the Company and (a) with respect to Sections 2 and 4 and any other provision of this Agreement to the extent such provision pertains to Sections 2 or 4, the Major Investors that hold at least sixty-six and two-thirds percent (66 2/3%) of Series B Preferred Stock, Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred Stock, and Series D Preferred Stock held by the Major Investors voting together as a single class (it being agreed that in the event the provisions of Section 4 are waived with respect to a particular transaction and certain Major Investors purchase securities in such transaction, then the Company shall grant to all Major Investors the right to purchase the same percentage of its full pro rata share of New Securities in such offering as the highest percentage of any such purchasing Major Investor) (for the sake of clarity, the foregoing shall not be deemed to affect the requirements contained in the
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first sentence of this Section 7.6 that certain parties hereto to consent to such amendments or waiver in order for such amendment or waiver to be effective) or (b) with respect to Sections 3 and 5 and any other provision of this Agreement to the extent such provision pertains to Sections 3 or 5, the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Series B Preferred Stock, Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred Stock, and Series D Preferred Stock voting together as a single class; provided that (i) the Company may in its sole discretion waive compliance with Section 3.12.3 (and the Companys failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Section 3.12.3 shall be deemed to be a waiver); (ii) Section 5.3 may not be amended or terminated or the observance of any term therein waived (either generally or in a particular instance, and either retroactively or prospectively) without the written consent of KKR, Norwest and 3M; (iii) Section 5.4.1 may not be amended or terminated or the observance of any term therein waived (either generally or in a particular instance, and either retroactively or prospectively) without the written consent of 3M; (iv) Section 2.3.4 and this clause (iv) of this Section 7.6 may not be amended or terminated or the observance of any term therein waived (either generally or in a particular instance, and either retroactively or prospectively) without the written consent of Norwest; (v) Sections 2.3.5 and 5.4.2, and this clause (v) of this Section 7.6 may not be amended or terminated or the observance of any term therein waived (either generally or in a particular instance, and either retroactively or prospectively) without the written consent of KKR; (vi) Section 5.9 and this clause (vi) of this 7.6 may not be amended or terminated or the observance of any term therein waived (either generally or in a particular instance, and either retroactively or prospectively) without the written consent of KKR, Norwest, Vivo, venBio, and 5AM; (vii) Sections 5.10.1, 5.11 and this clause (vii) of this 7.6 may not be amended or terminated or the observance of any term therein waived (either generally or in a particular instance, and either retroactively or prospectively) without the written consent of KKR or Norwest; and (viii) any provision hereof may be waived by any waiving party on such partys own behalf, without the consent of any other party. The foregoing notwithstanding, the definition of Major Investor in Section 1 and this Section 7.6, each as related to KKR, Norwest, 3M, Vivo, venBio, and 5AM only, may not be amended without the written consent of KKR, Norwest, 3M, Vivo, venBio, or 5AM as applicable. Any amendment, termination, or waiver effected in accordance with this Section 7.6 shall be binding on each party hereto and all of such partys successors and permitted assigns, regardless of whether or not any such party, successor or assignee entered into or approved such amendment, termination, or waiver. Notwithstanding anything to the contrary in this Section 7.6, this Agreement may not be amended, modified or terminated and the observance of any term of this Agreement may not be waived with respect to any Investor without the written consent of such Investor unless such amendment, modification, termination or waiver applies to all Investors in the same fashion. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
7.7 Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.
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7.8 Aggregation of Stock. All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such affiliated Persons may apportion such rights as among themselves in any manner they deem appropriate.
7.9 Entire Agreement. This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled and replaced with this Agreement.
7.10 Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
7.11 Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the United States District Court for the District of Delaware or any Delaware state court sitting in Wilmington, Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the United States District Court for the District of Delaware or any Delaware state court sitting in Wilmington, Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that a party is not subject to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution based upon judgment or order of such court(s), that any suit, action or proceeding arising out of or based upon this Agreement commenced in the United States District Court for the District of Delaware or any Delaware state court sitting in Wilmington, Delaware is brought in an inconvenient forum, that the venue of such suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Should any party commence a suit, action or other proceeding arising out of or based upon this Agreement in a forum other than the United States District Court for the District of Delaware or any Delaware state court sitting in Wilmington, Delaware, or should any party otherwise seek to transfer or dismiss such suit, action or proceeding from such court(s), that party shall indemnify and reimburse the other party for all legal costs and expenses incurred in enforcing this provision.
7.12 Attorneys Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the non-prevailing party shall pay all costs and expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys fees.
7.13 Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Companys Series D Preferred Stock after the date hereof, whether pursuant to the Purchase Agreement or otherwise, any
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purchaser of such shares of Series D Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an Investor for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an Investor hereunder.
7.14 Amendment of Prior Agreement. Effective and contingent upon execution of this Agreement by the Company, the holders of a majority of the Registrable Securities outstanding and held by the Major Investors (as defined in the Prior Agreement) and the holders of a majority of the Registrable Securities outstanding, upon the closing of the transactions contemplated by the Purchase Agreement, the Prior Agreement is hereby amended and restated in its entirety to read as set forth in this Agreement, and the Company and the Investors hereby agree to be bound by the provisions hereof as of the sole agreement of the Company and the Investors with respect to the registration rights of the Companys securities and certain other rights, as set forth herein. The Holders that are Major Investors hereby waive any Right to Future Stock Issuances, including the related notice requirements, set forth in Section 4 of the Prior Agreement with respect to the issuance of the Series D Preferred Stock pursuant to the Purchase Agreement.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
IMPEL NEUROPHARMA, INC.
By: |
/s/ Jon Congleton |
|
Name: | Jon Congleton | |
Title: | Chief Executive Officer |
[SIGNATURE PAGE TO IMPEL NEUROPHARMA, INC. AMENDED AND RESTATED INVESTORS
RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTOR:
NORWEST VENTURE PARTNERS XIV, LP
By: | Genesis VC Partners XIV, LLC, its General Partner | |
By: | NVP Associates, LLC, its Managing Member | |
By: |
/s/ Robert Mittendorff, M.D. |
|
Name: | Robert Mittendorff, M.D. |
[SIGNATURE PAGE TO IMPEL NEUROPHARMA, INC. AMENDED AND RESTATED INVESTORS
RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTOR:
KKR IRIS INVESTORS LLC
By: |
/s/ Ali J. Satvat |
|
Name: | Ali J. Satvat | |
Title: | Vice President |
[SIGNATURE PAGE TO IMPEL NEUROPHARMA, INC. AMENDED AND RESTATED INVESTORS
RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTOR:
VIVO CAPITAL FUND VIII, L.P.
By: | Vivo Capital VIII, LLC | |
By: |
/s/ Albert Cha |
|
Name: | Albert Cha | |
Title: | Managing Member |
VIVO CAPITAL SURPLUS FUND VIII, L.P.
By: | Vivo Capital VIII, LLC | |
By: |
/s/ Albert Cha |
|
Name: | Albert Cha | |
Title: | Managing Member |
[SIGNATURE PAGE TO IMPEL NEUROPHARMA, INC. AMENDED AND RESTATED INVESTORS
RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTOR:
VENBIO GLOBAL STRATEGIC FUND II, L.P.
By: | venBio Global Strategic GP II, L.P., Its General Partner | |
By: | venBio Global Strategic GP II, Ltd., Its General Partner | |
By: |
/s/ Aaron Royston |
|
Name: | Aaron Royston | |
Title: | Partner |
[SIGNATURE PAGE TO IMPEL NEUROPHARMA, INC. AMENDED AND RESTATED INVESTORS
RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTOR:
5AM VENTURES V, L.P.
By: 5AM Partners V, LLC | ||
Its General Partner | ||
By: |
/s/ Andy Schwab |
|
Name: | Andrew J. Schwab | |
Title: | Managing Member |
[SIGNATURE PAGE TO IMPEL NEUROPHARMA, INC. AMENDED AND RESTATED INVESTORS
RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTOR:
3M COMPANY
(ON BEHALF OF AND FOR THE
BENEFIT OF 3M NEW VENTURES)
By: |
/s/ Henry Chang |
|
Name: | Henry Chang | |
Title: | Vice President, 3M Connect |
[SIGNATURE PAGE TO IMPEL NEUROPHARMA, INC. AMENDED AND RESTATED INVESTORS
RIGHTS AGREEMENT]
SCHEDULE A
List of Investors
Name and Address of Investor |
||||
KKR Iris Investors LLC c/o Kohlberg Kravis Roberts & Co. L.P. |
||||
Norwest Venture Partners XIV, LP | ||||
Vivo Capital Fund VIII, L.P. | ||||
Vivo Capital Surplus Fund VIII, L.P.
venBio Global Strategic Fund II, L.P.
5AM Ventures V, L.P. |
||||
Craig Harding | ||||
Equity Trust Company FBO Rachael Amber Caska IRA | ||||
Cowles Company | ||||
Two Daughters, LLC |
Name and Address of Investor |
||||
Camargo Pharmaceutical Services, LLC
3M Company |
||||
Robert W. Anderson | ||||
Atlas Incentive Pool LLC | ||||
Gregg Bennett | ||||
Franklin M. Berger | ||||
Ky Calder | ||||
Guillaume Cousineau-Bouffard | ||||
Cranford Associates | ||||
Michael Crill | ||||
Geoff Dahl | ||||
Adam Coleman Davis and Diane Davis | ||||
Adam Davis |
Name and Address of Investor |
||||
Lindsay Eberts | ||||
Patti Paxton Eberts | ||||
Entrust Group FBO Steven Smith IRA | ||||
Entrust Group FBO Serene Xie Smith IRA | ||||
H. Perry Fell | ||||
Fenwick & West LLP | ||||
Allan Ferrin | ||||
Richard Haiduck, Trustee, The Haiduck Family Trust | ||||
Michael Han | ||||
Michael Hite | ||||
John Hoekman | ||||
IRA Resources, Inc. f/b/o Richard W. Benster |
Name and Address of Investor |
||||
Jacquelyn and Jeremy Jaech | ||||
Jefferson, Donald and Beverly, Community Property | ||||
S. Allan Johnson | ||||
Jennifer L. Kapela | ||||
Maltese Investments LLC (Dan Rosen) | ||||
Eric Michelman | ||||
Steven Mitchell | ||||
Tal Moore | ||||
Harvey Motulsky | ||||
David Nilssen | ||||
Norton/Motulsky Trust | ||||
Allen C. Nunnally |
Name and Address of Investor |
||||
Pacific Northwest Diabetes Research Institute | ||||
Lawrence Park | ||||
Roy Park | ||||
H. Stewart Parker | ||||
The Phillips Living Trust dated January 27, 2004 | ||||
Paige Searle and John May | ||||
Jerry Shields | ||||
Sandeep Singhal | ||||
SMI, Inc. | ||||
Mikal Thomsen | ||||
Heinn Tomfohrde |
Name and Address of Investor |
||||
Chris Trudeau | ||||
Andrew Ury | ||||
Dwight S. Whiting & Mary C.Whiting | ||||
Woodinville Partners, LLC | ||||
Daniel Yang and Janene Yang | ||||
PENSCO Trust Company, LLC,
FBO Alan M. Zarky IRA |
||||
Zino Annual Angel Investor Fund-2013, LLC | ||||
Zino Annual Angel Investor Fund-2014, LLC |
Exhibit 4.3
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF APPLICABLE STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS NOTE IS SUBJECT TO THE SUBORDINATION AGREEMENT, DATED FEBRUARY [], 2021, BY AND BETWEEN THE CREDITOR (AS DEFINED THEREIN) AND AVENUE VENTURE OPPORTUNITIES FUND, L.P. (AS THE SAME MAY BE AMENDED, MODIFIED AND RESTATED FROM TIME TO TIME, THE SUBORDINATION AGREEMENT). ANY ASSIGNMENT OF THIS NOTE SHALL BE SUBJECT TO THE SUBORDINATION AGREEMENT. IN THE EVENT OF ANY INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL.
IMPEL NEUROPHARMA, INC.
SUBORDINATED UNSECURED CONVERTIBLE PROMISSORY NOTE
$[●] | Made as of March [●], 2021 |
For value received, Impel NeuroPharma, Inc., a Delaware corporation (the Company), with principal offices at 201 Elliott Ave W Suite 260, Seattle, WA 98119, hereby promises to pay to [●] or its registered assigns (Holder), the principal sum of [●] Dollars ($[●]) (the Principal Amount), or such lesser amount as shall then equal the outstanding Principal Amount hereunder, together with Interest (as defined below) accrued thereon (together, the Outstanding Amount), from the date of this Note until the Outstanding Amount is paid (or converted, as provided in Section 5 hereof). The Outstanding Amount shall be due and payable on the earlier of (a) the tenth calendar day following the Maturity Date (as defined below) (the Outside Date) and (b) when such amounts are made automatically due and payable upon or after the occurrence of an Event of Default (as defined below), by check mailed to the address of the Holder of this Note in lawful money of the United States or, if requested by the Holder, by wire transfer of immediately available funds to an account designated by Holder, unless this Note shall have been previously converted pursuant to Section 5 hereof.
The following is a statement of the rights of Holder and the terms and conditions to which this Note is subject, and to which Holder hereof, by the acceptance of this Note, agrees:
1. PURCHASE AGREEMENT. This Note is one of a series of Notes issued pursuant to that certain Note Purchase Agreement dated as of the date hereof (the Purchase Agreement), by and among the Company, the original Holder of this Note, and certain other investors, and is subject to the provisions thereof.
2. DEFINITIONS. The following definitions shall apply for all purposes of this Note:
2.1 Affiliate means with respect to any specified person, any other person who, directly or indirectly, controls, is controlled by, or is under common control with such person, including, without limitation, any general partner, managing member, officer, director or trustee of such person, or any venture capital fund, any other investment fund, or registered investment company now or hereafter existing that is controlled by one or more general partners, managing members or investment advisers of, or shares the same management company or investment adviser with, such person.
2.2 Change of Control means: (a) the consummation of the acquisition of the Company by another entity or merger or consolidation of the Company with or into another entity by means of any transaction or series of related transactions (except a transaction or series of transactions in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring entity); or (b) the consummation of a sale, other transfer, or exclusive license that constitutes the effective disposition of all or substantially all of the assets of the Company, including a sale or other transfer of all or substantially all of the assets of the Companys subsidiaries, if such assets constitute substantially all of the assets of the Company and such subsidiaries taken as a whole, provided, that, for clarity, a license that is exclusive as to a particular territory or market shall not be a Change of Control unless such license otherwise constitutes an effective disposition of all or substantially all of the assets of the Company.
2.3 Common Stock means the Companys common stock, $0.001 par value per share.
2.4 Conversion Price means:
(a) if the conversion is in connection with a New Financing under Section 5.1, then the Conversion Price shall be an amount equal to the product of (i) the per share selling price of shares of that stock issued in the New Financing and (ii) 0.90;
(b) if the conversion is in connection with a QIPO under Section 5.2, then the Conversion Price shall be an amount equal to the product of (i) the price per share to the public of shares of Common Stock sold in the QIPO and (ii) 0.90;
(c) if the conversion is in connection with a DeSPAC Transaction under Section 5.2, then the Conversion Price shall be an amount equal to the product of (i) the price per share of the shares of capital stock of the DeSPAC Entity issued in a private placement in conjunction with the DeSPAC Transaction and (ii) 0.90; or
(d) if the conversion is in connection with a Change of Control under Section 5.3 or a Maturity Date Optional Conversion under Section 5.4, then the Conversion Price shall be an amount equal to the Series D Original Issue Price.
The Conversion Price is subject to adjustment as provided in Section 6 herein.
2.5 Conversion Stock means:
(a) if there is a conversion under Section 5.1, the type of capital stock of the Company sold in the New Financing;
(b) if there is a conversion under Section 5.2, the Common Stock;
(c) if there is a conversion under Section 5.3 or Section 5.4, the Series D Preferred Stock.
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The number and character of shares of Conversion Stock are subject to adjustment as provided herein and the term Conversion Stock shall include stock and other securities and property at any time receivable or issuable upon conversion of this Note in accordance with its terms.
2.6 DeSPAC Transaction means, with respect to the Company, an acquisition by, consolidation amalgamation, merger, reorganization or other business combination with or into, a special purpose acquisition company (the successor public company following any such business combination, the DeSPAC Entity) that is publicly listed on a nationally recognized stock exchange in the United States.
2.7 Interest means, until the Outstanding Amount is paid or converted, each as provided herein, simple interest at a per annum rate of five percent (5.0%).
2.8 Maturity Date means the earlier of: (a) December 31, 2021 and (b) a Change of Control.
2.9 New Financing means any sale by the Company of a new series of Preferred Stock in one transaction or a series of related transactions after the date of this Note.
2.10 Notes means a series of convertible promissory notes aggregating up to $7,500,000 in original principal amount issued under the Purchase Agreement, of which this Note is one, each such note containing substantially identical terms and conditions as this Note.
2.11 Preferred Stock means the Companys preferred stock, $0.001 par value per share.
2.12 QIPO has the meaning assigned to a Qualified Public Offering in the Companys Amended and Restated Certificate of Incorporation.
2.13 Series D Original Issue Price means $0.709095.
2.14 Series D Preferred Stock means the Companys Series D Preferred Stock, $0.001 par value per share.
3. EVENTS OF DEFAULT. An Event of Default will occur if any of the following happens:
(a) the Company fails to make any payment when due hereunder (taking into account all cure and extension provisions or waivers);
(b) the Company breaches any representation, warranty or covenant to the Holder under this Note or the Purchase Agreement in any material respect, in each case that has not been cured within 20 days of written notice by the Holder;
(c) the Company shall (i) become insolvent (as such term may be defined or interpreted under any applicable statute), (ii) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or (iii) adopt a plan of liquidation;
3
(d) an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced or proceedings for the appointment of a receiver or trustee to take possession of the property or assets of the Company, and an order for relief entered or such proceeding shall not be dismissed or discharged within thirty (30) days of commencement; or
(e) the Company or any of its subsidiaries shall default in any payment of principal or interest on any indebtedness for borrowed money beyond the period of grace, if any, provided in the instrument or agreement under which such indebtedness was created.
Upon the occurrence of any Event of Default, the Outstanding Amount shall (i) in the case of any Event of Default under Section 3(c), become immediately due and payable in full without further notice or demand by Holder and (ii) in the case of any Event of Default other than under Section 3(c), become immediately due and payable upon written notice by or on behalf of the affected Holder(s) to the Company but only if such notice is given with the prior written consent of the Majority Holders. Notwithstanding any other provision of this Note, or of the other Financing Documents, Holder agrees that Holder will exercise Holders rights and remedies under this Note and the other Financing Documents only in concert with all other holders of outstanding Notes as provided in the Financing Documents and will not take any action, including commencement or prosecution of litigation or any other proceeding to collect this Note, except as agreed by the Majority Holders..
4. NO PREPAYMENT; APPLICATION OF PAYMENTS.
4.1 No Prepayment. Except with regard to the conversion of this Note under Section 5, the Company may not pay any Balance of this Note before it becomes due without the prior written consent of the Majority Holders.
4.2 Notes Pari Passu; Application of Payments. Each of the Notes shall rank equally without preference or priority of any kind over one another, and all payments and recoveries under any other Financing Document payable on account of principal and interest on the Notes shall be paid and applied ratably and proportionately on the Outstanding Amounts of all outstanding Notes on the basis of their original principal amount. Subject to Section 5 and the foregoing provisions of this Section, all payments will be applied first to the repayment of accrued fees and expenses under this Note, then to accrued interest until all then outstanding accrued interest has been paid in full, and then to the repayment of Principal Amounts until all Principal Amounts have been paid in full. If after all applications of such payments have been made as provided in this Section, then the remaining amount of such payment that are in either case in excess of the aggregate Outstanding Amounts of all outstanding Notes, shall be returned to the Company.
5. CONVERSION.
5.1 Optional Conversion in the New Financing. If, at any time prior to (a) the conversion of the Notes upon a Change of Control pursuant to Section 5.3 hereof, (c) the conversion of the Notes upon the closing of the QIPO or DeSPAC Transaction pursuant to Section 5.2 hereof, or (d) the repayment of the Outstanding Amount following the Maturity Date, the Company proposes to undertake a New Financing, then the Company shall give the Holder notice of the New Financing not less than fifteen business days prior to the closing of the New Financing (or first closing in a series of closings that together with any prior closings qualifies as a New Financing) (the Closing). Following receipt of such notice, the Holder shall have the right to convert the Outstanding Amount into the Conversion Stock at the Conversion Price upon the Holders delivery to the Company of its written election not less than five
4
business days prior to the Closing, and in the event the Holder elects to convert the Outstanding Amount into the Conversion Stock at the Conversion Price in a New Financing, then the Holder of this Note shall receive all of the contractual benefits and contractual rights to which any investor in the New Financing is entitled (the Preferred Stock Rights) upon (i) the delivery of the original Note to the Company and (ii) the execution and delivery to the Company at the Closing of such stock purchase agreement, investors rights agreement, right of first refusal and co-sale agreement, voting agreement and/or other agreements as are entered into by the investors in the New Financing, generally with respect to such Preferred Stock Rights.
5.2 Automatic Conversion in the QIPO or DeSPAC Transaction. If at any time prior to (a) the conversion of the Notes upon a Change of Control pursuant to Section 5.3 hereof, (b) the closing of the New Financing (or first closing in a series of closings that together with any prior closings qualifies as a New Financing) and the election of the Holder to convert the Outstanding Amount into the Conversion Stock at the Conversion Price in a New Financing pursuant to Section 5.1 hereof or (c) the repayment of the Outstanding Amount following the Maturity Date or otherwise, the Company effects a QIPO or a DeSPAC Transaction, then immediately prior to the closing of the QIPO or the DeSPAC Transaction, the Outstanding Amount shall automatically convert into shares of Conversion Stock at the applicable Conversion Price.
5.3 Automatic Conversion in a Change of Control. If at any time prior to (a) the conversion of the Notes pursuant to the closing of a QIPO or DeSPAC Transaction pursuant to Section 5.2 hereof, (b) the closing of the New Financing (or first closing in a series of closings that together with any prior closings qualifies as a New Financing) and the election of the Holder to convert the Outstanding Amount into the Conversion Stock at the Conversion Price in a New Financing pursuant to Section 5.1 hereof or (c) the repayment of the Outstanding Amount following the Maturity Date or otherwise, there is a Change of Control, then immediately prior to the closing of the Change of Control, the Outstanding Amount shall automatically convert into shares of Conversion Stock at the Conversion Price.
5.4 Optional Maturity Date Conversion. At any time after the Maturity Date and prior to the repayment by the Company of the Outstanding Amount following the Maturity Date, the Holder shall have the right to convert the Outstanding Amount into the Conversion Stock at the Conversion Price (a Maturity Date Optional Conversion) upon the Holders delivery to the Company of its written election to so convert, together with the original Note for cancellation.
5.5 Voting Agreement. Each Holder hereby agrees to vote all of its shares of Preferred Stock and Common Stock then held by such Holder in favor of any amendment to the Companys Amended and Restated Certificate of Incorporation as may be needed to create sufficient authorized shares of Conversion Stock to accommodate a conversion contemplated by Section 5.3 or Section 5.4.
5.6 Issuance of Conversion Stock. As soon as practicable after conversion of this Note, the Company at its expense will cause to be issued in the name of and delivered to the Holder, an electronic certificate or certificates for the number of shares of Conversion Stock to which the Holder shall be entitled upon such conversion (bearing such legends as may be required by applicable state and federal securities laws in the opinion of legal counsel of the Company, by the Companys Charter or Bylaws, or by any agreement between the Company and the Holder), together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Note. Such conversion shall be deemed to have been made, (a) if made under Section 5.1 above, on the date of the Closing of the New Financing and (b) if made under Section 5.2 above, immediately prior to the closing of the QIPO or DeSPAC Transaction. No fractional shares will be issued upon conversion of this Note. If upon any conversion of this Note, a fraction of a share would otherwise result, then in lieu of such fractional share the Company will pay the cash value of that fractional share, calculated on the basis of the applicable Conversion Price.
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5.7 Termination of Rights. All rights with respect to this Note shall terminate upon (a) payment in full of the Outstanding Amount or (b) the issuance of shares of the Conversion Stock upon conversion of this Note, whether or not this Note has been surrendered. Notwithstanding the foregoing, Holder agrees to surrender this Note to the Company for cancellation as soon as is possible following conversion of this Note; provided, that, any failure to surrender this Note shall have no impact on the effectiveness of a conversion pursuant to Sections 5.1 or 5.2. The Holder shall not be entitled to receive the stock certificate representing the shares of Conversion Stock to be issued upon conversion of this Note (or any property issuable in respect thereof) until the original of this Note is surrendered to the Company or such other documentation as reasonably may be required by the Company in the event such original has been lost or destroyed (e.g., appropriate certifications, assurances, affidavits and the like) and the agreements referenced in this Section 5 have been executed and delivered to the Company.
5.8 No Voting or Other Rights. Except as expressly set forth herein, this Note does not by itself entitle the Holder to any voting rights or other rights as a stockholder of the Company. In the absence of conversion of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of the Holder, shall cause the Holder to be a stockholder of the Company for any purpose.
6. ADJUSTMENT PROVISIONS. The number and character of shares of Conversion Stock issuable upon conversion of this Note (or any shares of stock or other securities or property at the time receivable or issuable upon conversion of this Note) and the Conversion Price therefor, are subject to adjustment upon occurrence of the following events between the date this Note is issued and the date it is converted:
6.1 Adjustment for Dividends and Distributions. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution payable with respect to the capital stock that is payable in (a) securities of the Company, or (b) assets (other than cash dividends paid or payable solely out of retained earnings), then, and in each such case, the Holder, upon conversion of this Note at any time after the consummation, effective date or record date of such event, shall receive, in addition to the shares of Conversion Stock issuable upon such exercise prior to such date, the securities or such other assets of the Company to which the Holder would have been entitled upon such date if the Holder had converted this Note immediately prior thereto (all subject to further adjustment as provided in this Note).
6.2 Reorganization, Consolidation, Merger Other Than Change of Control. In case of any reorganization of the Company (or of any other corporation the stock or other securities of which are at the time receivable on the conversion of this Note), after the date this Note, or in case, after such date, the Company (or any such corporation) shall consolidate with or merge into another corporation, in each case in a transaction that does not constitute a Change of Control (a Non-Change of Control Reorganization), then the obligations of this Note will continue to apply, and the successor or purchasing corporation in such Non-Change of Control Reorganization (if other than the Company) shall duly execute and deliver to the Holder a supplement hereto acknowledging such corporations obligations under this Note; and in each such case, the terms of this Note shall be applicable to the shares of stock or other securities or property receivable upon the conversion of this Note after the consummation of such Non-Change of Control Reorganization.
6.3 Notice of Adjustments. The Company shall promptly give written notice of each adjustment or readjustment in the Conversion Price or in the number of shares of Conversion Stock. The notice shall describe the adjustment or readjustment and show in reasonable detail the facts on which the adjustment or readjustment is based.
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6.4 No Change Necessary. The form of this Note need not be changed because of any adjustment in the Conversion Price or in the number of shares of Conversion Stock issuable upon its conversion.
7. PROVISIONS RELATING TO STOCKHOLDERS RIGHTS.
7.1 Market Stand-Off Agreement. Holder hereby agrees that Holder shall be bound by the market stand-off provisions contained in Section 3.11 of the Rights Agreement.
7.2 No Voting or Other Rights. This Note does not entitle Holder to any voting rights or other rights as a stockholder of the Company, unless and until (and only to the extent that) this Note is actually converted into shares of the Companys capital stock in accordance with its terms. In the absence of conversion of this Note into Conversion Stock, no provisions of this Note and no enumeration herein of the rights or privileges of Holder, shall cause Holder to be a stockholder of the Company for any purpose.
8. GENERAL PROVISIONS.
8.1 Transfer. Neither this Note nor any rights hereunder may be assigned, conveyed or transferred, in whole or in part, without the Companys prior written consent, which the Company may withhold in its sole discretion; provided, that, such prior written consent shall not be required for an assignment, conveyance or transfer, in whole or in part, to an Affiliate of Holder. Any attempted assignment or transfer in violation of the foregoing is null and void.
8.2 Governing Law. This Note shall be governed by and construed accordance with the internal laws of Delaware (without reference to the conflicts of law provisions thereof).
8.3 Counterparts. This Note may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
8.4 Headings; Interpretation. In this Note, (a) the meaning of defined terms shall be equally applicable to both the singular and plural forms of the terms defined, (b) the captions and headings are used only for convenience and are not to be considered in construing or interpreting this Note and (c) the words including, includes and include shall be deemed to be followed by the words without limitation. All references in this Note to sections, paragraphs, exhibits and schedules shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits and schedules attached hereto, all of which exhibits and schedules are incorporated herein by this reference.
8.5 Notices. Unless otherwise provided herein, any and all notices required or permitted to be given to a party pursuant to the provisions of this Note will be in writing and will be effective and deemed to provide such party sufficient notice under this Note on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by printed confirmation sheet verifying successful transmission of the facsimile; (c) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (d) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by facsimile or by express courier. Notices by facsimile
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shall be machine verified as received. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address or facsimile number as set forth in the Purchase Agreement.
8.6 Amendments and Waivers. This Note and all other Notes issued under the Purchase Agreement may be amended and provisions may be waived by the Majority Holders and the Company as provided in Section 7.8 of the Purchase Agreement. Any amendment or waiver effected in accordance with Section 7.8 of the Purchase Agreement shall be binding upon each holder of any Notes at the time outstanding, each future holder of the Notes and the Company.
8.7 Severability. If any provision of this Note is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Note and the remainder of this Note shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Note. Notwithstanding the forgoing, if the value of this Note based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
8.8 Entire Agreement. This Note, the Purchase Agreement and the documents referred to herein constitute the entire agreement and understanding of the parties with respect to the subject matter hereof and supersede any and all prior negotiations, correspondence, agreements, understandings duties, or obligations, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.
8.9 Further Assurances. The parties agree to execute and deliver such instruments, documents or other writings and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Note.
8.10 Attorneys Fees. In the event any party is required to engage the services of any attorneys for the purpose of enforcing this Note, or any provisions thereof, the prevailing party shall be entitled to recover its reasonable expenses and costs in enforcing this Note, including reasonable attorneys fees.
8.11 Replacement of Note. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note (and in the case of loss, theft or destruction) upon certification of loss, theft or destruction and delivery of an indemnity agreement in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Note, the Company promptly will issue in lieu thereof a new Note of like tenor.
8.12 Terms Binding. By acceptance of this Note, the Holder accepts and agrees to be bound by all the terms and conditions of this Note.
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IN WITNESS WHEREOF, the parties hereto have executed this SUBORDINATED UNSECURED CONVERTIBLE PROMISSORY NOTE as of the date first written above.
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[SIGNATURE PAGE TO SUBORDINATED UNSECURED CONVERTIBLE PROMISSORY NOTE]
EXHIBIT 10.2
IMPEL NEUROPHARMA, INC.
2008 EQUITY INCENTIVE PLAN
Originally Adopted on September 3, 2008
Amended Effective January 13, 2010 to increase plan pool from 500,000 to 2,216,165 shares
Amended Effective September 6, 2011 to increase plan pool from 2,216,165 to 3,006,001 shares
Amended effective February 3, 2014 to increase plan pool from 3,006,001 to 3,750,000 shares
Amended effective December 31, 2014 to increase plan pool from 3,570,000 to 6,090,578 shares
Amended effective August 28, 2015 to increase plan pool from 6,090,578 to 6,910,737 shares
Amended effective November 16, 2016 to increase plan pool from 6,910,737 to 13,210,737 shares
Amended effective November 16, 2016 to increase plan pool from 13,210,737 to 14,003,181 shares
Amended effective February 13, 2018 to increase plan pool from 14,003,181 to 20,922,181 shares
1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries by offering eligible persons an opportunity to participate in the Companys future performance through awards of Options and Restricted Stock. Capitalized terms not defined in the text are defined in Section 22 hereof.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 17 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this plan will be Twenty Million Nine Hundred Twenty-Two Thousand One Hundred Eighty-One (20,922,181).
2.2 Adjustment of Shares. In the event that the number of outstanding shares of the Companys Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (i) the number of Shares reserved for issuance under this Plan, (ii) the Exercise Prices of and number of Shares subject to outstanding Options and (iii) the Purchase Prices of and number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 5 hereof) and Restricted
Stock Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. Awards may be granted under this Plan as compensation for services in connection with the offer and sale of securities in a capital-raising transaction provided that an exemption for such offer and sale is available under applicable federal and state securities laws. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the Committee or the Board if no Committee is created by the Board. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to this Plan;
(c) approve persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to Awards;
(f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;
(g) grant waivers of any conditions of this Plan or any Award;
(h) determine the terms of vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement, any Exercise Agreement or any Restricted Stock Purchase Agreement;
(j) determine whether an Award has been earned;
(k) make all other determinations necessary or advisable for the administration of this Plan; and
(l) extend the vesting period beyond a Participants Termination Date.
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4.2 Committee Discretion. Unless in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (i) at the time of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan, provided such officer or officers are members of the Board.
5. OPTIONS. The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (ISOs) or Nonqualified Stock Options (NQSOs), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO (Stock Option Agreement), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately but subject to repurchase pursuant to Section 11 hereof or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary (Ten Percent Shareholder) will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and shall not be less than the Fair Market Value per Share unless expressly determined in writing by the Committee on the Options date of grant after giving consideration to Section 409A of the Code; provided that the Exercise Price of an ISO granted to a Ten Percent Shareholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 7 hereof.
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5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the Exercise Agreement) in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (i) the number of Shares being purchased, (ii) the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and (iii) such representations and agreements regarding Participants investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. Participant shall execute and deliver to the Company the Exercise Agreement together with payment in full of the Exercise Price, and any applicable taxes, for the number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to Sections 17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participants Options only to the extent that such Options are exercisable as to Vested Shares upon the Termination Date or as otherwise determined by the Committee. Such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO) but in any event, no later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participants death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participants Options may be exercised only to the extent that such Options are exercisable as to Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee. Such options must be exercised by Participant (or Participants legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond (i) three (3) months after the Termination Date when the Termination is for any reason other than the Participants death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code), or (ii) twelve (12) months after the Termination Date when the Termination is for Participants permanent and total disability, deemed to be an NQSO) but in any event no later than the expiration date of the Options.
(c) If the Participant is terminated for Cause, the Participant may exercise such Participants Options, but not to an extent greater than such Options are exercisable as to Vested Shares upon the Termination Date and Participants Options shall expire on such Participants Termination Date, or at such later time and on such conditions as are determined by the Committee.
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(d) With respect to any Option for which the exemption from qualification under Section 25102(o) of the California Corporations Code is claimed, the post-termination exercise periods applicable to such Option shall not be less than the minimum period required for the application of such exemption from qualification.
5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date (as defined in Section 18 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participants rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 5.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participants ISO under Section 422 of the Code. In no event shall the total number of Shares issued (counting each reissuance of a Share that was previously issued and then forfeited or repurchased by the Company as a separate issuance) under the Plan upon exercise of ISOs exceed Forty-One Million Eight Hundred Forty-Four Thousand Three Hundred Sixty-Two (41,844,362) Shares (adjusted in proportion to any adjustments under Section 2.2 hereof) over the term of the Plan.
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6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement (Restricted Stock Purchase Agreement) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The Restricted Stock Award will be accepted by the Participants execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted or at the time the purchase is consummated. Payment of the Purchase Price must be made in accordance with Section 7 hereof.
6.3 Restrictions. Restricted Stock Awards may be subject to the restrictions set forth in Section 11 hereof.
7. PAYMENT FOR SHARE PURCHASES.
7.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company owed to the Participant;
(b) by surrender of shares of the Company that: (i) either (A) for which the Company has received full payment of the purchase price within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (B) were obtained by Participant in the public market and (ii) are clear of all liens, claims, encumbrances or security interests;
(c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares.
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(d) by waiver of compensation due or accrued to the Participant from the Company for services rendered;
(e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Companys stock exists:
(i) through a same day sale commitment from the Participant and a Company-designated broker-dealer that is a member of the Financial Industry Regulatory Authority (a Dealer) whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or
(ii) through a margin commitment from the Participant and a Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the Dealer in a margin account as security for a loan from the Dealer in the amount of the total Exercise Price, and whereby the Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
7.2 Loan Guarantees. The Committee may, in its sole discretion, elect to assist the Participant in paying for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant.
8. WITHHOLDING TAXES.
8.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.
8.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that minimum number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined; but in no event will the Company withhold Shares if such withholding would result in adverse accounting consequences to the Company. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee.
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9. PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased pursuant to Section 11 hereof.
10. TRANSFERABILITY. Except as permitted by the Committee, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to an inter vivos or testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to immediate family as that term is defined in 17 C.F.R. 240.16a-1(e), and may not be made subject to execution, attachment or similar process. During the lifetime of the Participant an Award will be exercisable only by the Participant or Participants legal representative and any elections with respect to an Award may be made only by the Participant or Participants legal representative.
11. RESTRICTIONS ON SHARES.
11.1 Right of First Refusal. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, provided that such right of first refusal terminates upon the Companys initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act.
11.2 Right of Repurchase. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase Unvested Shares held by a Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by the Participant following such Participants Termination at any time.
12. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.
13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participants Shares set forth in Section 11 hereof, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an
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agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participants obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participants Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.
14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, shares of Common Stock of the Company (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree.
15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (i) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (ii) compliance with any exemption, completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.
16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary or limit in any way the right of the Company or any Parent or Subsidiary to terminate Participants employment or other relationship at any time, with or without Cause.
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17. CORPORATE TRANSACTIONS.
17.1 Assumption or Replacement of Awards by Successor or Acquiring Company. In the event of (i) a dissolution or liquidation of the Company, (ii) any reorganization, consolidation, merger or similar transaction or series of related transactions (each, a combination transaction) in which the Company is a constituent corporation or is a party if, as a result of such combination transaction, the voting securities of the Company that are outstanding immediately prior to the consummation of such combination transaction (other than any such securities that are held by an Acquiring Shareholder (defined below)) do not represent, or are not converted into, securities of the surviving corporation of such combination transaction (or such surviving corporations parent corporation if the surviving corporation is owned by the parent corporation) that, immediately after the consummation of such combination transaction, together possess at least fifty percent (50%) of the total voting power of all securities of such surviving corporation (or its parent corporation, if applicable) that are outstanding immediately after the consummation of such combination transaction, including securities of such surviving corporation (or its parent corporation, if applicable) that are held by the Acquiring Shareholder; or (iii) a sale of all or substantially all of the assets of the Company, that is followed by the distribution of the proceeds to the Companys stockholders, any or all outstanding Awards may be assumed, converted or replaced by the successor or acquiring corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor or acquiring corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders of the Company (after taking into account the existing provisions of the Awards). The successor or acquiring corporation may also substitute by issuing, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions and other provisions no less favorable to the Participant than those which applied to such outstanding Shares immediately prior to such transaction described in this Section 17.1. For purposes of this Section 17.1, an Acquiring Shareholder means a shareholder or shareholders of the Company that (i) merges or combines with the Company in such combination transaction or (ii) owns or controls a majority of another corporation that merges or combines with the Company in such combination transaction. In the event such successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a transaction described in this Section 17.1, then notwithstanding any other provision in this Plan to the contrary, such Awards will expire on such transaction at such time and on such conditions as the Board will determine.
17.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 17, in the event of the occurrence of any transaction described in Section 17.1 hereof, any outstanding Awards will be treated as provided in the applicable agreement or plan of reorganization, merger, consolidation, dissolution, liquidation or sale of assets.
17.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (i) granting an Award under this Plan in substitution of such other companys award or (ii) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be
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applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price.
18. ADOPTION AND STOCKOLDER APPROVAL. This Plan will become effective on the date that it is adopted by the Board (the Effective Date). This Plan will be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided, however, that: (i) no Option may be exercised prior to initial stockholder approval of this Plan; and (ii) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company. Provided further, that any Award (as well as the issuance of any Shares under such Award) shall automatically be rescinded if the exemption from qualification under Section 25102(o) of the California Corporations Code is being claimed for such Award and the stockholder approval of this Plan that is required for such exemption is not timely obtained.
19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of stockholder approval. This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of Washington.
20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval pursuant to the Code or the regulations promulgated thereunder as such provisions apply to ISO plans.
21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
22. DEFINITIONS. As used in this Plan, the following terms will have the following meanings:
Award means any award under this Plan, including any Option or Restricted Stock Award.
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Award Agreement means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award, including the Stock Option Agreement and Restricted Stock Agreement.
Board means the Board of Directors of the Company.
Cause means Termination because of (i) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or a Parent or Subsidiary of the Company, the Participants conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud, (ii) the Participants commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iii) any material breach by the Participant of any provision of any agreement or understanding between the Company or any Parent or Subsidiary of the Company and the Participant regarding the terms of the Participants service as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an employee, officer, director or consultant of the Company or a Parent or Subsidiary of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Parent or Subsidiary of the Company and the Participant, (iv) Participants disregard of the policies of the Company or any Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or a Parent or Subsidiary of the Company, or (v) any other misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or a Parent or Subsidiary of the Company. Notwithstanding the foregoing, for purposes of any Award granted a Participant with a written employment agreement (or consulting agreement) actively negotiated with the Company (or a Parent or Subsidiary), if such agreement has Cause as a defined term, then such definition shall apply with respect to Awards granted such Participant.
Code means the Internal Revenue Code of 1986, as amended.
Committee means the committee created and appointed by the Board to administer this Plan, or if no committee is created and appointed, the Board.
Company means Impel NeuroPharma, Inc., or any successor corporation.
Disability means a disability, whether temporary or permanent, partial or total, as determined by the Committee.
Exercise Price means the price per Share at which a holder of an Option may purchase Shares issuable upon exercise of the Option.
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Fair Market Value means, as of any date, the value of a share of the Companys Common Stock determined as follows:
(a) if such Common Stock is then publicly traded on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded but is not listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by The Wall Street Journal (or, if not so reported, as otherwise reported by any newspaper or other source as the Committee may determine); or
(c) if none of the foregoing is applicable, by the Committee in good faith.
Option means an award of an option to purchase Shares pursuant to Section 5 hereof.
Parent means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Participant means a person who receives an Award under this Plan.
Plan means this IMPEL NEUROPHARMA, INC. 2008 Equity Incentive Plan, as amended from time to time.
Purchase Price means the price at which a Participant may purchase Restricted Stock.
Restricted Stock means Shares purchased pursuant to a Restricted Stock Award.
Restricted Stock Award means an award of Shares pursuant to Section 6 hereof.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Shares means shares of the Companys Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 17 hereof, and any successor security.
Subsidiary means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Termination or Terminated means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee,
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officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days (a) unless reinstatement (or, in the case of an employee with an ISO, reemployment) upon the expiration of such leave is guaranteed by contract or statute, or (b) unless provided otherwise pursuant to formal policy adopted from time to time by the Companys Board and issued and promulgated in writing. In the case of any Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the Termination Date).
Unvested Shares means Unvested Shares as defined in the Award Agreement.
Vested Shares means Vested Shares as defined in the Award Agreement.
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No.
IMPEL NEUROPHARMA, INC.
2008 EQUITY INCENTIVE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (the Agreement) is made and entered into as of , (the Effective Date) by and between Impel NeuroPharma, Inc., a Delaware corporation (the Company), and the purchaser named below (the Purchaser). Capitalized terms not defined herein shall have the meaning ascribed to them in the Companys 2008 Equity Incentive Plan (the Plan).
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Purchase Price Per Share: |
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1. Purchase of Shares.
1.1 Purchase of Shares. On the Effective Date and subject to the terms and conditions of this Agreement and the Plan, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, the Total Number of Shares set forth above (the Shares) of the Companys Common Stock at the Purchase Price Per Share as set forth above (the Purchase Price Per Share) for a Total Purchase Price as set forth above (the Purchase Price). As used in this Agreement, the term Shares includes the Shares purchased under this Agreement and all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits with respect to the Shares, and (c) in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction.
1.2 Title to Shares. The exact spelling of Purchasers name under which Purchaser will take title to the Shares is:
1.3 Payment. Purchaser hereby delivers payment of the Purchase Price as follows (check and complete as appropriate):
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in cash (by check) in the amount of $ , receipt of which is acknowledged by the Company; or |
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by delivery of fully-paid, nonassessable and vested shares of the Common Stock of the Company already owned by Purchaser (which have been paid for within the meaning of SEC Rule 144) and which are free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $ per share. |
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2. Delivery.
2.1 Deliveries by Purchaser. Purchaser hereby delivers to the Company (a) a duly executed copy of this Agreement, (b) two (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached hereto (the Stock Powers), both executed by Purchaser (and Purchasers spouse, if any), (c) if Purchaser is married, a Consent of Spouse in the form of Exhibit 2 attached hereto (the Spouse Consent) executed by Purchasers spouse, and (d) payment of the Purchase Price by delivery of a check, a copy of which is attached hereto as Exhibit 4.
2.2 Deliveries by the Company. Upon its receipt of the Purchase Price and all the documents to be executed and delivered by Purchaser to the Company under Section 2.1, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, to be placed in escrow as provided in Section 11 until expiration or termination of the Companys Repurchase Option and Right of First Refusal described in Sections 8, 9 and 10.
3. Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to the Company as follows.
3.1 Agrees to Terms of the Plan and this Agreement. Purchaser has received a copy of the Plan and this Agreement, has read and understands the terms of the Plan and this Agreement, and agrees to be bound by their terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon purchase and disposition of the Shares, and that Purchaser should consult a tax adviser prior to such purchase or disposition.
3.2 Purchase for Own Account for Investment. Purchaser is purchasing the Shares for Purchasers own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act. Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares.
3.3 Access to Information. Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Companys representatives concerning such matters and this investment.
3.4 Understanding of Risks. Purchaser is fully aware of: (a) the highly speculative nature of the investment in the Shares; (b) the financial hazards involved; (c) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (d) the qualifications and backgrounds of the management of the Company; and (e) the tax consequences of investment in the Shares. Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchasers own interests in this transaction and is financially capable of bearing a total loss of this investment.
3.5 No General Solicitation. At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares.
4. Compliance with Securities Laws. Purchaser understands and acknowledges that the Shares have not been registered with the SEC under the Securities Act and that, notwithstanding any other provision of this Agreement to the contrary, the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws. The Shares are being issued under the Securities Act pursuant to the applicable exemption provided by the Securities Act.
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5. Restricted Securities.
5.1 No Transfers Unless Registered or Exempt. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the Securities Act and qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC Rule 144. In addition, Purchaser has been advised that SEC Rule 144 promulgated under the Securities Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of six (6) months, and in certain cases one (1) year, after they have been purchased and paid for (within the meaning of Rule 144), before they may be resold under Rule 144. Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an affiliate of the Company or if current public information about the Company (as defined in Rule 144) is not publicly available.
6. Restrictions on Transfers.
6.1 Disposition of Shares. Purchaser hereby agrees that Purchaser will make no disposition of the Shares (other than as permitted by this Agreement) unless and until:
(a) Purchaser has notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(b) Purchaser has complied with all requirements of this Agreement applicable to the disposition of the Shares;
(c) Purchaser has provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act, or (ii) all appropriate actions necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) has been taken; and
(d) Purchaser has provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the Regulations referred to in Section 4.2 hereof.
6.2 Restriction on Transfer. Purchaser shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Companys Repurchase Option or the Companys Right of First Refusal described below, except as permitted by this Agreement.
6.3 Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred Shares are subject to: (a) both the Companys Repurchase Option and the Companys Right of First Refusal granted hereunder and (b) the market stand-off provisions of Section 7 hereof, to the same extent such Shares would be so subject if retained by the Purchaser.
7. Market Standoff Agreement. Purchaser agrees in connection with any registration of the Companys securities that, upon the request of the Company or the underwriters managing any public offering of the Companys securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the
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Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) after the effective date of such registration requested by such underwriters and subject to all restrictions as the Company or the underwriters may specify. Purchaser further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing.
8. Companys Repurchase Option for Unvested Shares. The Company, or its assignee, shall have the option to repurchase all or a portion of the Purchasers Unvested Shares (as defined in Section 8.2 below) on the terms and conditions set forth in this Section (the Repurchase Option) if Purchaser is Terminated (as defined in the Plan) for any reason, or no reason, including without limitation Purchasers death, Disability (as defined in the Plan), voluntary resignation or termination by the Company with or without Cause (as defined in the Plan).
8.1 Termination and Termination Date. In case of any dispute as to whether Purchaser is Terminated, the Committee shall have sole discretion to determine whether Purchaser has been Terminated and the effective date of such Termination (the Termination Date).
8.2 Unvested and Vested Shares. Shares that are vested pursuant to the schedule set forth in this Section 8.2 are Vested Shares. Shares that are not vested pursuant to the schedule set forth in this Section 8.2 are Unvested Shares. Unvested Shares may not be sold or otherwise transferred by Purchaser without the Companys prior written consent. On the Effective Date all of the Shares will be Unvested Shares. If Purchaser has continuously provided services to the Company, any Subsidiary or Parent at all times from the Effective Date until , 20 (the First Vesting Date), then on the First Vesting Date of the Shares will become Vested Shares; and thereafter, for so long (and only for so long) as Purchaser continuously provides services to the Company, any Subsidiary or Parent at all times after the First Vesting Date, an additional of the Shares will become Vested Shares upon each of the first anniversaries of the First Vesting Date. If the application of the vesting percentage causes a fractional share, such share shall be rounded down to the nearest whole share for each month except for the last month in such vesting period, at the end of which last month the balance of Unvested Shares shall become fully Vested Shares. No Shares will become Vested Shares after the Termination Date. The number of Shares that are Vested Shares or Unvested Shares will be proportionally adjusted for any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan.
8.3 Exercise of Repurchase Option. At any time within ninety (90) days after the Termination Date, the Company, or its assignee(s), may elect to repurchase any or all of the Purchasers Unvested Shares by giving Purchaser written notice of exercise of the Repurchase Option.
8.4 Calculation of Repurchase Price. The Company or its assignee(s) shall have the option to repurchase from Purchaser (or from Purchasers personal representative as the case may be) the Purchasers Unvested Shares at the Purchasers original Purchase Price Per Share (as adjusted to reflect any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan) (the Repurchase Price).
8.5 Payment of Repurchase Price. The Repurchase Price shall be payable, at the option of the Company or its assignee(s), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by Purchaser to the Company, or such assignee, or by any combination thereof. The Repurchase Price shall be paid without interest within sixty (60) days after exercise of the Repurchase Option.
8.6 Right of Termination Unaffected. Nothing in this Agreement shall be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any Parent or Subsidiary) to terminate Purchasers employment or other relationship with the Company (or any Parent or Subsidiary) at any time for any reason or no reason, with or without Cause.
9. Companys Right of First Refusal. Unvested Shares may not be sold or otherwise transferred by Purchaser without the Companys prior written consent. Before any Vested Shares held by Purchaser or any transferee of such Vested Shares (either sometimes referred to herein as the Holder) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Vested Shares to be sold or transferred (the Offered Shares) on the terms and conditions set forth in this Section (the Right of First Refusal).
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9.1 Notice of Proposed Transfer. The Holder of the Offered Shares will deliver to the Company a written notice (the Notice) stating: (a) the Holders bona fide intention to sell or otherwise transfer the Offered Shares; (b) the name and address of each proposed purchaser or other transferee (the Proposed Transferee); (c) the number of Offered Shares to be transferred to each Proposed Transferee; (d) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the Offered Price); and (e) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Companys Right of First Refusal at the Offered Price as provided for in this Agreement.
9.2 Exercise of Right of First Refusal. At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined as specified below.
9.3 Purchase Price. The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift), the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Companys Board of Directors. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Companys Board of Directors, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
9.4 Payment. Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Companys receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
9.5 Holders Right to Transfer. If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (a) such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice, (b) any such sale or other transfer is effected in compliance with all applicable securities laws, and (c) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such one hundred twenty (120) day period, then a new Notice must be given to the Company, pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
9.6 Exempt Transfers. Notwithstanding anything to the contrary in this Section, the following transfers of Vested Shares will be exempt from the Right of First Refusal: (a) the transfer of any or all of the Vested Shares during Purchasers lifetime by gift or on Purchasers death by will or intestacy to Purchasers Immediate Family (as defined below) or to a trust for the benefit of Purchaser or Purchasers Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee or other recipient; (b) any transfer or conversion of Vested Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Vested Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights of the Company under this Section unless (i) the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Securities Exchange Act of 1934, as amended; or (ii) the agreement of merger or consolidation expressly otherwise provides); or (c) any transfer of Vested Shares pursuant to the winding up and dissolution of the Company. As used herein, the term Immediate Family will mean Purchasers spouse, the lineal descendant or antecedent, brother or sister of Purchaser or Purchasers spouse, or the spouse of any such person, whether or not adopted or Spousal Equivalent, as defined herein. As used herein, a person is deemed to be a Spousal Equivalent provided the following circumstances are true: (i) irrespective of whether or not the Purchaser and the Spousal Equivalent are the same sex,
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they are the sole spousal equivalent of the other for the last twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither are married to anyone else, (iv) both are at least 18 years of age and mentally competent to consent to contract, (v) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (vi) they are jointly responsible for each others common welfare and financial obligations, and (vii) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
9.7 Termination of Right of First Refusal. The Right of First Refusal will terminate as to all Shares on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan).
10. Rights as a Stockholder.
10.1 Encumbrances on Vested Shares. Purchaser may grant a lien or security interest in, or pledge, hypothecate or encumber Vested Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (a) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (b) the provisions of this Section will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber, any Unvested Shares.
10.2 Other Rights. Subject to the terms and conditions of this Agreement, Purchaser will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Purchaser delivers payment of the Purchase Price until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of First Refusal. Upon an exercise of the Repurchase Option or the Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
11. Escrow. As security for Purchasers faithful performance of this Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchasers spouse, if any (with the date, transferee, certificate number and number of Shares left blank), to the Secretary of the Company or other designee of the Company (the Escrow Holder), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Escrow Holder will act solely for the Company as its agent and not as a fiduciary. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement. The Shares will be released from escrow upon termination of the Repurchase Option and the Right of First Refusal.
12. Restrictive Legends and Stop-Transfer Orders.
12.1 Legends. Purchaser understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Companys Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR UNDER THE SECURITIES LAWS OF
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CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE, TRANSFER, INCLUDING THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS, INCLUDING THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A 180 DAY MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, COPIES OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF ANY PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.
12.2 Stop-Transfer Instructions. Purchaser agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. The Company will not be required (a) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (b) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.
13. Tax Consequences. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASERS PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS (a) THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND (b) THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. Purchaser hereby acknowledges that Purchaser has been informed that, unless an election is filed by the Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities) within 30 days of the purchase of the Shares to be effective, electing pursuant to Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Purchase Price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of taxable income to the Purchaser, measured by the excess, if any, of the Fair Market Value of the Vested Shares, at the time they cease to be Unvested Shares, over the Purchase Price for such Shares. Purchaser represents that Purchaser has consulted any tax advisers Purchaser deems advisable in connection with Purchasers purchase of the Shares and the filing of the election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as Exhibit 3 for reference. PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR FROM FAILURE TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES.
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14. General Provisions.
14.1 Compliance with Laws and Regulations. The issuance and transfer of the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Companys Common Stock may be listed or quoted at the time of such issuance or transfer.
14.2 Successors and Assigns. The Company may assign any of its rights under this Agreement, including its rights to repurchase Shares under the Repurchase Option and the Right of First Refusal. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding upon Purchaser and Purchasers heirs, executors, administrators, legal representatives, successors and assigns.
14.3 Governing Law; Severability. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Washington as such laws are applied to agreements between Washington residents entered into and to be performed entirely within Washington, excluding that body of laws pertaining to conflict of laws. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
14.4 Notices. Any notice required to be given or delivered to the Company shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Purchaser shall be in writing and addressed to Purchaser at the address indicated above, Purchasers facsimile number below or to such other address or facsimile number as Purchaser may designate in writing from time to time to the Company. All notices shall be deemed effectively given (a) upon personal delivery, (b) three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested) postage prepaid, (b) one (1) business day after its deposit with any return receipt express courier (fees prepaid), or (c) one (1) business day after transmission by telecopier.
14.5 Further Instruments. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.
14.6 Headings. The captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. All references herein to Sections will refer to Sections of this Agreement.
14.7 Entire Agreement. The Plan and this Agreement, together with all its Exhibits and documents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between the parties hereto with respect to the specific subject matter hereof.
[Remainder of Page Intentionally Blank, Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Restricted Stock Purchase Agreement to be executed in triplicate by its duly authorized representative and Purchaser has executed this Agreement in triplicate as of the Effective Date.
IMPEL NEUROPHARMA, INC. | PURCHASER | |||||||
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LIST OF ATTACHMENTS
Exhibit 1: | Stock Power and Assignment Separate from Stock Certificate | |
Exhibit 2: | Spouse Consent | |
Exhibit 3: | Election Under Section 83(b) of the Internal Revenue Code | |
Exhibit 4: | Copy of Purchasers Check |
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EXHIBIT 1
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
Stock Power and Assignment
Separate from Stock Certificate
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement No. [COMPLETE AT THE TIME OF EXERCISE] dated as of , , [COMPLETE AT THE TIME OF EXERCISE] (the Agreement), the undersigned hereby sells, assigns and transfers unto , shares of the Common Stock of Impel NeuroPharma, Inc., a Delaware corporation (the Company), standing in the undersigneds name on the books of the Company represented by Certificate No(s). [COMPLETE AT THE TIME OF EXERCISE] delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigneds attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.
Dated: ,
PURCHASER |
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(Please Print Name) |
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(Spouses Signature, if any) |
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(Please Print Spouses Name) |
Instructions to Purchaser: Please do not fill in any blanks other than the signature line. The purpose of this Stock Power and Assignment is to enable the Company and/or its assignee(s) to acquire the shares upon exercise of its Repurchase Option and/or Right of First Refusal set forth in the Agreement without requiring additional signatures on the part of the Purchaser or Purchasers Spouse, if any.
EXHIBIT 2
SPOUSE CONSENT
Spouse Consent
The undersigned spouse of (the Purchaser) has read, understands, and hereby approves the Restricted Stock Purchase Agreement between Purchaser and the Company (the Agreement). In consideration of the Companys granting my spouse the right to purchase the Shares as set forth in the Agreement, the undersigned hereby agrees to be irrevocably bound by the Agreement and further agrees that any community property interest shall similarly be bound by the Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement.
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EXHIBIT 3
ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE
Election Under Section 83(b) of the Internal Revenue Code
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, as amended, to include in gross income for the Taxpayers current taxable year the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services.
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TAXPAYERS NAME: |
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SOCIAL SECURITY NUMBER: |
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The property with respect to which the election is made is described as follows: shares of Common Stock of Impel NeuroPharma, a Delaware corporation (the Company), which is Taxpayers employer or the corporation for whom the Taxpayer performs services. |
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The date on which the shares were purchased was , 20 and this election is made for calendar year 20 . |
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The shares are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayers original purchase price under certain conditions at the time of Taxpayers termination of employment or services. |
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The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $ per share at the time of purchase. |
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The amount paid for such shares was $ per share. |
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The Taxpayer has submitted a copy of this statement to the Company. |
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE (IRS), AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYERS INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS.
Dated: , |
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EXHIBIT 4
COPY OF PURCHASERS CHECK
No.
IMPEL NEUROPHARMA, INC.
2008 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (the Agreement) is made and entered into as of the date of grant set forth below (the Date of Grant) by and between Impel NeuroPharma, Inc., a Delaware corporation (the Company), and the participant named below (the Participant). Capitalized terms not defined herein shall have the meaning ascribed to them in the Companys 2008 Equity Incentive Plan (the Plan).
Participant: | ||
Social Security Number: | ||
Address: | ||
Total Option Shares: | ||
Exercise Price Per Share: | ||
Date of Grant: | ||
Vesting Commencement Date: | ||
First Vesting Date: | ||
Expiration Date: | ||
(unless earlier terminated under Section 5.6 of the Plan) | ||
Classification of Optionee |
☐ Exempt Employee |
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☐ Nonexempt Employee |
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Type of Stock Option (Check one): |
☐ Incentive Stock Option |
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☐ Nonqualified Stock Option |
1. Grant of Option. The Company hereby grants to Participant an option (this Option) to purchase the total number of shares of Common Stock of the Company set forth above as Total Option Shares (the Shares) at the Exercise Price Per Share set forth above (the Exercise Price), subject to all of the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option above, the Option is intended to qualify as an incentive stock option (the ISO) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code).
2. Exercise Period.
2.1 Exercise Period of Option. Provided Participant continues to provide services to the Company or any Subsidiary or Parent of the Company, the Option will become vested and exercisable as to portions of the Shares as follows: (i) this Option shall not vest nor
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be exercisable with respect to any of the Shares until the First Vesting Date set forth on the first page of this Agreement (the First Vesting Date); (ii) on the First Vesting Date the Option will become vested and exercisable as to of the Shares [USUALLY 1/5th OR 1/4th]; and (iii) thereafter the Option will become vested and exercisable monthly as to [USUALLY 1/48th IF 4 YEAR VESTING; 1/60th IF 5 YEAR VESTING] of the Shares until the Shares are vested with respect to all of the Shares. If application of the vesting percentage causes a fractional share, such share shall be rounded down to the nearest whole share for each month except for the last month in such vesting period, at the end of which last month this Option shall become exercisable for the full remainder of the Shares.
2.2 Vesting and Order of Exercise. Shares that are vested pursuant to the schedule set forth in Section 2.1 are Vested Shares. Shares that are not vested pursuant to the schedule set forth in Section 2.1 are Unvested Shares.
2.3 Expiration. The Option shall expire on the Expiration Date set forth above or earlier as provided in Section 3 below or in the Plan.
3. Termination. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of:
3.1 The Expiration Date.
3.2 One year following Participants Termination due to death or Disability (Any exercise occurring beyond twelve (12) months after such Termination Date, when for Participants death or Disability is deemed to be of an Option that is not an ISO).
3.3 Three (3) months following Participants Termination Date when Termination is by the Company without Cause or by Participant for any reason.
3.4 Thirty (30) days following Participants Termination Date when Participants Termination is for Cause.
3.5 No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on Participant any right to continue in employment with the Company or any Parent or Subsidiary, or limit in any way the right of the Company or any Parent or Subsidiary to terminate Participants employment at any time, with or without Cause.
4. Manner of Exercise.
4.1 Stock Option Exercise Agreement. To exercise this Option, Participant (or in the case of exercise after Participants death or incapacity, Participants executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit A, or in such other form as may be approved by the Committee from time to time (the Exercise Agreement), which shall set forth, inter alia, (i) Participants election to exercise the Option, (ii) the number of Shares being purchased, (iii) any restrictions imposed on the Shares and (iv) any representations, warranties and agreements regarding Participants investment intent and access to information as may be required by the Company to comply with applicable securities laws. If someone other
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than Participant exercises the Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise the Option and such person shall be subject to all of the restrictions contained herein as if such person were the Participant.
4.2 Limitations on Exercise. The Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise.
4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the shares being purchased in cash (by check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares of the Companys Common Stock that (i) have been paid for within the meaning of SEC Rule 144; and (ii) are clear of all liens, claims, encumbrances or security interests;
(c) by waiver of compensation due or accrued to Participant for services rendered;
(d) provided that a public market for the Companys stock exists: (i) through a same day sale commitment from Participant and a broker-dealer designated by the Company (a Dealer) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay for the total Exercise Price and whereby the Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company, or (ii) through a margin commitment from Participant and a Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the Dealer in a margin account as security for a loan from the Dealer in the amount of the total Exercise Price, and whereby the Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or
(e) any other form of consideration approved by the Committee; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon exercise of the Option, Participant must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Participant may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld; but in no event will the Company withhold Shares if such withholding would result in adverse accounting consequences to the Company. In such case, the Company shall issue the net number of Shares to the Participant by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Participant, Participants authorized assignee, or Participants legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto.
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5. Notice of Disqualifying Disposition of ISO Shares. If the Option is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Date of Grant, and (ii) the date one (1) year after transfer of such Shares to Participant upon exercise of the Option, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant from the early disposition by payment in cash or out of the current wages or other compensation payable to Participant.
6. Compliance with Laws and Regulations. The Plan and this Agreement are intended to comply with all applicable laws and any regulations relating thereto. The exercise of the Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Companys Common Stock may be listed at the time of such issuance or transfer. Participant understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
7. Nontransferability of Option. The Option may not be transferred in any manner other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to an inter vivos or testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to immediate family as that term is defined in 17 C.F.R. 240.16a-1(e), and may be exercised during the lifetime of Participant only by Participant or in the event of Participants incapacity, by Participants legal representative. The terms of the Option shall be binding upon the executors, administrators, successors and assigns of Participant.
8. Reserved.
9. Companys Right of First Refusal. Before any Vested Shares held by Participant or any transferee of such Vested Shares may be sold or otherwise transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) shall have an assignable right of first refusal to purchase the Vested Shares to be sold or transferred on the terms and conditions set forth in the Exercise Agreement (the Right of First Refusal). The Companys Right of First Refusal will terminate when the Companys securities become publicly traded.
10. Tax Consequences. Set forth below is a brief summary as of the Effective Date of the Plan of some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
10.1 Exercise of ISO. If the Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the
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Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal alternative minimum tax purposes and may subject the Participant to the alternative minimum tax in the year of exercise.
10.2 Exercise of Nonqualified Stock Option. If the Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of the Option. Participant will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Participant is a current or former employee of the Company, the Company may be required to withhold from Participants compensation or collect from Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
10.3 Disposition of Shares. The following tax consequences may apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal income tax purposes. When Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price.
(b) Nonqualified Stock Options. If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.
(c) Withholding. The Company may be required to withhold from the Participants compensation or collect from the Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income.
11. Privileges of Stock Ownership. Participant shall not have any of the rights of a stockholder with respect to any Shares until the Shares are issued to Participant.
12. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Participant.
13. Entire Agreement. The Plan is incorporated herein by reference. This Agreement and the Plan constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.
14. Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at
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the time of personal delivery, if delivery is in person; (ii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iii) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iv) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries.
All notices for delivery outside the United States will be sent by facsimile, air mail or express courier. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set forth below the signature lines of this Agreement, or at such other address as such other party may designate by one of the indicated means of notice herein to the other parties hereto. Notices to the Company will be marked Attention: Corporate Secretary. Notices by facsimile shall be machine verified as received.
15. Successors and Assigns. The Company may assign any of its rights under this Agreement including its rights to purchase Shares under the Right of First Refusal. No other party to this Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Agreement, except with the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Participant and Participants heirs, executors, administrators, legal representatives, successors and assigns.
16. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Washington as such laws are applied to agreements between Washington residents entered into and to be performed entirely within Washington, excluding that body of laws pertaining to conflict of laws. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
17. Acceptance. Participant hereby acknowledges receipt of a copy of the Plan and this Agreement. Participant has read and understands the terms and provisions thereof, and accepts the Option subject to all the terms and conditions of the Plan and this Agreement. Participant acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Participant should consult a tax adviser prior to such exercise or disposition.
18. Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
19. Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Agreement.
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20. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
21. Severability. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
22. Facsimile Signatures. This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in triplicate by its duly authorized representative and Participant has executed this Agreement in triplicate, effective as of the Date of Grant.
IMPEL NEUROPHARMA, INC. | PARTICIPANT | |||||||
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Attachment:
Exhibit A Stock Option Exercise Agreement
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EXHIBIT A
STOCK OPTION EXERCISE AGREEMENT
No.
IMPEL NEUROPHARMA, INC.
2008 EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Stock Option Exercise Agreement (the Exercise Agreement) is made and entered into as of , (the Effective Date) by and between Impel NeuroPharma, Inc., a Delaware corporation (the Company), and the purchaser named below (the Purchaser). Capitalized terms not defined herein shall have the meanings ascribed to them in the Companys 2008 Equity Incentive Plan (the Plan).
Purchaser: |
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Social Security Number: |
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Address: |
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Total Number of Shares: |
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Exercise Price Per Share: |
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Date of Grant: |
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Expiration Date: |
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(Unless earlier terminated under Section 5.6 of the Plan) | ||
Type of Stock Option (Check one): |
☐ Incentive Stock Option |
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☐ Nonqualified Stock Option |
1. Exercise of Option.
1.1 Exercise. Pursuant to exercise of that certain option (the Option) granted to Purchaser under the Plan and subject to the terms and conditions of this Exercise Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, the Total Number of Shares set forth above (the Shares) of the Companys Common Stock at the Exercise Price Per Share set forth above (the Exercise Price). As used in this Exercise Agreement, the term Shares refers to the Shares purchased under this Exercise Agreement and includes all securities received (i) in replacement of the Shares, (ii) as a result of stock dividends or stock splits with respect to the Shares, and (iii) all securities received in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction.
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1.2 Title to Shares. The exact spelling of Purchasers name under which Purchaser will take title to the Shares is:
1.3 Payment. Purchaser hereby delivers payment of the Exercise Price in the manner permitted in the Stock Option Agreement as follows (check and complete as appropriate):
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in cash (by check) in the amount of $ , receipt of which is acknowledged by the Company; |
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by cancellation of indebtedness of the Company owed to Purchaser in the amount of $ ; |
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by delivery of fully-paid, nonassessable and vested shares of Company Common Stock owned by Purchaser which have been paid for within the meaning of SEC Rule 144 and are free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $ per share; or |
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by the waiver hereby of compensation due or accrued for services rendered in the amount of $ . |
2. Delivery.
2.1 Deliveries by Purchaser. Purchaser hereby delivers to the Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached hereto (the Stock Powers), both executed by Purchaser (and Purchasers spouse, if any), (iii) if Purchaser is married, a Consent of Spouse in the form of Exhibit 2 attached hereto (the Spouse Consent) executed by Purchasers spouse, (iv) the Exercise Price (if payment is by check, then a copy is attached hereto as Exhibit 3) and (v) payment or other provision for any applicable tax obligations in the form of a check, a copy of which is attached hereto as Exhibit 3.
2.2 Deliveries by the Company. Upon its receipt of the Exercise Price, payment or other provision for any applicable tax obligations and all the documents to be executed and delivered by Purchaser to the Company under Section 2.1, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser to be placed in escrow as provided below until expiration or termination of the Companys Right of First Refusal described below.
3. Representations and Warranties of Purchaser. Purchaser represents and warrants to the Company that:
3.1 Agrees to Terms of the Plan. Purchaser has received a copy of the Plan and the Stock Option Agreement, has read and understands the terms of the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to be bound by their terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares, and that Purchaser should consult a tax adviser prior to such exercise or disposition.
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3.2 Purchase for Own Account for Investment. Purchaser is purchasing the Shares for Purchasers own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act. Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares.
3.3 Access to Information. Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Companys representatives concerning such matters and this investment.
3.4 Understanding of Risks. Purchaser is fully aware of: (i) the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchasers own interests in this transaction and is financially capable of bearing a total loss of this investment.
3.5 No General Solicitation. At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares.
4. Compliance with Securities Laws. Purchaser understands and acknowledges that the Shares have not been registered with the SEC under the Securities Act and that, notwithstanding any other provision of the Stock Option Agreement to the contrary, the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws.
5. Restricted Securities.
5.1 No Transfer Unless Registered or Exempt. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the Securities Act or qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC Rule 144. In addition, Purchaser has been advised that SEC Rule 144 promulgated under the Securities Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a six (6) months, and in certain cases one (1) year, after they have been purchased and paid for (within the meaning of Rule 144). Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an affiliate of the Company or if current public information about the Company (as defined in Rule 144) is not publicly available.
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5.3 SEC Rule 701. The Shares are issued pursuant to SEC Rule 701 promulgated under the Securities Act and may become freely tradeable by non-affiliates (under limited conditions regarding the method of sale) ninety (90) days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to the lengthier market standoff agreement set forth below or any other agreement entered into by Purchaser. Affiliates must comply with the provisions (other than the holding period requirements) of Rule 144.
6. Restrictions on Transfers.
6.1 Disposition of Shares. Purchaser hereby agrees that Purchaser shall make no disposition of the Shares (other than as permitted by this Exercise Agreement) unless and until:
(a) Purchaser shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(b) Purchaser shall have complied with all requirements of this Exercise Agreement applicable to the disposition of the Shares;
(c) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or (ii) all appropriate actions necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) have been taken; and
(d) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares.
6.2 Restriction on Transfer. Purchaser shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Companys Right of First Refusal described below, except as permitted by this Exercise Agreement.
6.3 Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Exercise Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Exercise Agreement and that the transferred Shares are subject to (i) the Companys Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 7 hereof, to the same extent such Shares would be so subject if retained by the Purchaser.
7. Market Standoff Agreement. Purchaser agrees in connection with any registration of the Companys securities that, upon the request of the Company or the underwriters managing any public offering of the Companys securities, Purchaser will not sell
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or otherwise dispose of any Shares without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the underwriters may specify. Purchaser further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing.
8. Reserved.
9. Companys Right of First Refusal. Before any Shares held by Purchaser or any transferee of such Shares (either sometimes referred to herein as the Holder) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Shares to be sold or transferred (the Offered Shares) on the terms and conditions set forth in this Section (the Right of First Refusal).
9.1 Notice of Proposed Transfer. The Holder of the Offered Shares will deliver to the Company a written notice (the Notice) stating: (i) the Holders bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name and address of each proposed purchaser or other transferee (the Proposed Transferee); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the Offered Price); and (v) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Companys Right of First Refusal at the Offered Price as provided for in this Exercise Agreement.
9.2 Exercise of Right of First Refusal. At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as specified below.
9.3 Purchase Price. The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift) the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Companys Board of Directors. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Companys Board of Directors, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
9.4 Payment. Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Companys receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
9.5 Holders Right to Transfer. If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer
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such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (i) such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice, (ii) any such sale or other transfer is effected in compliance with all applicable securities laws, and (iii) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such one hundred twenty (120) day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
9.6 Exempt Transfers. Notwithstanding anything to the contrary in this Section, the following transfers of Vested Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Vested Shares during Purchasers lifetime by gift or on Purchasers death by will or intestacy to Purchasers Immediate Family (as defined below) or to a trust for the benefit of Purchaser or Purchasers Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee or other recipient; (ii) any transfer of Vested Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Vested Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); or (iii) any transfer of Vested Shares pursuant to the winding up and dissolution of the Company. As used herein, the term Immediate Family will mean Purchasers spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of the Purchaser or the Purchasers spouse, or the spouse of any of the above or Spousal Equivalent, as defined herein. As used herein, a person is deemed to be a Spousal Equivalent provided the following circumstances are true: (i) irrespective of whether or not the Participant and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither are married to anyone else, (iv) both are at least 18 years of age and mentally competent to consent to contract, (v) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (vi) they are jointly responsible for each others common welfare and financial obligations, and (vii) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
9.7 Termination of Right of First Refusal. The Right of First Refusal will terminate as to all Shares (i) on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan) or (ii) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Securities Exchange Act of 1934, as amended.
9.8 Encumbrances on Vested Shares. Purchaser may grant a lien or security interest in, or pledge, hypothecate or encumber Vested Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance
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is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Section will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber, any Unvested Shares.
10. Rights as a Stockholder. Subject to the terms and conditions of this Exercise Agreement, Purchaser will have all of the rights of a Stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Purchaser until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Right of First Refusal. Upon an exercise of the Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Exercise Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
11. Escrow. As security for Purchasers faithful performance of this Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchasers spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company (the Escrow Holder), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Exercise Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Exercise Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Exercise Agreement. The Shares will be released from escrow upon termination of the Right of First Refusal.
12. Restrictive Legends and Stop-Transfer Orders.
12.1 Legends. Purchaser understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or U.S. Federal securities laws, the Companys Articles of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
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REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, INCLUDING AS APPLICABLE, THE RIGHT OF FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS INCLUDING THE RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A 180 DAY MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF ANY PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.
12.2 Stop-Transfer Instructions. Purchaser agrees that, to ensure compliance with the restrictions imposed by this Exercise Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
12.3 Refusal to Transfer. The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.
13. Tax Consequences. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASERS PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS: (i) THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND (ii) THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. Set forth below is a brief summary as of the date the Plan was adopted by the Board of some of the U.S. Federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PURCHASER SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
13.1 Exercise of Incentive Stock Option. If the Option qualifies as an ISO, there will be no regular U.S. Federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for U.S. Federal alternative minimum tax purposes and may subject Purchaser to the alternative minimum tax in the year of exercise.
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13.2 Exercise of Nonqualified Stock Option. If the Option does not qualify as an ISO, there may be a regular U.S. Federal income tax liability upon the exercise of the Option. Purchaser will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Purchaser is or was an employee of the Company, the Company may be required to withhold from Purchasers compensation or collect from Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
13.3 Disposition of Shares. The following tax consequences may apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal income tax purposes. When Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price.
(b) Nonqualified Stock Options. If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.
(c) Withholding. The Company may be required to withhold from the Purchasers compensation or collect from the Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income.
14. Compliance with Laws and Regulations. The issuance and transfer of the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and U.S. Federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Companys Common Stock may be listed or quoted at the time of such issuance or transfer.
15. Successors and Assigns. The Company may assign any of its rights and obligations under this Exercise Agreement, including its rights to purchase Shares under the Right of First Refusal. No other party to this Exercise Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Exercise Agreement, except with the prior written consent of the Company. This Exercise Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Agreement will be binding upon Purchaser and Purchasers heirs, executors, administrators, legal representatives, successors and assigns.
16. Governing Law. This Exercise Agreement shall be governed by and construed in accordance with the internal laws of the State of Washington as such laws are applied to
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agreements between Washington residents entered into and to be performed entirely within Washington, excluding that body of laws pertaining to conflict of laws. If any provision of this Exercise Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
17. Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Exercise Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Exercise Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iii) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iv) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries.
All notices for delivery outside the United States will be sent by facsimile, air mail or express courier. All notices not delivered personally, or by facsimile, will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set forth below the signature lines of this Exercise Agreement, or at such other address as such other party may designate by one of the indicated means of notice herein to the other parties hereto. Notices to the Company will be marked Attention: President. Notices by facsimile shall be machine verified as received.
18. Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Exercise Agreement.
19. Titles and Headings. The titles, captions and headings of this Exercise Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Exercise Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Exercise Agreement.
20. Entire Agreement. The Plan, the Stock Option Agreement and this Exercise Agreement, together with all Exhibits thereto, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Exercise Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.
21. Counterparts. This Exercise Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
22. Severability. If any provision of this Exercise Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Exercise Agreement and the remainder of this Exercise Agreement shall be enforced as if
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such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Exercise Agreement. Notwithstanding the forgoing, if the value of this Exercise Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
23. Facsimile Signatures. This Exercise Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.
IN WITNESS WHEREOF, the Company has caused this Exercise Agreement to be executed in triplicate by its duly authorized representative and Purchaser has executed this Exercise Agreement in triplicate as of the Effective Date, indicated above.
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LIST OF EXHIBITS
Exhibit 1: | Stock Power and Assignment Separate from Stock Certificate | |
Exhibit 2: | Spouse Consent | |
Exhibit 3: | Copy of Purchasers Check |
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EXHIBIT 1
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
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Stock Power and Assignment
Separate from Stock Certificate
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise Agreement No. [TO BE COMPLETED AT THE TIME OF EXERCISE] dated as of , , [TO BE COMPLETED AT THE TIME OF EXERCISE] (the Agreement), the undersigned hereby sells, assigns and transfers unto , shares of the Common Stock of Impel NeuroPharma, Inc., a Delaware corporation (the Company), standing in the undersigneds name on the books of the Company represented by Certificate No(s). [TO BE COMPLETED AT THE TIME OF EXERCISE] delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigneds attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.
Dated: ,
PURCHASER |
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(Please Print Name) |
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(Spouses Signature, if any) |
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(Please Print Spouses Name) |
Instructions to Purchaser: Please do not fill in any blanks other than the signature line. The purpose of this Stock Power and Assignment is to enable the Company to acquire the shares and to exercise its Right of First Refusal set forth in the Exercise Agreement without requiring additional signatures on the part of the Purchaser or Purchasers Spouse.
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EXHIBIT 2
SPOUSE CONSENT
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Spouse Consent
The undersigned spouse of (the Purchaser) has read, understands, and hereby approves the Stock Option Exercise Agreement between Purchaser and the Company (the Agreement). In consideration of the Companys granting my spouse the right to purchase the Shares as set forth in the Agreement, the undersigned hereby agrees to be irrevocably bound by the Agreement and further agrees that any community property interest I may have in the Shares shall similarly be bound by the Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement.
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EXHIBIT 3
COPY OF PURCHASERS CHECK
EXHIBIT 10.3
IMPEL NEUROPHARMA, INC.
2018 EQUITY INCENTIVE PLAN
As Adopted on November 30, 2018
1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries by offering eligible persons an opportunity to participate in the Companys future performance through the grant of Awards covering Shares. Capitalized terms not defined in the text are defined in Section 14 hereof. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701, grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan that is required in law only because of Section 25102(o) need not apply if the Committee so provides.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 11 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 22,339,671 Shares plus (a) any authorized shares not issued or subject to outstanding grants under the Companys 2008 Equity Incentive Plan (the Prior Plan) on the Effective Date (as defined in Section 13.1 hereof), which is an amount equal to 2,971,268; and (b) any shares subject to outstanding stock options that are cancelled without being exercised or expire under the 2008 Equity Incentive Plan. Subject to Sections 2.2 and 11 hereof, (A) in the event that Shares previously issued under the Plan are reacquired by the Company pursuant to a forfeiture provision, right of first refusal, or repurchase by the Company, such Shares shall be added to the number of Shares then available for issuance under the Plan; (B) in the event that Shares that otherwise would have been issuable under the Plan are withheld by the Company in payment of the Purchase Price, Exercise Price or withholding obligations, such Shares shall remain available for issuance under the Plan; and (C) in the event that an outstanding Option, Restricted Stock Unit or SAR for any reason expires or is cancelled, forfeited or terminated, the Shares allocable to the unexercised or unsettled portion of such Option, Restricted Stock Unit or SAR, as applicable, shall remain available for issuance under the Plan. To the extent an Award is settled in cash, the cash settlement shall not reduce the number of Shares remaining available for issuance under the Plan. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all Awards granted and outstanding under this Plan. In no event shall the total number of Shares issued (counting each reissuance of a Share that was previously issued and then reacquired by the Company pursuant to a forfeiture provision, right of first refusal, or repurchase by the Company as a separate issuance) under the Plan upon exercise of ISOs (as defined in Section 4 hereof) exceed 44,679,342) Shares (adjusted in proportion to any adjustments under Section 2.2 hereof) over the term of the Plan.
2.2 Adjustment of Shares. In the event that the Companys Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or other change in the capital structure of the Company affecting Shares without consideration, then in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan (a) the number and class of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number and class of Shares subject to outstanding Options and SARs, and (c) the Purchase Prices of and/or number and class of Shares subject to other outstanding Awards will (to the extent appropriate) be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities or other laws;
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provided, however, that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee.
3. PLAN FOR BENEFIT OF SERVICE PROVIDERS.
3.1 Eligibility. The Committee will have the authority to select persons to receive Awards. ISOs may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 4 hereof) and all other types of Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction when Rule 701 is to apply to the Award granted for such services. A person may be granted more than one Award under this Plan.
3.2 No Obligation to Employ. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Subsidiary or Parent of the Company or limit in any way the right of the Company or any Subsidiary or Parent of the Company to terminate Participants employment or other relationship at any time, with or without Cause.
4. OPTIONS. The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (ISOs) or Nonqualified Stock Options (NQSOs), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following.
4.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO (Stock Option Agreement), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.
4.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.
4.3 Exercise Period. Options may be exercisable within the time or upon the events determined by the Committee in the Award Agreement and may be awarded as immediately exercisable but subject to repurchase pursuant to Section 10 hereof or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that (a) no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and (b) no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Subsidiary or Parent of the Company (Ten Percent Stockholder) will be exercisable after the expiration of five (5) years from the date the ISO is granted; but in no event shall an Option granted to an employee who is a non-exempt employee for purposes of overtime pay under the U.S. Fair Labor Standards Act of 1938 be exercisable earlier than six (6) months after its date of grant. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.
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4.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and shall not be less than the Fair Market Value per Share on the date of grant unless expressly determined in writing by the Committee; provided that the Exercise Price of an ISO granted to a Ten Percent Stockholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 8 hereof.
4.5 Method of Exercise. Options may be exercised only by delivery to the Company of a stock option exercise agreement (accepted via written, electronic or other means) (the Exercise Agreement) in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (a) the number of Shares being purchased, (b) the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and (c) such representations and agreements regarding Participants investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities or other laws. Each Participants Exercise Agreement may be modified by (i) agreement of Participant and the Company or (ii) substitution by the Company, upon becoming a public company, in order to add the payment terms set forth in Section 8.1 that apply to a public company and such other terms as shall be necessary or advisable in order to exercise a public company option. Upon exercise of an Option, Participant shall execute and deliver to the Company the Exercise Agreement then in effect, together with payment in full of the Exercise Price for the number of Shares being purchased and satisfaction of any applicable Tax-Related Obligations (as defined in Section 8.2 hereof). No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 2.2 of the Plan. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
4.6 Termination. Subject to earlier termination pursuant to Sections 11 and 13 hereof and subject to any longer exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following terms and conditions.
4.6.1 Other than Death or Disability or for Cause. If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participants Options only to the extent that such Options are exercisable as to Vested Shares upon the Termination Date, except as otherwise determined by the Committee or required by applicable law. Such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period after the Termination Date as may be determined by the Committee or required by applicable law, with any exercise beyond three (3) months after the date Participant ceases to be an employee deemed to be an NQSO) but, in any event, no later than the expiration date of the Options.
4.6.2 Death or Disability. If the Participant is Terminated because of Participants death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participants Options may be exercised only to the extent that such Options are exercisable as to Vested Shares on the Termination Date, except as otherwise determined by the Committee or required by applicable law. Such Options must be exercised by Participant (or Participants legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, after the Termination Date as may be determined by the Committee or required by
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applicable law, with any exercise beyond (a) three (3) months after the date Participant ceases to be an employee when the Termination is for any reason other than the Participants death or disability, within the meaning of Section 22(e)(3) of the Code, or (b) twelve (12) months after the date Participant ceases to be an employee when the Termination is for Participants disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any event no later than the expiration date of the Options.
4.6.3 For Cause. If the Participant is Terminated for Cause, the Participant may exercise such Participants Options, but not to an extent greater than such Options are exercisable as to Vested Shares upon the Termination Date and Participants Options shall expire on such Participants Termination Date, or at such later time and on such conditions as are determined by the Committee.
4.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable.
4.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date (as defined in Section 13.1 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.
4.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participants rights under any Option previously granted, unless for the purpose of complying with applicable laws and regulations. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 4.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 4.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price.
4.10 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participants ISO under Section 422 of the Code.
5. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following terms and conditions.
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5.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement (Restricted Stock Purchase Agreement) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The Restricted Stock Award will be accepted by the Participants execution and delivery of the Restricted Stock Purchase Agreement (accepted via written, electronic or other means) and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee.
5.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted. Payment of the Purchase Price must be made in accordance with Section 8 hereof.
5.3 Dividends and Other Distributions. Participants holding Restricted Stock Awards will be entitled to receive all dividends and other distributions paid with respect to such Shares, unless the Committee provides otherwise at the time the Award is granted. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Restricted Stock Awards with respect to which they were paid.
5.4 Restrictions. Restricted Stock Awards may be subject to the restrictions set forth in Sections 9 and 10 hereof or, with respect to a Restricted Stock Award to which Section 25102(o) is to apply, such other restrictions not inconsistent with Section 25102(o).
6. RESTRICTED STOCK UNITS.
6.1 Awards of Restricted Stock Units. A Restricted Stock Unit (RSU) is an Award covering a number of Shares that may be settled in cash, by issuance of those Shares at a date in the future, or by a combination of cash and Shares. No Purchase Price shall apply to an RSU settled in Shares. All grants of RSUs will be evidenced by an Award Agreement (the RSU Agreement) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. No RSU will have a term longer than ten (10) years from the date the RSU is granted.
6.2 Form and Timing of Settlement. To the extent permissible under applicable law, the Committee may permit a Participant to defer payment (including settlement) under an RSU to a date or dates after the RSU has vested, provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code (or any successor) and any regulations or rulings promulgated thereunder, to the extent the Participant is subject to Section 409A of the Code. Payment may be made in the form of cash or whole Shares or a combination thereof, all as the Committee determines.
6.3 Dividend Equivalent Payments. The Board may permit Participants holding RSUs to receive dividend equivalent payments on outstanding RSUs if and when dividends are paid to stockholders on Shares. In the discretion of the Board, such dividend equivalent payments may be paid in cash or Shares and they may either be paid at the same time as dividend payments are made to stockholders or delayed until Shares are issued pursuant to the RSU grants and may be subject to the same vesting or performance requirements as the RSUs. If the Board permits dividend equivalent payments to be made on RSUs, the terms and conditions for such dividend equivalent payments will be set forth in the RSU Agreement.
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7. STOCK APPRECIATION RIGHTS.
7.1 Awards of SARs. Stock Appreciation Rights (SARs) may be settled in cash or Shares (which may consist of Restricted Stock or RSUs) or a combination thereof, having a value equal to the value determined by multiplying the difference between the Fair Market Value on the date of exercise over the Exercise Price and the number of Shares with respect to which the SAR is being exercised. All grants of SARs made pursuant to this Plan will be evidenced by an Award Agreement (the SAR Agreement) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan.
7.2 Exercise Period and Expiration Date. A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the SAR Agreement. The SAR Agreement shall set forth the expiration date; provided that no SAR will be exercisable after the expiration of ten (10) years from the date the SAR is granted.
7.3 Exercise Price. The Committee will determine the Exercise Price of the SAR when the SAR is granted, which may not be less than the Fair Market Value on the date of grant.
7.4 Termination. Subject to earlier termination pursuant to Sections 11 and 13 hereof and subject to any longer exercise periods set forth in the SAR Agreement, exercise of SARs will always be subject to the following terms and conditions.
7.4.1 Other than Death or Disability or for Cause. If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participants SARs only to the extent that such SARs are exercisable as to Vested Shares upon the Termination Date or as otherwise determined by the Committee or as required by applicable law. SARs must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period after the Termination Date as may be determined by the Committee or as required by applicable law), but in any event no later than the expiration date of the SARs.
7.4.2 Death or Disability. If the Participant is Terminated because of Participants death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participants SARs may be exercised only to the extent that such SARs are exercisable as to Vested Shares on the Termination Date or as otherwise determined by the Committee or as required by applicable law. Such SARs must be exercised by Participant (or Participants legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period after the Termination Date as may be determined by the Committee or as required by applicable law), but in any event no later than the expiration date of the SARs.
7.4.3 For Cause. If the Participant is Terminated for Cause, the Participant may exercise such Participants SARs, but not to an extent greater than such SARs are exercisable as to Vested Shares upon the Termination Date and Participants SARs shall expire on such Participants Termination Date, or at such later time and on such conditions as are determined by the Committee.
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8. PAYMENT FOR PURCHASES AND EXERCISES.
8.1 Payment in General. Payment for Shares acquired pursuant to this Plan may be made in cash equivalents (including by check or Automated Clearing House (ACH) transfer) or, where expressly approved for the Participant by the Committee and subject to compliance with applicable law:
(a) by cancellation of indebtedness of the Company owed to the Participant;
(b) by surrender of shares of the Company that are clear of all liens, claims, encumbrances or security interests and: (i) for which the Company has received full payment of the purchase price within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid (i) imputation of income under Sections 483 and 1274 of the Code and (ii) unfavorable accounting treatment as determined by the Committee; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; provided, further, that the portion of the Exercise Price or Purchase Price, as the case may be, equal to the par value (if any) of the Shares must be paid in cash or other legal consideration permitted by the laws under which the Company is then incorporated or organized;
(d) by waiver of compensation due or accrued to the Participant from the Company for services rendered;
(e) by participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(f) provided that a public market for the Companys common stock exists, by exercising through a same day sale commitment from the Participant and a broker-dealer whereby the Participant irrevocably elects to exercise the Award and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price or Purchase Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price or Purchase Price directly to the Company; or
(g) by any combination of the foregoing or any other method of payment approved by the Committee.
For avoidance of uncertainty: ACH transfers that have been received by the Company into its bank account designated for receipt of such transfers under this Section 8.1 shall be deemed to have been received for all purposes under this Plan as of the date on which such transfers were initiated from the transferors account and made irrevocable by the transferor.
8.2 Withholding Taxes.
8.2.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy the maximum tax withholding requirements as to income tax, social insurance, payroll tax, fringe benefits tax, payment on account and other tax-related obligations (collectively, Tax-Related Obligations) prior to the delivery of any written or electronic certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will be net of an amount sufficient to satisfy applicable tax withholding requirements.
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8.2.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy up to the maximum Tax-Related Obligations in the employees applicable jurisdictions by electing to have the Company withhold from the Shares to be issued up to the number of Shares having a Fair Market Value on the date that the amount of tax to be withheld is to be determined that is not more than the maximum Tax-Related Obligations in the employees applicable jurisdictions; or to arrange a mandatory sell to cover on Participants behalf (without further authorization) but in no event will the Company withhold Shares or sell to cover if such withholding would result in adverse accounting or compliance consequences to the Company. The maximum Tax-Related Obligations are based on the applicable rates of the relevant tax authorities (for example, federal, state and local), including the employees share of payroll or similar taxes, as provided in the tax law, regulations or the authoritys administrative practices, not to exceed the highest statutory rate in that jurisdiction. Any elections to have Shares withheld or sold for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee.
8.2.3 Elections Under Section 83(i) of the Code. A Participant will not make an election under Section 83(i) of the Code if the Company determines that the Participant is then ineligible to make such an election under applicable law or without the Companys prior written consent (which will not be unreasonably withheld or delayed, but may be conditioned upon the Participants entry into additional commitments as determined by the Company).
9. RESTRICTIONS ON AWARDS.
9.1 Transferability. Except as permitted by the Committee, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and, with respect to NQSOs for Participants in the U.S., by instrument to an inter vivos or testamentary trust in which the NQSOs are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to family member as that term is defined in Rule 701, and may not be made subject to execution, attachment or similar process. For the avoidance of doubt, the prohibition against assignment and transfer applies to Awards and any Shares underlying the Awards prior to the issuance of the Shares, and pursuant to the foregoing sentence shall be understood to include, without limitation, a prohibition against any pledge, hypothecation, or other transfer, including any short position, any put equivalent position or any call equivalent position (in each case, as defined in Rule 16a-1 promulgated under the Exchange Act). Unless an Award is transferred pursuant to the terms of this Section, during the lifetime of the Participant an Award will be exercisable only by the Participant or Participants legal representative and any elections with respect to an Award may be made only by the Participant or Participants legal representative. The terms of an Award shall be binding upon the executor, administrator, successors and assigns of the Participant who is a party thereto.
9.2 Securities Law and Other Regulatory Compliance. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, Awards may be made pursuant to this Plan that do not qualify for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan which is required in law only because of Section 25102(o) need not apply with respect to a particular Award to which Section 25102(o) will not apply. An Award will not be effective unless such Award is in compliance with all applicable U.S. and non-U.S.
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federal, state and local securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Companys equity securities may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise, settlement or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue Shares or deliver certificates for Shares under this Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) compliance with any exemption, completion of any registration or other qualification of such Shares under any U.S. and non-U.S. federal, state or local law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.
9.3 Exchange and Buyout of Awards. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. Without prior stockholder approval the Committee may reprice Options or SARs (and where such repricing is a reduction in the Exercise Price of outstanding Options or SARs, the consent of the affected Participants is not required provided written notice is provided to them). The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree.
10. RESTRICTIONS ON SHARES.
10.1 Privileges of Stock Ownership. No Participant will have any of the rights of a stockholder with respect to any Shares until such Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased as described in this Section 10.
10.2 Rights of First Refusal and Repurchase. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, provided that such right of first refusal terminates upon (i) subject to any applicable market standoff restrictions, the effective date of the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the Securities Act (other than a registration statement relating solely to the issuance of common stock pursuant to a business combination or an employee incentive or benefit plan); (ii) any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect Parent thereof is registered under the Exchange Act; or (iii) any transfer or conversion of Shares made pursuant to a statutory conversion of the Company into another form of legal entity if the common equity (or comparable equity security) of entity resulting from such conversion is registered under the Exchange Act; and (b) a right to repurchase Unvested Shares held by a Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by the Participant following such Participants Termination at any time.
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10.3 Agreement to Vote Shares. At the discretion of the Committee, the Company may require that, as a condition to the receipt of the Shares upon issuance of an Award, exercise of an Option or SAR or settlement of an RSU, the Participant and any transferee of the Shares agree to vote such Shares pursuant to the terms of a Voting Agreement by and between the Company and certain of its stockholders.
10.4 Escrow; Pledge of Shares. To enforce any restrictions on a Participants Shares, the Committee may require the Participant to deposit all written or electronic certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the written or electronic certificate. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participants obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participants Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.
10.5 Securities Law Restrictions. All written or electronic certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable U.S. and non-U.S. federal, state or local securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Companys equity securities may be listed or quoted.
11. CORPORATE TRANSACTIONS.
11.1 Acquisitions or Other Combinations. In the event that the Company is subject to an Acquisition or Other Combination, outstanding Awards acquired under the Plan shall be subject to the agreement evidencing the Acquisition or Other Combination, which need not treat all outstanding Awards in an identical manner. Such agreement, without the Participants consent, shall provide for one or more of the following with respect to all outstanding Awards as of the effective date of such Acquisition or Other Combination:
(a) The continuation of such outstanding Awards by the Company (if the Company is the successor entity).
(b) The assumption of outstanding Awards by the successor or acquiring entity (if any) in such Acquisition or Other Combination (or by any of its Parents, if any), which assumption, will be binding on all Participants; provided that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or upon the settlement of any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) and Section 409A of the Code. For the purposes of this Section 11, an Award will be considered assumed if, following the Acquisition or Other Combination, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Acquisition or Other Combination, the consideration (whether stock, cash, or other securities or property) received in the
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Acquisition or Other Combination by holders of Shares for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Acquisition or Other Combination is not solely common stock of the successor corporation or its Parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the settlement of an RSU, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Acquisition or Other Combination.
(c) The substitution by the successor or acquiring entity in such Acquisition or Other Combination (or by any of its Parents, if any) of equivalent awards with substantially the same terms for such outstanding Awards (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) and Section 409A of the Code).
(d) The full or partial exercisability or vesting and accelerated expiration of outstanding Awards.
(e) The settlement of the Fair Market Value of such outstanding Award (whether or not then vested or exercisable) in cash, cash equivalents, or securities of the successor entity (or its Parent, if any), followed by the cancellation of such Awards; provided however, that such Award may be cancelled without consideration if such Award has no value, as determined by the Committee, in its discretion. Subject to Section 409A of the Code, such payment may be made in installments and may be deferred until the date or dates when the Award would have become exercisable or vested. Such payment may be subject to vesting based on the Participants continued service, provided that without the Participants consent, the vesting schedule shall not be less favorable to the Participant than the schedule under which the Award would have become vested or exercisable. For purposes of this Section 11.1(e), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security.
(f) The termination in its entirety of any outstanding Award, without payment of any consideration, that is not exercised in accordance with its terms upon or prior to consummation of the transactions contemplated by the Acquisition or Other Combination within a time specified by the Committee, in its discretion, for such exercise, whether or not such Award is then fully exercisable.
Immediately following an Acquisition or Other Combination, outstanding Awards shall terminate and cease to be outstanding, except to the extent such Awards, have been continued, assumed or substituted, as described in Sections 11.1(a), (b) and/or (c).
11.2 Substitution or Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another entity, whether in connection with an acquisition of such other entity or otherwise, by either (a) granting an Award under this Plan in substitution of such other entitys award or (b) assuming and/or converting such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other entity had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another entity, the terms and conditions of such award will remain unchanged (except that the
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exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) and Section 409A of the Code). In the event the Company elects to grant a new Option or SAR in substitution for and rather than assuming an existing option or stock appreciation right, such new Option or SAR may be granted with a similarly adjusted Exercise Price and number of underlying Shares and such other changes approved by the Committee, subject to the consent of the Participant.
12. ADMINISTRATION.
12.1 Committee Authority. This Plan will be administered by the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;
(b) prescribe, amend, expand, modify and rescind or terminate rules and regulations relating to this Plan;
(c) approve persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to Awards granted under this Plan;
(f) determine the Fair Market Value in good faith and interpret the applicable provisions of this Plan and the definition of Fair Market Value in connection with circumstances that impact the Fair Market Value, if necessary;
(g) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;
(h) grant waivers of any conditions of this Plan or any Award;
(i) determine the terms of vesting, exercisability, settlement and payment of Awards to be granted pursuant to this Plan;
(j) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement or any Exercise Agreement;
(k) determine whether an Award has vested or become exercisable;
(l) extend the vesting period beyond a Participants Termination Date;
(m) adopt rules and/or procedures (including the adoption of any subplan under this Plan) relating to the operation and administration of the Plan to accommodate or facilitate requirements of local law and procedures outside of the United States;
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(n) delegate any of the foregoing to a subcommittee consisting of one or more directors or executive officers pursuant to a specific delegation as may otherwise be permitted by applicable law;
(o) change the vesting schedule of Awards under the Plan prospectively in the event that the Participants service status changes between full and part time status in accordance with Company policies relating to work schedules and vesting of Awards; and
(p) make all other determinations necessary or advisable in connection with the administration of this Plan.
12.2 Standalone, Tandem and Substitute Awards. Awards granted under the Plan may, in the sole discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.
12.3 Committee Composition and Discretion. The Board may delegate full administrative authority over the Plan and Awards to a Committee consisting of at least one member of the Board (or such greater number as may then be required by applicable law). Unless in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (a) at the time of grant of the Award, or (b) subject to Section 4.9 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. To the extent permitted by applicable law, the Committee may delegate to one or more directors or officers of the Company the authority to grant an Award under this Plan.
12.4 Nonexclusivity of the Plan. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
12.5 Governing Law. This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of Washington, without giving effect to that body of laws pertaining to conflict of laws.
13. EFFECTIVENESS, AMENDMENT AND TERMINATION OF THE PLAN.
13.1 Adoption and Stockholder Approval. This Plan will become effective on the date that it is adopted by the Board (the Effective Date). This Plan will be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a) no Option or SAR may be exercised prior to initial stockholder approval of this Plan; (b) no Option or SAR granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards for which only the exemption from Californias securities qualification requirements provided by Section 25102(o) can apply shall be canceled, any Shares issued pursuant to any such Award shall be canceled and any purchase of such
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Shares issued hereunder shall be rescinded; and (d) Awards (to which only the exemption from Californias securities qualification requirements provided by Section 25102(o) can apply) granted pursuant to an increase in the number of Shares approved by the Board which increase is not approved by stockholders within the time then required under Section 25102(o) shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase of Shares subject to any such Award shall be rescinded.
13.2 Term of Plan. Unless earlier terminated as provided herein, this Plan will automatically terminate ten (10) years after the Effective Date.
13.3 Amendment or Termination of Plan. Subject to Section 4.9 hereof, the Board may at any time (a) terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan and (b) terminate any and all outstanding Options, SARs or RSUs upon a dissolution or liquidation of the Company, followed by the payment of creditors and the distribution of any remaining funds to the Companys stockholders; provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval pursuant to Section 25102(o) or pursuant to the Code or the regulations promulgated under the Code as such provisions apply to ISO plans. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Award previously granted under the Plan.
14. DEFINITIONS. For all purposes of this Plan, the following terms will have the following meanings.
Acquisition, for purposes of Section 11, means:
(a) any consolidation or merger in which the Company is a constituent entity or is a party in which the voting stock and other voting securities of the Company that are outstanding immediately prior to the consummation of such consolidation or merger represent, or are converted into, securities of the surviving entity of such consolidation or merger (or of any Parent of such surviving entity) that, immediately after the consummation of such consolidation or merger, together possess less than fifty percent (50%) of the total voting power of all voting securities of such surviving entity (or of any of its Parents, if any) that are outstanding immediately after the consummation of such consolidation or merger;
(b) a sale or other transfer by the holders thereof of outstanding voting stock and/or other voting securities of the Company possessing more than fifty percent (50%) of the total voting power of all outstanding voting securities of the Company, whether in one transaction or in a series of related transactions, pursuant to an agreement or agreements to which the Company is a party and that has been approved by the Board, and pursuant to which such outstanding voting securities are sold or transferred to a single person or entity, to one or more persons or entities who are Affiliates of each other, or to one or more persons or entities acting in concert; or
(c) the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Company and/or any Subsidiary or Subsidiaries of the Company, of all or substantially all the assets of the Company and its Subsidiaries taken as a whole (or, if substantially all of the assets of the Company and its Subsidiaries taken as a whole are held by one or more Subsidiaries, the sale or disposition (whether by consolidation, merger, conversion or otherwise) of such Subsidiaries of the Company), except where such sale, lease, transfer or other disposition is made to the Company or one or more wholly owned Subsidiaries of the Company.
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Notwithstanding the foregoing, the following transactions shall not constitute an Acquisition: (1) the closing of the Companys first public offering pursuant to an effective registration statement filed under the Securities Act or (2) any transaction the sole purpose of which is to change the state of incorporation of the Company or to create a holding company that will be owned in substantially the same proportions by the persons who held the Companys securities immediately before such transaction.
Affiliate of a specified person means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified (where, for purposes of this definition, the term control (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.
Award means any award pursuant to the terms and conditions of this Plan, including any Option, Restricted Stock Unit, Stock Appreciation Right or Restricted Stock Award.
Award Agreement means, with respect to each Award, the executed written or electronic agreement between the Company and the Participant setting forth the terms and conditions of the Award as approved by the Committee. For purposes of the Plan, the Award Agreement may be accepted by a Participant via written, electronic or other means, subject to requirements under applicable law.
Board means the Board of Directors of the Company.
Cause means Termination because of (a) Participants unauthorized misuse of the Company or a Parent or Subsidiary of the Companys trade secrets or proprietary information, (b) Participants conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude, (c) Participants committing an act of fraud against the Company or a Parent or Subsidiary of the Company or (d) Participants gross negligence or willful misconduct in the performance of his or her duties that has had or will have a material adverse effect on the Company or Parent or Subsidiary of the Company reputation or business.
Code means the U.S. Internal Revenue Code of 1986, as amended.
Committee means the committee created and appointed by the Board to administer this Plan, or if no committee is created and appointed, the Board.
Company means Impel NeuroPharma, Inc., a Delaware corporation, or any successor corporation.
Disability means a Participant is unable to perform the duties of his or her customary position of employment by reason of any medically determinable physical or mental impairment that can be expected to result in death or that can be expected to last for a continuous period of not less than twelve (12) months. The Committee may require such medical or other evidence as it deems necessary to judge the nature and permanency of the Participants condition.
Exchange Act means the U.S. Securities Exchange Act of 1934, as amended.
Exercise Price means the price per Share at which a holder of an Option or a SAR may purchase Shares issuable upon exercise of the Option or the SAR.
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Fair Market Value means, as of any date, the value of a Share determined as follows:
(a) if such Share is then publicly traded on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Share is listed or admitted to trading as reported in The Wall Street Journal;
(b) if such Share is publicly traded but is not listed or admitted to trading on a national securities exchange, the average of the closing bid and ask prices on the date of determination as reported by The Wall Street Journal (or as otherwise reported by any newspaper or other source as the Committee may determine); or
(c) if none of the foregoing is applicable to the valuation in question, by the Committee in good faith.
Option means an award of an option to purchase Shares pursuant to Section 4 of this Plan.
Other Combination for purposes of Section 11 means any (a) consolidation or merger in which the Company is a constituent entity and is not the surviving entity of such consolidation or merger or (b) any conversion of the Company into another form of entity; provided that such consolidation, merger or conversion does not constitute an Acquisition.
Parent of a specified entity means, any entity that, either directly or indirectly, owns or controls such specified entity, where for this purpose, control means the ownership of stock, securities or other interests that possess at least a majority of the voting power of such specified entity (including indirect ownership or control of such stock, securities or other interests).
Participant means a person who receives an Award under this Plan.
Plan means this 2018 Equity Incentive Plan, as amended from time to time.
Purchase Price means the price at which a Participant may purchase Restricted Stock pursuant to this Plan.
Restricted Stock means Shares purchased pursuant to a Restricted Stock Award under this Plan.
Restricted Stock Award means an award of Shares pursuant to Section 5 hereof.
Restricted Stock Unit or RSU means an award made pursuant to Section 6 hereof.
Rule 701 means Rule 701 et seq. promulgated by the SEC under the Securities Act.
SEC means the U.S. Securities and Exchange Commission.
Section 25102(o) means Section 25102(o) of the California Corporations Code.
Securities Act means the U.S. Securities Act of 1933, as amended.
Shares means shares of the Companys Common Stock, $0.0001 par value per share, reserved for issuance under this Plan, as adjusted pursuant to Sections 2.2 and 11 hereof, and any successor security.
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Stock Appreciation Right or SAR means an award granted pursuant to Section 7 hereof.
Subsidiary means any entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns stock or other equity securities representing fifty percent (50%) or more of the total combined voting power of all classes of stock or other equity securities in one of the other entities in such chain.
Termination or Terminated means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services while the Participant is on a bona fide leave of absence, if such leave was approved by the Company in writing. In the case of an approved leave of absence, the Committee may make such provisions respecting crediting of service, including suspension of vesting of the Award (including pursuant to a formal policy adopted from time to time by the Company) it may deem appropriate. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the Termination Date).
Unvested Shares means Unvested Shares as defined in the Award Agreement for an Award.
Vested Shares means Vested Shares as defined in the Award Agreement for an Award.
* * * * * * * * * * *
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PLAN AMENDMENTS
March 18, 2019: Increased firm shares by 10,000,000 shares to 22,339,671 shares and adjustment to number of shares that can be exercised as ISOs. Approved by Board on February 8, 2019 and by stockholders on March 14, 2019. Effective upon filing Certificate of Amendment to increase authorized common stock.
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IMPEL NEUROPHARMA, INC.
2018 EQUITY INCENTIVE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (the Agreement) is made and entered into as of (the Effective Date) by and between Impel NeuroPharma, Inc., a Delaware corporation (the Company), and (Purchaser). Capitalized terms not defined herein shall have the meanings ascribed to them in the Companys 2018 Equity Incentive Plan, as may be amended from time to time (the Plan).
1. |
PURCHASE OF SHARES. |
1.1 Agreement to Purchase and Sell Shares. On the Effective Date and subject to the terms and conditions of this Agreement and the Plan, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, ( ) shares of the Companys Common Stock (the Shares), at the price of ($ ) per share (the Purchase Price Per Share) for a Total Purchase Price of ($ ) (the Purchase Price). As used in this Agreement, the term Shares includes the Shares purchased under this Agreement and all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits with respect to the Shares, and (c) in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction.
1.2 Payment. Purchaser hereby delivers payment of the Purchase Price as follows (check and complete as appropriate):
☐ |
in cash (by check) in the amount of $ , receipt of which is acknowledged by the Company. |
☐ |
by cancellation of indebtedness of the Company owed to Purchaser in the amount of $ . |
☐ |
by the waiver hereby of compensation due or accrued for services rendered in the amount of $ . |
☐ |
by delivery of fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Purchaser free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $ per share (a) for which the Company has received full payment of the purchase price within the meaning of SEC Rule 144, (if purchased by use of a promissory note, such note has been fully paid with respect to such vested shares), or (b) that were obtained by Purchaser in the open public market. |
2. |
DELIVERIES. |
2.1 Deliveries by the Purchaser. Purchaser hereby delivers to the Company at its principal executive offices: (a) this completed and signed Agreement, and (b) the Purchase Price, paid by delivery of the form of payment specified in Section 1.2.
2.2 Deliveries by the Company. Upon its receipt of the Purchase Price, payment or other provision for any applicable tax obligations, if any, and all the documents to be executed and delivered by Purchaser to the Company as provided herein, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser with the appropriate legends affixed thereto, to
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be placed in escrow as provided in Section 7.2 to secure performance of Purchasers obligations under Sections 5 and 6 until expiration or termination of the Companys Repurchase Option and Refusal Right (as such terms are defined in Sections 5 and 6, respectively).
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to the Company as follows.
3.1 Agrees to Terms of the Plan. Purchaser has received a copy of the Plan, has read and understands the terms of the Plan and this Agreement, and agrees to be bound by their terms and conditions.
3.2 Acknowledgment of Tax Risks. Purchaser acknowledges that there may be adverse tax consequences upon the purchase and the disposition of the Shares, and that Purchaser has been advised by the Company to consult a tax adviser prior to such purchase or disposition. Purchaser further acknowledges that Purchaser is not relying on the Company or its counsel for tax advice regarding Purchasers purchaser or disposition of the Shares or the tax consequences to Purchaser of this Agreement.
3.3 Shares Not Registered or Qualified. Purchaser understands and acknowledges that the Shares have not been registered with the SEC under the Securities Act, or with any securities regulatory agency administering any state securities laws, and that, notwithstanding any other provision of this Agreement to the contrary, the purchase of any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws.
3.4 No Transfer Unless Registered or Exempt; Contractual Restrictions on Transfers. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the Securities Act or qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. Purchaser further acknowledges that this Agreement imposes additional restrictions on transfer of the Shares.
3.5 SEC Rule 701. Shares that are issued pursuant to SEC Rule 701 promulgated under the Securities Act may become freely tradable by non-affiliates (under limited conditions regarding the method of sale) ninety (90) days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to the lengthier market standoff agreement contained in Section 4 of this Agreement or any other agreement entered into by Purchaser. Affiliates must comply with the provisions (other than the holding period requirements) of Rule 144 which permits certain limited sales of unregistered securities. Rule 144 is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of six (6) months, and in certain cases one (1) year, after they have been purchased and paid for (within the meaning of Rule 144). Purchaser understands that use of a promissory note as payment for the Shares may not be deemed to be full payment of the purchase price within the meaning of Rule 144 unless certain conditions are met and that, accordingly, the Rule 144 holding period of such Shares may not begin to run until such Shares are fully paid for within the meaning of Rule 144. Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an affiliate of the Company or if current public information about the Company (as defined in Rule 144) is not publicly available.
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3.6 Access to Information. Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Companys representatives concerning such matters and this investment.
3.7 Understanding of Risks. Purchaser is fully aware of: (a) the highly speculative nature of the investment in the Shares; (b) the financial hazards involved; (c) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (d) the qualifications and backgrounds of the management of the Company; and (e) the tax consequences of investment in, and disposition of, the Shares.
3.8 Purchase for Own Account for Investment. Purchaser is purchasing the Shares for Purchasers own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act. Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares.
3.9 No General Solicitation. At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares.
3.10 SEC Rule 144. Purchaser has been advised that SEC Rule 144 promulgated under the Securities Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of six (6) months, and in certain cases one (1) year, after they have been purchased and paid for (within the meaning of Rule 144), subject to the lengthier market standoff agreement contained in Section 4 of this Agreement or any other agreement entered into by Purchaser. Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an affiliate of the Company or if current public information about the Company (as defined in Rule 144) is not publicly available.
4. MARKET STANDOFF AGREEMENT. Subject to the provisions of this Section, Purchaser agrees in connection with any registration of the Companys securities under the Securities Act or other registered public offering that, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such managing underwriters, as the case may be, for a period of time (not to exceed one hundred eighty (180) days) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-stockholders generally; provided however, that if during the last seventeen (17) days of the restricted period the Company issues an earnings release or material news, or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the restricted period, then, if required by the underwriters or the Company, for so long as, and to the extent that, Rule 2711 or any successor rule of the Financial Industry Regulatory Authority applies, the restrictions imposed by this Section 4 shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. The restricted period shall in any event terminate two (2) years after the closing date of the Companys initial public offering. For purposes of this Section 4, the term Company shall include any wholly-owned subsidiary of the Company into which the Company merges or consolidates. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section and to impose stop transfer instructions with respect to the Shares until the end of such period. Purchaser further agrees that the underwriters of any
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such registered public offering shall be third party beneficiaries of this Section 4 and agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing. Notwithstanding anything in this Section to the contrary, for the avoidance of doubt, the foregoing provisions of this Section shall not apply to any registration of securities of the Company (a) under an employee benefit plan or (b) in a merger, consolidation, business combination or similar transaction.
5. COMPANYS REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or (subject to Section 5.6) its assignee, shall have the option to repurchase all or a portion of the Purchasers Shares that are Unvested Shares (as defined below) on the Termination Date on the terms and conditions set forth in this Section (the Repurchase Option) if Purchaser is Terminated (as defined in the Plan) for any reason, or no reason, including without limitation, Purchasers death, Disability (as defined in the Plan), voluntary resignation or termination by the Company with or without Cause.
5.1 Termination and Termination Date. In case of any dispute as to whether Purchaser is Terminated, the Committee shall have discretion to determine in good faith whether Purchaser has been Terminated and the effective date of such Termination (the Termination Date).
5.2 Vested and Unvested Shares. Shares that are vested pursuant to the schedule set forth in this Section 5.2 are Vested Shares. Shares that are not vested pursuant to such schedule are Unvested Shares. On the Effective Date, of the Shares will be Unvested Shares (the Initial Unvested Shares). Provided Purchaser continues to provide services to the Company or any Subsidiary or Parent of the Company at all times from the Effective Date until (the First Vesting Date), then on the First Vesting Date one-fourth (1/4th) of the Initial Unvested Shares will become Vested Shares, and on the same day of each succeeding calendar month thereafter (or if there is no such day in any month, then the last day of such calendar month), an additional one forty-eighth 1/48th of the Initial Unvested Shares shall vest until the earliest to occur of (a) the date all of the Shares are Vested Shares, (b) the Termination Date or (c) the date vesting otherwise terminates pursuant to this Agreement or the Plan. No fractional Shares shall be issued. No Shares will become Vested Shares after the Termination Date. The number of the Shares that are Vested Shares or Unvested Shares will be proportionally adjusted to reflect any stock split, reverse stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan occurring after the Effective Date.
5.3 Exercise of Repurchase Option. At any time within ninety (90) days after the Purchasers Termination Date, the Company, or its assignee, may, at its option, elect to repurchase any or all the Purchasers Shares that are Unvested Shares on the Termination Date by giving Purchaser written notice of exercise of the Repurchase Option, specifying the number of Unvested Shares to be repurchased. Such Unvested Shares shall be repurchased at the Purchase Price Per Share, proportionately adjusted for any stock split, reverse stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan occurring after the Effective Date (the Repurchase Price). The Repurchase Price shall be payable, at the option of the Company or its assignee, by check or by cancellation of all or a portion of any outstanding indebtedness owed by Purchaser to the Company and/or such assignee, or by any combination thereof. The Repurchase Price shall be paid without interest within the term of the Repurchase Option as described in the first sentence of this Section 5.3. The Company may, at its option, decline to exercise its Repurchase Option or may exercise its Repurchase Option only with respect to a portion of the Unvested Shares.
5.4 Right of Termination Unaffected. Nothing in this Agreement shall be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any Parent or Subsidiary of the Company) to terminate Purchasers employment or other relationship with Company (or the Parent or Subsidiary of the Company) at any time, for any reason or no reason, with or without Cause.
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5.5 Additional or Exchanged Securities and Property. Subject to the provisions of Section 5.2 above, in the event of a merger or consolidation of the Company with or into another entity, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, a recapitalization or a similar transaction affecting the Companys outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed or issued with respect to, any Unvested Shares shall immediately be subject to the Repurchase Option. Appropriate adjustments shall be made to the price per share to be paid for Unvested Shares upon the exercise of the Repurchase Option (by allocating such price among the Unvested Shares and such other securities or property), provided that the aggregate purchase price payable for the Unvested Shares and all such other securities and property shall remain the same price that was original payable under the Repurchase Option to repurchase such Unvested Shares. Subject to the provisions of Section 5.2 above, in the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Repurchase Option may be exercised by the Companys successor.
5.6 Assignment of Repurchase Right. The Company may freely assign the Companys Repurchase Option, in whole or in part, provided that any person who accepts an assignment of the Repurchase Option from the Company shall assume all of the Companys rights and obligations with respect to the Repurchase Option (to the extent so assigned) under this Agreement.
6. COMPANYS REFUSAL RIGHT. Unvested Shares shall be subject to the restrictions on transfer and the granting of encumbrances thereon as provided in Section 7 hereof. Before any Vested Shares (as defined in Section 5 hereof) held by Purchaser or any transferee of such Vested Shares (either sometimes referred to herein as the Holder) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Vested Shares to be sold or transferred (the Offered Shares) on the terms and conditions set forth in this Section (the Refusal Right).
6.1 Notice of Proposed Transfer. The Holder of the Offered Shares will deliver to the Company a written notice (the Notice) stating: (a) the Holders bona fide intention to sell or otherwise transfer the Offered Shares; (b) the name and address of each proposed purchaser or other transferee of Offered Shares (Proposed Transferee); (c) the number of Offered Shares to be transferred to each Proposed Transferee; (d) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares to each Proposed Transferee (the Offered Price); and (e) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Companys Refusal Right at the Offered Price as provided for in this Agreement.
6.2 Exercise of Refusal Right. At any time within thirty (30) days after the date the Notice is effective pursuant to Section 9.2, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as provided in Section 6.3 below.
6.3 Purchase Price. The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift), then the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Companys Board of Directors. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Companys Board of Directors, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
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6.4 Payment. The purchase price for the Offered Shares will be paid, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Companys receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
6.5 Holders Right to Transfer. If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to such Proposed Transferee at the Offered Price or at a higher price, provided that (a) such sale or other transfer is consummated within one hundred twenty (120) days after the date the Notice is effective pursuant to Section 9.2, (b) any such sale or other transfer is effected in compliance with all applicable securities laws, and (c) such Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to such Proposed Transferee within such one hundred twenty (120) day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the Refusal Right before any Shares held by the Holder may be sold or otherwise transferred.
6.6 Exempt Transfers. Notwithstanding the foregoing, the following transfers of Vested Shares will be exempt from the Refusal Right: (a) the transfer of any or all of the Vested Shares during Purchasers lifetime by gift or on Purchasers death by will or intestacy to Purchasers Immediate Family (as defined below) or to a trust for the benefit of Purchaser or Purchasers Immediate Family, provided that each transferee agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee; (b) any transfer of Vested Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another entity or entities (except that, subject to Section 6.7, unless the agreement of merger or consolidation expressly otherwise provides, the Refusal Right will continue to apply thereafter to such Vested Shares, in which case the surviving entity of such merger or consolidation shall succeed to the rights of the Company under this Section); or (c) any transfer of Vested Shares pursuant to the winding up and dissolution of the Company. As used herein, the term Immediate Family will mean Purchasers spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of Purchaser or Purchasers spouse, or the spouse of any of the above or Spousal Equivalent, as defined herein. As used herein, a person is deemed to be a Spousal Equivalent provided the following circumstances are true: (i) irrespective of whether or not the Purchaser and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither are married to anyone else, (iv) both are at least 18 years of age and mentally competent to consent to contract, (v) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (vi) they are jointly responsible for each others common welfare and financial obligations, and (vii) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
6.7 Termination of Refusal Right. The Refusal Right will terminate as to all Shares: (a) on the effective date of the first sale of Common Stock of the Company to the public pursuant to a registration statement filed with and declared effective by the SEC under the Securities Act or, if expressly approved by the Board as terminating the Refusal Right, under the laws of any other country having substantially the same effect (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan) or (b) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another entity or entities if the common stock of the surviving entity or any direct or indirect parent entity thereof is registered under the Securities Exchange Act of 1934, as amended.
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7. ADDITIONAL RESTRICTIONS UPON SHARE OWNERSHIP OR TRANSFER.
7.1 Rights as a Stockholder. Subject to the terms and conditions of this Agreement, Purchaser will have all of the rights of a Stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Purchaser until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Refusal Right or the Repurchase Option. Upon an exercise of the Refusal Right or the Repurchase Option, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
7.2 Escrow. As security for Purchasers faithful performance of this Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s) to the Secretary of the Company or other designee of the Company (the Escrow Holder), who is hereby appointed to hold such certificate(s) in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other person or entity) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement. The Shares will be released from escrow upon termination of both the Refusal Right and the Repurchase Option.
7.3 Encumbrances on Shares. Without the Companys prior written consent given with the approval of the Companys Board of Directors, Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber, any Unvested Shares.
7.4 Restrictions on Transfers. Unvested Shares may not be sold or otherwise transferred by Purchaser without the Companys prior written consent. Purchaser hereby agrees that Purchaser shall make no disposition of the Shares (other than as permitted by this Agreement) unless and until:
(a) Purchaser shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(b) Purchaser shall have complied with all requirements of this Agreement applicable to the disposition of the Shares, including but not limited to the Refusal Right, the Market Standoff and the Repurchase Option; and
(c) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or under any state securities laws, and (ii) all appropriate actions necessary for compliance with the registration and qualification requirements of the Securities Act and any state securities laws, or of any exemption from registration or qualification, available thereunder (including Rule 144) have been taken.
Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred Shares are subject to the Companys Refusal Right or the Repurchase Option granted hereunder and the market stand-off provisions of Section 4 hereof, to the same extent such Shares would be so subject if retained by the Purchaser.
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7.5 Restrictive Legends and Stop-transfer Orders. Purchaser understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by applicable laws, the Companys Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, INCLUDING THE RIGHT OF FIRST REFUSAL AND THE REPURCHASE OPTION HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S), AND A MARKET STANDOFF AGREEMENT, AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS INCLUDING THE RIGHT OF FIRST REFUSAL, THE REPURCHASE OPTION AND THE MARKET STANDOFF ARE BINDING ON TRANSFEREES OF THESE SHARES.
Purchaser also agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. The Company will not be required (a) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (b) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.
8. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASERS PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS (a) THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND (b) THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. Purchaser hereby acknowledges that Purchaser has been informed that, with respect to Unvested Shares, unless an election is filed by Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities) within 30 days after the purchase
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of the Shares electing, pursuant to Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable), to be taxed currently on any difference between the Purchase Price of the Unvested Shares and their Fair Market Value on the date of purchase, there will be a recognition of taxable income to Purchaser, measured by the excess, if any, of the Fair Market Value of the Unvested Shares, at the time they cease to be Unvested Shares, over the Purchase Price for such Shares. Purchaser represents that Purchaser has consulted any tax advisers Purchaser deems advisable in connection with Purchasers purchase of the Shares and the filing of the election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as Exhibit 1 for reference. BY PROVIDING THE FORM OF ELECTION, NEITHER THE COMPANY NOR ITS LEGAL COUNSEL IS THEREBY UNDERTAKING TO FILE THE ELECTION FOR PURCHASER, WHICH OBLIGATION TO FILE SHALL REMAIN SOLELY WITH PURCHASER.
9. GENERAL PROVISIONS.
9.1 Successors and Assigns. The Company may assign any of its rights under this Agreement, including its rights to purchase Shares under the Refusal Right or the Repurchase Option. Neither Purchaser, nor any of Purchasers successors and assigns, may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Agreement, except with the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding upon Purchaser and Purchasers heirs, executors, administrators, legal representatives, successors and assigns.
9.2 Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time an electronic confirmation of receipt is received, if delivery is by email; (iii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iv) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (v) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. Any notice for delivery outside the United States will be sent by email, facsimile or by express courier. Any notice not delivered personally or by email will be sent with postage and/or other charges prepaid and properly addressed to Purchaser at the last known address or facsimile number on the books of the Company, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto or, in the case of the Company, to it at its principal place of business. Notices to the Company will be marked Attention: Chief Financial Officer. Notices by facsimile shall be machine verified as received.
9.3 Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
9.4 Entire Agreement. The Plan is incorporated herein by reference. The Plan and this Agreement, together with all Exhibits hereto, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, between the parties hereto with respect to the specific subject matter hereof.
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9.5 Severability. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
9.6 Execution. This Agreement may be entered into in two or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same agreement. This Agreement may be executed and delivered by facsimile and, upon such delivery, the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.
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IN WITNESS WHEREOF, the Company has caused this Restricted Stock Purchase Agreement to be executed by its duly authorized representative, and Purchaser has executed this Restricted Stock Purchase Agreement, as of the date first set forth above.
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Exhibit
Exhibit 1: Form of Election Pursuant to Section 83(b)
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EXHIBIT 1
FORM OF SECTION 83(B) ELECTION
ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in gross income for the Taxpayers current taxable year the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services.
1. TAXPAYERS NAME: |
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TAXPAYERS ADDRESS: |
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SOCIAL SECURITY NUMBER: |
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TAXABLE YEAR: |
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The property with respect to which the election is made is described as follows: shares of Common Stock, par value $0.00001 per share, of Impel NeuroPharma, Inc., a Delaware corporation (the Company), which is Taxpayers employer or the corporation for whom the Taxpayer performs services. |
3. |
The date on which the shares were transferred was , . |
4. |
The shares are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayers original purchase price under certain conditions at the time of Taxpayers termination of employment or services. |
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The fair market value of the shares at the time of transfer (without regard to restrictions other than a nonlapse restriction as defined in § 1.83-3(h) of the Income Tax Regulations) was $ per share × shares = $ . |
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The amount paid for such shares was $ per share × shares = $ . |
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The amount to include in the Taxpayers gross income for the Taxpayers current taxable year is $ . |
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE (IRS), AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYERS INCOME TAX RETURNS FOR THE CALENDAR YEAR. A COPY OF THE ELECTION HAS ALSO BEEN FURNISHED TO THE COMPANY. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS.
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EARLY EXERCISE FORM
OPTION GRANT NO.
NOTICE OF STOCK OPTION GRANT
IMPEL NEUROPHARMA, INC.
2018 EQUITY INCENTIVE PLAN
The Optionee named below (Optionee) has been granted an option (this Option) to purchase shares of Common Stock, $0.0001 par value per share (the Common Stock), of Impel Neuropharma, Inc., a Delaware corporation (the Company), pursuant to the Companys 2018 Equity Incentive Plan, as amended from time to time (the Plan) on the terms, and subject to the conditions, described below and in the Stock Option Agreement attached hereto as Exhibit A, including its annexes (the Stock Option Agreement).
Optionee: | ||
Maximum Number of Shares Subject to this Option (the Shares): | ||
Exercise Price Per Share: | $ per share | |
Date of Grant: | ||
Vesting Start Date: | ||
Exercise Schedule: | This Option is immediately exercisable for all of the Shares, subject to the terms of the Stock Option Agreement | |
Expiration Date: | The date ten (10) years after the Date of Grant set forth above, subject to earlier expiration in the event of Termination as provided in Section 3 of the Stock Option Agreement. | |
Tax Status of Option: (Check Only One Box): |
☐ Incentive Stock Option (To the fullest extent permitted by the Code) ☐ Nonqualified Stock Option. (If neither box is checked, this Option is a Nonqualified Stock Option). |
Vesting Schedule [EXAMPLE ONLY]: For so long as Optionee continuously provides services to the Company (or any Subsidiary or Parent of the Company) as an employee, officer, director, contractor or consultant, the Shares subject to this Option will vest as follows: (a) prior to the first one (1) year anniversary of the Vesting Start Date, none of the Shares will be vested; (b) [1/4th] of the Shares will be vested on the one (1) year anniversary of the Vesting Start Date; and (c) thereafter, this Option will become vested and exercisable with respect to an additional [1/48th] of the Shares when Optionee completes each month of continuous service following the first one (1) year anniversary of the Vesting Start Date.
General; Agreement: By their signatures below, Optionee and the Company agree that this Option is granted under and governed by this Notice of Stock Option Grant (this Grant Notice) and by the provisions of the Plan and the Stock Option Agreement. The Plan and the Stock Option Agreement are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings given to them in the Plan or in the Stock Option Agreement, as applicable. By signing below, Optionee acknowledges receipt of a copy of this Grant Notice, the Plan and the Stock Option Agreement, represents that Optionee has carefully read and is familiar with their provisions, and hereby accepts the Option subject to all of their respective terms and conditions. Optionee acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Optionee should consult a tax adviser prior to such exercise or disposition. Optionee agrees and acknowledges that the Vesting Schedule may change prospectively in the event that Optionees service status changes between full and part time status in accordance with Company policies relating to work schedules and vesting of equity awards.
Execution and Delivery: This Grant Notice may be executed and delivered electronically whether via the Companys intranet or the Internet site of a third party or via email or any other means of electronic delivery specified by the Company. By Optionees acceptance hereof (whether written, electronic or otherwise), Optionee agrees, to the fullest extent permitted by law, that in lieu of receiving documents in paper format, Optionee accepts the electronic delivery of any documents that the Company (or any third party the Company may designate), may deliver in connection with this grant (including the Plan, this Grant Notice, the Stock Option Agreement, the information described in Rules 701(e)(2), (3), (4) and (5) under the Securities Act (the 701 Disclosures), account statements, or other communications or information) whether via the Companys intranet or the Internet site of such third party or via email or such other means of electronic delivery specified by the Company.
IMPEL NEUROPHARMA, INC.
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ATTACHMENT: Exhibit A Stock Option Agreement
Exhibit A
Stock Option Agreement
EXHIBIT A
EARLY EXERCISE FORM
STOCK OPTION AGREEMENT
IMPEL NEUROPHARMA, INC.
2018 EQUITY INCENTIVE PLAN
This Stock Option Agreement (this Agreement) is made and entered into as of the date of grant (the Date of Grant) set forth on the Notice of Stock Option Grant attached as the facing page to this Agreement (the Grant Notice) by and between Impel Neuropharma, Inc., a Delaware corporation (the Company), and the optionee named on the Grant Notice (Optionee). Capitalized terms not defined in this Agreement shall have the meaning ascribed to them in the Companys 2018 Equity Incentive Plan, as amended from time to time (the Plan), or in the Grant Notice, as applicable.
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this Option) to purchase up to the total number of shares of Common Stock of the Company, $0.0001 par value per share (the Common Stock), set forth in the Grant Notice as the Shares (the Shares) at the Exercise Price Per Share set forth in the Grant Notice (the Exercise Price), subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan. If designated as an Incentive Stock Option in the Grant Notice, this Option is intended to qualify as an incentive stock option (the ISO) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code), except that if on the Date of Grant Optionee is not subject to U.S. income tax, then this Option shall be a NQSO.
2. EXERCISE PERIOD.
2.1. Exercise Period of Option. Subject to the conditions set forth in this Agreement, all or part of this Option may be exercised at any time after the Date of Grant. Shares purchased by exercising this Option may be subject to the Repurchase Option as set forth in Section 7 below. This Option will become vested during its term as to portions of the Shares in accordance with the Vesting Schedule set forth in the Grant Notice. Notwithstanding any provision in the Plan or this Agreement to the contrary, on or after Optionees Termination Date, this Option may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date.
2.2. Vesting of Option Shares. Shares with respect to which this Option is vested at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are Vested Shares. Shares with respect to which this Option is not vested at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are Unvested Shares.
2.3. Expiration. The Option shall expire on the Expiration Date set forth in the Grant Notice or earlier as provided in Section 3 below.
3. TERMINATION.
3.1. Termination for Any Reason Except Death, Disability or Cause. Except as provided in subsection 3.2 in a case in which Optionee dies within three (3) months after Optionee is Terminated other than for Cause, if Optionee is Terminated for any reason (other than Optionees death or Disability or for Cause), then (a) on and after Optionees Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date and (b) this Option to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionees Termination Date, may be exercised by Optionee no later than three (3) months after Optionees Termination Date (but in no event may this Option be exercised after the Expiration Date).
3.2. Termination Because of Death or Disability. If Optionee is Terminated because of Optionees death or Disability (or if Optionee dies within three (3) months of the date of Optionees Termination for any reason other than for Cause), then (a) on and after Optionees Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date and (b) this Option, to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionees Termination Date, may be exercised by Optionee (or Optionees legal representative) no later than twelve (12) months after Optionees Termination Date, but in no event later than the Expiration Date. Any exercise of this Option beyond (i) three (3) months after the date Optionee ceases to be an employee when Optionees Termination is for any reason other than Optionees death or disability, within the meaning of Section 22(e)(3) of the Code; or (ii) twelve (12) months after the date Optionee ceases to be an employee when the termination is for Optionees disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be an NQSO.
3.3. Termination for Cause. If Optionee is Terminated for Cause, then Optionee may exercise this Option, but only with respect to any Shares that are Vested Shares on Optionees Termination Date, and this Option shall expire on Optionees Termination Date, or at such later time and on such conditions as may be affirmatively determined by the Committee. On and after Optionees Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date.
3.4. No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on Optionee any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company, or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Optionees employment or other relationship at any time, with or without Cause.
4. MANNER OF EXERCISE.
4.1. Stock Option Exercise Notice and Agreement. To exercise this Option, Optionee (or in the case of exercise after Optionees death or incapacity, Optionees executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed Stock Option Exercise Notice and Agreement in the form attached hereto as Annex A, or in such other form as may be approved by the Committee from time to time (the Exercise Agreement) and payment for the shares being purchased in accordance with this Agreement. The Exercise Agreement shall set forth, among other things, (i) Optionees election to exercise this Option, (ii) the number of Shares being purchased, (iii) any representations, warranties and agreements regarding Optionees investment intent and access to information as may be required by the Company to comply with applicable securities laws in connection with any exercise of this Option and (iv) any other agreements required by the Company. If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise this Option and such person shall be subject to all of the restrictions contained herein as if such person were Optionee.
4.2. Limitations on Exercise. This Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise.
4.3. Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the shares being purchased in cash (by check or wire transfer), or where permitted by law:
(a) by cancellation of indebtedness of the Company owed to Optionee;
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(b) by surrender of shares of the Company that are free and clear of all security interests, pledges, liens, claims or encumbrances and: (i) for which the Company has received full payment of the purchase price within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by Optionee in the public market;
(c) by participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(d) provided that a public market for the Common Stock exists, subject to compliance with applicable law, by exercising as set forth below, through a same day sale commitment from Optionee and a broker-dealer whereby Optionee irrevocably elects to exercise this Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or
(e) by any combination of the foregoing or any other method of payment approved by the Committee that constitutes legal consideration for the issuance of Shares.
4.4. Tax Withholding. Prior to the issuance of the Shares upon exercise of the Option, Optionee must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Optionee may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld; or to arrange a mandatory sell to cover on Optionees behalf (without further authorization); but in no event will the Company withhold Shares or sell to cover if such withholding would result in adverse accounting consequences to the Company. In case of stock withholding or a sell to cover, the Company shall issue the net number of Shares to Optionee by deducting the Shares retained from the Shares issuable upon exercise.
4.5. Issuance of Shares. Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares issuable upon a valid exercise of this Option registered in the name of Optionee, Optionees authorized assignee, or Optionees legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this Agreement are intended to comply with Section 25102(o) and Rule 701. Any provision of this Agreement that is inconsistent with Section 25102(o) or Rule 701 shall, without further act or amendment by the Company or the Committee, be reformed to comply with the requirements of Section 25102(o) and/or Rule 701. The exercise of this Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Common Stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
6. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any manner other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to a testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor) or a revocable trust, or by gift to immediate family as that term is defined in 17 C.F.R. 240.16a-1(e), and may be exercised during the lifetime of Optionee only by Optionee or in the event of Optionees incapacity, by Optionees legal representative. The terms of this Option shall be binding upon the executors, administrators, successors and assigns of Optionee.
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7. COMPANYS REPURCHASE OPTION FOR UNVESTED SHARES. If Optionee is Terminated for any reason, or no reason, including without limitation, Optionees death, Disability, voluntary resignation or termination by the Company with or without Cause and Optionee has acquired Unvested Shares by exercising this Option, then the Company and/or its assignee(s) shall have the option to repurchase all or a portion of Optionees Unvested Shares (as defined in Section 2.2 of this Agreement) as of the Termination Date on the terms and conditions set forth in this Section 7 (the Repurchase Option).
7.1. Termination and Termination Date. In case of any dispute as to whether Optionee is Terminated, the Committee shall have discretion to determine whether Optionee has been Terminated and the effective date of such Termination (the Termination Date).
7.2. Exercise of Repurchase Option. Subject to the foregoing provisions of this Section, at any time within ninety (90) days after Optionees Termination Date, the Company and/or its assignee(s), may elect to repurchase any or all of Optionees Unvested Shares by giving Optionee written notice of exercise of the Repurchase Option.
7.3. Calculation of Repurchase Price for Unvested Shares. The Company or its assignee shall have the option to repurchase from Optionee (or from Optionees personal representative as the case may be) the Unvested Shares at Optionees Exercise Price, as such may be proportionately adjusted for any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan (the Repurchase Price).
7.4. Payment of Repurchase Price. The Repurchase Price shall be payable, at the option of the Company or its assignee, by check or by cancellation of all or a portion of any outstanding indebtedness owed by Optionee to the Company and/or such assignee, or by any combination thereof. The Repurchase Price shall be paid without interest within the term of the Repurchase Option as described in Section 7.2.
7.5. Right of Termination Unaffected. Nothing in this Agreement shall be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any Parent or Subsidiary of the Company) to terminate Optionees employment or other relationship with Company (or any Parent or Subsidiary of the Company) at any time, for any reason or no reason, with or without Cause.
8. RESTRICTIONS ON TRANSFER.
8.1. Disposition of Shares. Optionee hereby agrees that Optionee shall make no disposition of any of the Shares (other than as permitted by this Agreement) unless and until:
(a) Optionee shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(b) Optionee shall have complied with all requirements of this Agreement applicable to the disposition of the Shares;
(c) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or under any applicable state securities laws or (ii) all appropriate actions necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) or applicable state securities laws have been taken; and
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(d) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the regulations promulgated under Section 25102(o), Rule 701 or under any other applicable securities laws or adversely affect the Companys ability to rely on the exemption(s) from registration under the Securities Act or under any other applicable securities laws for the grant of the Option, the issuance of Shares thereunder or any other issuance of securities under the Plan.
8.2. Restriction on Transfer. Optionee shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Companys Repurchase Option or the Right of First Refusal described below, except as permitted by this Agreement.
8.3. Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred Shares are subject to (i) both the Companys Repurchase Option and the Companys Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 9 below, to the same extent such Shares would be so subject if retained by Optionee.
9. MARKET STANDOFF AGREEMENT. Optionee agrees that, subject to any early release provisions that apply pro rata to stockholders of the Company according to their holdings of Common Stock (determined on an as-converted into Common Stock basis), Optionee will not, for a period of up to one hundred eighty (180) days (plus up to an additional thirty five (35) days to the extent reasonably requested by the Company or such underwriter(s) to accommodate regulatory restrictions on the publication or other distribution of research reports or earnings releases by the Company, including NASD and NYSE rules) following the effective date of the registration statement filed with the SEC relating to the initial underwritten sale of Common Stock of the Company to the public under the Securities Act (the IPO), directly or indirectly sell, offer to sell, grant any option for the sale of, or otherwise dispose of any Common Stock or securities convertible into Common Stock, except for: (i) transfers of Shares permitted under Section 10.6 hereof so long as such transferee furnishes to the Company and the managing underwriter their written consent to be bound by this Section 9 as a condition precedent to such transfer; and (ii) sales of any securities to be included in the registration statement for the IPO. For the avoidance of doubt, the provisions of this Section shall only apply to the IPO. The restricted period shall in any event terminate two (2) years after the closing date of the IPO. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the Shares subject to this Section and to impose stop transfer instructions with respect to the Shares until the end of such period. Optionee further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing restrictions on transfer. For the avoidance of doubt, the foregoing provisions of this Section shall not apply to any registration of securities of the Company (a) under an employee benefit plan or (b) in a merger, consolidation, business combination or similar transaction.
10. COMPANYS RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise transferred, or pledged by Optionee or made subject to a security interest, pledge or other lien without the Companys prior written consent, which may be withheld in the Companys sole and absolute discretion. Before any Vested Shares held by Optionee or any transferee of such Vested Shares (either sometimes referred to herein as the Holder) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Vested Shares to be sold or transferred (the Offered Shares) on the terms and conditions set forth in this Section (the Right of First Refusal).
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10.1. Notice of Proposed Transfer. The Holder of the Offered Shares will deliver to the Company a written notice (the Notice) stating: (i) the Holders bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name and address of each proposed purchaser or other transferee (the Proposed Transferee); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the Offered Price); and (v) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Companys Right of First Refusal at the Offered Price as provided for in this Agreement.
10.2. Exercise of Right of First Refusal. At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as specified below.
10.3. Purchase Price. The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift) then the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Committee. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Committee, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
10.4. Payment. Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Companys receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
10.5. Holders Right to Transfer. If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (i) such sale or other transfer is consummated within ninety (90) days after the date of the Notice, (ii) any such sale or other transfer is effected in compliance with all applicable securities laws, and (iii) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such ninety (90) day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
10.6. Exempt Transfers. Notwithstanding anything to the contrary in this Section, the following transfers of Vested Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Vested Shares during Optionees lifetime by gift or on Optionees death by will or intestacy to any member(s) of Optionees Immediate Family (as defined below) or to a trust for the benefit of Optionee and/or member(s) of Optionees Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee or other recipient; (ii) any transfer of Vested Shares made pursuant to a statutory merger, statutory consolidation of the Company with or into another corporation or corporations or a conversion of the Company into another form of legal entity (except that the Right of First Refusal will continue to apply thereafter to such Vested Shares, in which case the surviving corporation of such merger or consolidation or the resulting entity of such conversion shall succeed to the rights of the Company under this Section unless the agreement of merger
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or consolidation or conversion expressly otherwise provides); or (iii) any transfer of Vested Shares pursuant to the winding up and dissolution of the Company. As used herein, the term Immediate Family will mean Optionees spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of Optionee or Optionees spouse, or the spouse of any of the above or Spousal Equivalent, as defined herein. As used herein, a person is deemed to be a Spousal Equivalent provided the following circumstances are true: (i) irrespective of whether or not Optionee and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither are married to anyone else, (iv) both are at least 18 years of age and mentally competent to consent to contract, (v) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (vi) they are jointly responsible for each others common welfare and financial obligations, and (vii) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
10.7. Termination of Right of First Refusal. The Right of First Refusal will terminate as to all Shares: (i) on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the Securities Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan); (ii) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Exchange Act; or (iii) on any transfer or conversion of Shares made pursuant to a statutory conversion of the Company into another form of legal entity if the common equity (or comparable equity security) of entity resulting from such conversion is registered under the Exchange Act.
10.8. Encumbrances on Vested Shares. Optionee may grant a lien or security interest in, or pledge, hypothecate or encumber Vested Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not adversely affect or impair the Right of First Refusal or the rights of the Company and/or its assignee(s) with respect thereto and will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Agreement will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Optionee may not grant a lien or security interest in, or pledge, hypothecate or encumber, any Unvested Shares.
11. RIGHTS AS A STOCKHOLDER. Optionee shall not have any of the rights of a stockholder with respect to any Shares unless and until such Shares are issued to Optionee. Subject to the terms and conditions of this Agreement, Optionee will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Optionee pursuant to, and in accordance with, the terms of the Exercise Agreement until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option or the Right of First Refusal. Upon an exercise of the Repurchase Option or the Right of First Refusal, Optionee will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
12. ESCROW. As security for Optionees faithful performance of this Agreement, Optionee agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s) to the Secretary of the Company or other designee of the Company (the Escrow Holder), who is hereby appointed to hold such certificate(s) and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Optionee
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and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement and will not be liable for any act or omission taken by Escrow Holder in good faith reliance on such documents, the advice of counsel or a court order. The Shares will be released from escrow upon termination of both the Repurchase Option and the Right of First Refusal.
13. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
13.1. Legends. Optionee understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or U.S. Federal securities laws, the Companys Certificate of Incorporation or Bylaws, any other agreement between Optionee and the Company, or any agreement between Optionee and any third party (and any other legend(s) that the Company may become obligated to place on the stock certificate(s) evidencing the Shares under the terms of any agreement to which the Company is or may become bound or obligated):
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON RESALE AND TRANSFER, INCLUDING THE REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH SALE AND TRANSFER RESTRICTIONS, INCLUDING THE REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL, ARE BINDING ON TRANSFEREES OF THESE SHARES.
(c) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF CERTAIN PUBLIC OFFERINGS OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.
13.2. Stop-Transfer Instructions. Optionee agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
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13.3. Refusal to Transfer. The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.
14. CERTAIN TAX CONSEQUENCES. Set forth below is a brief summary as of the Effective Date of the Plan of some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
14.1. Exercise of ISO. If the Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal alternative minimum tax purposes and may subject Optionee to the alternative minimum tax in the year of exercise.
14.2. Exercise of Nonqualified Stock Option. If the Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is a current or former employee of the Company, the Company may be required to withhold from Optionees compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
14.3. Disposition of Shares. The following tax consequences may apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal income tax purposes. If Vested Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. To the extent the Shares were exercised prior to vesting coincident with the filing of an 83(b) Election, the amount taxed because of a disqualifying disposition will be based upon the excess, if any, of the fair market value on the date of vesting over the exercise price.
(b) Nonqualified Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.
14.4. Section 83(b) Election for Unvested Shares. With respect to Unvested Shares, which are subject to the Repurchase Option, unless an election is filed by Optionee with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within thirty (30) days of the purchase of the Unvested Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Exercise Price of the Unvested Shares and their Fair Market Value on the date of purchase, there may be a recognition of taxable income (including, where applicable, alternative minimum taxable income) to Optionee, measured by the excess, if any, of the Fair Market Value of the Unvested Shares at the time they cease to be Unvested Shares, over the Exercise Price of the Unvested Shares.
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15. GENERAL PROVISIONS.
15.1. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Optionee.
15.2. Entire Agreement. The Plan, the Grant Notice and the Exercise Agreement are each incorporated herein by reference. This Agreement, the Grant Notice, the Plan and the Exercise Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior undertakings and agreements with respect to such subject matter.
16. NOTICES. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time an electronic confirmation of receipt is received, if delivery is by email; (iii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iv) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (v) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. Any notice for delivery outside the United States will be sent by email, facsimile or by express courier. Any notice not delivered personally or by email will be sent with postage and/or other charges prepaid and properly addressed to Optionee at the last known address or facsimile number on the books of the Company, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto or, in the case of the Company, to it at its principal place of business. Notices to the Company will be marked Attention: Chief Financial Officer. Notices by facsimile shall be machine verified as received.
17. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement including its rights to purchase Shares under both the Right of First Refusal and Repurchase Option. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionees heirs, executors, administrators, legal representatives, successors and assigns.
18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Washington as such laws are applied to agreements between Washington residents entered into and to be performed entirely within Washington. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
19. FURTHER ASSURANCES. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
20. TITLES AND HEADINGS. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Agreement.
21. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
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22. SEVERABILITY. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
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Attachments:
Annex A: Form of Stock Option Exercise Notice and Agreement
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ANNEX A
FORM OF STOCK OPTION EXERCISE NOTICE AND AGREEMENT
EARLY EXERCISE FORM
STOCK OPTION EXERCISE NOTICE AND AGREEMENT
IMPEL NEUROPHARMA, INC.
2018 EQUITY INCENTIVE PLAN
*NOTE: You must sign this Notice on Page 3 before submitting it to Impel Neuropharma, Inc. (the Company).
OPTIONEE INFORMATION: Please provide the following information about yourself (Optionee):
Name: |
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Social Security Number: |
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Address: |
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Employee Number: |
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Email Address: |
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OPTION INFORMATION: Please provide this information on the option being exercised (the Option):
Grant No. | ||
Date of Grant: | Type of Stock Option: | |
Option Price per Share: $ | ☐ Nonqualified (NQSO) | |
Total number of shares of Common Stock of the Company subject to the Option: |
☐ Incentive (ISO) |
EXERCISE INFORMATION:
Number of shares of Common Stock of the Company for which the Option is now being exercised [ ]. (These shares are referred to below as the Purchased Shares.)
Total Exercise Price Being Paid for the Purchased Shares: $
Form of payment enclosed [check all that apply]:
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Check for $ , payable to Impel Neuropharma, Inc.. |
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Certificate(s) for shares of Common Stock of the Company. These shares will be valued as of the date this notice is received by the Company. [Requires Company consent.] |
AGREEMENTS, REPRESENTATIONS AND ACKNOWLEDGMENTS OF OPTIONEE: By signing this Stock Option Exercise Notice and Agreement, Optionee hereby agrees with, and represents to, the Company as follows:
1. |
Terms Governing. I acknowledge and agree with the Company that I am acquiring the Purchased Shares by exercise of this Option subject to all other terms and conditions of the Notice of Stock Option Grant and the Stock Option Agreement that govern the Option, including without limitation the terms of the Companys 2018 Equity Incentive Plan, as it may be amended (the Plan). |
2. |
Investment Intent; Securities Law Restrictions. I represent and warrant to the Company that I am acquiring and will hold the Purchased Shares for investment for my account only, and not with a view to, or for resale in connection with, any distribution of the Purchased Shares within the meaning of the Securities Act of 1933, as amended (the Securities Act). I understand that the Purchased Shares |
EARLY EXERCISE FORM
have not been registered under the Securities Act by reason of a specific exemption from such registration requirement and that the Purchased Shares must be held by me indefinitely, unless they are subsequently registered under the Securities Act or I obtain an opinion of counsel (in form and substance satisfactory to the Company and its counsel) that registration is not required. I acknowledge that the Company is under no obligation to register the Purchased Shares under the Securities Act or under any other securities law. |
3. |
Restrictions on Transfer: Rule 144. I will not sell, transfer or otherwise dispose of the Purchased Shares in violation of the Securities Act, the Securities Exchange Act of 1934, or the rules promulgated thereunder (including Rule 144 under the Securities Act described below (Rule 144)) or of any other applicable securities laws. I am aware of Rule 144, which permits limited public resales of securities acquired in a non-public offering, subject to satisfaction of certain conditions, which include (without limitation) that: (a) certain current public information about the Company is available; (b) the resale occurs only after the holding period required by Rule 144 has been met; (c) the sale occurs through an unsolicited brokers transaction; and (d) the amount of securities being sold during any three-month period does not exceed specified limitations. I understand that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future. |
4. |
Access to Information; Understanding of Risk in Investment. I acknowledge that I have received and had access to such information as I consider necessary or appropriate for deciding whether to invest in the Purchased Shares and that I had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the issuance of the Purchased Shares. I am aware that my investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss. I am able, without impairing my financial condition, to hold the Purchased Shares for an indefinite period and to suffer a complete loss of my investment in the Purchased Shares. |
5. |
Rights of First Refusal; Repurchase Options; Market Stand-off. I acknowledge that the Purchased Shares remain subject to the Companys Right of First Refusal, the Companys Repurchase Option (with respect to unvested Purchased Shares) and the market stand-off covenants (sometimes referred to as the lock-up), all in accordance with the applicable Notice of Stock Option Grant and the Stock Option Agreement that govern the Option |
6. |
Form of Ownership. I acknowledge that the Company has encouraged me to consult my own adviser to determine the form of ownership of the Purchased Shares that is appropriate for me. In the event that I choose to transfer my Purchased Shares to a trust, I agree to sign a Stock Transfer Agreement. In the event that I choose to transfer my Purchased Shares to a trust that is not an eligible revocable trust, I also acknowledge that the transfer will be treated as a disposition for tax purposes. As a result, the favorable ISO tax treatment will be unavailable and other unfavorable tax consequences may occur. |
7. |
Investigation of Tax Consequences. I acknowledge that the Company has encouraged me to consult my own adviser to determine the tax consequences of acquiring the Purchased Shares at this time. |
8. |
Other Tax Matters. I agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes my tax liabilities. I will not make any claim against the Company or its Board, officers or employees related to tax liabilities arising from my options or my other compensation. In particular, I acknowledge that my options (including the Option) are exempt from Section 409A of the Internal Revenue Code only if the exercise price per share is at least equal to the fair market value per share of the Common Stock at the time the option was granted by the Board. Since shares of the Common Stock are not traded on an established securities market, the determination of their fair market value was made by the Board and/or by an independent valuation firm retained by the Company. I acknowledge that there is no guarantee in |
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EARLY EXERCISE FORM
either case that the Internal Revenue Service will agree with the valuation, and I will not make any claim against the Company or its Board of Directors, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low. |
9. |
Spouse Consent. I agree to seek the consent of my spouse to the extent required by the Company to enforce the foregoing. |
10. |
Tax Withholding. As a condition of exercising this Option, I agree to make adequate provision for foreign, federal, state or other tax withholding obligations, if any, which arise upon the grant, vesting or exercise of this Option, or disposition of the Purchased Shares, whether by withholding, direct payment to the Company, or otherwise. |
IMPORTANT NOTE: UNVESTED PURCHASED SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY. PLEASE CONSULT WITH YOUR TAX ADVISER CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE INTERNAL REVENUE SERVICE WHICH MUST BE FILED WITHIN THIRTY (30) DAYS AFTER THE PURCHASE OF SHARES TO BE EFFECTIVE.
A form of Election under Section 83(b) is attached hereto as Exhibit 1 for reference. Unless an 83(b) election is timely filed with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), electing pursuant to Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the purchase price of the Unvested Purchased Shares and their fair market value on the date of purchase, there may be a recognition of taxable income (including, where applicable, alternative minimum taxable income) to you, measured by the excess, if any, of the Fair Market Value of the Unvested Purchased Shares at the time they cease to be Unvested Purchased Shares, over the purchase price of the Unvested Purchased Shares.
The undersigned hereby executes and delivers this Stock Option Exercise Notice and Agreement and agrees to be bound by its terms
SIGNATURE: | DATE: | |||
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Optionees Name: |
Attachments:
Exhibit 1 Section 83(b) Election Form
[Signature Page to Stock Option Exercise Notice and Agreement]
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EARLY EXERCISE FORM
EXHIBIT 1
SECTION 83(b) ELECTION
ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services in the calculation of: (1) regular gross income; (2) alternative minimum taxable income; or (3) disqualifying disposition gross income, as the case may be.
1. TAXPAYERS NAME: |
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TAXPAYERS ADDRESS: |
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SOCIAL SECURITY NUMBER: |
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2. |
The property with respect to which the election is made is described as follows: shares of Common Stock, par value $0.0001 per share, of Impel Neuropharma, Inc., a Delaware corporation (the Company), which were transferred upon exercise of an option by the Company, which is Taxpayers employer or the corporation for whom the Taxpayer performs services. |
3. |
The date on which the shares were transferred was pursuant to the exercise of the option was , and this election is made for calendar year . |
4. |
The shares received upon exercise of the option are subject to the following restrictions: The Company may repurchase all or a portion of the shares at Taxpayers original purchase price per share, under certain conditions at the time of Taxpayers termination of employment or services. |
5. |
The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $ per share × shares = $ at the time of exercise of the option. |
6. |
The amount paid for such shares upon exercise of the option was $ per share × shares = $ . |
7. |
The Taxpayer has submitted a copy of this statement to the Company. |
8. |
The amount to include in gross income is $ . [The result of the amount reported in Item 5 minus the amount reported in Item 6.] |
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE (IRS), AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER THE DATE OF TRANSFER OF THE SHARES, AND MUST ALSO BE FILED WITH THE TAXPAYERS INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS.
Dated: |
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Taxpayers Signature |
OPTION GRANT NO.
NOTICE OF STOCK OPTION GRANT
IMPEL NEUROPHARMA, INC.
2018 EQUITY INCENTIVE PLAN
The Optionee named below (Optionee) has been granted an option (this Option) to purchase shares of Common Stock, $0.0001 par value per share (the Common Stock), of Impel Neuropharma, Inc., a Delaware corporation (the Company), pursuant to the Companys 2018 Equity Incentive Plan, as amended from time to time (the Plan) on the terms, and subject to the conditions, described below and in the Stock Option Agreement attached hereto as Exhibit A, including its annexes (the Stock Option Agreement).
Optionee: |
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Maximum Number of Shares Subject to this Option (the Shares): | ||
Exercise Price Per Share: |
$ per share | |
Date of Grant: |
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Vesting Start Date: |
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Exercise Schedule: |
This Option will become exercisable during its term with respect to portions of the Shares in accordance with the Vesting Schedule set forth below. | |
Expiration Date: |
The date ten (10) years after the Date of Grant set forth above, subject to earlier expiration in the event of Termination as provided in Section 3 of the Stock Option Agreement. | |
Tax Status of Option: (Check Only One Box): |
☐ Incentive Stock Option (To the fullest extent permitted by the Code) ☐ Nonqualified Stock Option. (If neither box is checked, this Option is a Nonqualified Stock Option). |
Vesting Schedule [EXAMPLE ONLY]: For so long as Optionee continuously provides services to the Company (or any Subsidiary or Parent of the Company) as an employee, officer, director, contractor or consultant, this Option will vest (that is, become exercisable) with respect to the Shares as follows: (a) prior to the first one (1) year anniversary of the Vesting Start Date this Option will not be vested or exercisable as to any of the Shares; (b) this Option will become vested and exercisable with respect to [1/4th] of the Shares on the one (1) year anniversary of the Vesting Start Date; and (c) thereafter, this Option will become vested and exercisable with respect to an additional [1/48th] of the Shares when Optionee completes each month of continuous service following the first one (1) year anniversary of the Vesting Start Date.
General; Agreement: By their signatures below, Optionee and the Company agree that this Option is granted under and governed by this Notice of Stock Option Grant (this Grant Notice) and by the provisions of the Plan and the Stock Option Agreement. The Plan and the Stock Option Agreement are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings given to them in the Plan or in the Stock Option Agreement, as applicable. By signing below, Optionee acknowledges receipt of a copy of this Grant Notice, the Plan and the Stock Option Agreement, represents that Optionee has carefully read and is familiar with their provisions, and hereby accepts the Option subject to all of their respective terms and conditions. Optionee acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Optionee should consult a tax adviser prior to such exercise or disposition. Optionee agrees and acknowledges that the Vesting Schedule may change prospectively in the event that Optionees service status changes between full and part time status in accordance with Company policies relating to work schedules and vesting of equity awards.
Execution and Delivery: This Grant Notice may be executed and delivered electronically whether via the Companys intranet or the Internet site of a third party or via email or any other means of electronic delivery specified by the Company. By Optionees acceptance hereof (whether written, electronic or otherwise), Optionee agrees, to the fullest extent permitted by law, that in lieu of receiving documents in paper format, Optionee accepts the electronic delivery of any documents that the Company (or any third party the Company may designate), may deliver in connection with this grant (including the Plan, this Grant Notice, the Stock Option Agreement, the information described in Rules 701(e)(2), (3), (4) and (5) under the Securities Act (the 701 Disclosures), account statements, or other communications or information) whether via the Companys intranet or the Internet site of such third party or via email or such other means of electronic delivery specified by the Company.
IMPEL NEUROPHARMA, INC.
By /Signature: |
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Optionee Signature: |
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Typed Name: |
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Optionees Name: |
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Title: |
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ATTACHMENT: Exhibit A Stock Option Agreement
Exhibit A
Stock Option Agreement
EXHIBIT A
STOCK OPTION AGREEMENT
IMPEL NEUROPHARMA, INC.
2018 EQUITY INCENTIVE PLAN
This Stock Option Agreement (this Agreement) is made and entered into as of the date of grant (the Date of Grant) set forth on the Notice of Stock Option Grant attached as the facing page to this Agreement (the Grant Notice) by and between Impel Neuropharma, Inc., a Delaware corporation (the Company), and the optionee named on the Grant Notice (Optionee). Capitalized terms not defined in this Agreement shall have the meaning ascribed to them in the Companys 2018 Equity Incentive Plan, as amended from time to time (the Plan), or in the Grant Notice, as applicable.
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this Option) to purchase up to the total number of shares of Common Stock of the Company, $0.0001 par value per share (the Common Stock), set forth in the Grant Notice as the Shares (the Shares) at the Exercise Price Per Share set forth in the Grant Notice (the Exercise Price), subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan. If designated as an Incentive Stock Option in the Grant Notice, this Option is intended to qualify as an incentive stock option (the ISO) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code), except that if on the Date of Grant Optionee is not subject to U.S. income tax, then this Option shall be a NQSO.
2. EXERCISE PERIOD.
2.1 Exercise Period of Option. This Option is considered to be vested with respect to any particular Shares when this Option is exercisable with respect to such Shares. This Option will become vested during its term as to portions of the Shares in accordance with the Vesting Schedule set forth in the Grant Notice. Notwithstanding any provision in the Plan or this Agreement to the contrary, on or after Optionees Termination Date, this Option may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date.
2.2 Vesting of Option Shares. Shares with respect to which this Option is vested and exercisable at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are Vested Shares. Shares with respect to which this Option is not vested and exercisable at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are Unvested Shares.
2.3 Expiration. The Option shall expire on the Expiration Date set forth in the Grant Notice or earlier as provided in Section 3 below.
3. TERMINATION.
3.1 Termination for Any Reason Except Death, Disability or Cause. Except as provided in subsection 3.2 in a case in which Optionee dies within three (3) months after Optionee is Terminated other than for Cause, if Optionee is Terminated for any reason (other than Optionees death or Disability or for Cause), then (a) on and after Optionees Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date and (b) this Option to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionees Termination Date, may be exercised by Optionee no later than three (3) months after Optionees Termination Date (but in no event may this Option be exercised after the Expiration Date).
3.2 Termination Because of Death or Disability. If Optionee is Terminated because of Optionees death or Disability (or if Optionee dies within three (3) months of the date of
Optionees Termination for any reason other than for Cause), then (a) on and after Optionees Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date and (b) this Option, to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionees Termination Date, may be exercised by Optionee (or Optionees legal representative) no later than twelve (12) months after Optionees Termination Date, but in no event later than the Expiration Date. Any exercise of this Option beyond (i) three (3) months after the date Optionee ceases to be an employee when Optionees Termination is for any reason other than Optionees death or disability, within the meaning of Section 22(e)(3) of the Code; or (ii) twelve (12) months after the date Optionee ceases to be an employee when the termination is for Optionees disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be an NQSO.
3.3 Termination for Cause. If Optionee is Terminated for Cause, then Optionee may exercise this Option, but only with respect to any Shares that are Vested Shares on Optionees Termination Date, and this Option shall expire on Optionees Termination Date, or at such later time and on such conditions as may be affirmatively determined by the Committee. On and after Optionees Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date.
3.4 No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on Optionee any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company, or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Optionees employment or other relationship at any time, with or without Cause.
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Notice and Agreement. To exercise this Option, Optionee (or in the case of exercise after Optionees death or incapacity, Optionees executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed Stock Option Exercise Notice and Agreement in the form attached hereto as Annex A, or in such other form as may be approved by the Committee from time to time (the Exercise Agreement) and payment for the shares being purchased in accordance with this Agreement. The Exercise Agreement shall set forth, among other things, (i) Optionees election to exercise this Option, (ii) the number of Shares being purchased, (iii) any representations, warranties and agreements regarding Optionees investment intent and access to information as may be required by the Company to comply with applicable securities laws in connection with any exercise of this Option and (iv) any other agreements required by the Company. If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise this Option and such person shall be subject to all of the restrictions contained herein as if such person were Optionee.
4.2 Limitations on Exercise. This Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise.
4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the shares being purchased in cash (by check or wire transfer), or where permitted by law:
(a) by cancellation of indebtedness of the Company owed to Optionee;
(b) by surrender of shares of the Company that are free and clear of all security interests, pledges, liens, claims or encumbrances and: (i) for which the Company has received
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full payment of the purchase price within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by Optionee in the public market;
(c) by participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(d) provided that a public market for the Common Stock exists and subject to compliance with applicable law, by exercising as set forth below, through a same day sale commitment from Optionee and a broker-dealer whereby Optionee irrevocably elects to exercise this Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or
(e) by any combination of the foregoing or any other method of payment approved by the Committee that constitutes legal consideration for the issuance of Shares.
4.4 Tax Withholding. Prior to the issuance of the Shares upon exercise of the Option, Optionee must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Optionee may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld; or to arrange a mandatory sell to cover on Optionees behalf (without further authorization); but in no event will the Company withhold Shares or sell to cover if such withholding would result in adverse accounting consequences to the Company. In case of stock withholding or a sell to cover, the Company shall issue the net number of Shares to Optionee by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares issuable upon a valid exercise of this Option registered in the name of Optionee, Optionees authorized assignee, or Optionees legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this Agreement are intended to comply with Section 25102(o) and Rule 701. Any provision of this Agreement that is inconsistent with Section 25102(o) or Rule 701 shall, without further act or amendment by the Company or the Committee, be reformed to comply with the requirements of Section 25102(o) and/or Rule 701. The exercise of this Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Common Stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
6. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any manner other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to a testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor) or a revocable trust, or by gift to immediate family as that term is defined in 17 C.F.R. 240.16a-1(e), and may be exercised during the lifetime of Optionee only by Optionee or in the event of Optionees incapacity, by Optionees legal representative. The terms of this Option shall be binding upon the executors, administrators, successors and assigns of Optionee.
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7. RESTRICTIONS ON TRANSFER.
7.1 Disposition of Shares. Optionee hereby agrees that Optionee shall make no disposition of any of the Shares (other than as permitted by this Agreement) unless and until:
(a) Optionee shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(b) Optionee shall have complied with all requirements of this Agreement applicable to the disposition of the Shares;
(c) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or under any applicable state securities laws or (ii) all appropriate actions necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) or applicable state securities laws have been taken; and
(d) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the regulations promulgated under Section 25102(o), Rule 701 or under any other applicable securities laws or adversely affect the Companys ability to rely on the exemption(s) from registration under the Securities Act or under any other applicable securities laws for the grant of the Option, the issuance of Shares thereunder or any other issuance of securities under the Plan.
7.2 Restriction on Transfer. Optionee shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Companys Right of First Refusal described below, except as permitted by this Agreement.
7.3 Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred Shares are subject to (i) the Companys Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 8 below, to the same extent such Shares would be so subject if retained by Optionee.
8. MARKET STANDOFF AGREEMENT. Optionee agrees that, subject to any early release provisions that apply pro rata to stockholders of the Company according to their holdings of Common Stock (determined on an as-converted into Common Stock basis), Optionee will not, for a period of up to one hundred eighty (180) days (plus up to an additional thirty five (35) days to the extent reasonably requested by the Company or such underwriter(s) to accommodate regulatory restrictions on the publication or other distribution of research reports or earnings releases by the Company, including NASD and NYSE rules) following the effective date of the registration statement filed with the SEC relating to the initial underwritten sale of Common Stock of the Company to the public under the Securities Act (the IPO), directly or indirectly sell, offer to sell, grant any option for the sale of, or otherwise dispose of any Common Stock or securities convertible into Common Stock, except for: (i) transfers of Shares permitted under Section 9.6 hereof so long as such transferee furnishes to the Company and the managing underwriter their written consent to be bound by this Section 8 as a condition precedent to such transfer; and (ii) sales of any securities to be included in the registration statement for the IPO. For the avoidance of doubt, the provisions of this Section shall only apply to the IPO. The restricted period shall in any event terminate two (2) years after the closing date of the IPO. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the Shares subject to this Section and to impose stop transfer instructions with
5
respect to the Shares until the end of such period. Optionee further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing restrictions on transfer. For the avoidance of doubt, the foregoing provisions of this Section shall not apply to any registration of securities of the Company (a) under an employee benefit plan or (b) in a merger, consolidation, business combination or similar transaction.
9. COMPANYS RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee or any transferee of such Shares (either sometimes referred to herein as the Holder) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Shares to be sold or transferred (the Offered Shares) on the terms and conditions set forth in this Section (the Right of First Refusal).
9.1 Notice of Proposed Transfer. The Holder of the Offered Shares will deliver to the Company a written notice (the Notice) stating: (i) the Holders bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name and address of each proposed purchaser or other transferee (the Proposed Transferee); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the Offered Price); and (v) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Companys Right of First Refusal at the Offered Price as provided for in this Agreement.
9.2 Exercise of Right of First Refusal. At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as specified below.
9.3 Purchase Price. The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift) then the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Committee. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Committee, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
9.4 Payment. Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Companys receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
9.5 Holders Right to Transfer. If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (i) such sale or other transfer is consummated within ninety (90) days after the date of the Notice, (ii) any such sale or other transfer is effected in compliance with all applicable securities laws, and (iii) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such ninety (90) day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
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9.6 Exempt Transfers. Notwithstanding anything to the contrary in this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Shares during Optionees lifetime by gift or on Optionees death by will or intestacy to any member(s) of Optionees Immediate Family (as defined below) or to a trust for the benefit of Optionee and/or member(s) of Optionees Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient; (ii) any transfer of Shares made pursuant to a statutory merger, statutory consolidation of the Company with or into another corporation or corporations or a conversion of the Company into another form of legal entity (except that the Right of First Refusal will continue to apply thereafter to such Shares, in which case the surviving corporation of such merger or consolidation or the resulting entity of such conversion shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation or conversion expressly otherwise provides); or (iii) any transfer of Shares pursuant to the winding up and dissolution of the Company. As used herein, the term Immediate Family will mean Optionees spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of Optionee or Optionees spouse, or the spouse of any of the above or Spousal Equivalent, as defined herein. As used herein, a person is deemed to be a Spousal Equivalent provided the following circumstances are true: (i) irrespective of whether or not Optionee and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither are married to anyone else, (iv) both are at least 18 years of age and mentally competent to consent to contract, (v) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (vi) they are jointly responsible for each others common welfare and financial obligations, and (vii) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
9.7 Termination of Right of First Refusal. The Right of First Refusal will terminate as to all Shares: (i) on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the Securities Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan); (ii) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Exchange Act; or (iii) on any transfer or conversion of Shares made pursuant to a statutory conversion of the Company into another form of legal entity if the common equity (or comparable equity security) of entity resulting from such conversion is registered under the Exchange Act.
9.8 Encumbrances on Shares. Optionee may grant a lien or security interest in, or pledge, hypothecate or encumber Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not adversely affect or impair the Right of First Refusal or the rights of the Company and/or its assignee(s) with respect thereto and will not apply to such Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Agreement will continue to apply to such Shares in the hands of such party and any transferee of such party.
10. RIGHTS AS A STOCKHOLDER. Optionee shall not have any of the rights of a stockholder with respect to any Shares unless and until such Shares are issued to Optionee. Subject to the terms and conditions of this Agreement, Optionee will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Optionee pursuant to, and in accordance with, the terms of the Exercise Agreement until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Right of First Refusal. Upon an exercise of the Right of First Refusal, Optionee will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
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11. ESCROW. As security for Optionees faithful performance of this Agreement, Optionee agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s) to the Secretary of the Company or other designee of the Company (the Escrow Holder), who is hereby appointed to hold such certificate(s) in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Optionee and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement and will not be liable for any act or omission taken by Escrow Holder in good faith reliance on such documents, the advice of counsel or a court order. The Shares will be released from escrow upon termination of the Right of First Refusal.
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
12.1 Legends. Optionee understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or U.S. Federal securities laws, the Companys Certificate of Incorporation or Bylaws, any other agreement between Optionee and the Company, or any agreement between Optionee and any third party (and any other legend(s) that the Company may become obligated to place on the stock certificate(s) evidencing the Shares under the terms of any agreement to which the Company is or may become bound or obligated):
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON RESALE AND TRANSFER, INCLUDING THE RIGHT OF FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH SALE AND TRANSFER RESTRICTIONS, INCLUDING THE RIGHT OF FIRST REFUSAL, ARE BINDING ON TRANSFEREES OF THESE SHARES.
(c) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF CERTAIN PUBLIC OFFERINGS OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.
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12.2 Stop-Transfer Instructions. Optionee agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
12.3 Refusal to Transfer. The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.
13. CERTAIN TAX CONSEQUENCES. Set forth below is a brief summary as of the Effective Date of the Plan of some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
13.1 Exercise of ISO. If the Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal alternative minimum tax purposes and may subject Optionee to the alternative minimum tax in the year of exercise.
13.2 Exercise of Nonqualified Stock Option. If the Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is a current or former employee of the Company, the Company may be required to withhold from Optionees compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
13.3 Disposition of Shares. The following tax consequences may apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price.
(b) Nonqualified Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.
14. GENERAL PROVISIONS.
14.1 Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Optionee.
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14.2 Entire Agreement. The Plan, the Grant Notice and the Exercise Agreement are each incorporated herein by reference. This Agreement, the Grant Notice, the Plan and the Exercise Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior undertakings and agreements with respect to such subject matter.
15. NOTICES. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time an electronic confirmation of receipt is received, if delivery is by email; (iii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iv) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (v) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. Any notice for delivery outside the United States will be sent by email, facsimile or by express courier. Any notice not delivered personally or by email will be sent with postage and/or other charges prepaid and properly addressed to Optionee at the last known address or facsimile number on the books of the Company, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto or, in the case of the Company, to it at its principal place of business. Notices to the Company will be marked Attention: Chief Financial Officer. Notices by facsimile shall be machine verified as received.
16. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement including its rights to purchase Shares under the Right of First Refusal. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionees heirs, executors, administrators, legal representatives, successors and assigns.
17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Washington as such laws are applied to agreements between Washington residents entered into and to be performed entirely within Washington. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
18. FURTHER ASSURANCES. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
19. TITLES AND HEADINGS. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Agreement.
20. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
21. SEVERABILITY. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder
10
of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
* * * * *
Attachment: Annex A: Form of Stock Option Exercise Notice and Agreement
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ANNEX A
FORM OF STOCK OPTION EXERCISE NOTICE AND AGREEMENT
STOCK OPTION EXERCISE NOTICE AND AGREEMENT
IMPEL NEUROPHARMA, INC.
2018 EQUITY INCENTIVE PLAN
*NOTE: You must sign this Notice on Page 3 before submitting it to Impel Neuropharma, Inc. (the Company).
OPTIONEE INFORMATION: Please provide the following information about yourself (Optionee):
Name: | Social Security Number: | |
Address: | Employee Number: | |
Email Address: |
OPTION INFORMATION: Please provide this information on the option being exercised (the Option):
Grant No. | ||
Date of Grant: | Type of Stock Option: | |
Option Price per Share: $ | ☐ Nonqualified (NQSO) | |
Total number of shares of Common Stock of the Company subject to the Option: |
☐ Incentive (ISO) |
EXERCISE INFORMATION:
Number of shares of Common Stock of the Company for which the Option is now being exercised [ ]. (These shares are referred to below as the Purchased Shares.)
Total Exercise Price Being Paid for the Purchased Shares: $
Form of payment enclosed [check all that apply]:
☐ |
Check for $ , payable to Impel Neuropharma, Inc.. |
☐ |
Certificate(s) for shares of Common Stock of the Company. These shares will be valued as of the date this notice is received by the Company. [Requires Company consent.] |
AGREEMENTS, REPRESENTATIONS AND ACKNOWLEDGMENTS OF OPTIONEE: By signing this Stock Option Exercise Notice and Agreement, Optionee hereby agrees with, and represents to, the Company as follows:
1. |
Terms Governing. I acknowledge and agree with the Company that I am acquiring the Purchased Shares by exercise of this Option subject to all other terms and conditions of the Notice of Stock Option Grant and the Stock Option Agreement that govern the Option, including without limitation the terms of the Companys 2018 Equity Incentive Plan, as it may be amended (the Plan). |
2. |
Investment Intent; Securities Law Restrictions. I represent and warrant to the Company that I am acquiring and will hold the Purchased Shares for investment for my account only, and not with a view to, or for resale in connection with, any distribution of the Purchased Shares within the meaning of the Securities Act of 1933, as amended (the Securities Act). I understand that the Purchased Shares have not been registered under the Securities Act by reason of a specific exemption from such |
registration requirement and that the Purchased Shares must be held by me indefinitely, unless they are subsequently registered under the Securities Act or I obtain an opinion of counsel (in form and substance satisfactory to the Company and its counsel) that registration is not required. I acknowledge that the Company is under no obligation to register the Purchased Shares under the Securities Act or under any other securities law. |
3. |
Restrictions on Transfer: Rule 144. I will not sell, transfer or otherwise dispose of the Purchased Shares in violation of the Securities Act, the Securities Exchange Act of 1934, or the rules promulgated thereunder (including Rule 144 under the Securities Act described below (Rule 144)) or of any other applicable securities laws. I am aware of Rule 144, which permits limited public resales of securities acquired in a non-public offering, subject to satisfaction of certain conditions, which include (without limitation) that: (a) certain current public information about the Company is available; (b) the resale occurs only after the holding period required by Rule 144 has been met; (c) the sale occurs through an unsolicited brokers transaction; and (d) the amount of securities being sold during any three-month period does not exceed specified limitations. I understand that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future. |
4. |
Access to Information; Understanding of Risk in Investment. I acknowledge that I have received and had access to such information as I consider necessary or appropriate for deciding whether to invest in the Purchased Shares and that I had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the issuance of the Purchased Shares. I am aware that my investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss. I am able, without impairing my financial condition, to hold the Purchased Shares for an indefinite period and to suffer a complete loss of my investment in the Purchased Shares. |
5. |
Rights of First Refusal; Market Stand-off. I acknowledge that the Purchased Shares remain subject to the Companys Right of First Refusal and the market stand-off covenants (sometimes referred to as the lock-up), all in accordance with the applicable Notice of Stock Option Grant and the Stock Option Agreement that govern the Option. |
6. |
Form of Ownership. I acknowledge that the Company has encouraged me to consult my own adviser to determine the form of ownership of the Purchased Shares that is appropriate for me. In the event that I choose to transfer my Purchased Shares to a trust, I agree to sign a Stock Transfer Agreement. In the event that I choose to transfer my Purchased Shares to a trust that is not an eligible revocable trust, I also acknowledge that the transfer will be treated as a disposition for tax purposes. As a result, the favorable ISO tax treatment will be unavailable and other unfavorable tax consequences may occur. |
7. |
Investigation of Tax Consequences. I acknowledge that the Company has encouraged me to consult my own adviser to determine the tax consequences of acquiring the Purchased Shares at this time. |
8. |
Other Tax Matters. I agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes my tax liabilities. I will not make any claim against the Company or its Board, officers or employees related to tax liabilities arising from my options or my other compensation. In particular, I acknowledge that my options (including the Option) are exempt from section 409A of the Internal Revenue Code only if the exercise price per share is at least equal to the fair market value per share of the Common Stock at the time the option was granted by the Board. Since shares of the Common Stock are not traded on an established securities market, the determination of their fair market value was made by the Board and/or by an independent valuation firm retained by the Company. I acknowledge that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and I will not make any claim against the Company or its Board, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low. |
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9. |
Spouse Consent. I agree to seek the consent of my spouse to the extent required by the Company to enforce the foregoing. |
10. |
Tax Withholding. As a condition of exercising this Option, I agree to make adequate provision for foreign, federal, state or other tax withholding obligations, if any, which arise upon the grant, vesting or exercise of this Option, or disposition of the Purchased Shares, whether by withholding, direct payment to the Company, or otherwise. |
The undersigned hereby executes and delivers this Stock Option Exercise Notice and Agreement and agrees to be bound by its terms
SIGNATURE: | DATE: | |
Optionees Name: |
|
[Signature Page to Stock Option Exercise Notice and Agreement]
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EXHIBIT 10.9
LEASE
by and between
BMR-201 ELLIOTT AVENUE LLC,
a Delaware limited liability company
and
IMPEL NEUROPHARMA, INC.,
a Delaware corporation
Table of Contents
1. |
Lease of Premises |
1 | ||||
2. |
Basic Lease Provisions |
2 | ||||
3. |
Term |
4 | ||||
4. |
Possession and Commencement Date |
4 | ||||
5. |
Condition of Premises |
6 | ||||
6. |
Rentable Area |
6 | ||||
7. |
Rent |
7 | ||||
8. |
Rent Adjustments |
7 | ||||
9. |
Operating Expenses |
8 | ||||
10. |
Taxes on Tenants Property |
12 | ||||
11. |
Security Deposit |
12 | ||||
12. |
Use |
14 | ||||
13. |
Rules and Regulations, CC&Rs, Parking Facilities and Common Area |
17 | ||||
14. |
Project Control by Landlord |
18 | ||||
15. |
Quiet Enjoyment |
19 | ||||
16. |
Utilities and Services |
19 | ||||
17. |
Alterations |
22 | ||||
18. |
Repairs and Maintenance |
25 | ||||
19. |
Liens |
26 | ||||
20. |
Estoppel Certificate |
27 | ||||
21. |
Hazardous Materials |
27 | ||||
22. |
Odors and Exhaust |
30 | ||||
23. |
Insurance |
31 | ||||
24. |
Damage or Destruction |
34 | ||||
25. |
Eminent Domain |
36 | ||||
26. |
Surrender |
37 | ||||
27. |
Holding Over |
38 | ||||
28. |
Indemnification and Exculpation |
38 | ||||
29. |
Assignment or Subletting |
40 | ||||
30. |
Subordination and Attornment |
44 | ||||
31. |
Defaults and Remedies |
44 |
i
32. |
Bankruptcy |
49 | ||||
33. |
Brokers |
50 | ||||
34. |
Definition of Landlord |
50 | ||||
35. |
Limitation of Landlords Liability |
51 | ||||
36. |
Joint and Several Obligations |
51 | ||||
37. |
Representations |
52 | ||||
38. |
Confidentiality |
52 | ||||
39. |
Notices |
52 | ||||
40. |
Miscellaneous |
53 | ||||
41. |
Option to Extend Term |
55 |
ii
LEASE
THIS LEASE (this Lease) is entered into as of this 19th day of July, 2017 (the Execution Date), by and between BMR-201 ELLIOTT AVENUE LLC, a Delaware limited liability company (Landlord), and IMPEL NEUROPHARMA, INC., a Delaware corporation (Tenant).
RECITALS
A. WHEREAS, Landlord owns certain real property described on Exhibit A-1 attached hereto (the Property) and the improvements on the Property located at 201 Elliott Avenue West, Seattle, Washington, including the building located thereon (the Building); and
B. WHEREAS, Landlord wishes to lease to Tenant, and Tenant desires to lease from Landlord, certain premises (the Premises) located on the second (2nd) floor of the Building, pursuant to the terms and conditions of this Lease, as detailed below.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Lease of Premises.
1.1. Effective on the Term Commencement Date (as defined below), Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, as shown on Exhibit A attached hereto, including exclusive shafts, cable runs, mechanical spaces and rooftop areas, for use by Tenant in accordance with the Permitted Use (as defined below) and no other uses. The Property and all landscaping, parking facilities, private drives and other improvements and appurtenances related thereto, including the Building, are hereinafter collectively referred to as the Project. All portions of the Project that are for the non-exclusive use of tenants of the Building, including driveways, sidewalks, parking areas, landscaped areas, service corridors, stairways, elevators, public restrooms and public lobbies, are hereinafter referred to as Common Area. During the Term, Tenant shall, subject to Force Majeure, casualty and all of the other terms, conditions and provisions of this Lease, have access to the Premises twenty-four (24) hours per day, seven (7) days per week.
1.2. Landlord shall have the right at any time during the Term, upon providing Tenant not less than six (6) months prior written notice, to provide Tenant with space elsewhere in the Building or the Project with similar views and of substantially the same size and quality of improvements as the Premises and to remove Tenant from the Premises and place Tenant in such space. Landlord shall pay any reasonable and customary costs and expenses related thereto. Should Tenant refuse to permit Landlord to move Tenant to such new space at the end of such six (6) month period, Landlord shall have, in addition to all other rights and remedies allowed under this Lease, at law or in equity, the right to cancel and terminate this Lease upon providing written notice to Tenant within thirty (30) days after the end of such six (6) month period of Landlords election to so terminate. Upon providing such notice to Tenant, this Lease shall immediately
terminate. If Landlord moves Tenant to such new space, then this Lease and each and all of its terms, covenants and conditions shall remain in full force and effect and be deemed applicable to such new space, and such new space shall thereafter be deemed to be the Premises, and Landlord and Tenant shall enter into an express written amendment to this Lease memorializing such change.
2. Basic Lease Provisions. For convenience of the parties, certain basic provisions of this Lease are set forth herein. The provisions set forth herein are subject to the remaining terms and conditions of this Lease and are to be interpreted in light of such remaining terms and conditions.
2.1. This Lease shall take effect upon the Execution Date and, except as specifically otherwise provided within this Lease, each of the provisions hereof shall be binding upon and inure to the benefit of Landlord and Tenant from the date of execution and delivery hereof by all parties hereto.
2.2. In the definitions below, each current Rentable Area (as defined below) is expressed in square feet. Rentable Area and Tenants Pro Rata Share are both subject to adjustment as provided in this Lease.
Definition or Provision |
Means the Following (As of the Term Commencement Date) |
|
Approximate Rentable Area of Premises | 11,256 square feet | |
Approximate Rentable Area of Project | 151,194 square feet | |
Tenants Pro Rata Share of Project | 7.44% |
2.3. Initial monthly and annual installments of Base Rent for the Premises (Base Rent) as of the Term Commencement Date, subject to adjustment under this Lease:
Dates |
Square Feet of
Rentable Area |
Base Rent per Square Foot of Rentable Area |
Monthly
Base Rent |
Annual Base
Rent |
||||||||||
Month 1 |
11,256 | $0.00 monthly | $ | 0.00 | N/A | |||||||||
Month 2 Month 12 |
11,256 | $50.00 annually | $ | 46,900 | $ | 562,800 |
2.4. Estimated Term Commencement Date: September 1, 2017
2.5. Term Expiration Date: August 31, 2020
2.6. Security Deposit: $187,000
2.7. Permitted Use: Office and laboratory use in conformity with all federal, state, municipal and local laws, codes, ordinances, rules and regulations of Governmental Authorities
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(as defined below), committees, associations, or other regulatory committees, agencies or governing bodies having jurisdiction over the Premises, the Building, the Property, the Project, Landlord or Tenant, including both statutory and common law and hazardous waste rules and regulations (Applicable Laws)
2.8. Address for Rent Payment: |
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BMR-201 Elliott Avenue LLC | ||
Attention Entity 232 | ||
P.O. Box 511415 | ||
Los Angeles, California 90051-7970 | ||
2.9. Address for Notices to Landlord: |
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BMR-201 Elliott Avenue LLC 17190 Bernardo Center Drive |
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San Diego, California 92128 | ||
Attn: Legal Department | ||
2.10. Address for Notices to Tenant: |
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Prior to Term Commencement Date: | ||
Impel NeuroPharma | ||
Attn: CEO 915 East Pine Street |
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Seattle, WA 98122 | ||
After Term Commencement Date: | ||
Impel NeuroPharma | ||
Attn: CEO 201 Elliott Avenue West |
||
Seattle, WA 98119 | ||
2.11. Address for Invoices to Tenant: |
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Prior to Term Commencement Date: | ||
Impel NeuroPharma | ||
Attn: CEO 915 East Pine Street |
||
Seattle, WA 98122 | ||
After Term Commencement Date: |
||
Impel NeuroPharma |
||
Attn: CEO 201 Elliott Avenue West |
||
Seattle, WA 98119 |
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2.12. The following Exhibits are attached hereto and incorporated herein by reference:
Exhibit A | Premises | |
Exhibit A-1 | Property | |
Exhibit B | Work Letter | |
Exhibit B-1 | Tenant Work Insurance Schedule | |
Exhibit C | Landlord Work Plans | |
Exhibit D |
Acknowledgement of Term Commencement Date and Term Expiration Date |
|
Exhibit E | Form of Letter of Credit | |
Exhibit F | Rules and Regulations | |
Exhibit G | [Intentionally omitted] | |
Exhibit H | Tenants Personal Property | |
Exhibit I | Form of Estoppel Certificate |
3. Term. The term of this Lease (as the same may be extended pursuant to Article 41 hereof, and as the same may be earlier terminated in accordance with this Lease, the Term) shall commence on the actual Term Commencement Date (as defined in Section 4.2 below) and end on the Term Expiration Date (as defined in Section 2.5 above), subject to extension or earlier termination of this Lease as provided herein.
4. Possession and Commencement Date.
4.1. Landlord shall use commercially reasonable efforts to tender possession of the Premises to Tenant on the Estimated Term Commencement Date, with the work (the Landlord Work) described on Exhibit C attached hereto (the Landlord Work Plans), Substantially Complete (as defined below). Tenant agrees that in the event such work is not Substantially Complete on or before the Estimated Term Commencement Date for any reason, then (a) this Lease shall not be void or voidable, (b) Landlord shall not be liable to Tenant for any loss or damage resulting therefrom and (c) Tenant shall not be responsible for the payment of Base Rent or Tenants Adjusted Share of Operating Expenses (as defined below) until the actual Term Commencement Date as described in Section 4.2 occurs. The term Substantially Complete or Substantial Completion means that the Landlord Work is substantially complete in accordance with the Landlord Work Plans, except for minor punchlist items. Notwithstanding anything in this Lease (including the Work Letter) to the contrary, Landlords obligation to timely achieve Substantial Completion shall be subject to extension on a day-for-day basis as a result of Force Majeure (as defined below).
4.2. The Term Commencement Date shall be the later of (a) the Estimated Term Commencement Date and (b) the day Landlord tenders possession of the Premises to Tenant with
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the Landlord Work Substantially Complete. If possession is delayed by action or omission of Tenant, then the Term Commencement Date shall be the date that the Term Commencement Date would have occurred but for such delay. Tenant shall execute and deliver to Landlord written acknowledgment of the actual Term Commencement Date and the Term Expiration Date within ten (10) days after Tenant takes occupancy of the Premises, in the form attached as Exhibit D hereto. Failure to execute and deliver such acknowledgment, however, shall not affect the Term Commencement Date or Landlords or Tenants liability hereunder. Failure by Tenant to obtain validation by any medical review board or other similar governmental licensing of the Premises required for the Permitted Use by Tenant shall not serve to extend the Term Commencement Date.
4.3. Landlord shall permit Tenant to enter upon the Premises twenty-one (21) days prior to the Term Commencement Date for the purpose of installing improvements or the placement of personal property; provided, however, that, prior to any such entry, Tenant shall furnish to Landlord evidence satisfactory to Landlord in advance that insurance coverages required of Tenant under the provisions of Article 23 are in effect, and such entry shall be subject to all the terms and conditions of this Lease other than the payment of Base Rent or Tenants Adjusted Share of Operating Expenses (as defined below); and provided, further, that if the Term Commencement Date is delayed due to such early access, then the Term Commencement Date shall be the date that the Term Commencement Date would have occurred but for such delay.
4.4. Landlord shall cause the Landlord Work to be constructed in the Premises at Landlords sole cost and expense. Landlord shall cause the work (the Tenant Improvements) required of Landlord described in the Work Letter attached hereto as Exhibit B (the Work Letter) to be constructed in the Premises pursuant to the Work Letter at a cost to Landlord not to exceed Forty Thousand Dollars ($40,000) (the TI Allowance), and any cost in excess of the TI Allowance will be paid by Tenant as set forth in the Work Letter. The TI Allowance may be applied to the costs of (a) construction, (b) project management by Landlord (which fee shall equal Two Thousand Five Hundred Dollars ($2,500.00)), (c) commissioning of mechanical, electrical and plumbing systems by a licensed, qualified commissioning agent hired by Landlord, and review of such partys commissioning report by a licensed, qualified commissioning agent hired by Tenant, (d) space planning, architect, engineering and other related services performed by third parties unaffiliated with Tenant, (e) building permits and other taxes, fees, charges and levies by Governmental Authorities (as defined below) for permits or for inspections of the Tenant Improvements, and (f) costs and expenses for labor, material, equipment and fixtures, In no event shall the TI Allowance be used for (w) payments to Tenant or any affiliates of Tenant, (x) the purchase of any furniture, personal property or other non-building system equipment, (y) costs arising from any default by Tenant of its obligations under this Lease or (z) costs that are recoverable by Tenant from a third party (e.g., insurers, warrantors, or tortfeasors).
4.5. Tenant shall have until June 30, 2018 (TI Deadline), to expend the unused portion of the TI Allowance, after which date Landlords obligation to fund any such costs shall expire. Base Rent shall be increased to include the amount of the TI Allowance disbursed by Landlord in accordance with this Lease, amortized over the initial Term at a rate of eight percent (8%) annually. The amount by which Base Rent shall be increased shall be determined (and Base Rent shall be increased accordingly) as of the Term Commencement Date and, if such determination does not reflect use by Tenant of all of the TI Allowance, shall be determined again as of the TI Deadline, with Tenant paying (on the next succeeding day that Base Rent is due under this Lease (the TI
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True-Up Date)) any underpayment of the further adjusted Base Rent for the period beginning on the Term Commencement Date and ending on the TI True-Up Date. In no event shall any unused TI Allowance entitle Tenant to a credit against Rent payable under this Lease.
4.6. Tenant acknowledges and agrees that Landlord shall have no obligation to commence any work on the Tenant Improvements until after the Landlord Work is Substantially Complete, and Tenant acknowledges that Landlord may be constructing the Tenant Improvements in the Premises after the Term Commencement Date and during Tenants occupancy of the Premises for the Permitted Use. Tenant shall permit Landlord to enter the Premises at all times (including during business hours) to construct the Tenant Improvements, and Tenant shall otherwise reasonably cooperate with Landlord throughout the construction process to enable Landlord to complete the Tenant Improvements in a timely and efficient manner. In constructing the Tenant Improvements, Landlord shall reasonably cooperate with Tenant so as to cause as little interference to Tenant as is reasonably possible; provided, however, that in no event shall Landlords construction of the Tenant Improvements in the Premises (a) cause Rent (as defined below) to abate under this Lease, (b) give rise to any claim by Tenant for damages or (c) constitute a forcible or unlawful entry, a detainer or an eviction of Tenant.
5. Condition of Premises. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Premises, the Building or the Project, or with respect to the suitability of the Premises, the Building or the Project for the conduct of Tenants business. Tenant acknowledges that (a) it is fully familiar with the condition of the Premises and agrees to take the same in its condition as is as of the Term Commencement Date and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Premises for Tenants occupancy or to pay for or construct any improvements to the Premises, except for performance of the Landlord Work and the Tenant Improvements. Tenants taking of possession of the Premises shall, except as otherwise agreed to in writing by Landlord and Tenant, conclusively establish that the Premises, the Building and the Project were at such time in good, sanitary and satisfactory condition and repair.
6. Rentable Area.
6.1. The term Rentable Area shall reflect such areas as reasonably calculated by Landlords architect, as the same may be reasonably adjusted from time to time by Landlord in consultation with Landlords architect to reflect changes to the Premises, the Building or the Project, as applicable.
6.2. The Rentable Area of the Building is generally determined by making separate calculations of Rentable Area applicable to each floor within the Building and totaling the Rentable Area of all floors within the Building. The Rentable Area of a floor is computed by measuring to the outside finished surface of the permanent outer Building walls. The full area calculated as previously set forth is included as Rentable Area, without deduction for columns and projections or vertical penetrations, including stairs, elevator shafts, flues, pipe shafts, vertical ducts and the like, as well as such items enclosing walls.
6.3. The term Rentable Area, when applied to the Premises, is that area equal to the usable area of the Premises, plus an equitable allocation of Rentable Area within the Building that is not then utilized or expected to be utilized as usable area, including that portion of the Building devoted to corridors, equipment rooms, restrooms, elevator lobby, atrium and mailroom.
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7. Rent.
7.1. Tenant shall pay to Landlord as Base Rent for the Premises, commencing on the Term Commencement Date, the sums set forth in Section 2.3, subject to the rental adjustments provided in Article 8 hereof. Base Rent shall be paid in equal monthly installments as set forth in Section 2.3, subject to the rental adjustments provided in Article 8 hereof, each in advance on the first day of each and every calendar month during the Term.
7.2. In addition to Base Rent, Tenant shall pay to Landlord as additional rent (Additional Rent) at times hereinafter specified in this Lease (a) Tenants Adjusted Share (as defined below) of Operating Expenses (as defined below), (b) the Property Management Fee (as defined below), (c) [Intentionally omitted] and (d) any other amounts that Tenant assumes or agrees to pay under the provisions of this Lease that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure on Tenants part to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.
7.3. Base Rent and Additional Rent shall together be denominated Rent. Rent shall be paid to Landlord, without abatement, deduction or offset, in lawful money of the United States of America to the address set forth in Section 2.8 or to such other person or at such other place as Landlord may from time designate in writing. In the event the Term commences or ends on a day other than the first day of a calendar month, then the Rent for such fraction of a month shall be prorated for such period on the basis of the number of days in the month and shall be paid at the then-current rate for such fractional month.
7.4. Tenants obligation to pay Rent shall not be discharged or otherwise affected by (a) any Applicable Laws now or hereafter applicable to the Premises, (b) any other restriction on Tenants use, (c) except as expressly provided herein, any casualty or taking or (d) any other occurrence; and Tenant waives all rights now or hereafter existing to terminate or cancel this Lease or quit or surrender the Premises or any part thereof, or to assert any defense in the nature of constructive eviction to any action seeking to recover rent. Tenants obligation to pay Rent with respect to any period or obligations arising, existing or pertaining to the period prior to the date of the expiration or earlier termination of the Term or this Lease shall survive any such expiration or earlier termination; provided, however, that nothing in this sentence shall in any way affect Tenants obligations with respect to any other period.
8. Rent Adjustments. Base Rent shall be subject to an annual upward adjustment of three percent (3%) of the then-current Base Rent. The first such adjustment shall become effective commencing on the first (1st) annual anniversary of the Term Commencement Date, and subsequent adjustments shall become effective on every successive annual anniversary for so long as this Lease continues in effect.
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9. Operating Expenses.
9.1. As used herein, the term Operating Expenses shall include:
(a) Government impositions, including property tax costs consisting of real and personal property taxes (including amounts due under any improvement bond upon the Building or the Project (including the parcel or parcels of real property upon which the Building and areas serving the Building are located)) or assessments in lieu thereof imposed by any federal, state, regional, local or municipal governmental authority, agency or subdivision (each, a Governmental Authority); taxes on or measured by gross rentals received from the rental of space in the Project; taxes based on the square footage of the Premises, the Building or the Project, as well as any parking charges, utilities surcharges or any other costs levied, assessed or imposed by, or at the direction of, or arising from Applicable Laws or interpretations thereof, promulgated by any Governmental Authority in connection with the use or occupancy of the Project or the parking facilities serving the Project; taxes on this transaction or any document to which Tenant is a party creating or transferring an interest in the Premises; any fee for a business license to operate an office building; and any expenses, including the reasonable cost of attorneys or experts, reasonably incurred by Landlord in seeking reduction by the taxing authority of the applicable taxes, less tax refunds obtained as a result of an application for review thereof; and
(b) All other costs of any kind paid or incurred by Landlord in connection with the operation or maintenance of the Building and the Project, which shall include Project office rent at fair market rental for a commercially reasonable amount of space for Project management personnel, to the extent an office used for Project operations is maintained at the Project, plus customary expenses for such office, and costs of repairs and replacements to improvements within the Project as appropriate to maintain the Project as required hereunder, including costs of funding such reasonable reserves as Landlord, consistent with good business practice, may establish to provide for future repairs and replacements, or as any Lender (as defined below) may require; costs of utilities furnished to the Common Area; sewer fees; cable television; trash collection; cleaning, including windows; heating, ventilation and air-conditioning (HVAC); maintenance of landscaping and grounds; snow removal; maintenance of drives and parking areas; maintenance of the roof; security services and devices; building supplies; maintenance or replacement of equipment utilized for operation and maintenance of the Project; license, permit and inspection fees; sales, use and excise taxes on goods and services purchased by Landlord in connection with the operation, maintenance or repair of the Building or Project systems and equipment; telephone, postage, stationery supplies and other expenses incurred in connection with the operation, maintenance or repair of the Project; accounting, legal and other professional fees and expenses incurred in connection with the Project; costs of furniture, draperies, carpeting, landscaping supplies, snow removal and other customary and ordinary items of personal property provided by Landlord for use in Common Area or in the Project office; capital expenditures (provided, however, that any capital expenditure in excess of One Hundred Thousand Dollars ($100,000) shall be amortized on a straight line basis over the useful life thereof in accordance with generally accepted accounting principles as reasonably determined by Landlord); costs of complying with Applicable Laws (except to the extent such costs are incurred to remedy non-compliance as of the
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Execution Date with Applicable Laws, in which event such costs shall not be includable in Operating Expenses); costs to keep the Project in compliance with, or costs or fees otherwise required under or incurred pursuant to any CC&Rs (as defined below), including condominium fees; insurance premiums, including premiums for commercial general liability, property casualty, earthquake, terrorism and environmental coverages; portions of insured losses paid by Landlord as part of the deductible portion of a loss pursuant to the terms of insurance policies; service contracts; costs of services of independent contractors retained to do work of a nature referenced above; and costs of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the day-to-day operation and maintenance of the Project, its equipment, the adjacent walks, landscaped areas, drives and parking areas, including janitors, floor waxers, window washers, watchmen, gardeners, sweepers, plow truck drivers, handymen, and engineering/maintenance/facilities personnel.
(c) Notwithstanding the foregoing, Operating Expenses shall not include any net income, franchise, capital stock, estate or inheritance taxes, or taxes that are the personal obligation of Tenant or of another tenant of the Project; any leasing commissions; expenses that relate to preparation of rental space for a tenant; expenses of initial development and construction, including grading, paving, landscaping and decorating (as distinguished from maintenance, repair and replacement of the foregoing); the cost of compliance with Applicable Laws to the extent that such cost would not have been incurred but for the construction of additions to the Building after the Execution Date involving the moving of perimeter walls of the Building, adding additional floors to the Building, or constructing additional buildings on the Property; legal expenses relating to other tenants; expenses incurred to defend Landlords title to the Building or Project; costs resulting from the presence of Hazardous Materials at the Project in violation of Applicable Laws as of the Execution Date, unless placed at the Project by a Tenant Party; and costs incurred to remove, remedy, contain, or treat any Hazardous Material brought into the Building or onto the Project after the Execution Date by Landlord; costs of repairs to the extent reimbursed by payment of insurance proceeds received by Landlord; interest upon loans to Landlord or secured by a loan agreement, mortgage, deed of trust, security instrument or other loan document covering the Project or a portion thereof (collectively, Loan Documents) (provided that interest upon a government assessment or improvement bond payable in installments shall constitute an Operating Expense under Subsection 9.1(a)); salaries of executive officers of Landlord; costs arising from Landlords charitable or political contributions; Landlords general corporate overhead, except as it relates to the specific management of the Building; any ground lease rental; expenses in connection with services or other benefits that are not offered to Tenant or for which Tenant is charged directly and that are provided to another tenant or occupant of the Building without charge; costs paid to subsidiaries or affiliates of Landlord for services provided to the Building to the extent the cost of such services exceeds the costs that would generally be charged for such services if rendered on a competitive basis (based upon a standard of similar commercial laboratory buildings in the general market area of the Premises) by unaffiliated third parties capable of providing such service; advertising and promotional expenditures; depreciation claimed by Landlord for tax purposes (provided that this exclusion of depreciation is not intended to delete from Operating Expenses actual costs of repairs and replacements and reasonable reserves in regard thereto that are provided for in Subsection 9.1(b)); taxes that are excluded from Operating Expenses by the last sentence of Subsection 9.1(a); costs or expenses incurred in connection with the financing or sale of the Project or any portion thereof; costs expressly excluded from Operating Expenses elsewhere in this Lease or that are charged to or paid by Tenant under other provisions of this
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Lease; professional fees and disbursements and other costs and expenses related to the ownership (as opposed to the use, occupancy, operation, maintenance or repair) of the Project; and any item that, if included in Operating Expenses, would involve a double collection for such item by Landlord. To the extent that Tenant uses more than Tenants Pro Rata Share of any item of Operating Expenses, Tenant shall pay Landlord for such excess in addition to Tenants obligation to pay Tenants Pro Rata Share of Operating Expenses (such excess, together with Tenants Pro Rata Share, Tenants Adjusted Share).
9.2. Tenant shall pay to Landlord on the first day of each calendar month of the Term, as Additional Rent, (a) the Property Management Fee (as defined below), and (b) Landlords estimate of Tenants Adjusted Share of Operating Expenses with respect to the Building and the Project, as applicable, for such month.
(w) The Property Management Fee shall equal three percent (3%) of Base Rent due from Tenant. Tenant shall pay the Property Management Fee in accordance with Section 9.2 with respect to the entire Term, including any extensions thereof or any holdover periods, regardless of whether Tenant is obligated to pay Base Rent, Operating Expenses or any other Rent with respect to any such period or portion thereof. For the first (1st) month of the Term (and any period of occupancy prior to the Term as further described in Section 9.5), the Property Management Fee shall be calculated as if Tenant were paying Forty-Six Thousand Nine Hundred Dollars ($46,900) per month for Base Rent.
(x) [Intentionally omitted]
(y) Within ninety (90) days after the conclusion of each calendar year (or such longer period as may be reasonably required by Landlord), Landlord shall furnish to Tenant a statement showing in reasonable detail the actual Operating Expenses, Tenants Adjusted Share of Operating Expenses, and the cost of providing utilities to the Premises for the previous calendar year (Landlords Statement). Any additional sum due from Tenant to Landlord shall be due and payable within thirty (30) days after receipt of an invoice therefor. If the amounts paid by Tenant pursuant to this Section exceed Tenants Adjusted Share of Operating Expenses for the previous calendar year, then Landlord shall credit the difference against the Rent next due and owing from Tenant; provided that, if the Lease term has expired, Landlord shall accompany Landlords Statement with payment for the amount of such difference.
(z) Any amount due under this Section for any period that is less than a full month shall be prorated for such fractional month on the basis of the number of days in the month.
9.3. Landlord may, from time to time, modify Landlords calculation and allocation procedures for Operating Expenses, so long as such modifications produce Dollar results substantially consistent with Landlords then-current practice at the Project. Landlord or an affiliate(s) of Landlord currently own other property(ies) adjacent to the Project or its neighboring properties (collectively, Neighboring Properties). In connection with Landlord performing services for the Project pursuant to this Lease, similar services may be performed by the same vendor(s) for Neighboring Properties. In such a case, Landlord shall reasonably allocate to each Building and the Project the costs for such services based upon the ratio that the square footage of the Building or the Project (as applicable) bears to the total square footage of all of the Neighboring
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Properties or buildings within the Neighboring Properties for which the services are performed, unless the scope of the services performed for any building or property (including the Building and the Project) is disproportionately more or less than for others, in which case Landlord shall equitably allocate the costs based on the scope of the services being performed for each building or property (including the Building and the Project).
9.4. [Intentionally omitted]
9.5. Tenant shall not be responsible for Operating Expenses with respect to any time period prior to the Term Commencement Date; provided, however, that if Landlord shall permit Tenant possession of the Premises prior to the Term Commencement Date (other than possession solely for the purpose of preparing the Premises for Tenants occupancy and not for conducting business), Tenant shall be responsible for Operating Expenses from such earlier date of possession (the Term Commencement Date or such earlier date, as applicable, the Expense Trigger Date); and provided, further, that Landlord may annualize certain Operating Expenses incurred prior to the Expense Trigger Date over the course of the budgeted year during which the Expense Trigger Date occurs, and Tenant shall be responsible for the annualized portion of such Operating Expenses corresponding to the number of days during such year, commencing with the Expense Trigger Date, for which Tenant is otherwise liable for Operating Expenses pursuant to this Lease. Tenants responsibility for Tenants Adjusted Share of Operating Expenses shall continue to the latest of (a) the date of termination of the Lease, (b) the date Tenant has fully vacated the Premises and (c) if termination of the Lease is due to a default by Tenant, the date of rental commencement of a replacement tenant (but no later than the scheduled Term Expiration Date at the time of such default).
9.6. Operating Expenses for the calendar year in which Tenants obligation to share therein commences and for the calendar year in which such obligation ceases shall be prorated on a basis reasonably determined by Landlord. Expenses such as taxes, assessments and insurance premiums that are incurred for an extended time period shall be prorated based upon the time periods to which they apply so that the amounts attributed to the Premises relate in a reasonable manner to the time period wherein Tenant has an obligation to share in Operating Expenses.
9.7. Within thirty (30) days after the end of each calendar month, Tenant shall submit to Landlord an invoice, or, in the event an invoice is not available, an itemized list, of all costs and expenses that (a) Tenant has incurred (either internally or by employing third parties) during the prior month and (b) for which Tenant reasonably believes it is entitled to reimbursements from Landlord pursuant to the terms of this Lease or that Tenant reasonably believes is the responsibility of Landlord pursuant to this Lease or the Work Letter.
9.8. In the event that the Project is less than fully occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate Operating Expenses that vary depending on the occupancy of the Project to equal Landlords reasonable estimate of what such Operating Expenses would have been had the Project been ninety-five percent (95%) occupied during such calendar year; provided, however, that Landlord shall not recover more than one hundred percent (100%) of Operating Expenses.
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10. Taxes on Tenants Property.
10.1. Tenant shall be solely responsible for the payment of any and all taxes levied upon (a) personal property and trade fixtures located at the Premises and (b) any gross or net receipts of or sales by Tenant, and shall pay the same at least twenty (20) days prior to delinquency.
10.2. If any such taxes on Tenants personal property or trade fixtures are levied against Landlord or Landlords property or, if the assessed valuation of the Building, the Property or the Project is increased by inclusion therein of a value attributable to Tenants personal property or trade fixtures, and if Landlord, after written notice to Tenant, pays the taxes based upon any such increase in the assessed value of the Building, the Property or the Project, then Tenant shall, upon demand, repay to Landlord the taxes so paid by Landlord.
10.3. If any 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, are assessed for real property tax purposes at a valuation higher than the valuation at which improvements conforming to Landlords building standards (the Building Standard) in other spaces in the Building are assessed, then the real property taxes and assessments levied against Landlord or the Building, the Property or the Project by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 10.2. Any such excess assessed valuation due to improvements in or alterations to space in the Project leased by other tenants at the Project shall not be included in Operating Expenses. If the records of the applicable governmental assessors office are available and sufficiently detailed to serve as a basis for determining whether such Tenant improvements or alterations are assessed at a higher valuation than the Building Standard, then such records shall be binding on both Landlord and Tenant.
11. Security Deposit.
11.1. Tenant shall deposit with Landlord on or before the Execution Date the sum set forth in Section 2.6 (the Security Deposit), which sum shall be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the period commencing on the Execution Date and ending upon the expiration or termination of Tenants obligations under this Lease. If Tenant Defaults (as defined below) with respect to any provision of this Lease, including any provision relating to the payment of Rent, then Landlord may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenants default. If any portion of the Security Deposit is so used or applied, then (i) Landlord shall notify Tenant of the amount by which the Security Deposit has been reduced, and (ii) Tenant shall, within ten (10) days following demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenants failure to do so shall be a material breach of this Lease. The provisions of this Article shall survive the expiration or earlier termination of this Lease.
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11.2. In the event of bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for all periods prior to the filing of such proceedings.
11.3. Landlord may deliver to any purchaser of Landlords interest in the Premises the funds deposited hereunder by Tenant, and thereupon Landlord shall be discharged from any further liability with respect to such deposit. This provision shall also apply to any subsequent transfers.
11.4. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, then the Security Deposit, or any balance thereof, shall be returned to Tenant (or, at Landlords option, to the last assignee of Tenants interest hereunder) within thirty (30) days after the expiration or earlier termination of this Lease.
11.5. If the Security Deposit shall be in cash, Landlord shall hold the Security Deposit in an account at a banking organization selected by Landlord; provided, however, that Landlord shall not be required to maintain a separate account for the Security Deposit, but may intermingle it with other funds of Landlord. Landlord shall be entitled to all interest and/or dividends, if any, accruing on the Security Deposit. Landlord shall not be required to credit Tenant with any interest for any period during which Landlord does not receive interest on the Security Deposit.
11.6. The Security Deposit may be in the form of cash, a letter of credit or any other security instrument acceptable to Landlord in its sole discretion. Tenant may at any time, except when Tenant is in Default (as defined below), deliver a letter of credit (the L/C Security) as the entire Security Deposit, as follows:
(a) If Tenant elects to deliver L/C Security, then Tenant shall provide Landlord, and maintain in full force and effect throughout the Term and until the date that is four (4) months after the then-current Term Expiration Date, a letter of credit in the form of Exhibit E issued by an issuer reasonably satisfactory to Landlord, in the amount of the Security Deposit, with an initial term of at least one year. Landlord may require the L/C Security to be re-issued by a different issuer at any time during the Term if Landlord reasonably believes that the issuing bank of the L/C Security is or may soon become insolvent; provided, however, Landlord shall return the existing L/C Security to the existing issuer immediately upon receipt of the substitute L/C Security. If any issuer of the L/C Security shall become insolvent or placed into FDIC receivership, then Tenant shall immediately deliver to Landlord (without the requirement of notice from Landlord) substitute L/C Security issued by an issuer reasonably satisfactory to Landlord, and otherwise conforming to the requirements set forth in this Article. As used herein with respect to the issuer of the L/C Security, insolvent shall mean the determination of insolvency as made by such issuers primary bank regulator (i.e., the state bank supervisor for state chartered banks; the OCC or OTS, respectively, for federally chartered banks or thrifts; or the Federal Reserve for its member banks). If, at the Term Expiration Date, any Rent remains uncalculated or unpaid, then (i) Landlord shall with reasonable diligence complete any necessary calculations, (ii) Tenant shall extend the expiry date of such L/C Security from time to time as Landlord reasonably requires and (iii) in such extended period, Landlord shall not unreasonably refuse to consent to an appropriate reduction of the L/C Security. Tenant shall reimburse Landlords legal costs (as estimated by Landlords counsel) in handling Landlords acceptance of L/C Security or its replacement or extension.
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(b) If Tenant delivers to Landlord satisfactory L/C Security in place of the entire Security Deposit, Landlord shall remit to Tenant any cash Security Deposit Landlord previously held.
(c) Landlord may draw upon the L/C Security, and hold and apply the proceeds in the same manner and for the same purposes as the Security Deposit, if (i) an uncured Default (as defined below) exists, (ii) as of the date that is forty-five (45) days before any L/C Security expires (even if such scheduled expiry date is after the Term Expiration Date) Tenant has not delivered to Landlord an amendment or replacement for such L/C Security, reasonably satisfactory to Landlord, extending the expiry date to the earlier of (1) four (4) months after the then-current Term Expiration Date or (2) the date that is one year after the then-current expiry date of the L/C Security, (iii) the L/C Security provides for automatic renewals, Landlord asks the issuer to confirm the current L/C Security expiry date, and the issuer fails to do so within ten (10) business days, (iv) Tenant fails to pay (when and as Landlord reasonably requires) any bank charges for Landlords transfer of the L/C Security or (v) the issuer of the L/C Security ceases, or announces that it will cease, to maintain an office in the city where Landlord may present drafts under the L/C Security (and fails to permit drawing upon the L/C Security by overnight courier or facsimile). This Section does not limit any other provisions of this Lease allowing Landlord to draw the L/C Security under specified circumstances.
(d) Tenant shall not seek to enjoin, prevent, or otherwise interfere with Landlords draw under L/C Security, even if it violates this Lease. Tenant acknowledges that the only effect of a wrongful draw would be to substitute a cash Security Deposit for L/C Security, causing Tenant no legally recognizable damage. Landlord shall hold the proceeds of any draw in the same manner and for the same purposes as a cash Security Deposit. In the event of a wrongful draw, the parties shall cooperate to allow Tenant to post replacement L/C Security simultaneously with the return to Tenant of the wrongfully drawn sums, and Landlord shall upon request confirm in writing to the issuer of the L/C Security that Landlords draw was erroneous.
(e) If Landlord transfers its interest in the Premises, then Tenant shall at Tenants expense, within five (5) business days after receiving a request from Landlord, deliver (and, if the issuer requires, Landlord shall consent to) an amendment to the L/C Security naming Landlords grantee as substitute beneficiary. If the required Security Deposit changes while L/C Security is in force, then Tenant shall deliver (and, if the issuer requires, Landlord shall consent to) a corresponding amendment to the L/C Security.
12. Use.
12.1. Tenant shall use the Premises for the Permitted Use, and shall not use the Premises, or permit or suffer the Premises to be used, for any other purpose without Landlords prior written consent, which consent Landlord may withhold in its sole and absolute discretion.
12.2. Tenant shall not use or occupy the Premises in violation of Applicable Laws; zoning ordinances; or the certificate of occupancy (or its substantial equivalent) issued for the Building or the Project, and shall, upon five (5) days written notice from Landlord, discontinue any use of the Premises that is declared or claimed by any Governmental Authority having jurisdiction to be a violation of any of the above, or that in Landlords reasonable opinion violates any of the above.
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Tenant shall comply with any direction of any Governmental Authority having jurisdiction that shall, by reason of the nature of Tenants use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof, and shall indemnify, defend (at the option of and with counsel reasonably acceptable to the indemnified party(ies)), save, reimburse and hold harmless (collectively, Indemnify, Indemnity or Indemnification, as the case may require) the Landlord and its affiliates, employees, agents and contractors; and any lender, mortgagee, ground lessor or beneficiary (each, a Lender and, collectively with Landlord and its affiliates, employees, agents and contractors, the Landlord Indemnitees) harmless from and against any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages, suits or judgments, and all reasonable expenses (including reasonable attorneys fees, charges and disbursements, regardless of whether the applicable demand, claim, action, cause of action or suit is voluntarily withdrawn or dismissed) incurred in investigating or resisting the same (collectively, Claims) of any kind or nature that arise before, during or after the Term as a result of Tenants breach of this Section.
12.3. Tenant shall not do or permit to be done anything that will invalidate or increase the cost of any fire, environmental, extended coverage or any other insurance policy covering the Building or the Project, and shall comply with all rules, orders, regulations and requirements of the insurers of the Building and the Project, and Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenants failure to comply with the provisions of this Article.
12.4. Tenant shall keep all doors opening onto public corridors closed, except when in use for ingress and egress.
12.5. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made to existing locks or the mechanisms thereof without Landlords prior written consent. Tenant shall, upon termination of this Lease, return to Landlord all keys to offices and restrooms either furnished to or otherwise procured by Tenant. In the event any key so furnished to Tenant is lost, Tenant shall pay to Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such change.
12.6. No awnings or other projections shall be attached to any outside wall of the Building. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlords standard window coverings. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without Landlords prior written consent, nor shall any bottles, parcels or other articles be placed on the windowsills or items attached to windows that are visible from outside the Premises. No equipment, furniture or other items of personal property shall be placed on any exterior balcony without Landlords prior written consent.
12.7. No sign, advertisement or notice (Signage) shall be exhibited, painted or affixed by Tenant on any part of the Premises or the Building without Landlords prior written consent. Signage shall conform to Landlords design criteria. For any Signage, Tenant shall, at Tenants own cost and expense, (a) acquire all permits for such Signage in compliance with Applicable Laws and (b) design, fabricate, install and maintain such Signage in a first-class condition. Tenant
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shall be responsible for reimbursing Landlord for costs incurred by Landlord in removing any of Tenants Signage upon the expiration or earlier termination of the Lease. The following Signage shall be inscribed, painted or affixed for Tenant by Landlord at Landlords sole cost and expense, and shall be of a size, color and type and be located in a place acceptable to Landlord: (x) identification signage on all existing interior Building directories, (y) one (1) interior identification sign on the entry door to the Premises, and (z) one (1) entry on the existing monument located outside of the Building (provided, however, that modifications to, or replacements of, any such signage described in (x), (y) or (z) above shall be made by Landlord at Tenants sole cost and expense). The directory tablet (if any) shall be provided exclusively for the display of the name and location of tenants only. Tenant shall not place anything on the exterior of the corridor walls or corridor doors other than Landlords standard lettering. At Landlords option, Landlord may install any Tenant Signage, and Tenant shall pay all costs associated with such installation within thirty (30) days after demand therefor.
12.8. Tenant may only place equipment within the Premises with floor loading consistent with the Buildings structural design unless Tenant obtains Landlords prior written approval. Tenant may place such equipment only in a location designed to carry the weight of such equipment.
12.9. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations therefrom from extending into the Common Area or other offices in the Project.
12.10. Tenant shall not (a) do or permit anything to be done in or about the Premises that shall in any way obstruct or interfere with the rights of other tenants or occupants of the Project, or injure or annoy them, (b) use or allow the Premises to be used for immoral, unlawful or objectionable purposes, (c) cause, maintain or permit any nuisance or waste in, on or about the Project or (d) take any other action that would in Landlords reasonable determination in any manner adversely affect other tenants quiet use and enjoyment of their space or adversely impact their ability to conduct business in a professional and suitable work environment. Notwithstanding anything in this Lease to the contrary, Tenant may not install any security systems (including cameras) outside the Premises or that record sounds or images outside the Premises without Landlords prior written consent, which Landlord may withhold in its sole and absolute discretion.
12.11. Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for all liabilities, costs and expenses arising out of or in connection with the compliance of the Premises with the Americans with Disabilities Act, 42 U.S.C. § 12101, et seq., and any state and local accessibility laws, codes, ordinances and rules (collectively, and together with regulations promulgated pursuant thereto, the ADA), and Tenant shall Indemnify the Landlord Indemnitees from and against Claims arising out of any such failure of the Premises to comply with the ADA. For the avoidance of doubt, Lenders shall also include historic tax credit investors and new market tax credit investors. The provisions of this Section shall survive the expiration or earlier termination of this Lease.
12.12. Landlord shall be responsible for performing any work in the Common Area required by any Governmental Authority to comply with the ADA (and all costs incurred by Landlord in connection with any such work may be included in Operating Expenses to the extent
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permitted by Section 9.1 above); provided, however, that Tenant shall be responsible, at its sole cost and expense, for performing (or, at Landlords option, for paying all costs incurred by Landlord in performing) any ADA compliance or other work to the Common Areas that is (a) triggered or otherwise required as a result of the Tenant Improvements or any other Alterations performed by or on behalf of Tenant, (b) required due to any act or omission of Tenant or any Tenant Party, (c) required due to Tenants particular use of the Premises or (d) otherwise Tenants responsibility pursuant to the express provisions of this Lease.
13. Rules and Regulations, CC&Rs, Parking Facilities and Common Area.
13.1. Tenant shall have the non-exclusive right, in common with others, to use the Common Area in conjunction with Tenants use of the Premises for the Permitted Use, and such use of the Common Area and Tenants use of the Premises shall be subject to the rules and regulations adopted by Landlord and attached hereto as Exhibit F, together with such other reasonable and nondiscriminatory rules and regulations as are hereafter promulgated by Landlord in its sole and absolute discretion (the Rules and Regulations). Tenant shall and shall ensure that its contractors, subcontractors, employees, subtenants and invitees faithfully observe and comply with the Rules and Regulations. Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or any agent, employee or invitee thereof of any of the Rules and Regulations.
13.2. This Lease is subject to any recorded covenants, conditions or restrictions on the Project or Property, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time (the CC&Rs); provided that any such amendments, restatements, supplements or modifications do not materially modify Tenants rights or obligations hereunder. Tenant shall, at its sole cost and expense, comply with the CC&Rs.
13.3. Tenant shall have a non-exclusive, irrevocable license to use up to one (1) parking space per one thousand (1,000) square feet of Rentable Area of the Premises, which spaces shall be located in the parking garage adjacent to the Building at 101 Elliott Avenue West, Seattle, Washington (the 101 Elliott Garage), in common with other users of the 101 Elliott Garage on an unreserved basis during the Term, at a cost equal to the market rate for such spaces as determined by Landlord from time to time (as of the Execution Date, such rate is equal to Two Hundred Seventy-Five Dollars ($275) per parking space per month), which Tenant shall pay simultaneously with payments of Base Rent as Additional Rent. Notwithstanding anything to the contrary in this Section, Tenant may, upon sixty (60) days prior written notice to Landlord (but no more than two (2) times per calendar year), choose to release its license to use any portion of the parking spaces allocated to Tenant under this Section (the Released Spaces). In the event of any such release, Tenant shall not be obligated to pay any future monthly parking charge for such Released Spaces, and Landlord, in its sole discretion, may grant use of the Released Spaces to a third party. Tenant may, upon sixty (60) days prior written notice to Landlord (but no more than two (2) times per calendar year), request that Landlord reinstate Tenants license to use all or any portion of the Released Spaces. In the event that all or any portion of the Released Spaces are available (as reasonably determined by Landlord), Landlord shall reinstate Tenants license to use the same and Tenant shall be obligated to pay the corresponding parking fee as set forth in this Section.
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13.4. Tenant agrees not to unreasonably overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of the parking facilities. Landlord reserves the right to determine that parking facilities are becoming overcrowded and to limit Tenants use thereof; provided, however, that such right shall be subject to the license granted to Tenant under Section 13.3 above. Upon such determination, Landlord may reasonably allocate parking spaces among Tenant and other tenants of the Building or the Project. Nothing in this Section, however, is intended to create an affirmative duty on Landlords part to monitor parking.
13.5. Subject to the terms of this Lease including the Rules and Regulations and the rights of other tenants of the Project, Tenant shall have the non-exclusive right to access the freight loading dock and service elevator, at no additional cost.
14. Project Control by Landlord.
14.1. Landlord reserves full control over the Building and the Project to the extent not inconsistent with Tenants enjoyment of the Premises as provided by this Lease. This reservation includes Landlords right to subdivide the Project; convert the Building to condominium units; change the size of the Project by selling all or a portion of the Project or adding real property and any improvements thereon to the Project; grant easements and licenses to third parties; maintain or establish ownership of the Building separate from fee title to the Property; make additions to or reconstruct portions of the Building and the Project; install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building or the Project pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises, the Building or elsewhere at the Project; and alter or relocate any other Common Area or facility, including private drives, lobbies, entrances and landscaping; provided, however, that such rights shall be exercised in a way that does not materially adversely affect Tenants beneficial use and occupancy of the Premises, including the Permitted Use and Tenants access to the Premises. Tenant acknowledges that Landlord specifically reserves the right to allow the exclusive use of corridors and restroom facilities located on specific floors to one or more tenants occupying such floors; provided, however, that Tenant shall not be deprived of the use of the corridors reasonably required to serve the Premises or of restroom facilities serving the floor upon which the Premises are located.
14.2. Possession of areas of the Premises necessary for utilities, services, safety and operation of the Building is reserved to Landlord.
14.3. Tenant shall, at Landlords request, promptly execute such further documents as may be reasonably appropriate to assist Landlord in the performance of its obligations hereunder; provided that Tenant need not execute any document that creates additional liability for Tenant or that deprives Tenant of the quiet enjoyment and use of the Premises as provided for in this Lease.
14.4. Landlord may, at any and all reasonable times during non-business hours (or during business hours, if (a) with respect to Subsections 14.4(u) through 14.4(y), Tenant so requests, and (b) with respect to Subsection 14.4(z), if Landlord so requests), and upon twenty-four (24) hours prior notice (which may be oral or by email to the office manager or other Tenant-designated individual at the Premises; but provided that no time restrictions shall apply or advance notice be required if an emergency necessitates immediate entry), enter the Premises to (u) inspect the same and to determine whether Tenant is in compliance with its obligations hereunder, (v) supply any
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service Landlord is required to provide hereunder, (w) alter, improve or repair any portion of the Building other than the Premises for which access to the Premises is reasonably. necessary, (x) post notices of nonresponsibility, (y) access the telephone equipment, electrical substation and fire risers and (z) show the Premises to prospective tenants during the final six (6) months of the Term and current and prospective purchasers and lenders at any time. In connection with any such alteration, improvement or repair as described in Subsection 14.4(w), Landlord may erect in the Premises or elsewhere in the Project scaffolding and other structures reasonably required for the alteration, improvement or repair work to be performed. In no event shall Tenants Rent abate as a result of Landlords activities pursuant to this Section; provided, however, that all such activities shall be conducted in such a manner so as to cause as little interference to Tenant as is reasonably possible. Landlord shall at all times retain a key with which to unlock all of the doors in the Premises. If an emergency necessitates immediate access to the Premises, Landlord may use whatever force is necessary to enter the Premises, and any such entry to the Premises shall not constitute a forcible or unlawful entry to the Premises, a detainer of the Premises, or an eviction of Tenant from the Premises or any portion thereof.
15. Quiet Enjoyment. Landlord covenants that Tenant, upon paying the Rent and performing its obligations contained in this Lease, may peacefully and quietly have, hold and enjoy the Premises, free from any claim by Landlord or persons claiming under Landlord, but subject to all of the terms and provisions hereof, provisions of Applicable Laws and rights of record to which this Lease is or may become subordinate. This covenant is in lieu of any other quiet enjoyment covenant, either express or implied.
16. Utilities and Services.
16.1. Tenant shall pay for all water (including the cost to service, repair and replace reverse osmosis, de-ionized and other treated water), gas, heat, light, power, telephone, internet service, cable television, other telecommunications and other utilities supplied to the Premises, together with any fees, surcharges and taxes thereon. If any such utility is not separately metered to Tenant, Tenant shall pay Tenants Adjusted Share of all charges of such utility jointly metered with other premises as Additional Rent or, in the alternative, Landlord may, at its option, monitor the usage of such utilities by Tenant and charge Tenant with the cost of purchasing, installing and monitoring such metering equipment, which cost shall be paid by Tenant as Additional Rent. Landlord may base its bills for utilities on reasonable estimates; provided that Landlord adjusts such billings promptly thereafter or as part of the next Landlords Statement to reflect the actual cost of providing utilities to the Premises. To the extent that Tenant uses more than Tenants Pro Rata Share of any utilities, then Tenant shall pay Landlord for Tenants Adjusted Share of such utilities to reflect such excess. In the event that the Project is less than fully occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate utility usage that varies depending on the occupancy of the Project to equal Landlords reasonable estimate of what such utility usage would have been had the Project been ninety-five percent (95%) occupied during such calendar year; provided, however, that Landlord shall not recover more than one hundred percent (100%) of the cost of such utilities. Tenant shall not be liable for the cost of utilities supplied to the Premises attributable to the time period prior to the Term Commencement Date; provided, however, that, if Landlord shall permit Tenant possession of the Premises prior to the Term Commencement Date and Tenant uses the Premises for any purpose other than placement of personal property as set forth in Section 4.3, then Tenant shall be responsible for the cost of utilities supplied to the Premises from such earlier date of possession.
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16.2. Landlord shall not be liable for, nor shall any eviction of Tenant result from, the failure to furnish any utility or service, whether or not such failure is caused by accidents; breakage; casualties (to the extent not caused by the party claiming Force Majeure); Severe Weather Conditions (as defined below); physical natural disasters (but excluding weather conditions that are not Severe Weather Conditions); strikes, lockouts or other labor disturbances or labor disputes (other than labor disturbances and labor disputes resulting solely from the acts or omissions of the party claiming Force Majeure); acts of terrorism; riots or civil disturbances; wars or insurrections; shortages of materials (which shortages are not unique to the party claiming Force Majeure); government regulations, moratoria or other governmental actions, inactions or delays; failures to grant consent or delays in granting consent by any Lender whose consent is required under any applicable Loan Document; failures by third parties to deliver gas, oil or another suitable fuel supply, or inability of the party claiming Force Majeure, by exercise of reasonable diligence, to obtain gas, oil or another suitable fuel; or other causes beyond the reasonable control of the party claiming that Force Majeure has occurred (collectively, Force Majeure); or, to the extent permitted by Applicable Laws, Landlords negligence. In the event of such failure, Tenant shall not be entitled to termination of this Lease or any abatement or reduction of Rent, nor shall Tenant be relieved from the operation of any covenant or agreement of this Lease. Severe Weather Conditions means weather conditions that are materially worse than those that reasonably would be anticipated for the Property at the applicable time based on historic meteorological records.
16.3. Tenant shall pay for, prior to delinquency of payment therefor, any utilities and services that may be furnished to the Premises during or, if Tenant occupies the Premises after the expiration or earlier termination of the Term, after the Term, beyond those utilities provided by Landlord, including telephone, internet service, cable television and other telecommunications, together with any fees, surcharges and taxes thereon. Upon Landlords demand, utilities and services provided to the Premises that are separately metered shall be paid by Tenant directly to the supplier of such utilities or services.
16.4. Tenant shall not, without Landlords prior written consent, use any device in the Premises (including data processing machines) that will in any way (a) increase the amount of ventilation, air exchange, gas, steam, electricity or water required or consumed in the Premises based upon Tenants Pro Rata Share of the Building or Project (as applicable) beyond the existing capacity of the Building or the Project usually furnished or supplied for the Permitted Use or (b) exceed Tenants Pro Rata Share of the Buildings or Projects (as applicable) capacity to provide such utilities or services.
16.5. If Tenant shall require utilities or services in excess of those usually furnished or supplied for tenants in similar spaces in the Building or the Project by reason of Tenants equipment or extended hours of business operations, then Tenant shall first procure Landlords consent for the use thereof, which consent Landlord may condition upon the availability of such excess utilities or services, and Tenant shall pay as Additional Rent an amount equal to the cost of providing such excess utilities and services.
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16.6. Landlord shall provide water in Common Area for lavatory and landscaping purposes only, which water shall be from the local municipal or similar source; provided, however, that if Landlord determines that Tenant requires, uses or consumes water provided to the Common Area for any purpose other than ordinary lavatory purposes, Landlord may install a water meter (Tenant Water Meter) and thereby measure Tenants water consumption for all purposes. Tenant shall pay Landlord for the costs of any Tenant Water Meter and the installation and maintenance thereof during the Term. If Landlord installs a Tenant Water Meter, Tenant shall pay for water consumed, as shown on such meter, as and when bills are rendered. If Tenant fails to timely make such payments, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred or payments made by Landlord for any of the reasons or purposes stated in this Section shall be deemed to be Additional Rent payable by Tenant and collectible by Landlord as such.
16.7. Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and utility systems, when Landlord deems necessary or desirable, due to accident, emergency or the need to make repairs, alterations or improvements, until such repairs, alterations or improvements shall have been completed, and Landlord shall further have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilation, air conditioning or utility service when prevented from doing so by Force Majeure or, to the extent permitted by Applicable Laws, Landlords negligence. Without limiting the foregoing, it is expressly understood and agreed that any covenants on Landlords part to furnish any service pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of Force Majeure or, to the extent permitted by Applicable Laws, Landlords negligence.
16.8. Tenant shall be entitled to use Tenants Pro Rata Share of remaining power (after deducting any power required for the Common Area) from the Buildings existing back-up generator (the Generator) on a non-exclusive basis with other tenants in the Building. The cost of maintaining, repairing and replacing the Generator shall constitute Operating Expenses. Landlord expressly disclaims any warranties with regard to the Generator or the installation thereof, including any warranty of merchantability or fitness for a particular purpose. Landlord shall maintain the Generator and any equipment connecting the Generator to Tenants automatic transfer switch in good working condition, provided, however, that Tenant shall be solely responsible, at Tenants sole cost and expense, (and Landlord shall not be liable) for maintaining and operating Tenants automatic transfer switch and the distribution of power from Tenants automatic transfer switch throughout the Premises, and provided further that Landlord shall not be liable for any failure to make any repairs or to perform any maintenance of the Generator that is an obligation of Landlord unless and except to the extent that Landlord willfully fails to make such repairs or perform such maintenance and such failure persists for an unreasonable time after Tenant provides Landlord with written notice of the need for such repairs or maintenance. Upon receipt of such written notice, Landlord shall promptly commence to cure such failure and shall diligently prosecute the same to completion in accordance with Section 31.12 of this Lease. The provisions of Section 16.2 of this Lease shall apply to the Generator.
16.9. For the Premises, Landlord shall (a) maintain and operate the HVAC systems used for the Permitted Use only (Base HVAC) and (b) subject to Subsection 16.9(a), furnish HVAC
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as reasonably required (except as this Lease otherwise provides) for reasonably comfortable occupancy of the Premises twenty-four (24) hours a day, every day during the Term, subject to casualty, eminent domain or as otherwise specified in this Article. Notwithstanding anything to the contrary in this Section, Landlord shall have no liability, and Tenant shall have no right or remedy, on account of any interruption or impairment in HVAC services. Landlord will use commercially reasonable efforts to cure any HVAC interruption or impairment of the Base HVAC.
16.10. For any utilities serving the Premises for which Tenant is billed directly by such utility provider (exclusive of telephone, cable and internet), Tenant agrees to furnish to Landlord (a) any invoices or statements for such utilities within thirty (30) days after Tenants receipt thereof, (b) within thirty (30) days after Landlords request, any other utility usage information reasonably requested by Landlord, and (c) within thirty (30) days after each calendar year during the Term, authorization to allow Landlord to access Tenants usage information necessary for Landlord to complete an ENERGY STAR® Statement of Performance (or similar comprehensive utility usage report (e.g., related to Labs 21), if requested by Landlord) and any other information reasonably requested by Landlord for the immediately preceding year; and Tenant shall comply with any other energy usage or consumption requirements required by Applicable Laws. Tenant shall retain records of utility usage at the Premises, including invoices and statements from the utility provider, for at least sixty (60) months, or such other period of time as may be requested by Landlord. Tenant acknowledges that any utility information for the Premises, the Building and the Project may be shared with third parties, including Landlords consultants and Governmental Authorities. In the event that Tenant fails to comply with this Section and fails to cure such failure within ten (10) business days after written notice from Landlord, Tenant hereby authorizes Landlord to collect utility usage information directly from the applicable utility providers, and Tenant shall pay Landlord a fee of One Thousand Dollars ($1,000) per month to collect such utility usage information. In addition to the foregoing, Tenant shall comply with all Applicable Laws related to the disclosure and tracking of energy consumption at the Premises. The provisions of this Section shall survive the expiration or earlier termination of this Lease.
16.11. Landlord will maintain a card key access system for the Building, either in the form of the system existing as of the date of this Lease or in a form reasonably equivalent thereto at all times during the Lease Term; however, Landlord will have no liability on account of any failure of such system and the terms of Section 28.4 will apply regardless of the presence of such access system.
17. Alterations.
17.1. Tenant shall make no alterations, additions or improvements in or to the Premises or engage in any construction, demolition, reconstruction, renovation or other work (whether major or minor) of any kind in, at or serving the Premises (Alterations) without Landlords prior written approval, which approval may be subject to the consent of one or more Lenders, if required under any applicable Loan Document, but which approval Landlord shall not otherwise unreasonably withhold; provided, however, that, in the event any proposed Alteration affects (a) any structural portions of the Building, including exterior walls, the roof, the foundation or slab, foundation or slab systems (including barriers and subslab systems) or the core of the Building, (b) the exterior of the Building or (c) any Building systems, including elevator, plumbing, HVAC, electrical, security, life safety and power, then Landlord may withhold its approval in its sole and absolute
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discretion. Tenant shall, in making any Alterations, use only those architects, contractors, suppliers and mechanics of which Landlord has given prior written approval, which approval shall be in Landlords sole and absolute discretion. In seeking Landlords approval, Tenant shall provide Landlord, at least thirty (30) days in advance of the desired commencement date of any proposed construction, with plans, specifications, bid proposals, certified stamped engineering drawings and calculations by Tenants engineer of record or architect of record (including connections to the Buildings structural system, modifications to the Buildings envelope, non-structural penetrations in slabs or walls, and modifications or tie-ins to life safety systems), work contracts, requests for laydown areas and such other information concerning the nature and cost of the Alterations as Landlord may reasonably request, provided that Tenant shall not commence any such Alterations that require Landlords consent unless and until Tenant has received the written approval of Landlord and any and all Lenders whose consent is required under any applicable Loan Document. In no event shall Tenant use or Landlord be required to approve any architects, consultants, contractors, subcontractors or material suppliers that Landlord reasonably believes could cause labor disharmony or may not have sufficient experience, in Landlords reasonable opinion, to perform work in an occupied Class A laboratory research building and in tenant-occupied lab areas. Notwithstanding the foregoing, Tenant may make strictly cosmetic changes to the Premises that do not require any permits or more than three (3) total contractors and subcontractors (Cosmetic Alterations) without Landlords consent; provided that (y) the cost of any Cosmetic Alterations does not exceed Fifty Thousand Dollars ($50,000) in any one instance or One Hundred Thousand Dollars ($100,000) annually, (z) such Cosmetic Alterations are not reasonably expected to have any material adverse effect on the Project and do not (i) require any structural or other substantial modifications to the Premises, (ii) require any changes to or adversely affect the Building systems, (iii) affect any portion of the Building or Project that is exterior to the Premises, or (iv) trigger any requirement under Applicable Laws that would require Landlord to make any alteration or improvement to the Premises, the Building or the Project.
17.2. Tenant shall not construct or permit to be constructed partitions or other obstructions that might interfere with free access to mechanical installation or service facilities of the Building or with other tenants components located within the Building, or interfere with the moving of Landlords equipment to or from the enclosures containing such installations or facilities.
17.3. Tenant shall accomplish any work performed on the Premises or the Building in such a manner as to permit any life safety systems to remain fully operable at all times.
17.4. Any work performed on the Premises, the Building or the Project by Tenant or Tenants contractors shall be done at such times and in such manner as Landlord may from time to time designate. Tenant covenants and agrees that all work done by Tenant or Tenants contractors shall be performed in full compliance with Applicable Laws. Within thirty (30) days after completion of any Alterations, Tenant shall provide Landlord with complete as built drawing print sets and electronic CADD files on disc (or files in such other current format in common use as Landlord reasonably approves or requires) showing any changes in the Premises, as well as a commissioning report prepared by a licensed, qualified commissioning agent hired by Tenant and approved by Landlord for all new or affected mechanical, electrical and plumbing systems. Any such as built plans shall show the applicable Alterations as an overlay on the Building as-built plans; provided that Landlord provides the Building as built plans to Tenant.
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17.5. Before commencing any Alterations, Tenant shall (a) give Landlord at least thirty (30) days prior written notice of the proposed commencement of such work and the names and addresses of the persons supply labor or materials therefor so that Landlord may enter the Premises to post and keep posted thereon and therein notices or to take any further action that Landlord may reasonably deem proper for the protection of Landlords interest in the Project and (b) shall, if required by Landlord, secure, at Tenants own cost and expense, a completion and lien indemnity bond satisfactory to Landlord for such work.
17.6. Tenant shall repair any damage to the Premises arising from Tenants removal of any property from the Premises. During any such restoration period, Tenant shall pay Rent to Landlord as provided herein as if such space were otherwise occupied by Tenant. The provisions of this Section shall survive the expiration or earlier termination of this Lease.
17.7. The Premises plus any Alterations; Signage; Landlord Work; Tenant Improvements; attached equipment, decorations, fixtures and trade fixtures; movable laboratory casework and related appliances; and other additions and improvements attached to or built into the Premises made by either of the parties (including all floor and wall coverings; paneling; sinks and related plumbing fixtures; laboratory benches; exterior venting fume hoods; walk-in freezers and refrigerators; ductwork; conduits; electrical panels and circuits; attached machinery and equipment; and built-in furniture and cabinets, in each case, together with all additions and accessories thereto), shall (unless, prior to such construction or installation, Landlord elects otherwise in writing) at all times remain the property of Landlord, shall remain in the Premises and shall (unless, prior to construction or installation thereof, Landlord elects otherwise in writing) be surrendered to Landlord upon the expiration or earlier termination of this Lease. For the avoidance of doubt, the items listed on Exhibit H attached hereto (which Exhibit H may be updated by Tenant from and after the Term Commencement Date, subject to Landlords written consent) constitute Tenants property and shall be removed by Tenant upon the expiration or earlier termination of the Lease.
17.8. Notwithstanding any other provision of this Article to the contrary, in no event. shall Tenant remove any improvement from the Premises in which any Lender has a security interest or as to which Landlord contributed payment, including the Landlord Work and the Tenant Improvements, without Landlords prior written consent, which consent Landlord may withhold in its sole and absolute discretion.
17.9. If Tenant shall fail to remove any of its property from the Premises prior to the expiration or earlier termination of this Lease, then Landlord may, at its option, remove the same in any manner that Landlord shall choose and store such effects without liability to Tenant for loss thereof or damage thereto, and Tenant shall pay Landlord, upon demand, any costs and expenses incurred due to such removal and storage or Landlord may, at its sole option and without notice to Tenant, sell such property or any portion thereof at private sale and without legal process for such price as Landlord may obtain and apply the proceeds of such sale against any (a) amounts due by Tenant to Landlord under this Lease and (b) any expenses incident to the removal, storage and sale of such personal property.
17.10. Tenant shall pay to Landlord an amount equal to five percent (5%) of the cost to Tenant of all Alterations to cover Landlords overhead and expenses for plan review, engineering
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review, coordination, scheduling and supervision thereof or obtaining any required Lender consent. For purposes of payment of such sum, Tenant shall submit to Landlord copies of all bills, invoices and statements covering the costs of such charges, accompanied by payment to Landlord of the fee set forth in this Section. Tenant shall reimburse Landlord for any extra expenses incurred by Landlord by reason of faulty work done by Tenant or its contractors, or by reason of delays arising from such faulty work, or by reason of inadequate clean-up.
17.11. Within sixty (60) days after final completion of any Alterations performed by Tenant with respect to the Premises, Tenant shall submit to Landlord documentation showing the amounts expended by Tenant with respect to such Alterations, together with supporting documentation reasonably acceptable to Landlord.
17.12. Tenant shall take, and shall cause its contractors to take, commercially reasonable steps to protect the Premises during the performance of any Alterations, including covering or temporarily removing any window coverings so as to guard against dust, debris or damage.
17.13. Tenant shall require its contractors and subcontractors performing work on the Premises to name Landlord and its affiliates and Lenders as additional insureds on their respective insurance policies.
18. Repairs and Maintenance.
18.1. Landlord shall repair and maintain in good condition the structural and exterior portions and Common Area of the Building and the Project, including roofing and covering materials; foundations (excluding any architectural slabs, but including any structural slabs); exterior walls; plumbing; fire sprinkler systems (if any); base Building HVAC systems up to the first damper or isolation valve that serves the Premises (for purposes of clarity, the portion of the HVAC system that includes such first damper or isolation valve and extends into and through the Premises, and any supplemental HVAC serving the Premises shall not be part of the base Building HVAC and shall be Tenants obligation to maintain and repair pursuant to Section 18.2 below); elevators; and base Building electrical systems installed or furnished by Landlord.
18.2. Except for services of Landlord, if any, required by Section 18.1, Tenant shall at Tenants sole cost and expense maintain and keep the Premises (including but not limited to the portion of the HVAC system that includes the first damper or isolation valve and extends into and through the Premises, any supplemental HVAC serving the Premises, and any other systems or equipment exclusively serving the Premises) and every part thereof in good condition and repair, damage thereto from ordinary wear and tear excepted, and shall, within ten (10) days after receipt of written notice from Landlord, provide to Landlord any maintenance records that Landlord reasonably requests. Tenant shall, upon the expiration or sooner termination of the Term, surrender the Premises to Landlord in as good a condition as when received and with the Landlord Work and the Tenant Improvements in substantially the same condition as existed upon Substantial Completion thereof, ordinary wear and tear excepted; and shall, at Landlords request and Tenants sole cost and expense, remove all telephone and data systems, wiring and equipment from the Premises, and repair any damage to the Premises caused thereby. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof, other than pursuant to the terms and provisions of the Landlord Work Plans and the Work Letter.
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18.3. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance that is Landlords obligation pursuant to this Lease unless such failure shall persist for an unreasonable time after Tenant provides Landlord with written notice of the need of such repairs or maintenance. Tenant waives its rights under Applicable Laws now or hereafter in effect to make repairs at Landlords expense.
18.4. If any excavation shall be made upon land adjacent to or under the Building, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter the Premises for the purpose of performing such work as such person shall deem necessary or desirable to preserve and protect the Building from injury or damage and to support the same by proper foundations, without any claim for damages or liability against Landlord and without reducing or otherwise affecting Tenants obligations under this Lease.
18.5. This Article relates to repairs and maintenance arising in the ordinary course of operation of the Building and the Project. In the event of a casualty described in Article 24, Article 24 shall apply in lieu of this Article. In the event of eminent domain, Article 25 shall apply in lieu of this Article.
18.6. Costs incurred by Landlord pursuant to this Article shall constitute Operating Expenses, except for any costs expressly excluded from Operating Expenses under Section 9.1.
19. Liens.
19.1. Subject to the immediately succeeding sentence, Tenant shall keep the Premises, the Building and the Project free from any liens arising out of work or services performed, materials furnished to or obligations incurred by Tenant. Tenant further covenants and agrees that any mechanics or materialmans lien filed against the Premises, the Building or the Project for work or services claimed to have been done for, or materials claimed to have been furnished to, or obligations incurred by Tenant shall be discharged or bonded by Tenant within ten (10) days after the filing thereof, at Tenants sole cost and expense.
19.2. Should Tenant fail to discharge or bond against any lien of the nature described in Section 19.1, Landlord may, at Landlords election, pay such claim or post a statutory lien bond or otherwise provide security to eliminate the lien as a claim against title, and Tenant shall immediately reimburse Landlord for the costs thereof as Additional Rent. Tenant shall Indemnify the Landlord Indemnitees from and against any Claims arising from any such liens, including any administrative, court or other legal proceedings related to such liens.
19.3. In the event that Tenant leases or finances the acquisition of office equipment, furnishings or other personal property of a removable nature utilized by Tenant in the operation of Tenants business, Tenant warrants that any Uniform Commercial Code financing statement shall, upon its face or by exhibit thereto, indicate that such financing statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Premises, the Building or the Project be furnished on a financing statement without qualifying language as to applicability of the lien only to removable personal property located in an identified suite leased by Tenant. Should any holder of a financing statement record or place
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of record a financing statement that appears to constitute a lien against any interest of Landlord or against equipment that may be located other than within an identified suite leased by Tenant, Tenant shall, within ten (10) days after filing such financing statement, cause (a) a copy of the lender security agreement or other documents to which the financing statement pertains to be furnished to Landlord to facilitate Landlords ability to demonstrate that the lien of such financing statement is not applicable to Landlords interest and (b) Tenants lender to amend such financing statement and any other documents of record to clarify that any liens imposed thereby are not applicable to any interest of Landlord in the Premises, the Building or the Project.
20. Estoppel Certificate. Tenant shall, within ten (10) days after receipt of written notice from Landlord, execute, acknowledge and deliver a statement in writing substantially in the form attached to this Lease as Exhibit I, or on any other form reasonably requested by a current or proposed Lender or encumbrancer or proposed purchaser, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which rental and other charges are paid in advance, if any, (b) acknowledging that there are not, to Tenants knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (c) setting forth such further information with respect to this Lease or the Premises as may be requested thereon. Any such statements may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Property. Tenants failure to deliver any such statement within such the prescribed time shall, at Landlords option, constitute a Default (as defined below) under this Lease, and, in any event, shall be binding upon Tenant that the 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.
21. Hazardous Materials.
21.1. Tenant shall not cause or permit any Hazardous Materials (as defined below) to be brought upon, kept or used in or about the Premises, the Building or the Project in violation of Applicable Laws by Tenant or any of its employees, agents, contractors or invitees (collectively with Tenant, each a Tenant Party). If (a) Tenant breaches such obligation, (b) the presence of Hazardous Materials as a result of such a breach results in contamination of the Project, any portion thereof, or any adjacent property, (c) contamination of the Premises otherwise occurs during the Term or any extension or renewal hereof or holding over hereunder or (d) contamination of the Project occurs as a result of Hazardous Materials that are placed on or under or are released into the Project by a Tenant Party, then Tenant shall Indemnify the Landlord Indemnitees from and against any and all Claims of any kind or nature, including (w) diminution in value of the Project or any portion thereof, (x) damages for the loss or restriction on use of rentable or usable space or of any amenity of the Project, (y) damages arising from any adverse impact on marketing of space in the Project or any portion thereof and (z) sums paid in settlement of Claims that arise before, during or after the Term as a result of such breach or contamination. This Indemnification by Tenant includes costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any Governmental Authority because of Hazardous Materials present in the air, soil or groundwater above, on, under or about the Project. Without limiting the foregoing, if the presence of any Hazardous Materials in, on, under or about the Project, any portion thereof or any adjacent property caused or permitted by any Tenant Party results in any contamination of the Project, any portion thereof or any adjacent property, then
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Tenant shall promptly take all actions at its sole cost and expense as are necessary to return the Project, any portion thereof or any adjacent property to its respective condition existing prior to the time of such contamination; provided that Landlords written approval of such action shall first be obtained, which approval Landlord shall not unreasonably withhold; and provided, further, that it shall be reasonable for Landlord to withhold its consent if such actions could have a material adverse long-term or short-term effect on the Project, any portion thereof or any adjacent property. Tenants obligations under this Section shall not be affected, reduced or limited by any limitation on the amount or type of damages, compensation or benefits payable by or for Tenant under workers compensation acts, disability benefit acts, employee benefit acts or similar legislation.
21.2. Landlord acknowledges that it is not the intent of this Article to prohibit Tenant from operating its business for the Permitted Use. Tenant may operate its business according to the custom of Tenants industry so long as the use or presence of Hazardous Materials is strictly and properly monitored in accordance with Applicable Laws. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord (a) a list identifying each type of Hazardous Material to be present at the Premises that is subject to regulation under any environmental Applicable Laws in the form of a Tier II form pursuant to Section 312 of the Emergency Planning and Community Right-to-Know Act of 1986 (or any successor statute) or any other form reasonably requested by Landlord, (b) a list of any and all approvals or permits from Governmental Authorities required in connection with the presence of such Hazardous Material at the Premises and (c) correct and complete copies of (i) notices of violations of Applicable Laws related to Hazardous Materials and (ii) plans relating to the installation of any storage tanks to be installed in, on, under or about the Project (provided that installation of storage tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent Landlord may withhold in its sole and absolute discretion) and closure plans or any other documents required by any and all Governmental Authorities for any storage tanks installed in, on, under or about the Project for the closure of any such storage tanks (collectively, Hazardous Materials Documents). Tenant shall deliver to Landlord updated Hazardous Materials Documents, within fourteen (14) days after receipt of a written request therefor from Landlord, not more often than once per year, unless (m) there are any changes to the Hazardous Materials Documents or (n) Tenant initiates any Alterations or changes its business, in either case in a way that involves any material increase in the types or amounts of Hazardous Materials, in which case Tenant shall deliver updated Hazardous Materials documents (without Landlord having to request them) before or, if not practicable to do so before, as soon as reasonably practicable after the occurrence of the events in Subsection 21.2(m) or (n). For each type of Hazardous Material listed, the Hazardous Materials Documents shall include (t) the chemical name, (u) the material state (e.g., solid, liquid, gas or cryogen), (v) the concentration, (w) the storage amount and storage condition (e.g., in cabinets or not in cabinets), (x) the use amount and use condition (e.g., open use or closed use), (y) the location (e.g., room number or other identification) and (z) if known, the chemical abstract service number. Notwithstanding anything in this Section to the contrary, Tenant shall not be required to provide Landlord with any documents containing information of a proprietary nature, unless such documents contain a reference to Hazardous Materials or activities related to Hazardous Materials. Landlord may, at Landlords expense, cause the Hazardous Materials Documents to be reviewed by a person or firm qualified to analyze Hazardous Materials to confirm compliance with the provisions of this Lease and with Applicable Laws. In the event that a review of the Hazardous Materials Documents indicates non-compliance with this Lease or Applicable Laws, Tenant shall, at its expense,
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diligently take steps to bring its storage and use of Hazardous Materials into compliance. Notwithstanding anything in this Lease to the contrary or Landlords review into Tenants Hazardous Materials Documents or use or disposal of hazardous materials, however, Landlord shall not have and expressly disclaims any liability related to Tenants or other tenants use or disposal of Hazardous Materials, it being acknowledged by Tenant that Tenant is best suited to evaluate the safety and efficacy of its Hazardous Materials usage and procedures.
21.3. Tenant represents and warrants to Landlord that is not nor has it been, in connection with the use, disposal or storage of Hazardous Materials, (a) subject to a material enforcement order issued by any Governmental Authority or (b) required to take any remedial action.
21.4. At any time, and from time to time, prior to the expiration of the Term, Landlord shall have the right to conduct appropriate tests of the Project or any portion thereof to demonstrate that Hazardous Materials are present or that contamination has occurred due to the acts or omissions of a Tenant Party. Tenant shall pay all reasonable costs of such tests if such tests reveal that Hazardous Materials exist at the Project in violation of this Lease.
21.5. If underground or other storage tanks storing Hazardous Materials installed or utilized by Tenant are located on the Premises, or are hereafter placed on the Premises by Tenant (or by any other party, if such storage tanks are utilized by Tenant), then Tenant shall monitor the storage tanks, maintain appropriate records, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other steps necessary or required under the Applicable Laws. Tenant shall have no responsibility or liability for underground or other storage tanks installed by anyone other than Tenant unless Tenant utilizes such tanks, in which case Tenants responsibility for such tanks shall be as set forth in this Section.
21.6. Tenant shall promptly report to Landlord any actual or suspected presence of mold or water intrusion at the Premises.
21.7. Tenants obligations under this Article shall survive the expiration or earlier termination of the Lease. During any period of time needed by Tenant or Landlord after the termination of this Lease to complete the removal from the Premises of any such Hazardous Materials, Tenant shall be deemed a holdover tenant and subject to the provisions of Article 27.
21.8. As used herein, the term Hazardous Material means any toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous substance, material or waste that is or becomes regulated by Applicable Laws or any Governmental Authority.
21.9. Notwithstanding anything to the contrary in this Lease, Landlord shall have sole control over the equitable allocation of fire control areas (as defined in the Uniform Building Code as adopted by the city or municipality(ies) in which the Project is located (the UBC)) within the Project for the storage of Hazardous Materials. Notwithstanding anything to the contrary in this Lease, the quantity of Hazardous Materials allowed by this Section is specific to Tenant and shall not run with the Lease in the event of a Transfer (as defined in Article 29). In the event of a Transfer, if the use of Hazardous Materials by such new tenant (New Tenant) is such that New Tenant utilizes fire control areas in the Project in excess of New Tenants Pro Rata Share of the
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Project, then New Tenant shall, at its sole cost and expense and upon Landlords written request, establish and maintain a separate area of the Premises classified by the UBC as an H occupancy area for the use and storage of Hazardous Materials, or take such other action as is necessary to ensure that its share of the fire control areas of the Project is not greater than New Tenants Pro Rata Share of the Project. Notwithstanding anything in this Lease to the contrary, Landlord shall not have and expressly disclaims any liability related to Tenants or other tenants use or disposal of fire control areas, it being acknowledged by Tenant that Tenant and other tenants are best suited to evaluate the safety and efficacy of its Hazardous Materials usage and procedures.
22. Odors and Exhaust. Tenant acknowledges that Landlord would not enter into this Lease with Tenant unless Tenant assured Landlord that under no circumstances will any other occupants of the Building or the Project (including persons legally present in any outdoor areas of the Project) be subjected to odors or fumes (whether or not noxious), and that the Building and the Project will not be damaged by any exhaust, in each case from Tenants operations. Landlord and Tenant therefore agree as follows:
22.1. Tenant shall not cause or permit (or conduct any activities that would cause) any release of any odors or fumes of any kind from the Premises.
22.2. If the Building has a ventilation system that, in Landlords judgment, is adequate, suitable, and appropriate to vent the Premises in a manner that does not release odors affecting any indoor or outdoor part of the Project, Tenant shall vent the Premises through such system. If Landlord at any time determines that any existing ventilation system is inadequate, or if no ventilation system exists, Tenant shall in compliance with Applicable Laws vent all fumes and odors from the Premises (and remove odors from Tenants exhaust stream) as Landlord requires. The placement and configuration of all ventilation exhaust pipes, louvers and other equipment shall be subject to Landlords approval. Tenant acknowledges Landlords legitimate desire to maintain the Project (indoor and outdoor areas) in an odor-free manner, and Landlord may require Tenant to abate and remove all odors in a manner that goes beyond the requirements of Applicable Laws.
22.3. Tenant shall, at Tenants sole cost and expense, provide odor eliminators and other devices (such as filters, air cleaners, scrubbers and whatever other equipment may in Landlords judgment be necessary or appropriate from time to time) to completely remove, eliminate and abate any odors, fumes or other substances in Tenants exhaust stream that, in Landlords judgment, emanate from Tenants Premises. Any work Tenant performs under this Section shall constitute Alterations.
22.4. Tenants responsibility to remove, eliminate and abate odors, fumes and exhaust shall continue throughout the Term. Landlords construction of the Landlord Work and the Tenant Improvements shall not preclude Landlord from requiring additional measures to eliminate odors, fumes and other adverse impacts of Tenants exhaust stream (as Landlord may designate in Landlords discretion). Tenant shall install additional equipment as Landlord requires from time to time under the preceding sentence. Such installations shall constitute Alterations.
22.5. If Tenant fails to install satisfactory odor control equipment within ten (10) business days after Landlords demand made at any time, then Landlord may, without limiting Landlords
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other rights and remedies, require Tenant to cease and suspend any operations in the Premises that, in Landlords determination, cause odors, fumes or exhaust. For example, if Landlord determines that Tenants production of a certain type of product causes odors, fumes or exhaust, and Tenant does not install satisfactory odor control equipment within ten (10) business days after Landlords request, then Landlord may require Tenant to stop producing such type of product in the Premises unless and until Tenant has installed odor control equipment satisfactory to Landlord.
23. Insurance.
23.1. Landlord shall maintain insurance for the Building and the Project in amounts equal to full replacement cost (exclusive of the costs of excavation, foundations and footings, engineering costs or such other costs to the extent the same are not incurred in the event of a rebuild and without reference to depreciation taken by Landlord upon its books or tax returns) or such lesser coverage as Landlord may elect, provided that such coverage shall not be less than the amount of such insurance Landlords Lender, if any, requires Landlord to maintain, providing protection against any peril generally included within the classification Fire and Extended Coverage, together with insurance against sprinkler damage (if applicable), vandalism and malicious mischief. Landlord, subject to availability thereof, shall further insure, if Landlord deems it appropriate, coverage against flood, environmental hazard, earthquake, loss or failure of building equipment, rental loss during the period of repairs or rebuilding, Workers Compensation insurance and fidelity bonds for employees employed to perform services. Notwithstanding the foregoing, Landlord may, but shall not be deemed required to, provide insurance for any improvements installed by Tenant or that are in addition to the standard improvements customarily furnished by Landlord, without regard to whether or not such are made a part of or are affixed to the Building.
23.2. In addition, Landlord shall carry Commercial General Liability insurance with limits of not less than One Million Dollars ($1,000,000) per occurrence/general aggregate for bodily injury (including death), or property damage with respect to the Project.
23.3. Tenant shall, at its own cost and expense, procure and maintain during the Term the following insurance for the benefit of Tenant and Landlord (as their interests may appear) with insurers financially acceptable and lawfully authorized to do business in the state where the Premises are located:
(a) Commercial General Liability insurance on a broad-based occurrence coverage form, with coverages including but not limited to bodily injury (including death), property damage (including loss of use resulting therefrom), premises/operations, personal & advertising injury, and contractual liability with limits of liability of not less than $2,000,000 for bodily injury and property damage per occurrence, $2,000,000 general aggregate, which limits may be met by use of excess and/or umbrella liability insurance provided that such coverage is at least as broad as the primary coverages required herein.
(b) Commercial Automobile Liability insurance covering liability arising from the use or operation of any auto, including those owned, hired or otherwise operated or used by or on behalf of the Tenant. The coverage shall be on a broad-based occurrence form with combined single limits of not less than $1,000,000 per accident for bodily injury and property damage.
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(c) Commercial Property insurance covering property damage to the full replacement cost value and business interruption. Covered property shall include all tenant improvements in the Premises (to the extent not insured by Landlord pursuant to Section 23.1) and Tenants Property including personal property, furniture, fixtures, machinery, equipment, stock, inventory and improvements and betterments, which may be owned by Tenant or Landlord and required to be insured hereunder, or which may be leased, rented, borrowed or in the care custody or control of Tenant, or Tenants agents, employees or subcontractors. Such insurance, with respect only to all Tenant Improvements, Alterations or other work performed on the Premises by Tenant (collectively, Tenant Work), shall name Landlord and Landlords current and future mortgagees as loss payees as their interests may appear. Such insurance shall be written on an all risk of physical loss or damage basis including the perils of fire, extended coverage, electrical injury, mechanical breakdown, windstorm, vandalism, malicious mischief, sprinkler leakage, back-up of sewers or drains, earthquake, terrorism and such other risks Landlord may from time to time designate, for the full replacement cost value of the covered items with an agreed amount endorsement with no co-insurance. Business interruption coverage shall have limits sufficient to cover Tenants lost profits and necessary continuing expenses, including rents due Landlord under the Lease. The minimum period of indemnity for business interruption coverage shall be twelve (12) months plus twelve (12) months extended period of indemnity.
(d) Workers Compensation insurance as is required by statute or law, or as may be available on a voluntary basis and Employers Liability insurance with limits of not less than the following: each accident, Five Hundred Thousand Dollars ($500,000); disease ($500,000); disease (each employee), Five Hundred Thousand Dollars ($500,000).
(e) Medical malpractice insurance at limits of not less than $1,000,000 each claim during such periods, if any, that Tenant engages in the practice of medicine at the Premises.
(f) Pollution Legal Liability insurance is required if Tenant stores, handles, generates or treats Hazardous Materials, as determined solely by Landlord, on or about the Premises. Such coverage shall include bodily injury, sickness, disease, death or mental anguish or shock sustained by any person; property damage including physical injury to or destruction of tangible property including the resulting loss of use thereof, clean-up costs, and the loss of use of tangible property that has not been physically injured or destroyed; and defense costs, charges and expenses incurred in the investigation, adjustment or defense of claims for such compensatory damages. Coverage shall apply to both sudden and non-sudden pollution conditions including the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water. Claims-made coverage is permitted, provided the policy retroactive date is continuously maintained prior to the commencement date of this agreement, and coverage is continuously maintained during all periods in which Tenant occupies the Premises. Coverage shall be maintained with limits of not less than $1,000,000 per incident with a $2,000,000 policy aggregate and for a period of two (2) years thereafter.
(g) During all construction by Tenant at the Premises, with respect to tenant improvements being constructed (including any Alterations, insurance required in Exhibit B-1 must be in place.
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23.4. The insurance required of Tenant by this Article shall be with companies at all times having a current rating of not less than A- and financial category rating of at least Class VII in A.M. Bests Insurance Guide current edition. Tenant shall obtain for Landlord from the insurance companies/broker or cause the insurance companies/broker to furnish certificates of insurance evidencing all coverages required herein to Landlord. No such policy shall be cancelable or subject to reduction of coverage or other modification or cancellation except after twenty (20) days prior written notice to Landlord from Tenant or its insurers (except in the event of non-payment of premium, in which case ten (10) days written notice shall be given). All such policies shall be written as primary policies, not contributing with and not in excess of the coverage that Landlord may carry. Tenants required policies shall contain severability of interests clauses stating that, except with respect to limits of insurance, coverage shall apply separately to each insured or additional insured. Tenant shall, upon the expiration of such policies, furnish Landlord with renewal certificates of insurance or binders. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure such insurance on Tenants behalf and at its cost to be paid by Tenant as Additional Rent. Commercial General Liability, Commercial Automobile Liability, Umbrella Liability and Pollution Legal Liability insurance as required above shall name Landlord, BioMed Realty, L.P., and BRE Edison Parent L.P., and their respective officers, employees, agents, general partners, members, subsidiaries, affiliates and Lenders (Landlord Parties) as additional insureds as respects liability arising from work or operations performed by or on behalf of Tenant, Tenants use or occupancy of Premises, and ownership, maintenance or use of vehicles by or on behalf of Tenant.
23.5. In each instance where insurance is to name Landlord Parties as additional insureds, Tenant shall, upon Landlords written request, also designate and furnish certificates evidencing such Landlord Parties as additional insureds to (a) any Lender of Landlord holding a security interest in the Building or the Project, (b) the landlord under any lease whereunder Landlord is a tenant of the real property upon which the Building is located if the interest of Landlord is or shall become that of a tenant under a ground lease rather than that of a fee owner and (c) any management company retained by Landlord to manage the Project.
23.6. Tenant assumes the risk of damage to any fixtures, goods, inventory, merchandise, equipment and leasehold improvements, and Landlord shall not be liable for injury to Tenants business or any loss of income therefrom, relative to such damage, all as more particularly set forth within this Lease. Tenant shall, at Tenants sole cost and expense, carry such insurance as Tenant desires for Tenants protection with respect to personal property of Tenant or business interruption.
23.7. Tenant and its insurers hereby waive any and all rights of recovery or subrogation against the Landlord Parties with respect to any loss, damage, claims, suits or demands, howsoever caused, that are covered, or should have been covered, by valid and collectible workers compensation or employers liability insurance, including any deductibles or self-insurance maintained thereunder. If necessary, Tenant agrees to endorse the required workers compensation or employers liability insurance policies to permit waivers of subrogation as required hereunder and hold harmless and indemnify the Landlord Parties for any loss or expense incurred as a result of a failure to obtain such waivers of subrogation from insurers. Such waivers shall continue so long as Tenants insurers so permit. Any termination of such a waiver shall be by written notice to Landlord, containing a description of the circumstances hereinafter set forth in this Section. Tenant, upon obtaining the policies of workers compensation or employers liability insurance
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required or permitted under this Lease, shall give notice to its insurance carriers that the foregoing waiver of subrogation is contained in this Lease. If such policies shall not be obtainable with such waiver or shall be so obtainable only at a premium over that chargeable without such waiver, then Tenant shall notify Landlord of such conditions. Landlord and Landlords insurers hereby waive all rights of subrogation against Tenant with respect to any loss, damage, claims, suits or demands, howsoever caused, that are covered by any valid and collectible fire and extended insurance coverage that Landlord maintains with respect to the Building and the Project.
23.8. Landlord may require insurance policy limits required under this Lease to be raised to conform with requirements of Landlords Lender or to bring coverage limits to levels then being required of new tenants within the Project.
23.9. Any costs incurred by Landlord pursuant to this Article shall constitute a portion of Operating Expenses, except for any costs expressly excluded from Operating Expenses under Section 9.1.
23.10. The provisions of this Article shall survive the expiration or earlier termination of this Lease.
24. Damage or Destruction.
24.1. In the event of a partial destruction of (a) the Premises, (b) the Building, (c) the Common Area or (d) the Project ((a)-(d) collectively, the Affected Areas) by fire or other perils covered by extended coverage insurance not exceeding twenty-five percent (25%) of the full insurable value thereof, and provided that (w) the damage thereto is such that the Affected Areas may be repaired, reconstructed or restored within a period of six (6) months from the date of the happening of such casualty, (x) Landlord shall receive insurance proceeds from its insurer or Lender sufficient to cover the cost of such repairs, reconstruction and restoration (except for any deductible amount provided by Landlords policy, which deductible amount, if paid by Landlord, shall constitute an Operating Expense), (y) the repair, reconstruction or restoration of the Affected Areas is permitted by all applicable Loan Documents or otherwise consented to by any and all Lenders whose consent is required thereunder, and (z) such casualty was not intentionally caused by a Tenant Party, then Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration of the Affected Areas and this Lease shall continue in full force and effect.
24.2. In the event of any damage to or destruction of the Building or the Project other than as described in Section 24.1, Landlord may elect to repair, reconstruct and restore the Building or the Project, as applicable, in which case this Lease shall continue in full force and effect. If Landlord elects not to repair, reconstruct and restore the Building or the Project, as applicable, then this Lease shall terminate as of the date of such damage or destruction. In the event of any damage or destruction (regardless of whether such damage is governed by Section 24.1 or this Section), if in Landlords determination as set forth in the Damage Repair Estimate (as defined below), the Affected Areas cannot be repaired, reconstructed or restored within twelve (12) months after the date of the Damage Repair Estimate, then Tenant shall have the right to terminate this Lease, effective as of the date of such damage or destruction, by delivering to Landlord its written notice of termination (a Termination Notice) no later than fifteen (15) days after Landlord delivers to Tenant Landlords Damage Repair Estimate.
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24.3. As soon as reasonably practicable, but in any event within sixty (60) days following the date of damage or destruction, Landlord shall notify Tenant of Landlords good faith estimate of the period of time in which the repairs, reconstruction and restoration will be completed (the Damage Repair Estimate), which estimate shall be based upon the opinion of a contractor reasonably selected by Landlord and experienced in comparable repair, reconstruction and restoration of similar buildings. Additionally, Landlord shall give written notice to Tenant within sixty (60) days following the date of damage or destruction of its election not to repair, reconstruct or restore the Building or the Project, as applicable.
24.4. Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby without further obligation to the other from the date possession of the Premises is surrendered to Landlord, except with regard to (a) items occurring prior to the damage or destruction and (b) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.
24.5. In the event of repair, reconstruction and restoration as provided in this Article, all Rent to be paid by Tenant under this Lease shall be abated proportionately based on the extent to which Tenants use of the Premises is impaired during the period of such repair, reconstruction or restoration, unless Landlord provides Tenant with other space during the period of repair, reconstruction and restoration that, in Tenants reasonable opinion, is suitable for the temporary conduct of Tenants business; provided, however, that the amount of such abatement shall be reduced by the amount of Rent that is received by Tenant as part of the business interruption or loss of rental income with respect to the Premises from the proceeds of business interruption or loss of rental income insurance.
24.6. Notwithstanding anything to the contrary contained in this Article, (a) Landlord shall not be required to repair, reconstruct or restore any damage or destruction to the extent that Landlord is prohibited from doing so by any applicable Loan Document or any Lender whose consent is required thereunder withholds its consent, and (b) should Landlord be delayed or prevented from completing the repair, reconstruction or restoration of the damage or destruction to the Premises after the occurrence of such damage or destruction by Force Majeure or delays caused by a Lender or Tenant Party, then the time for Landlord to commence or complete repairs, reconstruction and restoration shall be extended on a day-for-day basis; provided, however, that, at Landlords election, Landlord shall be relieved of its obligation to make such repairs, reconstruction and restoration.
24.7. If Landlord is obligated to or elects to repair, reconstruct or restore as herein provided, then Landlord shall be obligated to make such repairs, reconstruction or restoration only with regard to (a) those portions of the Premises that were originally provided at Landlords expense and (b) the Common Area portion of the Affected Areas. The repairs, reconstruction or restoration of improvements not originally provided by Landlord or at Landlords expense shall be the obligation of Tenant. In the event Tenant has elected to upgrade certain improvements from the Building Standard, Landlord shall, upon the need for replacement due to an insured loss, provide only the Building Standard, unless Tenant again elects to upgrade such improvements and
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pay any incremental costs related thereto, except to the extent that excess insurance proceeds, if received, are adequate to provide such upgrades, in addition to providing for basic repairs, reconstruction and restoration of the Premises, the Building and the Project.
24.8. Notwithstanding anything to the contrary contained in this Article, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises if the damage resulting from any casualty covered under this Article occurs during the last twelve (12) months of the Term or any extension thereof, or to the extent that insurance proceeds are not available therefor.
24.9. Landlords obligation, should it elect or be obligated to repair, reconstruct or restore, shall be limited to the Affected Areas, and shall be conditioned upon Landlord receiving any permits or authorizations required by Applicable Laws. Tenant shall, at its expense, replace or fully repair all of Tenants personal property and any Alterations installed by Tenant existing at the time of such damage or destruction. If Affected Areas are to be repaired, reconstructed or restored in accordance with the foregoing, Landlord shall make available to Tenant any portion of insurance proceeds it receives that are allocable to the Alterations constructed by Tenant pursuant to this Lease; provided Tenant is not then in default under this Lease, and subject to the requirements of any Lender of Landlord.
24.10. This Article sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction. Accordingly, the parties hereby waive the provisions of any Applicable Laws (and any successor statutes) permitting the parties to terminate this Lease as a result of any damage or destruction.
25. Eminent Domain.
25.1. In the event (a) the whole of all Affected Areas or (b) such part thereof as shall substantially interfere with Tenants use and occupancy of the Premises for the Permitted Use shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, Tenant or Landlord may terminate this Lease effective as of the date possession is required to be surrendered to such authority, except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.
25.2. In the event of a partial taking of (a) the Building or the Project or (b) drives, walkways or parking areas serving the Building or the Project for any public or quasi-public purpose by any lawful power or authority by exercise of right of appropriation, condemnation, or eminent domain, or sold to prevent such taking, then, without regard to whether any portion of the Premises occupied by Tenant was so taken, Landlord may elect to terminate this Lease (except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof) as of such taking if such taking is, in Landlords sole opinion, of a material nature such as to make it uneconomical to continue use of the unappropriated portion for purposes of renting office or laboratory space.
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25.3. To the extent permitted under all applicable Loan Documents or otherwise consented to by any and all Lenders whose consent is required thereunder, Tenant shall be entitled to any award that is specifically awarded as compensation for (a) the taking of Tenants personal property that was installed at Tenants expense and (b) the costs of Tenant moving to a new location. Except as set forth in the previous sentence, any award for such taking shall be the property of Landlord.
25.4. If, upon any taking of the nature described in this Article, this Lease continues in effect, then Landlord shall promptly proceed to restore the Affected Areas to substantially their same condition prior to such partial taking. To the extent such restoration is infeasible, as determined by Landlord in its sole and absolute discretion, the Rent shall be decreased proportionately to reflect the loss of any portion of the Premises no longer available to Tenant. Notwithstanding anything to the contrary contained in this Article, Landlord shall not be required to restore the Affected Areas to the extent that Landlord is prohibited from doing so by any applicable Loan Document or any Lender whose consent is required thereunder withholds its consent.
25.5. This Article sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction. Accordingly, the parties hereby waive the provisions of any Applicable Laws (and any successor statutes) permitting the parties to terminate this Lease as a result of any damage or destruction.
26. Surrender.
26.1. At least thirty (30) days prior to Tenants surrender of possession of any part of the Premises, Tenant shall provide Landlord with a facility decommissioning and Hazardous Materials closure plan for the Premises (Exit Survey) prepared by an independent third party state-certified professional with appropriate expertise, which Exit Survey must be reasonably acceptable to Landlord. The Exit Survey shall comply with the American National Standards Institutes Laboratory Decommissioning guidelines (ANSI/AIHA Z9.11-2008) or any successor standards published by ANSI or any successor organization (or, if ANSI and its successors no longer exist, a similar entity publishing similar standards). In addition, at least ten (10) days prior to Tenants surrender of possession of any part of the Premises, Tenant shall (a) provide Landlord with written evidence of all appropriate governmental releases obtained by Tenant in accordance with Applicable Laws, including laws pertaining to the surrender of the Premises, (b) place Laboratory Equipment Decontamination Forms on all decommissioned equipment to assure safe occupancy by future users and (c) conduct a site inspection with Landlord. In addition, Tenant agrees to remain responsible after the surrender of the Premises for the remediation of any recognized environmental conditions set forth in the Exit Survey and comply with any recommendations set forth in the Exit Survey. Tenants obligations under this Section shall survive the expiration or earlier termination of the Lease.
26.2. No surrender of possession of any part of the Premises shall release Tenant from any of its obligations hereunder, unless such surrender is accepted in writing by Landlord.
26.3. The voluntary or other surrender of this Lease by Tenant shall not effect a merger with Landlords fee title or leasehold interest in the Premises, the Building, the Property or the Project, unless Landlord consents in writing, and shall, at Landlords option, operate as an assignment to Landlord of any or all subleases.
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26.4. The voluntary or other surrender of any ground or other underlying lease that now exists or may hereafter be executed affecting the Building or the Project, or a mutual cancellation thereof or of Landlords interest therein by Landlord and its lessor shall not effect a merger with Landlords fee title or leasehold interest in the Premises, the Building or the Property and shall, at the option of the successor to Landlords interest in the Building or the Project, as applicable, operate as an assignment of this Lease.
27. Holding Over.
27.1. If, with Landlords prior written consent, Tenant holds possession of all or any part of the Premises after the Term, Tenant shall become a tenant from month to month after the expiration or earlier termination of the Term, and in such case Tenant shall continue to pay (a) Base Rent in accordance with Article 7, as adjusted in accordance with Article 8, and (b) any amounts for which Tenant would otherwise be liable under this Lease if the Lease were still in effect, including payments for Tenants Adjusted Share of Operating Expenses. Any such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein.
27.2. Notwithstanding the foregoing, if Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without Landlords prior written consent, (a) Tenant shall become a tenant at sufferance subject to the terms and conditions of this Lease, except that the monthly rent shall be equal to one hundred fifty percent (150%) of the Rent in effect during the last thirty (30) days of the Term, and (b) Tenant shall be liable to Landlord for any and all damages suffered by Landlord as a result of such holdover, including any lost rent or consequential, special and indirect damages (in each case, regardless of whether such damages are foreseeable).
27.3. Acceptance by Landlord of Rent after the expiration or earlier termination of the Term shall not result in an extension, renewal or reinstatement of this Lease.
27.4. The foregoing provisions of this Article are in addition to and do not affect Landlords right of reentry or any other rights of Landlord hereunder or as otherwise provided by Applicable Laws.
27.5. The provisions of this Article shall survive the expiration or earlier termination of this Lease.
28. Indemnification and Exculpation.
28.1. Tenant agrees to Indemnify the Landlord Indemnitees from and against any and all Claims of any kind or nature, real or alleged, arising from (a) injury to or death of any person or damage to any property occurring within or about the Premises, the Building, the Property or the Project, arising directly or indirectly out of (i) the presence at or use or occupancy of the Premises or Project by a Tenant Party, (ii) an act or omission on the part of any Tenant Party, (b) a breach or default by Tenant in the performance of any of its obligations hereunder (including any Claim asserted by any Lender against any Landlord Indemnitees under any Loan Document as a direct
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result of such breach or default by Tenant) or (c) injury to or death of persons or damage to or loss of any property, real or alleged, arising from the serving of alcoholic beverages by a Tenant Party at the Premises or Project, including liability under any dram shop law, host liquor law or similar Applicable Law, except to the extent directly caused by Landlords negligence or willful misconduct. Tenants obligations under this Section shall not be affected, reduced or limited by any limitation on the amount or type of damages, compensation or benefits payable by or for Tenant under workers compensation acts, disability benefit acts, employee benefit acts or similar legislation. Tenants obligations under this Section shall survive the expiration or earlier termination of this Lease.
28.2. Notwithstanding anything in this Lease to the contrary, Landlord shall not be liable to Tenant for and Tenant assumes all risk of (a) damage or losses arising from fire, electrical malfunction, gas explosion or water damage of any type (including broken water lines, malfunctioning fire sprinkler systems, roof leaks or stoppages of lines), unless any such loss is due to Landlords willful disregard of written notice by Tenant of need for a repair that Landlord is responsible to make for an unreasonable period of time, and (b) damage to personal property or scientific research, including loss of records kept by Tenant within the Premises (in each case, regardless of whether such damages are foreseeable). Tenant further waives any claim for injury to Tenants business or loss of income relating to any such damage or destruction of personal property as described in this Section. Notwithstanding anything in the foregoing or this Lease to the contrary, except (x) as otherwise provided herein (including Section 27.2), (y) as may be provided by Applicable Laws or (z) in the event of Tenants breach of Article 21 or Section 26.1, in no event shall Landlord or Tenant be liable to the other for any consequential, special or indirect damages arising out of this Lease, including lost profits (provided that this Subsection 28.2(z) shall not limit Tenants liability for Base Rent or Additional Rent pursuant to this Lease).
28.3. Landlord shall not be liable for any damages arising from any act, omission or neglect of any other tenant in the Building or the Project, or of any other third party.
28.4. Tenant acknowledges that security devices and services, if any, while intended to deter crime, may not in given instances prevent theft or other criminal acts. Landlord shall not be liable for injuries or losses arising from criminal acts of third parties, and Tenant assumes the risk that any security device or service may malfunction or otherwise be circumvented by a criminal. If Tenant desires protection against such criminal acts, then Tenant shall, at Tenants sole cost and expense, obtain appropriate insurance coverage. Tenants security programs and equipment for the Premises shall be coordinated with Landlord and subject to Landlords reasonable approval.
28.5. The provisions of this Article shall survive the expiration or earlier termination of this Lease.
28.6. The Indemnity from Tenant in this Article is intended to specifically cover actions brought by Tenants own employees, with respect to acts or omissions during the term of this Lease. In that regard, with respect to Landlord, Tenant waives any immunity it may have under Washingtons Industrial Insurance Act, RCW Title 51, to the extent necessary to provide Landlord with a full and complete Indemnity from claims made by Tenant and its employees, to the extent of their negligence. If losses, liabilities, damages, liens, costs and expenses covered by Tenants Indemnity arise from the sole negligence of Landlord or by the concurrent negligence of both
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Landlord and Tenant, or their respective employees, agents, contractors, invitees and licensees, then Tenant shall Indemnify Landlord only to the extent of any Tenant Parties negligence. LANDLORD AND TENANT ACKNOWLEDGE THAT THE INDEMNIFICATION PROVISIONS OF THIS ARTICLE WERE SPECIFICALLY NEGOTIATED AND AGREED UPON BY THEM.
29. Assignment or Subletting.
29.1. Except as hereinafter expressly permitted, none of the following (each, a Transfer), either voluntarily or by operation of Applicable Laws, shall be directly or indirectly performed without Landlords prior written consent: (a) Tenant selling, hypothecating, assigning, pledging, encumbering or otherwise transferring this Lease or subletting the Premises or (b) a controlling interest in Tenant being sold, assigned or otherwise transferred (other than as a result of shares in Tenant being sold on a public stock exchange). For purposes of the preceding sentence, control means (a) owning (directly or indirectly) more than fifty percent (50%) of the stock or other equity interests of another person or (b) possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of such person. Notwithstanding the foregoing, Tenant shall have the right to Transfer, without Landlords prior written consent, Tenants interest in this Lease or the Premises or any part thereof to any person that (i) acquires all or substantially all of the assets of Tenant, (ii) is a successor to Tenant by merger, consolidation or reorganization, or (iii) as of the date of determination and at all times thereafter directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with Tenant (any person described in (i), (ii), or (iii), a Tenants Affiliate); provided that Tenant shall notify Landlord in writing at least thirty (30) days prior to the effectiveness of such Transfer to Tenants Affiliate (an Exempt Transfer) and otherwise comply with the requirements of this Lease regarding such Transfer; and provided, further, that the person that will be the tenant under this Lease after the Exempt Transfer has a net worth (as of both the day immediately prior to and the day immediately after the Exempt Transfer) that is equal to or greater than the net worth (as of both the Execution Date and the date of the Exempt Transfer) of the transferring Tenant. For purposes of the immediately preceding sentence, control requires both (a) owning (directly or indirectly) more than fifty percent (50%) of the stock or other equity interests of another person and (b) possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of such person. In no event shall Tenant perform a Transfer to or with an entity that is a tenant at the Project or that is in discussions or negotiations with Landlord or an affiliate of Landlord to lease premises at the Project or a property owned by Landlord or an affiliate of Landlord. Notwithstanding anything in this Lease to the contrary, if (a) Tenant or any proposed transferee, assignee or sublessee of Tenant has been required by any prior landlord, Lender or Governmental Authority to take material remedial action in connection with Hazardous Materials contaminating a property if the contamination resulted from such partys action or omission or use of the property in question or (b) Tenant or any proposed transferee, assignee or sublessee is subject to a material enforcement order issued by any Governmental Authority in connection with the use, disposal or storage of Hazardous Materials, then Landlord shall have the right to terminate this Lease in Landlords sole and absolute discretion (with respect to any such matter involving Tenant), and it shall not be unreasonable for Landlord to withhold its consent to any proposed transfer, assignment or subletting (with respect to any such matter involving a proposed transferee, assignee or sublessee).
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29.2. In the event Tenant desires to effect a Transfer, then, at least thirty (30) but not more than ninety (90) days prior to the date when Tenant desires the Transfer to be effective (the Transfer Date), Tenant shall provide written notice to Landlord (the Transfer Notice) containing information (including references) concerning the character of the proposed transferee, assignee or sublessee; the Transfer Date; the most recent unconsolidated financial statements of Tenant and of the proposed transferee, assignee or sublessee satisfying the requirements of Section 40.2 (Required Financials); any ownership or commercial relationship between Tenant and the proposed transferee, assignee or sublessee; copies of Hazardous Materials Documents for the proposed transferee, assignee or sublessee; and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord shall reasonably require.
29.3. Landlord, in determining whether consent should be given to a proposed Transfer, may give consideration to (a) the financial strength of Tenant and of such transferee, assignee or sublessee (notwithstanding Tenant remaining liable for Tenants performance), (b) any change in use that such transferee, assignee or sublessee proposes to make in the use of the Premises and (c) Landlords desire to exercise its rights under Section 29.7 to cancel this Lease. In no event shall Landlord be deemed to be unreasonable for declining to consent to a Transfer if any applicable Loan Document prohibits such assignment or any Lender whose consent is required thereunder withholds its consent, or if the Transfer is to a transferee, assignee or sublessee of poor reputation, lacking financial qualifications or seeking a change in the Permitted Use, or jeopardizing directly or indirectly the status of Landlord or any of Landlords affiliates as a Real Estate Investment Trust under the Internal Revenue Code of 1986 (as the same may be amended from time to time, the Revenue Code). Notwithstanding anything contained in this Lease to the contrary, (w) no Transfer shall be consummated on any basis such that the rental or other amounts to be paid by the occupant, assignee, manager or other transferee thereunder would be based, in whole or in part, on the income or profits derived by the business activities of such occupant, assignee, manager or other transferee; (x) Tenant shall not furnish or render any services to an occupant, assignee, manager or other transferee with respect to whom transfer consideration is required to be paid, or manage or operate the Premises or any capital additions so transferred, with respect to which transfer consideration is being paid; (y) Tenant shall not consummate a Transfer with any person in which Landlord owns an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the Revenue Code); and (z) Tenant shall not consummate a Transfer with any person or in any manner that could cause any portion of the amounts received by Landlord pursuant to this Lease or any sublease, license or other arrangement for the right to use, occupy or possess any portion of the Premises to fail to qualify as rents from real property within the meaning of Section 856(d) of the Revenue Code, or any similar or successor provision thereto or which could cause any other income of Landlord to fail to qualify as income described in Section 856(c)(2) of the Revenue Code.
29.4. The following are conditions precedent to a Transfer or to Landlord considering a request by Tenant to a Transfer:
(a) Tenant shall remain fully liable under this Lease. Tenant agrees that it shall not be (and shall not be deemed to be) a guarantor or surety of this Lease, however, and waives its right to claim that is it is a guarantor or surety or to raise in any legal proceeding any guarantor or surety defenses permitted by this Lease or by Applicable Laws;
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(b) If Tenant or the proposed transferee, assignee or sublessee does not or cannot deliver the Required Financials, then Landlord may elect to have either Tenants ultimate parent company or the proposed transferees, assignees or sublessees ultimate parent company provide a guaranty of the applicable entitys obligations under this Lease, in a form acceptable to Landlord, which guaranty shall be executed and delivered to Landlord by the applicable guarantor prior to the Transfer Date;
(c) In the case of an Exempt Transfer, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord that the Transfer qualifies as an Exempt Transfer;
(d) Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord that the value of Landlords interest under this Lease shall not be diminished or reduced by the proposed Transfer. Such evidence shall include evidence respecting the relevant business experience and financial responsibility and status of the proposed transferee, assignee or sublessee;
(e) Tenant shall reimburse Landlord for Landlords actual costs and expenses, including reasonable attorneys fees, charges and disbursements incurred in connection with the review, processing and documentation of such request, not to exceed Two Thousand Five Hundred Dollars ($2,500);
(f) If Tenants transfer of rights or sharing of the Premises provides for the receipt by, on behalf of or on account of Tenant of any consideration of any kind whatsoever (including a premium rental for a sublease or lump sum payment for an assignment, but excluding Tenants reasonable costs in marketing and subleasing the Premises) in excess of the rental and other charges due to Landlord under this Lease, Tenant shall pay fifty percent (50%) of all of such excess to Landlord, after making deductions for any reasonable marketing expenses, tenant improvement funds expended by Tenant, alterations, cash concessions, brokerage commissions, attorneys fees and free rent actually paid by Tenant. If such consideration consists of cash paid to Tenant, payment to Landlord shall be made upon receipt by Tenant of such cash payment;
(g) The proposed transferee, assignee or sublessee shall agree that, in the event Landlord gives such proposed transferee, assignee or sublessee notice that Tenant is in default under this Lease, such proposed transferee, assignee or sublessee shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments shall be received by Landlord without any liability being incurred by Landlord, except to credit such payment against those due by Tenant under this Lease, and any such proposed transferee, assignee or sublessee shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided, however, that in no event shall Landlord or its Lenders, successors or assigns be obligated to accept such attornment;
(h) Landlords consent to any such Transfer shall be effected on Landlords forms;
(i) Tenant shall not then be in default hereunder in any respect;
(j) Such proposed transferee, assignee or sublessees use of the Premises shall be the same as the Permitted Use;
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(k) Landlord shall not be bound by any provision of any agreement pertaining to the Transfer, except for Landlords written consent to the same;
(l) Tenant shall pay all transfer and other taxes (including interest and penalties) assessed or payable for any Transfer;
(m) Landlords consent (or waiver of its rights) for any Transfer shall not waive Landlords right to consent or refuse consent to any later Transfer;
(n) Tenant shall deliver to Landlord one executed copy of any and all written instruments evidencing or relating to the Transfer; and
(o) Tenant shall deliver to Landlord a list of Hazardous Materials (as defined below), certified by the proposed transferee, assignee or sublessee to be true and correct, that the proposed transferee, assignee or sublessee intends to use or store in the Premises. Additionally, Tenant shall deliver to Landlord, on or before the date any proposed transferee, assignee or sublessee takes occupancy of the Premises, all of the items relating to Hazardous Materials of such proposed transferee, assignee or sublessee as described in Section 21.2.
29.5. Any Transfer that is not in compliance with the provisions of this Article or with respect to which Tenant does not fulfill its obligations pursuant to this Article shall be void and shall, at the option of Landlord, terminate this Lease.
29.6. Notwithstanding any Transfer, Tenant shall remain fully and primarily liable for the payment of all Rent and other sums due or to become due hereunder, and for the full performance of all other terms, conditions and covenants to be kept and performed by Tenant. The acceptance of Rent or any other sum due hereunder, or the acceptance of performance of any other term, covenant or condition thereof, from any person or entity other than Tenant shall not be deemed a waiver of any of the provisions of this Lease or a consent to any Transfer.
29.7. If Tenant delivers to Landlord a Transfer Notice indicating a desire to transfer this Lease to a proposed transferee, assignee or sublessee, then Landlord shall have the option, exercisable by giving notice to Tenant at any time within thirty (30) days after Landlords receipt of such Transfer Notice, to terminate this Lease as of the date specified in the Transfer Notice as the Transfer Date, except for those provisions that, by their express terms, survive the expiration or earlier termination hereof. If Landlord exercises such option, then Tenant shall have the right to withdraw such Transfer Notice by delivering to Landlord written notice of such election within five (5) business days after Landlords delivery of notice electing to exercise Landlords option to terminate this Lease. In the event Tenant withdraws the Transfer Notice as provided in this Section, this Lease shall continue in full force and effect. No failure of Landlord to exercise its option to terminate this Lease shall be deemed to be Landlords consent to a proposed Transfer.
29.8. If Tenant sublets the Premises or any portion thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenants obligations under this Lease, all rent from any such subletting, and appoints Landlord as assignee and attorney-in-fact for Tenant, and Landlord (or a receiver for Tenant appointed on Landlords application) may collect such rent and apply it toward Tenants obligations under this Lease; provided that, until the occurrence of a Default (as defined below) by Tenant, Tenant shall have the right to collect such rent.
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29.9. In the event that Tenant enters into a sublease for the entire Premises in accordance with this Article that expires within two (2) days of the Term Expiration Date, the term expiration date of such sublease shall, notwithstanding anything in this Lease, the sublease or any consent to the sublease to the contrary, be deemed to be the date that is two (2) days prior to the Term Expiration Date.
30. Subordination and Attornment.
30.1. This Lease shall be subject and subordinate to the lien of any mortgage, deed of trust, or lease in which Landlord is tenant now or hereafter in force against the Building or the Project and to all advances made or hereafter to be made upon the security thereof without the necessity of the execution and delivery of any further instruments on the part of Tenant to effectuate such subordination.
30.2. Notwithstanding the foregoing, Tenant shall execute and deliver upon demand such further instrument or instruments evidencing such subordination of this Lease to the lien of any such mortgage or mortgages or deeds of trust or lease in which Landlord is tenant as may be required by Landlord. If any Lender so elects, however, this Lease shall be deemed prior in lien to any such lease, mortgage, or deed of trust upon or including the Premises regardless of date and Tenant shall execute a statement in writing to such effect at Landlords request. If Tenant fails to execute any document required from Tenant under this Section within ten (10) days after written request therefor, Tenant hereby constitutes and appoints Landlord or its special attorney-in-fact to execute and deliver any such document or documents in the name of Tenant. Such power is coupled with an interest and is irrevocable. For the avoidance of doubt, Lenders shall also include historic tax credit investors and new market tax credit investors.
30.3. Upon written request of Landlord and opportunity for Tenant to review, Tenant agrees to execute any Lease amendments not materially altering the terms of this Lease, if required by a Lender incident to the financing of the real property of which the Premises constitute a part.
30.4. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by Landlord covering the Premises, Tenant shall at the election of the purchaser at such foreclosure or sale attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as Landlord under this Lease.
31. Defaults and Remedies.
31.1. Late payment by Tenant to Landlord of Rent and other sums due shall cause Landlord to incur costs not contemplated by this Lease, the exact amount of which shall be extremely difficult and impracticable to ascertain. Such costs include processing and accounting charges and late charges that may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within three (3) days after the date such payment is due, Tenant shall pay to Landlord (a) an additional sum of six percent (6%) of the overdue Rent as a late charge plus (b) interest at an annual rate (the Default Rate) equal to the lesser of (a) twelve percent (12%) and (b) the highest rate permitted by Applicable Laws. The parties agree that this late charge represents a fair
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and reasonable estimate of the costs that Landlord shall incur by reason of late payment by Tenant and shall be payable as Additional Rent to Landlord due with the next installment of Rent or within five (5) business days after Landlords demand, whichever is earlier. Landlords acceptance of any Additional Rent (including a late charge or any other amount hereunder) shall not be deemed an extension of the date that Rent is due or prevent Landlord from pursuing any other rights or remedies under this Lease, at law or in equity.
31.2. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent payment herein stipulated shall be deemed to be other than on account of the Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlords right to recover the balance of such Rent or pursue any other remedy provided in this Lease or in equity or at law. If a dispute shall arise as to any amount or sum of money to be paid by Tenant to Landlord hereunder, Tenant shall have the right to make payment under protest, such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of Tenant to institute suit for recovery of the payment paid under protest.
31.3. If Tenant fails to pay any sum of money required to be paid by it hereunder or perform any other act on its part to be performed hereunder, in each case within the applicable cure period (if any) described in Section 31.4, then Landlord may (but shall not be obligated to), without waiving or releasing Tenant from any obligations of Tenant, make such payment or perform such act; provided that such failure by Tenant unreasonably interfered with the use of the Building or the Project by any other tenant or with the efficient operation of the Building or the Project, or resulted or could have resulted in a violation of Applicable Laws or the cancellation of an insurance policy maintained by Landlord. Notwithstanding the foregoing, in the event of an emergency, Landlord shall have the right to enter the Premises and act in accordance with its rights as provided elsewhere in this Lease. In addition to the late charge described in Section 31.1, Tenant shall pay to Landlord as Additional Rent all sums so paid or incurred by Landlord, together with interest at the Default Rate, computed from the date such sums were paid or incurred.
31.4. The occurrence of any one or more of the following events shall constitute a Default hereunder by Tenant:
(a) Tenant abandons or vacates the Premises;
(b) Tenant fails to make any payment of Rent, as and when due, or to satisfy its obligations under Article 19, where such failure shall continue for a period of three (3) days after written notice thereof from Landlord to Tenant;
(c) Tenant fails to observe or perform any obligation or covenant contained herein (other than described in Sections 31.4(a) and 31.4(b)) to be performed by Tenant, where such failure continues for a period of ten (10) days after written notice thereof from Landlord to Tenant; provided that, if the nature of Tenants default is such that it reasonably requires more than ten (10) days to cure, Tenant shall not be deemed to be in Default if Tenant commences such cure within such ten (10) day period and thereafter diligently prosecutes the same to completion; and provided, further, that such cure is completed no later than thirty (30) days after Tenants receipt of written notice from Landlord;
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(d) Tenant makes an assignment for the benefit of creditors;
(e) A receiver, trustee or custodian is appointed to or does take title, possession or control of all or substantially all of Tenants assets;
(f) Tenant files a voluntary petition under the United States Bankruptcy Code or any successor statute (as the same may be amended from time to time, the Bankruptcy Code) or an order for relief is entered against Tenant pursuant to a voluntary or involuntary proceeding commenced under any chapter of the Bankruptcy Code;
(g) Any involuntary petition is filed against Tenant under any chapter of the Bankruptcy Code and is not dismissed within one hundred twenty (120) days;
(h) Tenant fails to deliver an estoppel certificate in accordance with Article 20; or
(i) Tenants interest in this Lease is attached, executed upon or otherwise judicially seized and such action is not released within one hundred twenty (120) days of the action.
Notices given under this Section shall specify the alleged default and shall demand that Tenant perform the provisions of this Lease or pay the Rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice. The foregoing notice and cure provisions shall be inclusive of and not in addition to the notices and cure periods provided for in RCW 59.12, as now or hereafter amended, or any legislation in lieu or substitution thereof.
31.5. In the event of a Default by Tenant, and at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy that Landlord may have, Landlord has the right to do any or all of the following:
(a) Halt any Tenant Improvements and Alterations and order Tenants contractors, subcontractors, consultants, designers and material suppliers to stop work;
(b) Terminate Tenants right to possession of the Premises by written notice to Tenant or by any lawful means, in which case Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall have the immediate right to re-enter and remove all persons and property, and such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby; and
(c) Terminate this Lease, in which event Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall have the immediate right to re-enter and remove all persons and property, and such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby. In the event that Landlord shall elect to
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so terminate this Lease, then Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenants default, including:
(i) The sum of:
A. The worth at the time of award of any unpaid Rent that had accrued at the time of such termination; plus
B. The worth at the time of award of the amount by which the unpaid Rent that would have accrued during the period commencing with termination of the Lease and ending at the time of award exceeds that portion of the loss of Landlords rental income from the Premises that Tenant proves to Landlords reasonable satisfaction could have been reasonably avoided; plus
C. The worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds that portion of the loss of Landlords rental income from the Premises that Tenant proves to Landlords reasonable satisfaction could have been reasonably avoided; plus
D. Any other amount necessary to compensate Landlord for all the detriment arising from Tenants failure to perform its obligations under this Lease or that in the ordinary course of things would be likely to result therefrom, including the cost of restoring the Premises to the condition required under the terms of this Lease, including any rent payments not otherwise chargeable to Tenant (e.g., during any free rent period or rent holiday); plus
E. At Landlords election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Laws; or
(ii) At Landlords election, as minimum liquidated damages in addition to any (A) amounts paid or payable to Landlord pursuant to Section 31.5(c)(i)(A) prior to such election and (B) costs of restoring the Premises to the condition required under the terms of this Lease, an amount (the Election Amount) equal to either (Y) the positive difference (if any, and measured at the time of such termination) between (1) the then-present value of the total Rent and other benefits that would have accrued to Landlord under this Lease for the remainder of the Term if Tenant had fully complied with the Lease minus (2) the then-present cash rental value of the Premises as determined by Landlord for what would be the then-unexpired Term if the Lease remained in effect, computed using the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one (1) percentage point (the Discount Rate) or (Z) twelve (12) months (or such lesser number of months as may then be remaining in the Term) of Base Rent and Additional Rent at the rate last payable by Tenant pursuant to this Lease, in either case as Landlord specifies in such election. Landlord and Tenant agree that the Election Amount represents a reasonable forecast of the minimum damages expected to occur in the event of a breach, taking into account the uncertainty, time and cost of determining elements relevant to actual damages, such as fair market rent, time and costs that may be required to re-lease the Premises, and other factors; and that the Election Amount is not a penalty
As used in Sections 31.5(c)(i)(A) and (B), worth at the time of award shall be computed by allowing interest at the Default Rate. As used in Section 31.5(c)(i)(C), the worth at the time of the award shall be computed by taking the present value of such amount, using the Discount Rate.
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31.6. In addition to any other remedies available to Landlord at law or in equity and under this Lease, Landlord may continue this Lease in effect after Tenants Default or abandonment and recover Rent as it becomes due. In addition, Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Premises. For purposes of this Section, the following acts by Landlord will not constitute the termination of Tenants right to possession of the Premises:
(a) Acts of maintenance or preservation or efforts to red the Premises, including alterations, remodeling, redecorating, repairs, replacements or painting as Landlord shall consider advisable for the purpose of reletting the Premises or any part thereof; or
(b) The appointment of a receiver upon the initiative of Landlord to protect Landlords interest under this Lease or in the Premises.
Notwithstanding the foregoing, in the event of a Default by Tenant, Landlord may elect at any time to terminate this Lease and to recover damages to which Landlord is entitled.
31.7. If Landlord does not elect to terminate this Lease as provided in Section 31.5, then Landlord may, from time to time, recover all Rent as it becomes due under this Lease. At any time thereafter, Landlord may elect to terminate this Lease and to recover damages to which Landlord is entitled.
31.8. In the event Landlord elects to terminate this Lease and relet the Premises, Landlord may execute any new lease in its own name. Tenant hereunder shall have no right or authority whatsoever to collect any Rent from such tenant. The proceeds of any such reletting shall be applied as follows:
(a) First, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord, including storage charges or brokerage commissions owing from Tenant to Landlord as the result of such reletting;
(b) Second, to the payment of the costs and expenses of reletting the Premises, including (i) alterations and repairs that Landlord deems reasonably necessary and advisable and (ii) reasonable attorneys fees, charges and disbursements incurred by Landlord in connection with the retaking of the Premises and such reletting;
(c) Third, to the payment of Rent and other charges due and unpaid hereunder; and
(d) Fourth, to the payment of future Rent and other damages payable by Tenant under this Lease.
31.9. All of Landlords rights, options and remedies hereunder shall be construed and held to be nonexclusive and cumulative. Landlord shall have the right to pursue any one or all of such remedies, or any other remedy or relief that may be provided by Applicable Laws, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any Rent or other payments due hereunder or any omission by
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Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in such waiver. Notwithstanding any provision of this Lease to the contrary, in no event shall Landlord be required to mitigate its damages with respect to any default by Tenant, except as required by Applicable Laws. Any such obligation imposed by Applicable Laws upon Landlord to relet the Premises after any termination of this Lease shall be subject to the reasonable requirements of Landlord to (a) lease to high quality tenants on such terms as Landlord may from time to time deem appropriate in its discretion and (b) develop the Project in a harmonious manner with a mix of uses, tenants, floor areas, terms of tenancies, etc., as determined by Landlord. Landlord shall not be obligated to relet the Premises to (y) any Tenants Affiliate or (z) any party (i) unacceptable to a Lender, (ii) that requires Landlord to make improvements to or re-demise the Premises, (iii) that desires to change the Permitted Use, (iv) that desires to lease the Premises for more or less than the remaining Term or (v) to whom Landlord or an affiliate of Landlord may desire to lease other available space in the Project or at another property owned by Landlord or an affiliate of Landlord.
31.10. Landlords termination of (a) this Lease or (b) Tenants right to possession of the Premises shall not relieve Tenant of any liability to Landlord that has previously accrued or that shall arise based upon events that occurred prior to the later to occur of (y) the date of Lease termination and (z) the date Tenant surrenders possession of the Premises.
31.11. To the extent permitted by Applicable Laws, Tenant waives any and all rights of redemption granted by or under any present or future Applicable Laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises due to Tenants default hereunder or otherwise.
31.12. Landlord shall not be in default or liable for damages under this Lease unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event shall such failure continue for more than thirty (30) days after written notice from Tenant specifying the nature of Landlords failure; provided, however, that if the nature of Landlords obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. In no event shall Tenant have the right to terminate or cancel this Lease or to withhold or abate rent or to set off any Claims against Rent as a result of any default or breach by Landlord of any of its covenants, obligations, representations, warranties or promises hereunder, except as may otherwise be expressly set forth in this Lease.
31.13. In the event of any default by Landlord, Tenant shall give notice by registered or certified mail to any (a) beneficiary of a deed of trust or (b) mortgagee under a mortgage covering the Premises, the Building or the Project and to any landlord of any lease of land upon or within which the Premises, the Building or the Project is located, and shall offer such beneficiary, mortgagee or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Building or the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided that Landlord shall furnish to Tenant in writing, upon written request by Tenant, the names and addresses of all such persons who are to receive such notices.
32. Bankruptcy. In the event a debtor, trustee or debtor in possession under the Bankruptcy Code, or another person with similar rights, duties and powers under any other Applicable Laws,
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proposes to cure any default under this Lease or to assume or assign this Lease and is obliged to provide adequate assurance to Landlord that (a) a default shall be cured, (b) Landlord shall be compensated for its damages arising from any breach of this Lease and (c) future performance of Tenants obligations under this Lease shall occur, then such adequate assurances shall include any or all of the following, as designated by Landlord in its sole and absolute discretion:
32.1. Those acts specified in the Bankruptcy Code or other Applicable Laws as included within the meaning of adequate assurance, even if this Lease does not concern a shopping center or other facility described in such Applicable Laws;
32.2. A prompt cash payment to compensate Landlord for any monetary defaults or actual damages arising directly from a breach of this Lease;
32.3. A cash deposit in an amount at least equal to the then-current amount of the Security Deposit; or
32.4. The assumption or assignment of all of Tenants interest and obligations under this Lease.
33. Brokers.
33.1. Tenant represents and warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease other than CBRE, Inc. (Broker), and that it knows of no other real estate broker or agent that is or might be entitled to a commission in connection with this Lease. Landlord shall compensate Broker in relation to this Lease pursuant to a separate agreement between Landlord and Broker.
33.2. Tenant represents and warrants that no broker or agent has made any representation or warranty relied upon by Tenant in Tenants decision to enter into this Lease, other than as contained in this Lease.
33.3. Tenant acknowledges and agrees that the employment of brokers by Landlord is for the purpose of solicitation of offers of leases from prospective tenants and that no authority is granted to any broker to furnish any representation (written or oral) or warranty from Landlord unless expressly contained within this Lease. Landlord is executing this Lease in reliance upon Tenants representations, warranties and agreements contained within Sections 33.1 and 33.2.
33.4. Tenant agrees to Indemnify the Landlord Indemnitees from any and all cost or liability for compensation claimed by any broker or agent, other than Broker, employed or engaged by Tenant or claiming to have been employed or engaged by Tenant.
34. Definition of Landlord. With regard to obligations imposed upon Landlord pursuant to this Lease, the term Landlord, as used in this Lease, shall refer only to Landlord or Landlords then-current successor-in-interest. In the event of any transfer, assignment or conveyance of Landlords interest in this Lease or in Landlords fee title to or leasehold interest in the Property, as applicable, Landlord herein named (and in case of any subsequent transfers or conveyances, the subsequent Landlord) shall be automatically freed and relieved, from and after the date of such transfer, assignment or conveyance, from all liability for the performance of any covenants or
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obligations contained in this Lease thereafter to be performed by Landlord and, without further agreement, the transferee, assignee or conveyee of Landlords in this Lease or in Landlords fee title to or leasehold interest in the Property, as applicable, shall be deemed to have assumed and agreed to observe and perform any and all covenants and obligations of Landlord hereunder during the tenure of its interest in the Lease or the Property. Landlord or any subsequent Landlord may transfer its interest in the Premises or this Lease without Tenants consent.
35. Limitation of Landlords Liability.
35.1. If Landlord is in default under this Lease and, as a consequence, Tenant recovers a monetary judgment against Landlord, the judgment shall be satisfied only out of (a) the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Building and the Project, (b) rent or other income from such real property receivable by Landlord or (c) the consideration received by Landlord from the sale, financing, refinancing or other disposition of all or any part of Landlords right, title or interest in the Building or the Project.
35.2. Neither Landlord nor any of its affiliates, nor any of their respective partners, shareholders, directors, officers, employees, members or agents shall be personally liable for Landlords obligations or any deficiency under this Lease, and service of process shall not be made against any shareholder, director, officer, employee or agent of Landlord or any of Landlords affiliates. No partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates shall be sued or named as a party in any suit or action, and service of process shall not be made against any partner or member of Landlord except as may be necessary to secure jurisdiction of the partnership, joint venture or limited liability company, as applicable. No partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates shall be required to answer or otherwise plead to any service of process, and no judgment shall be taken or writ of execution levied against any partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates.
35.3. Each of the covenants and agreements of this Article shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by Applicable Laws and shall survive the expiration or earlier termination of this Lease.
36. Joint and Several Obligations. If more than one person or entity executes this Lease as Tenant, then:
36.1. Each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed or performed by Tenant, and such terms, covenants, conditions, provisions and agreements shall be binding with the same force and effect upon each and all of the persons executing this Agreement as Tenant; and
36.2. The term Tenant, as used in this Lease, shall mean and include each of them, jointly and severally. The act of, notice from, notice to, refund to, or signature of any one or more of them with respect to the tenancy under this Lease, including any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted, so given or received such notice or refund, or so signed.
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37. Representations. Tenant guarantees, warrants and represents that (a) Tenant is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, establishment or formation, (b) Tenant has and is duly qualified to do business in the state in which the Property is located, (c) Tenant has full corporate, partnership, trust, association or other appropriate power and authority to enter into this Lease and to perform all Tenants obligations hereunder, (d) each person (and all of the persons if more than one signs) signing this Lease on behalf of Tenant is duly and validly authorized to do so and (e) neither (i) the execution, delivery or performance of this Lease nor (ii) the consummation of the transactions contemplated hereby will violate or conflict with any provision of documents or instruments under which Tenant is constituted or to which Tenant is a party. In addition, Tenant guarantees, warrants and represents that none of (x) it, (y) its affiliates or partners nor (z) to the best of its knowledge, its members, shareholders or other equity owners or any of their respective employees, officers, directors, representatives or agents is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (OFAC) of the Department of the Treasury (including those named on OFACs Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) or other similar governmental action.
38. Confidentiality. Tenant shall keep the terms and conditions of this Lease and any information provided to Tenant or its employees, agents or contractors pursuant to Article 9 confidential and shall not (a) disclose to any third party any terms or conditions of this Lease or any other Lease-related document (including subleases, assignments, work letters, construction contracts, letters of credit, subordination agreements, non-disturbance agreements, brokerage agreements or estoppels) or (b) provide to any third party an original or copy of this Lease (or any Lease-related document). Landlord shall not release to any third party any non-public financial information or non-public information about Tenants ownership structure that Tenant gives Landlord. Notwithstanding the foregoing, confidential information under this Section may be released by Landlord or Tenant under the following circumstances: (x) if required by Applicable Laws or in any judicial proceeding; provided that the releasing party has given the other party reasonable notice of such requirement, if feasible, (y) to a partys attorneys, accountants, brokers, lenders, potential lenders, investors, potential investors and other bona fide consultants or advisers (with respect to this Lease only); provided such third parties agree to be bound by this Section or (z) to bona fide prospective assignees or subtenants of this Lease; provided they agree in writing to be bound by this Section.
39. Notices. Except as otherwise stated in this Lease, any notice, consent, demand, invoice, statement or other communication required or permitted to be given hereunder shall be in writing and shall be given by (a) personal delivery, (b) overnight delivery with a reputable international overnight delivery service, such as FedEx, or (c) facsimile or email transmission, so long as such transmission is followed within one (1) business day by delivery utilizing one of the methods described in Subsection 39(a) or (b). Any such notice, consent, demand, invoice, statement or other communication shall be deemed delivered (x) upon receipt, if given in accordance with Subsection 39(a); (y) one (1) business day after deposit with a reputable international overnight
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delivery service, if given if given in accordance with Subsection 39(b); or (z) upon transmission, if given in accordance with Subsection 39(c). Except as otherwise stated in this Lease, any notice, consent, demand, invoice, statement or other communication required or permitted to be given pursuant to this Lease shall be addressed to Tenant at the Premises, or to Landlord or Tenant at the addresses shown in Sections 2.9 and 2.10 or 2.11, respectively. Either party may, by notice to the other given pursuant to this Section, specify additional or different addresses for notice purposes.
40. Miscellaneous.
40.1. Landlord reserves the right to change the name of the Building or the Project in its sole discretion.
40.2. To induce Landlord to enter into this Lease, Tenant agrees that it shall furnish to Landlord, from time to time, within ten (10) business days after receipt of Landlords written request, the most recent year-end unconsolidated financial statements reflecting Tenants current financial condition audited by a nationally recognized accounting firm. Tenant shall, within ninety (90) days after the end of Tenants financial year, furnish Landlord with a certified copy of Tenants year-end unconsolidated financial statements for the previous year audited by a nationally recognized accounting firm. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all respects. If audited financials are not otherwise prepared, unaudited financials (complete with reasonable supporting documentation, including (without limitation) bank statements) certified by the chief financial officer of Tenant as true, correct and complete in all respects shall suffice for purposes of this Section. If Tenant fails to deliver to Landlord any financial statement within the time period required under this Section, then Tenant shall be required to pay to Landlord an administrative fee equal to One Thousand Dollars ($1,000) within five (5) business days after receiving written notice from Landlord advising Tenant of such failure, unless Tenant cures such failure within such five (5) business day period (provided, however, that Landlords acceptance of such fee shall not prevent Landlord from pursuing any other rights or remedies under this Lease, at law or in equity). The provisions of this Section shall not apply at any time while Tenant is a corporation whose shares are traded on any nationally recognized stock exchange.
40.3. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant.
40.4. The terms of this Lease are intended by the parties as a final, complete and exclusive expression of their agreement with respect to the terms that are included herein, and may not be contradicted or supplemented by evidence of any other prior or contemporaneous agreement.
40.5. Landlord may, but shall not be obligated to, record a short form or memorandum hereof without Tenants consent. Within ten (10) days after receipt of written request from Landlord, Tenant shall execute a termination of any short form or memorandum of lease recorded with respect hereto. Tenant shall be responsible for the cost of recording any short form or memorandum of this Lease, including any transfer or other taxes incurred in connection with such recordation. Neither party shall record this Lease.
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40.6. Where applicable in this Lease, the singular includes the plural and the masculine or neuter includes the masculine, feminine and neuter. The words include, includes, included and including mean include, etc., without limitation. The word shall is mandatory and the word may is permissive. The section headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part of this Lease. Landlord and Tenant have each participated in the drafting and negotiation of this Lease, and the language in all parts of this Lease shall be in all cases construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant.
40.7. Except as otherwise expressly set forth in this Lease, each party shall pay its own costs and expenses incurred in connection with this Lease and such partys performance under this Lease; provided that, if either party commences an action, proceeding, demand, claim, action, cause of action or suit against the other party arising out of or in connection with this Lease, then the substantially prevailing party shall be reimbursed by the other party for all reasonable costs and expenses, including reasonable attorneys fees and expenses, incurred by the substantially prevailing party in such action, proceeding, demand, claim, action, cause of action or suit, and in any appeal in connection therewith (regardless of whether the applicable action, proceeding, demand, claim, action, cause of action, suit or appeal is voluntarily withdrawn or dismissed). In addition, Landlord shall, upon demand, be entitled to all reasonable attorneys fees and all other reasonable costs incurred in the preparation and service of any notice or demand hereunder, regardless of whether a legal action is subsequently commenced, or incurred in connection with any contested matter or other proceeding in bankruptcy court concerning this Lease.
40.8. Time is of the essence with respect to the performance of every provision of this Lease.
40.9. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition.
40.10. Notwithstanding anything to the contrary contained in this Lease, Tenants obligations under this Lease are independent and shall not be conditioned upon performance by Landlord.
40.11. Whenever consent or approval of either party is required, that party shall not unreasonably withhold, condition or delay such consent or approval, except as may be expressly set forth to the contrary.
40.12. Any provision of this Lease that shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof, and all other provisions of this Lease shall remain in full force and effect and shall be interpreted as if the invalid, void or illegal provision did not exist.
40.13. Each of the covenants, conditions and agreements herein contained shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs; legatees; devisees; executors; administrators; and permitted successors and assigns. This Lease is for the sole benefit of the parties and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns, and nothing in this Lease shall give or be construed to give any other person or entity any legal or equitable rights. Nothing in this Section shall in any way alter the provisions of this Lease restricting assignment or subletting.
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40.14. This Lease shall be governed by, construed and enforced in accordance with the laws of the state in which the Premises are located, without regard to such states conflict of law principles.
40.15. Tenant guarantees, warrants and represents that the individual or individuals signing this Lease have the power, authority and legal capacity to sign this Lease on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
40.16. This Lease may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.
40.17. No provision of this Lease may be modified, amended or supplemented except by an agreement in writing signed by Landlord and Tenant.
40.18. No waiver of any term, covenant or condition of this Lease shall be binding upon Landlord unless executed in writing by Landlord. The waiver by Landlord of any breach or default of any term, covenant or condition contained in this Lease shall not be deemed to be a waiver of any preceding or subsequent breach or default of such term, covenant or condition or any other term, covenant or condition of this Lease.
40.19. To the extent permitted by Applicable Laws, the parties waive trial by jury in any action, proceeding or counterclaim brought by the other party hereto related to matters arising out of or in any way connected with this Lease; the relationship between Landlord and Tenant; Tenants use or occupancy of the Premises; or any claim of injury or damage related to this Lease or the Premises.
41. Option to Extend Term. Tenant shall have the option (Option) to extend the Term by two (2) years as to the entire Premises (and no less than the entire Premises) upon the following terms and conditions. Any extension of the Term pursuant to the Option shall be on all the same terms and conditions as this Lease, except as follows:
41.1. Base Rent at the commencement of the Option term shall equal the greater of (a) one hundred three percent (103%) of the then-current Base Rent and (b) the then-current fair market value for comparable office and laboratory space in the South Lake Union submarket of comparable age, quality, level of finish and proximity to amenities and public transit, and containing the systems and improvements present in the Premises as of the date that Tenant gives Landlord written notice of Tenants election to exercise the Option (FMV), and shall be further increased on each annual anniversary of the Option term commencement date by three percent (3%). Tenant may, no more than twelve (12) months prior to the date the Term is then scheduled to expire, request Landlords estimate of the FMV for the Option term. Landlord shall, within fifteen (15) days after receipt of such request, give Tenant a written proposal of such FMV. If Tenant gives written notice to exercise the Option, such notice shall specify whether Tenant accepts Landlords proposed estimate of FMV. If Tenant does not accept the FMV, then the parties shall endeavor to agree upon the FMV, taking into account all relevant factors, including (a) the
55
size of the Premises, (b) the length of the Option term, (c) rent in comparable buildings in the relevant submarket, including concessions offered to new tenants, such as free rent, tenant improvement allowances and moving allowances, (d) Tenants creditworthiness and (e) the quality and location of the Building and the Project. In the event that the parties are unable to agree upon the FMV within thirty (30) days after Tenant notifies Landlord that Tenant is exercising the Option, then either party may request that the same be determined as follows: a senior officer of a nationally recognized leasing brokerage firm with local knowledge of the South Lake Union laboratory/research and development leasing submarket (the Baseball Arbitrator) shall be selected and paid for jointly by Landlord and Tenant. If Landlord and Tenant are unable to agree upon the Baseball Arbitrator, then the same shall be designated by the local chapter of the Judicial Arbitration and Mediation Services or any successor organization thereto (the JAMS). The Baseball Arbitrator selected by the parties or designated by JAMS shall (y) have at least ten (10) years experience in the leasing of laboratory/research and development space in the South Lake Union submarket and (z) not have been employed or retained by either Landlord or Tenant or any affiliate of either for a period of at least ten (10) years prior to appointment pursuant hereto. Each of Landlord and Tenant shall submit to the Baseball Arbitrator and to the other party its determination of the FMV. The Baseball Arbitrator shall grant to Landlord and Tenant a hearing and the right to submit evidence. The Baseball Arbitrator shall determine which of the two (2) FMV determinations more closely represents the actual FMV. The arbitrator may not select any other FMV for the Premises other than one submitted by Landlord or Tenant. The FMV selected by the Baseball Arbitrator shall be binding upon Landlord and Tenant and shall serve as the basis for determination of Base Rent payable for the Option term. If, as of the commencement date of the Option term, the amount of Base Rent payable during the Option term shall not have been determined, then, pending such determination, Tenant shall pay Base Rent equal to the Base Rent payable with respect to the last year of the then-current Term. After the final determination of Base Rent payable for the Option term, the parties shall promptly execute a written amendment to this Lease specifying the amount of Base Rent to be paid during the Option term. Any failure of the parties to execute such amendment shall not affect the validity of the FMV determined pursuant to this Section.
41.2. The Option is not assignable separate and apart from this Lease.
41.3. The Option is conditional upon Tenant giving Landlord written notice of its election to exercise the Option at least nine (9) months prior to the end of the expiration of the then-current Term. Time shall be of the essence as to Tenants exercise of the Option. Tenant assumes full responsibility for maintaining a record of the deadlines to exercise the Option. Tenant acknowledges that it would be inequitable to require Landlord to accept any exercise of the Option after the date provided for in this Section.
41.4. Notwithstanding anything contained in this Article to the contrary, Tenant shall not have the right to exercise the Option:
(a) During the time commencing from the date Landlord delivers to Tenant a written notice that Tenant is in default under any provisions of this Lease and continuing until Tenant has cured the specified default to Landlords reasonable satisfaction; or
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(b) At any time after any Default as described in Article 31 of the Lease (provided, however, that, for purposes of this Section 41.4(b), Landlord shall not be required to provide Tenant with notice of such Default) and continuing until Tenant cures any such Default, if such Default is susceptible to being cured; or
(c) In the event that Tenant has defaulted in the performance of its obligations under this Lease two (2) or more times during the twelve (12)-month period immediately prior to the date that Tenant intends to exercise the Option, whether or not Tenant has cured such defaults.
41.5. The period of time within which Tenant may exercise the Option shall not be extended or enlarged by reason of Tenants inability to exercise such Option because of the provisions of Section 41.4.
41.6. All of Tenants rights under the provisions of the Option shall terminate and be of no further force or effect even after Tenants due and timely exercise of the Option if, after such exercise, but prior to the commencement date of the new term, (a) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of twenty (20) days after written notice from Landlord to Tenant, (b) Tenant fails to commence to cure a default (other than a monetary default) within thirty (30) days after the date Landlord gives notice to Tenant of such default or (c) Tenant has defaulted under this Lease two (2) or more times and a service or late charge under Section 31.1 has become payable for any such default, whether or not Tenant has cured such defaults.
41.7. If (a) Tenant validly exercises the Option in accordance with this Article, and (b) Tenant is not in default of this Lease on the first (1st) day of the Option term (the Reduction Date), then the required Security Deposit under this Lease shall be reduced by Eighty-Seven Thousand Dollars ($87,000) effective as of the Reduction Date.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written.
LANDLORD: | ||
BMR-201 ELLIOTT AVENUE LLC, a Delaware limited liability company | ||
By: |
/s/ Marie Lewis |
|
Name: | Marie Lewis | |
Title: | Vice President, Legal | |
TENANT: | ||
IMPEL NEUROPHARMA, INC., a Delaware corporation | ||
By: |
/s/ John Hoekman |
|
Name: | John Hoekman | |
Title: | interim-CEO |
EXHIBIT A
PREMISES
[Intentionally omitted]
A-1
EXHIBIT A-1
PROPERTY
[Intentionally omitted]
A-1-1
EXHIBIT B
WORK LETTER
[Intentionally omitted]
B-2
EXHIBIT B-1
TENANT WORK INSURANCE SCHEDULE
[Intentionally omitted]
B-1-1
EXHIBIT C
LANDLORD WORK PLANS
[Intentionally omitted]
C-1
EXHIBIT D
ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE
AND TERM EXPIRATION DATE
[Intentionally omitted]
D-1
EXHIBIT E
FORM OF LETTER OF CREDIT
[Intentionally omitted]
E-1
ATTACHMENT I TO EXHIBIT E
FORM OF SIGHT DRAFT
[Intentionally omitted]
E-1-1
ATTACHMENT 2 TO EXHIBIT E
FORM OF TRANSFER NOTICE
[Intentionally omitted]
E-2-1
EXHIBIT F
RULES AND REGULATIONS
[Intentionally omitted]
F-1
ATTACHMENT 1 TO EXHIBIT F
REQUEST FOR USE OF COMMON AREA
[Intentionally omitted]
F-1-1
EXHIBIT G
[Intentionally omitted]
G-1-1
EXHIBIT H
TENANTS PROPERTY
[Intentionally omitted]
H-1
EXHIBIT I
FORM OF ESTOPPEL CERTIFICATE
[Intentionally omitted]
N-1
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this Amendment) is entered into as of this 16th day of June, 2020 (the First Amendment Execution Date), by and between BMR-201 ELLIOTT AVENUE LLC, a Delaware limited liability company (Landlord), and IMPEL NEUROPHARMA, INC., a Delaware corporation (Tenant).
RECITALS
A. WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of July 19, 2017 (as the same may have been amended, supplemented or modified from time to time, the Existing Lease), whereby Tenant leases certain premises (the Existing Premises) from Landlord at 201 Elliott Avenue West in Seattle, Washington (the Building);
B. WHEREAS, Landlord and Tenant desire to extend the Term of the Existing Lease;
C. WHEREAS, Landlord and Tenant desire to expand the Existing Premises to include that certain space containing approximately four hundred thirty-one (431) square feet of Rentable Area located on the first (I st) floor of the Building (as more particularly described on Exhibit A attached hereto, the First Amendment Premises);
D. WHEREAS, Landlord desires to modify the Common Area to exclude that ce11ain space containing approximately nine hundred forty-three (943) square feet of Rentable Area located on the second (2nd floor of the Building (as more pai1icularly described on Exhibit B attached hereto, the Excluded Common Area), and Landlord and Tenant desire to memorialize the resulting changes to Rentable Area and Tenants Pro Rata Share; and
E. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Definitions. For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the Lease. From and after the date hereof, the term Lease, as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.
2. First Amendment Extension Term. The Term of the Lease is hereby extended until, and the Term Expiration Date is hereby amended to mean, August 31, 2022. The period commencing on September 1, 2020 and ending on the new Term Expiration Date shall be referred to herein as the First Amendment Extension Term.
3. Condition of Existing Premises. Tenant acknowledges that (a) it is in possession of and is fully familiar with the condition of the Existing Premises and, notwithstanding anything contained in the Lease to the contrary, agrees to take the same in its condition as is as of the first day of the First Amendment Extension Term, and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Existing Premises for Tenants continued occupancy for the First Amendment Extension Term or to pay for any improvements to the Existing Premises, except as may be expressly provided in the Lease with respect to any ongoing repair and maintenance.
4. First Amendment Premises. Effective as of the First Amendment Execution Date, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the First Amendment Premises. From and after the First Amendment Execution Date, the term Premises as used in the Lease shall mean the Existing Premises plus the First Amendment Premises.
4.1 First Amendment Premises Term. The Term with respect to the First Amendment Premises (the First Amendment Premises Term) shall commence on the First Amendment Execution Date and shall thereafter be coterminous with the Term for the Existing Premises, such that the Term with respect to the entire Premises (including both the Existing Premises and the First Amendment Premises) shall expire on the Term Expiration Date (as set forth in Article 2 above).
4.2 Condition of First Amendment Premises. Tenant acknowledges that (a) it is fully familiar with the condition of the First Amendment Premises and, notwithstanding anything to the contrary in the Lease, agrees to take the same in its condition as is as of the First Amendment Execution Date, (b) neither Landlord nor any agent of Landlord has made (and neither Landlord nor any agent of Landlord hereby makes) any representation or warranty of any kind whatsoever, express or implied, regarding the First Amendment Premises, including (without limitation) any representation or warranty with respect to the condition of the First Amendment Premises or with respect to the suitability of the First Amendment Premises for the conduct of Tenants business and (c) Landlord shall have no obligation to alter, repair or otherwise prepare the First Amendment Premises for Tenants occupancy or to pay for any improvements to the First Amendment Premises. Tenants taking possession of the First Amendment Premises shall, except as otherwise agreed to in writing by Landlord and Tenant, conclusively establish that the First Amendment Premises was at such time in good, sanitary and satisfactory condition and repair.
4.3 Base Rent for First Amendment Premises. During the period commencing on the First Amendment Execution Date and ending on the day immediately preceding the First Amendment Extension Term, Base Rent for the First Amendment Premises shall equal Two Thousand Fourteen and 57/100 Dollars ($2,014.57) per month. For the avoidance of doubt, Base Rent for the First Amendment Premises shall be in addition to the Base Rent payable by Tenant with respect to the Existing Premises.
5. Rentable Area and Tenants Pro Rata Share. Effective as of the First Amendment Execution Date, due to (a) the expansion of the Existing Premises to include the First Amendment Premises, and (b) the modification of the Common Area to exclude the Excluded Common Area, the chart in Section 2.2 of the Existing Lease is hereby deleted in its entirety and replaced with the following:
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Definition or Provision |
Means the Following (As of the First Amendment Execution Date) |
|
Approximate Rentable Area of Premises | 11,568 square feet | |
Approximate Rentable Area of Project | 151,194 square feet | |
Tenants Pro Rata Share of Project | 7.65% |
6. Base Rent. During the First Amendment Extension Term, Base Rent for the entire Premises (including both the Existing Premises and the First Amendment Premises) shall be as set forth in the table below:
Period |
Square Feet of
Rentable Area |
Base Rent Rate
ner Square Foot of Rentable Area |
Monthly Base
Rent |
Annual Base
Rent |
||||||||||||
Months 1 - 12 |
11,568 | $ | 56.09 per year | $ | 54,070.76 | $ | 648,849.12 | |||||||||
Months 13 - 24 |
11,568 | $ | 57.77 per year | $ | 55,690.28 | $ | 668,283.36 |
7. Option to Extend. Effective as of the First Amendment Execution Date, Article 41 of the Existing Lease is hereby deleted in its entirety and shall no longer be of any further force or effect.
8. FF&E. Concurrently with the execution of this Amendment, Landlord and Tenant shall execute and deliver a Bill of Sale (the Bill of Sale) substantially in the form of Exhibit C attached hereto, whereby Landlord shall convey to Tenant any rights Landlord has in the items listed on Schedule 1 attached to the Bill of Sale.
9. Broker. Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, other than Hughes Seattle, Inc. (Broker), and agrees to reimburse, indemnify, save, defend (at Landlord s option and with counsel reasonably acceptable to Landlord, at Tenants sole cost and expense) and hold harmless the Landlord Indemnitees for, from and against any and all cost or liability for compensation claimed by any such broker or agent, other than Broker, employed or engaged by it or claiming to have been employed or engaged by it. Broker is entitled to a leasing commission in connection with the making of this Amendment, and Landlord shall pay such commission to Broker pursuant to a separate agreement between Landlord and Broker.
10. No Default. Tenant represents, warrants and covenants that, to the best of Tenants knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.
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11. Notices. Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Lease should be sent to:
Impel Neuropharma
Attention: CEO
201 Elliott Avenue
West Seattle, Washington 98119
12. Effect of Amendment. Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the patties.
13. Successors and Assigns. Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.
14. Miscellaneous. This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
15. Authority. Tenant guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
16. Counterparts; Facsimile and PDF Signatures. This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date and year first above written.
LANDLORD: | ||
BMR-201 ELLIOTT AVENUE LLC,
a Delaware limited liability company |
||
By: |
/s/ Kevin M. Simonsen |
|
Name: |
Kevin M. Simonsen |
|
Title: |
EVP, General Counsel and Secretary |
|
TENANT: | ||
IMPEL NEUROPHARMA, INC.,
a Delaware corporation |
||
By: |
/s/ Adrian Adams |
|
Name: |
Adrian Adams |
|
Title: |
Chairman and Chief Executive Officer |
[NOTE: NOTARY BLOCKS TO BE ADDED CONCURRENT WITH EXECUTION]
Exhibit A
FIRST AMENDMENT PREMISES
[Intentionally omitted]
Exhibit B
EXCLUDED COMMON AREA
[Intentionally omitted]
Exhibit C
BILL OF SALE
[Intentionally omitted]
SCHEDULE 1
FF&E
[Intentionally omitted]
Exhibit 10.10
LOAN AND SECURITY AGREEMENT
Dated as of November 5, 2020
between
IMPEL NEUROPHARMA, INC.,
a Delaware corporation,
as Borrower,
and
AVENUE VENTURE OPPORTUNITIES FUND, L.P.,
a Delaware limited partnership,
as Lender
LOAN AND SECURITY AGREEMENT
Borrower and Lender have entered or anticipate entering into one or more transactions pursuant to which Lender agrees to make available to Borrower a loan facility governed by the terms and conditions set forth in this document and one or more Supplements executed by Borrower and Lender which incorporate this document by reference. Each Supplement constitutes a supplement to and forms part of this document, and will be read and construed as one with this document, so that this document and the Supplement constitute a single agreement between the parties (collectively referred to as this Agreement).
Accordingly, the parties agree as follows:
ARTICLE 1 - INTERPRETATION
1.1 Definitions. The terms defined in Article 10 and in the Supplement will have the meanings therein specified for purposes of this Agreement.
1.2 Inconsistency. In the event of any inconsistency between the provisions of any Supplement and this document, the provisions of the Supplement will be controlling for the purpose of all relevant transactions.
1.3 Transparency Pledge. For the avoidance of doubt and notwithstanding anything to the contrary contained in this Agreement or in the other Loan Documents: (a) the occurrence of a Material Adverse Change or Material Adverse Effect shall not constitute an Event of Default or otherwise allow Lender to declare the outstanding Loans due and payable; (b) Lender shall not be entitled to (i) require Borrowers investors or members of Borrowers Board of Directors to make any additional written or verbal commitments of ongoing financial support, or (ii) require Borrower to conduct its banking or hold its deposits at any specific bank or financial institution; and (c) Borrower shall not be required to maintain any minimum tangible net worth, working capital, current ratio, quick asset ratio, liquidity ratio or debt-to-equity ratio or comply with any similar financial covenant.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 The Commitment. Subject to the terms and conditions of this Agreement, Lender agrees to make term loans to Borrower from time to time from the Closing Date and to and including the Termination Date in an aggregate principal amount not exceeding the Commitment. The Commitment is not a revolving credit commitment, and Borrower does not have the right to repay and reborrow hereunder; provided that Borrower may prepay the Loans as set forth in the Supplement.
Each Loan requested by Borrower to be made on a single Business Day shall be for a minimum principal amount set forth in the Supplement, except to the extent the remaining Commitment is a lesser amount.
2.2 Notes Evidencing Loans; Repayment. Each Loan shall be evidenced by a separate Note payable to the order of Lender, in the total principal amount of the Loan. Principal and interest of each Loan shall be payable at the times and in the manner set forth in the Note and regularly scheduled payments thereof shall be effected by automatic debit of the appropriate funds from Borrowers Primary Operating Account as specified in the Supplement hereto. Repayment of the Loans and payment of all other amounts owed to Lender will be paid by Borrower in the currency in which the same has been provided (i.e., United States Dollars).
2.3 Procedures for Borrowing.
(a) At least five (5) Business Days prior to a proposed Borrowing Date (or such lesser period of time as may be agreed upon by Lender in its sole discretion), Lender shall have received from Borrower a written request for a borrowing hereunder (a Borrowing Request). Each Borrowing Request shall be in substantially the form of Exhibit B to the Supplement, shall be executed by a responsible executive or financial officer of Borrower, and shall state how much is requested, and shall be accompanied by such other information and documentation as Lender may reasonably request, including the executed Note(s) for the Loan(s) covered by the Borrowing Request.
(b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing Date, if Borrower has satisfied the conditions precedent in Article 4 by 9:00 a.m. Pacific Standard Time on such Borrowing Date, Lender shall make the Loan available to Borrower in immediately available funds.
1
2.4 Interest. Except as otherwise specified in the applicable Note and/or Supplement, Basic Interest on the outstanding principal balance of each Loan shall accrue daily at the Designated Rate from the Borrowing Date. If the outstanding principal balance of such Loan is not paid at maturity, interest shall accrue at the Default Rate until paid in full, as further set forth herein.
2.5 Intentionally Omitted.
2.6 Interest Rate Calculation. Basic Interest, along with charges and fees under this Agreement and any Loan Document, shall be calculated for actual days elapsed on the basis of a 360-day year, which results in higher interest, charge or fee payments than if a 365-day year were used. In no event shall Borrower be obligated to pay Lender interest, charges or fees at a rate in excess of the highest rate permitted by applicable law from time to time in effect.
2.7 Default Interest. Any unpaid payments in respect of the Obligations shall bear interest from their respective maturities, whether scheduled or accelerated, at the Default Rate, compounded monthly. Borrower shall pay such interest on demand.
2.8 Late Charges. If Borrower is late in making any scheduled payment in respect of the Obligations by more than five (5) days, then Borrower agrees to pay a late charge of five percent (5%) of the payment due, but not less than fifty dollars ($50.00) for any one such delinquent payment; provided, that Lender shall endeavor to provide Borrower written notice of such late charge; provided further however, that (i) any failure of Lender to provide notice shall not relieve Borrower of the obligation to pay the same; and (ii) Borrower shall only be entitled to such notice from Lender one (1) time per year. This late charge may be charged by Lender for the purpose of defraying the expenses incidental to the handling of such delinquent amounts. Borrower acknowledges that such late charge represents a reasonable sum considering all of the circumstances existing on the date of this Agreement and represents a fair and reasonable estimate of the costs that will be sustained by Lender due to the failure of Borrower to make timely payments. Borrower further agrees that proof of actual damages would be costly and inconvenient. Such late charge shall be paid without prejudice to the right of Lender to collect any other amounts provided to be paid or to declare a default under this Agreement or any of the other Loan Documents or from exercising any other rights and remedies of Lender.
2.9 Lenders Records. Principal, Basic Interest and all other sums owed under any Loan Document shall be evidenced by entries in records maintained by Lender for such purpose. Each payment on and any other credits with respect to principal, Basic Interest and all other sums outstanding under any Loan Document shall be evidenced by entries in such records. Absent manifest error, Lenders records shall be conclusive evidence thereof. Upon Borrowers written request therefor, but not more than once per year during the term hereof, Lender shall promptly provide Borrower a copy of such records; provided that any failure to provide such records shall not result in any liability to Lender.
2.10 Grant of Security Interests; Filing of Financing Statements.
(a) To secure the timely payment and performance of all of Borrowers Obligations, Borrower hereby grants to Lender continuing security interests in all of the Collateral. In connection with the foregoing, Borrower authorizes Lender to prepare and file any financing statements describing the Collateral without otherwise obtaining Borrowers signature or consent with respect to the filing of such financing statements. Such financing statements may indicate the Collateral as all assets of the Debtor or words of similar effect.
(b) In furtherance of Borrowers grant of the security interests in the Collateral pursuant to Section 2.10(a) above, Borrower hereby pledges and grants to Lender a security interest in all the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations. On the Closing Date or at any time thereafter following Lenders request, the certificate or certificates for the Shares will be delivered to the Lender, accompanied by an instrument of assignment duly executed in blank by Borrower, unless such Shares have not been certificated. To the extent required by the terms and conditions governing the Shares, Borrower shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares. Upon the occurrence and during the continuance of an Event of Default hereunder, Lender may effect the transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Lender and cause new certificates representing such securities to be issued in the name of Lender or its transferee(s). Borrower will execute and deliver such documents, and
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take or cause to be taken such actions, as Lender may reasonably request to perfect or continue the perfection of Lenders security interest in the Shares. Except as provided in the following sentence, Borrower shall be entitled to exercise any right to which a holder of such Shares is entitled, including, without limitation, any voting rights with respect to the Shares and receipt of all dividends and other distributions with respect to the Shares that are permitted hereunder and the granting of, waivers and ratifications in respect thereof, provided that Borrower shall not exercise any right in a manner which would be inconsistent with the performance of its Obligations pursuant to any of the terms of this Agreement or which would constitute or create any violation of such terms of this Agreement. All such rights to vote and receipt of dividends and other distributions with respect to the Shares that are permitted hereunder and the granting of consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default and Lenders written notice to Borrower of Lenders intent to exercise its rights and remedies under this Agreement, including this Section 2.10(b).
(c) Borrower is and shall remain absolutely and unconditionally liable for the performance of its Obligations, including, without limitation, any deficiency by reason of the failure of the Collateral to satisfy all amounts due Lender under any of the Loan Documents.
(d) All Collateral pledged by Borrower under this Agreement and any Supplement shall secure the timely payment and performance of all Obligations. Except as expressly provided in this Agreement, no Collateral pledged under this Agreement or any Supplement shall be released until such time as all Obligations have been satisfied and paid in full (other than inchoate indemnity obligations).
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that, except as set forth in the Supplement or the Schedule of Exceptions hereto, if any, as of the Closing Date and each Borrowing Date:
3.1 Due Organization. Borrower is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its incorporation, and is duly qualified to conduct business and is in good standing in each other jurisdiction in which its business is conducted or its properties are located, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect.
3.2 Authorization, Validity and Enforceability. The execution, delivery and performance of all Loan Documents executed by Borrower are within Borrowers powers, have been duly authorized, and following such due authorization, are not in conflict with Borrowers certificate of incorporation or by laws, or the terms of any charter or other organizational document of Borrower, as amended from time to time; and all such Loan Documents constitute valid and binding obligations of Borrower, enforceable in accordance with their terms (except as may be limited by bankruptcy, insolvency and similar laws affecting the enforcement of creditors rights in general, and subject to general principles of equity).
3.3 Compliance with Applicable Laws. Borrower has complied with all licensing, permit and fictitious name requirements necessary to lawfully conduct the business in which it is engaged, and to any sales, leases or the furnishing of services by Borrower, including without limitation those requiring consumer or other disclosures, in each case, the noncompliance with which would have a Material Adverse Effect.
3.4 No Conflict. The execution, delivery, and performance by Borrower of all Loan Documents are not in conflict with any law, rule, regulation, order or directive, or any indenture, agreement, or undertaking to which Borrower is a party or by which Borrower may be bound or affected. Without limiting the generality of the foregoing, the issuance of the Warrant and the grant of registration rights in connection therewith do not violate any agreement or instrument by which Borrower is bound or require the consent of any holders of Borrowers securities other than consents which have been obtained prior to the Closing Date.
3.5 No Litigation, Claims or Proceedings. There is no litigation, tax claim, proceeding or dispute pending, or, to the knowledge of Borrower, threatened against or affecting Borrower, its property or the conduct of its business which, if adversely determined, could reasonably be expected to have a Material Adverse Effect.
3.6 Correctness of Financial Statements. Borrowers financial statements which have been delivered to Lender fairly and accurately, in all material respects, reflect Borrowers financial condition in accordance with GAAP (except for the absence of footnotes and subject to normal year-end adjustments) as of the latest date of such financial statements; and, since that date there has been no Material Adverse Change.
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3.7 No Subsidiaries. As of the Closing Date, Borrower is not a majority owner of or in a control relationship with any other business entity, except for Impel Australia.
3.8 Environmental Matters. To its knowledge after reasonable inquiry, Borrower has concluded that Borrower is in compliance with Environmental Laws, except to the extent a failure to be in such compliance would not reasonably be expected to have a Material Adverse Effect.
3.9 No Event of Default. No Default or Event of Default has occurred and is continuing.
3.10 Full Disclosure. None of the representations or warranties made by Borrower in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the written statements contained in any exhibit, report, statement or certificate furnished by or on behalf of Borrower in connection with the Loan Documents (including disclosure materials delivered by or on behalf of Borrower to Lender prior to the Closing Date or pursuant to Section 5.2 hereof), taken as a whole, contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered.
3.11 Specific Representations Regarding Collateral.
(a) Title. Except for the security interests created by this Agreement and Permitted Liens, (i) Borrower is and will be the unconditional legal and beneficial owner of the Collateral, and (ii) the Collateral is genuine and subject to no Liens. There exist no prior assignments or encumbrances of record with the U.S. Patent and Trademark Office or U.S. Copyright Office affecting any Collateral in favor of any third party, other than Permitted Liens.
(b) Rights to Payment. The names of the obligors, amount owing to Borrower, due dates and all other information with respect to the Rights to Payment are and will be correctly stated in all material respects in all Records relating to the Rights to Payment. Borrower further represents and warrants, to its knowledge, that each Person appearing to be obligated on a Right to Payment has authority and capacity to contract and is bound as it appears to be.
(c) Location of Collateral. As of the Closing Date, Borrowers chief executive office, Inventory, Records, Equipment, and any other offices or places of business are located at the address(es) shown on the Supplement.
(d) Business Names. Other than its full corporate name, Borrower has not conducted business using any trade names or fictitious business names except as shown on the Supplement.
3.12 Copyrights, Patents, Trademarks and Licenses.
(a) Borrower owns or is licensed or otherwise has the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other similar rights that are reasonably necessary for the operation of its business, without known conflict with the rights of any other Person.
(b) To Borrowers knowledge, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by Borrower infringes upon any rights held by any other Person.
(c) No claim or litigation regarding any of the foregoing is pending or, to Borrowers knowledge, threatened in writing, and, to Borrowers knowledge, no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or proposed which, in either case, could reasonably be expected to have a Material Adverse Effect.
3.13 Regulatory Compliance. Borrower has, to the best of its knowledge, met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. To the best of Borrowers knowledge, no event has occurred resulting from Borrowers failure to comply with ERISA that is reasonably likely to result in Borrowers incurring any liability that could have a Material Adverse Effect. Borrower is not required to be registered as an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act.
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3.14 Shares. Borrower has full power and authority to create a first priority Lien on the Shares and no disability or contractual obligation exists that would prohibit Borrower from pledging the Shares pursuant to this Agreement. To Borrowers knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options exercisable with respect to the Shares. The Shares have been and will be duly authorized and validly issued, and are fully paid and non-assessable. To Borrowers knowledge, the Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and Borrower knows of no reasonable grounds for the institution of any such proceedings.
3.15 Compliance with Anti-Corruption Laws. Borrower has not taken any action that would cause a violation of any anti-corruption law, including but not limited to, the Foreign Corrupt Practices Act, the United Kingdom Bribery Act, and all other applicable anti-corruption laws. Borrower, its employees, agents and representatives have not, directly or indirectly, offered, paid, given, promised or authorized the payment of any money, gift or anything of value to any person acting in an official capacity for any government department, agency or instrumentality, including state-owned or controlled companies or entities, and public international organizations, as well as a political party or official thereof or candidate for political office. None of Borrowers principals or staff are officers, employees or representatives of governments, government agencies, or government-owned or controlled enterprises.
3.16 Survival. The representations and warranties of Borrower as set forth in this Agreement survive the execution and delivery of this Agreement and shall continue until satisfaction in full, in cash, of all Obligations under the Loan Documents or Lender has any commitment to lend hereunder.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 Conditions to First Loan. The obligation of Lender to make its first Loan hereunder is, in addition to the conditions precedent specified in Section 4.2 and in any Supplement, subject to the fulfillment of the following conditions and to the receipt by Lender of the documents described below, duly executed and in form and substance reasonably satisfactory to Lender and its counsel:
(a) Resolutions. A certified copy of the resolutions of the Board of Directors of Borrower authorizing the execution, delivery and performance by Borrower of the Loan Documents.
(b) Incumbency and Signatures. A certificate of the secretary (or other authorized officer) of Borrower certifying the names of the officer or officers of Borrower authorized to sign the Loan Documents, together with a sample of the true signature of each such officer.
(c) Legal Opinion. The opinion of legal counsel for Borrower as to such matters as Lender may reasonably request, in form and substance reasonably satisfactory to Lender.
(d) Charter Documents. Copies of the organizational and charter documents of Borrower (e.g., Certificate of Incorporation and Bylaws), as amended through the Closing Date, certified by an officer of Borrower as being true, correct and complete.
(e) This Agreement. Counterparts of this Agreement and the initial Supplement, with all schedules completed and attached thereto, and disclosing such information as is acceptable to Lender.
(f) Financing Statements. Filing copies (or other evidence of filing reasonably satisfactory to Lender and its counsel) of such UCC financing statements, collateral assignments, account control agreements, and termination statements, with respect to the Collateral as Lender shall reasonably request.
(g) Intellectual Property Security Agreement. An Intellectual Property Security Agreement executed by Borrower in form and substance reasonably satisfactory to Lender.
(h) Lien Searches. UCC lien, judgment, bankruptcy and tax lien searches of Borrower from such jurisdictions or offices as Lender may reasonably request, all as of a date reasonably satisfactory to Lender and its counsel.
(i) Good Standing Certificate. A certificate of status or good standing of Borrower as of a date acceptable to Lender from the jurisdiction of Borrowers organization and any foreign jurisdictions where Borrower is qualified to do business, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect.
(j) Warrant. The Warrant issued by Borrower exercisable for such number, type and class of shares of Borrowers capital stock, and for an initial exercise price as is specified therein.
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(k) Insurance Certificates. Insurance certificates showing Lender as loss payee or additional insured.
(l) Other Documents. Such other documents and instruments as Lender may reasonably request to effectuate the intents and purposes of this Agreement.
4.2 Conditions to All Loans. The obligation of Lender to make its initial Loan and each subsequent Loan is subject to the following further conditions precedent that:
(a) No Default. No Default or Event of Default has occurred and is continuing or will result from the making of any such Loan, and the representations and warranties of Borrower contained in Article 3 of this Agreement and Part 3 of the Supplement are true and correct in all material respects as of the Borrowing Date of such Loan.
(b) No Material Adverse Change. No event has occurred that has had or could reasonably be expected to have a Material Adverse Change.
(c) Borrowing Request. Borrower shall have delivered to Lender a Borrowing Request for such Loan.
(d) Note. Borrower shall have delivered an executed Note evidencing such Loan, substantially in the form attached to the Supplement as an exhibit.
(e) Supplemental Lien Filings. Borrower shall have executed and delivered such amendments or supplements to this Agreement and additional Security Documents, financing statements and third party waivers as Lender may reasonably request in connection with the proposed Loan, in order to create, protect or perfect or to maintain the perfection of Lenders Liens on the Collateral.
(f) VCOC Limitation. Lender shall not be obligated to make any Loan under its Commitment if at the time of or after giving effect to the proposed Loan Lender would no longer qualify as: (i) a venture capital operating company under U.S. Department of Labor Regulations Section 2510.3-101(d), Title 29 of the Code of Federal Regulations, as amended; and (ii) a business development company under the provisions of
federal Investment Company Act of 1940, as amended; and (iii) a regulated investment company under the provisions of the Internal Revenue Code of 1986, as amended.
(g) Financial Projections. Borrower shall have delivered to Lender Borrowers business plan and/or financial projections or forecasts as most recently approved by Borrowers Board of Directors.
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of all Obligations (other than inchoate indemnity obligations), Borrower will:
5.1 Notice to Lender. Promptly give written notice to Lender of:
(a) Any litigation or administrative or regulatory proceeding affecting Borrower where the amount claimed against Borrower is at the Threshold Amount or more, or where the granting of the relief requested could reasonably be expected to have a Material Adverse Effect; or of the acquisition by Borrower of any commercial tort claim, including brief details of such claim and such other information as Lender may reasonably request to enable Lender to better perfect its Lien in such commercial tort claim as Collateral.
(b) Any dispute which may exist between Borrower and any governmental or regulatory authority, which could reasonably be expected to have a Material Adverse Effect.
(c) The occurrence of any Default or any Event of Default.
(d) Any change in the location of any of Borrowers places of business or a material portion of the Collateral at least fifteen (15) days in advance of such change, or of the establishment of any new, or the discontinuance of any existing, place of business; provided, however on the day of any such notice, the information set forth in such notice shall be deemed to be part of the Supplement with no further action by either party.
(e) Any dispute or default by Borrower or any other party under any joint venture, partnering, distribution, cross-licensing, strategic alliance, collaborative research or manufacturing, license or similar agreement which could reasonably be expected to have a Material Adverse Effect.
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(f) Any other matter which has resulted or could reasonably be expected to result in a Material Adverse Change.
(g) Any Subsidiary Borrower intends to acquire or create on or after the Closing Date.
5.2 Financial Statements. Deliver to Lender or cause to be delivered to Lender, in form and detail reasonably satisfactory to Lender the following financial and other information, which Borrower warrants shall be accurate and complete in all material respects:
(a) Monthly Financial Statements. As soon as available but no later than thirty (30) days after the end of each month, Borrowers unaudited balance sheet as of the end of such period, and Borrowers unaudited income statement and Borrowers unaudited cash flow statement for such period and for that portion of Borrowers financial reporting year ending with such period, prepared in accordance with GAAP (except for the absence of footnotes and subject to normal year-end adjustments) and attested by a responsible financial officer of Borrower as being complete and correct in all material respects and fairly presenting in all material respects Borrowers financial condition and the results of Borrowers operations as of the date(s) and for the period(s) covered thereby. After a Qualified Public Offering, the foregoing interim financial statements shall be delivered no later than forty-five (45) days after each fiscal quarter and for the quarter-annual fiscal period then ended.
(b) Year-End Financial Statements. As soon as available but no later than one hundred fifty (150) days after the end of each fiscal year, a complete copy of Borrowers audit report, which shall include balance sheet, income statement, statement of changes in equity and statement of cash flows for such year, prepared in accordance with GAAP and certified by an independent certified public accountant selected by Borrower and satisfactory to Lender (the Accountant). The Accountants certification shall not be qualified or limited due to a restricted or limited examination by the Accountant of any material portion of Borrowers records.
(c) Compliance Certificates. Simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) above, a certificate of the chief financial officer of Borrower (or other executive officer) substantially in the form of Exhibit C to the Supplement (a Compliance
Certificate) stating, among other things, whether any Default or Event of Default exists on the date of such certificate, and if so, setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto. If requested by Lender, a Compliance Certificate also shall be delivered to Lender on the Closing Date.
(d) Government Required Reports. Promptly after sending, issuing, making available, or filing, copies of all reports, proxy statements, and financial statements that Borrower sends or makes available generally to its stockholders, and, not later than ten (10) days after actual filing or the date such filing was first due, all public registration statements and reports that Borrower files or is required to file with the Securities and Exchange Commission, or any other governmental or regulatory authority having similar authority; provided, however, that nothing in this Section 5.2(d) shall require Borrower to violate any applicable laws, local ordinances or regulations or agreements by which Borrower is bound, including, without limitation, securities laws and nondisclosure agreements.
(e) Other Information. Such other statements, lists of property and accounts, operating budgets (as updated), sales projections, forecasts, reports, 409A valuation reports (to the extent prepared and as updated), operating plans, financial exhibits, capitalization tables (as updated) and information relating to equity and debt financings consummated after the Closing Date (including post-closing capitalization table(s)), or other information as Lender may from time to time reasonably request.
(f) Board Packages. In addition to the information described in Section 5.2(e), Borrower will promptly provide Lender with copies of all notices, minutes, consents and other materials, financial or otherwise, which Borrower provides to its Board of Directors (collectively, Board Packages); provided, however, that Borrower need not provide Lender with copies of routine Board actions, such as option and stock grants under Borrowers equity incentive plan in the normal course of business; and provided, further, however, that such Board Packages may be redacted to the extent that (i) Borrowers Board of Directors determines such redaction is reasonably necessary to preserve the attorney-client privilege, to protect highly confidential proprietary information, or for other similar reasons or (ii) such redacted material relates to Lender (or Borrowers strategy regarding the Loans or Lender).
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5.3 Managerial Assistance from Lender. Permit Lender to exercise management rights, as that term is defined in 29 C.F.R. § 2510.3-101(d), including without limitation the following rights:
(a) Borrower agrees that (i) it will make its officers, directors, employees and affiliates available at such times as Lender may reasonably request during normal business hours for Lender to consult with and advise as to the conduct of Borrowers business, its equipment and financing plans, and its financial condition and prospects (but in no case more than quarterly, in addition to any inspection or visitation rights exercised under Sections 5.6, 5.9 or Articles 7 or 8 hereof), (ii) Lender shall have the right to inspect Borrowers books, records, facilities and properties at reasonable times during normal business hours on reasonable advance notice (but in no case more than quarterly, in addition to any inspection or visitation rights exercised under Sections 5.6, 5.9 or Articles 7 or 8 hereof), and (iii) Lender shall be entitled to recommend prospective candidates for election or nomination for election to Borrowers Board of Directors and Borrower shall give due consideration to (but shall not be bound by) such recommendations, it being the intention of the parties that Lender shall be entitled through such rights, inter alia, to furnish significant managerial assistance, as defined in Section 2(a)(47) of the Investment Company Act of 1940, to Borrower.
(b) Without limiting the generality of (a) above, if Lender reasonably believes that financial or other developments affecting Borrower have impaired or are likely to impair Borrowers ability to perform its obligations under this Agreement, permit Lender reasonable access to Borrowers management and/or Board of Directors and opportunity to present Lenders views with respect to such developments, but Borrower shall not be bound by any recommendations of Lender.
Lender shall cooperate with Borrower to ensure that the exercise of Lenders rights shall not disrupt the business of Borrower. The rights enumerated above shall not be construed as giving Lender control over Borrowers management or policies or create any liability, per se, as a result of Borrowers failure to follow any advice provided by Lender. Borrower shall not be required under this Section 5.3 to provide access to information which would reasonably be expected to adversely affect the attorney-client privilege between Borrower and its counsel.
The rights granted in this Section 5.3 shall terminate upon the earliest to occur of (a) Borrower becoming subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended, (b) consummation of a sale of Borrowers
securities pursuant to a registration statement filed by Borrower under the Securities Act, in connection with a direct listing of Borrowers securities, an underwritten public offering of Borrowers securities, or a SPAC Transaction, (c) such time as Lender and its affiliates do not own any of the following that were issued by Borrower pursuant to this Agreement: (i) the Notes; (ii) the Warrant; and (iii) the shares acquired pursuant to such Warrant, and (d) the consummation of a merger or consolidation of Borrower that is effected (i) for independent business reasons unrelated to extinguishing such rights and (ii) for purposes other than (A) the reincorporation of Borrower in a different state or (B) the formation of a holding company that will be owned exclusively by Borrowers stockholders and will hold all of the outstanding shares of capital stock of Borrowers successor.
5.4 Existence. Maintain and preserve Borrowers existence, present form of business, and all rights and privileges necessary in the normal course of its business; and keep all Borrowers property in good working order and condition, ordinary wear and tear excepted.
5.5 Insurance. Obtain and keep in force insurance in such amounts and types as is usual in the type of business conducted by Borrower, with insurance carriers having a policyholder rating of not less than A and financial category rating of Class VII in Bests Insurance Guide, unless otherwise approved by Lender. Such insurance policies must be in form and substance reasonably satisfactory to Lender, and shall list Lender as an additional insured or loss payee, as applicable, on endorsement(s) in form reasonably acceptable to Lender. Borrower shall furnish to Lender such endorsements, and upon Lenders request, copies of any or all such policies.
5.6 Accounting Records. Maintain adequate books, accounts and records, and prepare all financial statements in accordance with GAAP (except for the absence of footnotes and subject to normal year-end adjustments), and in compliance with the regulations of any governmental or regulatory authority having jurisdiction over Borrower or Borrowers business; and permit employees or agents of Lender at such reasonable times as Lender may request, at Borrowers expense (not to exceed $2,500 in any 12-month period unless an Event of Default has occurred and is continuing), to inspect Borrowers properties, and to examine, review and audit, and make copies and memoranda of Borrowers books, accounts and records. Notwithstanding the foregoing, if no Event of Default has occurred and is continuing, Lender shall limit such inspections to no more than once per calendar year.
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5.7 Compliance with Laws. Comply in all material respects with all laws (including Environmental Laws), rules, regulations applicable to, and all orders and directives of any governmental or regulatory authority having jurisdiction over, Borrower or Borrowers business, and with all material agreements to which Borrower is a party, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect.
5.8 Taxes and Other Liabilities. Pay all Borrowers Indebtedness when due; pay all taxes and other governmental or regulatory assessments (individually or in the aggregate, in excess of $25,000) before delinquency or before any penalty attaches thereto, except as may be contested in good faith by the appropriate procedures and for which Borrower shall maintain appropriate reserves; and timely file all required tax returns (subject to any applicable extensions) with respect to taxes individually or in the aggregate, in excess of $25,000.
5.9 Special Collateral Covenants.
(a) Maintenance of Collateral; Inspection. Do all things reasonably necessary to maintain, preserve, protect and keep all Collateral in good working order and salable condition, ordinary wear and tear excepted, deal with the Collateral in all commercially reasonable ways as are considered good practice by owners of like property, and use the Collateral lawfully and, to the extent applicable, only as permitted by Borrowers insurance policies. Maintain, or cause to be maintained, complete and accurate Records, in all material respects, relating to the Collateral. Upon reasonable prior notice at reasonable times during normal business hours (but in no case more than once per calendar year if no Event of Default has occurred and is continuing), Borrower hereby authorizes Lenders officers, employees, representatives and agents to inspect the Collateral and to discuss the Collateral and the Records relating thereto with Borrowers officers and employees, and, in the case of any Right to Payment, after consultation with Borrower, with any Person which is or may be obligated thereon, provided that such inspections shall be conducted in such a manner as not to interfere unreasonably with the operations of Borrower. Only one (1) inspection described in this Section 5.9(a) in any 12-month period shall be at Borrowers expense, unless an Event of Default has occurred and is continuing, in which case all additional such inspections shall be at Borrowers expense.
(b) Documents of Title. Not sign or authorize the signing of any financing statement or other document naming Borrower as debtor or obligor, or acquiesce or cooperate in the issuance of any bill of lading, warehouse receipt or other document or instrument of title with respect to any Collateral, except those negotiated to Lender, or those naming Lender as secured party, or those related to a Permitted Lien.
(c) Change in Location or Name. Without at least fifteen (15) days prior written notice to Lender: (a) not relocate all or any material portion of the Collateral or Records (except as otherwise permitted herein), its chief executive office, or establish a place of business at a location other than as specified in the Supplement; and (b) not change its name, mailing address, location of Collateral, jurisdiction of incorporation or its legal structure.
(d) Decals, Markings. At the request of Lender, to the extent commercially practicable, firmly affix a decal, stencil or other marking to designated items of Equipment, indicating thereon the security interest of Lender; provided, however, that Lender agrees not to make such a request unless Lender reasonably believes that an event which could reasonably be expected to have a Material Adverse Effect is reasonably likely to occur.
(e) Agreement with Persons in Possession of Collateral. Use its commercially reasonable efforts to obtain and maintain such acknowledgments, consents, waivers and agreements (each a Waiver) from the owner, operator, lienholder, mortgagee, landlord or any Person in possession of tangible Collateral in excess of $100,000 per location within the United States of America as Lender may reasonably require, all in form and substance reasonably satisfactory to Lender. In addition, Lender shall have the right to require Borrower to use its commercially reasonable efforts to provide Lender with a Waiver for any Collateral in excess of $100,000 per location within the United States of America that is located in a jurisdiction that provides for statutory landlords Liens and for any location at which the Person in possession of such Collateral has a Lien thereon. Notwithstanding anything to the contrary in this Section 5.9(e), Borrower and Lender acknowledge and agree that all material Intellectual Property and Records that are maintained on items of Collateral for which Borrower is unable to provide a Waiver also shall be maintained or backed up in a manner sufficient that Lender shall be able to have access to such Intellectual Property and Records in accordance with the exercise of Lenders rights hereunder.
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(f) Certain Agreements on Rights to Payment. Other than in the ordinary course of business (including any discount, credit, rebate or other reduction in payment negotiated with any insurance provider), not make any material discount, credit, rebate or other reduction in the original amount owing on a Right to Payment or accept in satisfaction of a Right to Payment less than the original amount thereof.
5.10 Authorization for Automated Clearinghouse Funds Transfer. (i) Authorize Lender to initiate debit entries to Borrowers Primary Operating Account, specified in the Supplement hereto, through Automated Clearinghouse (ACH) transfers, in order to satisfy the regularly scheduled payments of principal and interest; (ii) provide Lender at least thirty (30) days notice of any change in Borrowers Primary Operating Account; and (iii) grant Lender any additional authorizations necessary to begin ACH debits from a new account which becomes the Primary Operating Account.
5.11 Anti-Corruption Laws. Provide true, accurate and complete information, in all material respects, in all product orders, reimbursement requests and other communications relating to Borrower and its products.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all Obligations (other than inchoate indemnity obligations), Borrower will not:
6.1 Indebtedness. Be indebted for borrowed money, the deferred purchase price of property, or leases which would be capitalized in accordance with GAAP; or become liable as a surety, guarantor, accommodation party or otherwise for or upon the obligation of any other Person, except:
(a) Indebtedness incurred for the acquisition of supplies, inventory or other property or services on normal trade credit;
(b) Indebtedness incurred pursuant to one or more transactions permitted under Section 6.4;
(c) Indebtedness of Borrower under this Agreement;
(d) Subordinated Debt;
(e) any Indebtedness approved by Lender prior to the Closing Date as shown on Schedule 6.1;
(f) Indebtedness secured by a lien described in clause (c) of the defined term Permitted Liens not to exceed $250,000 in aggregate principal amount outstanding at any time:
(g) Indebtedness incurred under corporate credit cards not to exceed $150,000 in aggregate principal amount outstanding at any time;
(h) guaranties and similar surety obligations in respect of Indebtedness permitted under this Section 6.1;
(i) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(j) Indebtedness incurred in connection with Bank Services, provided that such Indebtedness does not exceed One Hundred Thousand Dollars ($100,000);
(k) letters of credit securing performance of operating leases, real estate leases or appeal bonds and other obligations permitted under this Agreement, provided that such Indebtedness does not exceed One Hundred Thousand ($100,000) in the aggregate amount outstanding at any time; and
(l) extensions, refinancings and renewals of any of the foregoing; provided that the principal amount thereof is not increased.
6.2 Liens. Create, incur, assume or permit to exist any Lien, or grant any other Person a negative pledge, on any of Borrowers property, except (a) Permitted Liens, (b) any negative pledge in respect of any asset subject to a Lien permitted by clause (c) of the definition of Permitted Liens, (c) negative pledges that do not restrict or prohibit Borrower from granting a security interest in Borrowers assets in favor of Lender, (d) leases to Borrower of real or personal property, and (e) inbound licenses of Intellectual Property. Borrower and Lender agree that this covenant is not intended to constitute a lien, deed of trust, equitable mortgage, or security interest of any kind on any of Borrowers real property, and this Agreement shall not be recorded or recordable. Notwithstanding the foregoing, however, violation of this covenant by Borrower shall constitute an Event of Default.
6.3 Dividends. Except after a Qualified Public Offering, pay any dividends or purchase, redeem or otherwise acquire or make any other distribution with respect to any of Borrowers capital stock, except (a) dividends or other distributions solely of capital stock
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of Borrower, (b) cash payments made in lieu of the issuance of fractional shares, (c) so long as no Event of Default has occurred and is continuing, repurchases of equity interests from employees or contractors upon termination of employment or services under reverse vesting or similar repurchase plans not to exceed $250,000 in any calendar year, (d) the conversion of Borrowers convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (e) the purchase, redemption or other acquisition of shares of Borrowers capital stock with the proceeds received from a substantially concurrent issue of new shares of its capital stock and (f) repurchase equity interests to the extent deemed to occur upon exercise of stock options or warrants if (x) such repurchased equity interests represent a portion of the exercise price of such options or warrants and (y) such repurchase is in the form of non-cash consideration or in the form of a cashless net exercise.
6.4 Fundamental Changes. (a) Liquidate or dissolve; (b) enter into, or permit any of Borrowers Subsidiaries to enter into, any Change of Control; or (c) acquire, or permit any of Borrowers Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person. Notwithstanding anything to the contrary in this Section 6.4, Borrower may enter into a transaction that will constitute a Change of Control so long as: (i) the Person that results from such Change of Control (the Surviving Entity) shall have executed and delivered to Lender an agreement in form and substance reasonably satisfactory to Lender, containing an assumption by the Surviving Entity of the due and punctual payment and performance of all Obligations and performance and observance of each covenant and condition of Borrower in the Loan Documents; (ii) all such obligations of the Surviving Entity to Lender shall be guaranteed by any Person that directly or indirectly owns or controls 50% or more of the voting stock of the Surviving Entity; (iii) immediately after giving effect to such Change of Control, no Event of Default or, event which with the lapse of time or giving of notice or both, would result in an Event of Default shall have occurred and be continuing; and (iv) the credit risk to Lender, in its sole discretion, with respect to the Obligations and the Collateral shall not be increased. In determining whether the proposed Change of Control would result in an increased credit risk, Lender may consider, among other things, changes in Borrowers management team, employee base, access to equity markets, venture capital support, financial position and/or disposition of intellectual property rights which may reasonably be anticipated as a result of the Change of Control. In addition, (i) a Subsidiary may merge or consolidate into another Subsidiary and (ii) Borrower may consolidate or merge with any of Borrowers Subsidiaries provided that Borrower is the continuing or surviving Person.
6.5 Sales of Assets. Sell, transfer, lease, license or otherwise dispose of (a Transfer) any of Borrowers assets except for the following (each a Permitted Transfer): (i) exclusive and non-exclusive licenses or sublicenses of Intellectual Property in the ordinary course of business consistent with industry practice, provided that such licenses of Intellectual Property neither result in a legal transfer of title of the licensed Intellectual Property nor have the same effect as a sale of such Intellectual Property, but may be exclusive in respects other than territory and may be exclusive as to territory only as to discrete geographical areas outside of the United States; (ii) Transfers of worn-out, obsolete or surplus property (each as determined by Borrower in its reasonable judgment); (iii) Transfers of Inventory in the ordinary course of business; (iv) Transfers constituting Permitted Liens; (v) Transfers permitted in Section 6.3, 6.4, 6.6 or 6.7 hereunder; and (vi) Transfers of assets (other than Intellectual Property) for fair consideration and in the ordinary course of its business.
6.6 Loans/Investments. Make or suffer to exist any loans, guaranties, advances, or investments (Investments), except:
(a) accounts receivable in the ordinary course of Borrowers business;
(b) Investments in Cash Equivalents;
(c) [reserved];
(d) temporary advances to cover incidental expenses to be incurred in the ordinary course of business;
(e) Investments in joint ventures, strategic alliances, licensing and similar arrangements customary in Borrowers industry and which do not require Borrower to assume or otherwise become liable for the obligations of any third party not directly related to or arising out of such arrangement or, without the prior written consent of Lender, require Borrower to transfer ownership of non-cash assets to such joint venture or other entity;
(f) Investments in (i) one or more wholly-owned domestic Subsidiaries of Borrower, so long as in accordance with Section 6.14(a) of this Agreement, each such Person has been made a co-borrower hereunder or has executed and delivered to Lender an
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agreement, in form and substance reasonably satisfactory to Lender, containing a guaranty of the Obligations, and (ii) subject to Section 6.14(d), one or more wholly-owned foreign Subsidiaries of Borrower with the prior written consent of Lender;
(g) Investments approved by Lender prior to the Closing Date as shown on Schedule 6.6;
(h) Investments accepted in connection with Transfers permitted by Section 6.5;
(i) non-cash loans approved by Borrowers Board of Directors to employees, officers or directors relating to the purchase of equity securities of Borrower pursuant to employee stock purchase plans or agreements approved by Borrowers Board of Directors, limited to an aggregate total of $150,000 at any time outstanding;
(j) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrowers business;
(k) Investments permitted under Section 6.11;
(l) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions to, customers and suppliers in the ordinary course of business;
(m) endorsements of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business;
(n) deferred purchase obligations accepted in connection with Permitted Transfers; and
(o) Investments by wholly owned Subsidiaries in other wholly owned Subsidiaries or in Borrower.
6.7 Transactions with Related Persons. Directly or indirectly enter into any transaction with or for the benefit of a Related Person on terms more favorable to the Related Person than would have been obtainable in an arms length dealing, except (a) sales of equity securities by Borrower and incurrence of Subordinated Debt for capital raising purposes, (b) Investments permitted under clauses (d), (f), (i) or (o) of Section 6.6, (c) the incurrence of any Indebtedness pursuant to Section 6.1, (d) commercially reasonable and customary
compensation or severance arrangements with Borrowers employees, officers, directors and managers approved by Borrowers board of directors, and (e) transactions in the ordinary course of business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arms length transaction with a non-affiliated Person.
6.8 Other Business. Engage in any material line of business other than the business Borrower conducts as of the Closing Date and any business substantially similar or related or incidental thereto.
6.9 Financing Statements and Other Actions. Fail to execute and deliver to Lender all financing statements, notices and other documents (including, without limitation, any filings with the United States Patent and Trademark Office and the United States Copyright Office) from time to time reasonably requested by Lender to maintain a perfected first priority security interest in the Collateral in favor of Lender, subject to Permitted Liens; perform such other acts, and execute and deliver to Lender such additional conveyances, assignments, agreements and instruments, as Lender may at any time reasonably request in connection with the administration and enforcement of this Agreement or Lenders rights, powers and remedies hereunder.
6.10 Compliance. Become required to be registered as an investment company or controlled by an investment company, within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Loan for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could reasonably be expected to have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Lenders Lien on the Collateral, or permit any of its subsidiaries to do any of the foregoing.
6.11 Other Deposit and Securities Accounts. Maintain any Deposit Accounts or accounts holding securities owned by Borrower except (i) Deposit Accounts and investment/securities accounts as set forth in the Supplement, and (ii) other Deposit Accounts and securities/investment accounts, in each case, with respect to which Borrower and Lender shall have taken such action as Lender reasonably deems necessary to obtain a perfected first priority security
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interest therein, subject to Permitted Liens. The provisions of the previous sentence shall not apply to (i) Deposit Accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrowers employees and identified to Lender as such and (ii) Excluded Accounts.
6.12 Prepayment of Indebtedness. Prepay, redeem or otherwise satisfy in any manner prior to the scheduled repayment thereof any Indebtedness (other than the Loans and Indebtedness permitted by Section 6.1 hereof). Notwithstanding the foregoing, Lender agrees that the conversion or exchange into Borrowers equity securities of any Indebtedness (other than the Loans) shall not be prohibited by this Section 6.12.
6.13 Repayment of Subordinated Debt. Repay, prepay, redeem or otherwise satisfy in any manner any Subordinated Debt, except in accordance with the terms of any subordination agreement among Borrower, Lender and the holder(s) of such Subordinated Debt. Notwithstanding the foregoing, Lender agrees that the conversion or exchange into Borrowers equity securities of any Subordinated Debt and the payment of cash in lieu of fractional shares shall not be prohibited by this Section 6.13.
6.14 Subsidiaries.
(a) Acquire or create any Subsidiary, unless such Subsidiary becomes, at Lenders option, either a co-borrower hereunder or executes and delivers to Lender one or more agreements, in form and substance reasonably satisfactory to Lender, containing a guaranty of the Obligations that is secured by first priority Liens on such Persons assets, subject to Permitted Liens. For clarity, the parties acknowledge and agree that Lender shall have the exclusive right to determine whether any such Person will be made a co-borrower hereunder or a guarantor of the Obligations. Prior to the acquisition or creation of any such Subsidiary, Borrower shall notify Lender thereof in writing, which notice shall contain the jurisdiction of such Persons formation and include a description of such Persons fully diluted capitalization and Borrowers purpose for its acquisition or creation of such Subsidiary.
(b) Sell, transfer, encumber or otherwise dispose of Borrowers ownership interest in any Subsidiary other than Permitted Liens and Permitted Transfers.
(c) Cause or permit a Subsidiary to do any of the following: (i) grant Liens on such Subsidiarys assets, except for Liens that would constitute Permitted Liens if incurred by Borrower and Liens on any property held or acquired by such Subsidiary in the ordinary course of its business securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; provided, that such Lien attaches solely to the property acquired with such Indebtedness and that the principal amount of such Indebtedness does not exceed one hundred percent (100%) of the cost of such property; and (ii) issue any additional Shares, except to Borrower or a wholly owned Subsidiary of Borrower.
(d) Notwithstanding, and without limiting, any other provision of this Agreement or the Supplement to the contrary, Borrower shall not invest in or loan to, directly or indirectly, or cause or permit Impel Australia to maintain, cash or other assets of a value in excess of $1,000,000 (U.S.) in the aggregate at any time during the term of this Agreement.
6.15 Leases. Create, incur, assume, or suffer to exist any obligation as lessee for the rental or hire of any personal property (Personal Property Leases), except for Personal Property Leases of Equipment in the ordinary course of business that do not in the aggregate require Borrower to make payments (including taxes, insurance, maintenance and similar expenses which Borrower is required to pay under the terms of any such lease) in any calendar year in excess of $250,000 in aggregate amount. For the avoidance of doubt, this Section 6.15 will not be applicable to Indebtedness otherwise permitted under Section 6.1(f) of this Agreement.
6.16 Anti-Corruption Laws.
(a) Take any action that would cause a violation of any anti-corruption law, including but not limited to, the Foreign Corrupt Practices Act, the United Kingdom Bribery Act, and all other applicable anti-corruption laws.
(b) Directly or indirectly, offer, pay, give, promise or authorize the payment of any money, gift, or anything of value to any person acting in an official capacity for any government department, agency, or instrumentality, including state-owned or controlled companies or entities, and public international organizations, as well as a political party or official thereof or candidates for political office, except in compliance with applicable law.
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ARTICLE 7EVENTS OF DEFAULT
7.1 Events of Default; Acceleration. Upon the occurrence and during the continuation of any Event of Default, the obligation of Lender to make any additional Loan shall be suspended. The occurrence and continuation of any of the following (each, an Event of Default) shall at the option of Lender (1) make all sums of Basic Interest and principal, as well as any other Obligations and amounts owing under any Loan Documents, immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor or any other notices or demands, and (2) give Lender the right to exercise any other right or remedy provided by contract or applicable law:
(a) Borrower shall fail to pay any principal or interest under this Agreement or any Note, or fail to pay any fees or other charges when due under any Loan Document, and such failure continues for three (3) Business Days or more after the same first becomes due; or an Event of Default as defined in any other Loan Document shall have occurred.
(b) Any representation or warranty made, or financial statement, certificate or other document provided, by Borrower under any Loan Document, taken together with all such representations, warranties, statements, certificates and documents, shall prove to have been false or misleading in any material respect when made or deemed made herein.
(c) [Reserved.]
(d) (i) Borrower shall fail to pay its debts generally as they become due; or (ii) Borrower shall commence any Insolvency Proceeding with respect to itself, an involuntary Insolvency Proceeding shall be filed against Borrower, or a custodian, receiver, trustee, assignee for the benefit of creditors, or other similar official, shall be appointed to take possession, custody or control of the properties of Borrower, and such involuntary Insolvency Proceeding, petition or appointment is acquiesced to by Borrower or is not dismissed within forty five (45) days; or (iii) the dissolution, winding up, or termination of the business or cessation of operations of Borrower (including any transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of Borrower pursuant to the provisions of Borrowers charter documents); or (iv) Borrower shall take any corporate action for the purpose of effecting, approving, or consenting to any of the foregoing.
(e) Borrower shall be in default beyond any applicable period of grace or cure under any other agreement involving the borrowing of money, the purchase of property, the advance of credit or any other monetary liability of any kind to Lender or to any Person in an amount in excess of the Threshold Amount.
(f) Any governmental or regulatory authority shall take any final and non-appealable judicial or administrative action, or any defined benefit pension plan maintained by Borrower shall have any unfunded liabilities, any of which, in the reasonable judgment of Lender, could reasonably be expected to have a Material Adverse Effect.
(g) Any sale, transfer or other disposition of all or a substantial or material part of the assets of Borrower, including without limitation to any trust or similar entity, shall occur.
(h) Any judgment(s) singly or in the aggregate in excess of the Threshold Amount shall be entered against Borrower which remain unsatisfied, unvacated or unstayed pending appeal for twenty (20) or more days after entry thereof.
(i) Borrower shall fail to perform or observe any covenant contained in Article 6 of this Agreement.
(j) Borrower shall fail to perform or observe any covenant contained in Article 5 or elsewhere in this Agreement or any other Loan Document (other than a covenant which is dealt with specifically elsewhere in this Article 7) and, if capable of being cured, the breach of such covenant is not cured within 10 days after the sooner to occur of Borrowers receipt of notice of such breach from Lender or the date on which such breach first becomes known to any officer of Borrower (the Notice Date); provided, however that if such breach is not capable of being cured within such 10-day period and Borrower timely notifies Lender of such fact and Borrower diligently pursues such cure, then the cure period shall be extended to the date requested in Borrowers notice but in no event more than 30 days from the Notice Date; provided, further, that such 30-day opportunity to cure shall not apply in the case of any failure to perform or observe any covenant which has been the subject of a prior failure within the preceding 180 days or which is a willful and knowing breach by Borrower.
7.2 Remedies upon Default. Upon the occurrence and during the continuance of an Event of Default, Lender shall be entitled to, at its option, exercise any or all of the rights and remedies available
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to a secured party under the UCC or any other applicable law, and exercise any or all of its rights and remedies provided for in this Agreement and in any other Loan Document. The obligations of Borrower under this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Obligations is rescinded or must otherwise be returned by Lender upon, on account of, or in connection with, the insolvency, bankruptcy or reorganization of Borrower or otherwise, all as though such payment had not been made.
7.3 Sale of Collateral. Upon the occurrence and during the continuance of an Event of Default, Lender may sell all or any part of the Collateral, at public or private sales, to itself, a wholesaler, retailer or investor, for cash, upon credit or for future delivery, and at such price or prices as Lender may deem commercially reasonable. To the extent permitted by law, Borrower hereby specifically waives all rights of redemption and any rights of stay or appraisal which it has or may have under any applicable law in effect from time to time. Subject to applicable law, any such public or private sales shall be held at such times and at such place(s) as Lender may determine. In case of the sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by Lender until the selling price is paid by the purchaser, but Lender shall not incur any liability in case of the failure of such purchaser to pay for the Collateral and, in case of any such failure, such Collateral may be resold. Subject to applicable law, Lender may, instead of exercising its power of sale, proceed to enforce its security interest in the Collateral by seeking a judgment or decree of a court of competent jurisdiction. Without limiting the generality of the foregoing, if an Event of Default is in existence,
(1) Subject to the rights of any third parties, Lender may license, or sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Copyrights, Patents or Trademarks included in the Collateral throughout the world for such term or terms, on such conditions and in such manner as Lender shall in its sole discretion determine;
(2) Lender may (without assuming any obligations or liability thereunder), at any time and from time to time, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of Borrower in, to and under any Copyright Licenses, Patent Licenses or Trademark Licenses and take or refrain from taking any action under any thereof, and Borrower hereby releases Lender from, and agrees to hold Lender free and harmless from and against any claims arising out of, any lawful action so taken or omitted to be taken with respect thereto other than claims arising out of Lenders gross negligence or willful misconduct; and
(3) Upon request by Lender, Borrower will execute and deliver to Lender a power of attorney, in form and substance reasonably satisfactory to Lender for the implementation of any lease, assignment, license, sublicense, grant of option, sale or other disposition of a Copyright, Patent or Trademark. In the event of any such disposition pursuant to this clause 3, Borrower shall supply its know-how and expertise relating to the products or services made or rendered in connection with Patents, the manufacture and sale of the products bearing Trademarks, and its customer lists and other records relating to such Copyrights, Patents or Trademarks and to the distribution of said products, to Lender.
(4) If, at any time after the occurrence and during the continuance of an Event of Default, when Lender shall determine to exercise its right to sell the whole or any part of the Shares hereunder, such Shares or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act (or any similar statute), then Lender may, in its discretion (subject only to applicable requirements of law), sell such Shares or part thereof by private sale in such manner and under such circumstances as Lender may deem necessary or advisable, but subject to the other requirements of this Article 7, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event, Lender in its discretion may (i) in accordance with applicable securities laws proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Shares or part thereof could be or shall have been filed under the Securities Act (or similar statute), (ii) approach and negotiate with a single possible purchaser to effect such sale, and (iii) restrict such sale to a purchaser who is an accredited investor under the Securities Act and who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Shares or any part thereof. In addition to a private sale as provided above in this Article 7, if any of the Shares shall not be freely distributable to the public without registration under the Securities Act (or similar statute) at the time of any proposed sale pursuant to this Article 7, then Lender shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions:
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(A) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale;
(B) as to the content of legends to be placed upon any certificates representing the Shares sold in such sale, including restrictions on future transfer thereof;
(C) as to the representations required to be made by each Person bidding or purchasing at such sale relating to such Persons access to financial information about Borrower or any of its Subsidiaries and such Persons intentions as to the holding of the Shares so sold for investment for its own account and not with a view to the distribution thereof; and
(D) as to such other matters as Lender may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors rights and the Securities Act and all applicable state securities laws.
(5) Borrower recognizes that Lender may be unable to effect a public sale of any or all the Shares and may be compelled to resort to one or more private sales thereof in accordance with clause (4) above. Borrower also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. Lender shall be under no obligation to delay a sale of any of the Shares for the period of time necessary to permit the applicable Subsidiary to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if Borrower and/or the Subsidiary would agree to do so.
7.4 Borrowers Obligations upon Default. Upon the request of Lender after the occurrence and during the continuance of an Event of Default, Borrower will:
(a) Assemble and make available to Lender the Collateral at such place(s) as Lender shall reasonably designate, segregating all Collateral so that each item is capable of identification; and
(b) Subject to the rights of any lessor, permit Lender, by Lenders officers, employees, agents and representatives, to enter any premises where any Collateral is located, to take possession of the Collateral, to complete the processing, manufacture or repair of any Collateral, and to remove the Collateral, or to conduct any public or private sale of the Collateral, all without any liability of Lender for rent or other compensation for the use of Borrowers premises.
ARTICLE 8 - SPECIAL COLLATERAL PROVISIONS
8.1 Compromise and Collection. Borrower and Lender recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Rights to Payment; that certain of the Rights to Payment may be or become uncollectible in whole or in part; and that the expense and probability of success of litigating a disputed Right to Payment may exceed the amount that reasonably may be expected to be recovered with respect to such Right to Payment. Borrower hereby authorizes Lender, after and during the continuance of an Event of Default, to compromise with the obligor, accept in full payment of any Right to Payment such amount as Lender shall negotiate with the obligor, or abandon any Right to Payment. Any such action by Lender shall be considered commercially reasonable so long as Lender acts in good faith based on information known to it at the time it takes any such action.
8.2 Performance of Borrowers Obligations. Without having any obligation to do so, upon reasonable prior notice to Borrower (unless an Event of Default has occurred and is continuting), Lender may perform or pay any obligation which Borrower has agreed to perform or pay under this Agreement, including, without limitation, the payment or discharge of taxes or Liens levied or placed on or threatened against the Collateral. In so performing or paying, Lender shall determine the action to be taken and the amount necessary to discharge such obligations. Borrower shall reimburse Lender on demand for any amounts paid by Lender pursuant to this Section, which amounts shall constitute Obligations secured by the Collateral and shall bear interest from the date of demand at the Default Rate.
8.3 Power of Attorney. For the purpose of protecting and preserving the Collateral and Lenders rights under this Agreement, Borrower hereby irrevocably appoints Lender, with full power of
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substitution, as its attorney-in-fact with full power and authority, after the occurrence and during the continuance of an Event of Default, to do any act which Borrower is obligated to do hereunder; to exercise such rights with respect to the Collateral as Borrower might exercise; to use such Inventory, Equipment, Fixtures or other property as Borrower might use; to enter Borrowers premises; to give notice of Lenders security interest in, and to collect the Collateral; and before or after Default, to execute and file in Borrowers name any financing statements, amendments and continuation statements, account control agreements or other Security Documents necessary or desirable to create, maintain, perfect or continue the perfection of Lenders security interests in the Collateral. Borrower hereby ratifies all that Lender shall lawfully do or cause to be done by virtue of this appointment.
8.4 Authorization for Lender to Take Certain Action. The power of attorney created in Section 8.3 is a power coupled with an interest and shall be irrevocable. The powers conferred on Lender hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon Lender to exercise such powers. Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and in no event shall Lender or any of its directors, officers, employees, agents or representatives be responsible to Borrower for any act or failure to act, except for gross negligence or willful misconduct. After the occurrence and during the continuance of an Event of Default, Lender may exercise this power of attorney without notice to or assent of Borrower, in the name of Borrower, or in Lenders own name, from time to time in Lenders sole discretion and at Borrowers expense. To further carry out the terms of this Agreement, after the occurrence and during the continuance of an Event of Default, Lender may:
(a) Execute any statements or documents or take possession of, and endorse and collect and receive delivery or payment of, any checks, drafts, notes, acceptances or other instruments and documents constituting Collateral, or constituting the payment of amounts due and to become due or any performance to be rendered with respect to the Collateral.
(b) Sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts; drafts, certificates and statements under any commercial or standby letter of credit relating to Collateral; assignments, verifications and notices in connection with Accounts; or any other documents relating to the Collateral, including without limitation the Records.
(c) Use or operate Collateral or any other property of Borrower for the purpose of preserving or liquidating Collateral.
(d) File any claim or take any other action or proceeding in any court of law or equity or as otherwise deemed appropriate by Lender for the purpose of collecting any and all monies due or securing any performance to be rendered with respect to the Collateral.
(e) Commence, prosecute or defend any suits, actions or proceedings or as otherwise deemed appropriate by Lender for the purpose of protecting or collecting the Collateral. In furtherance of this right, upon the occurrence and during the continuance of an Event of Default, Lender may apply for the appointment of a receiver or similar official to operate Borrowers business.
(f) Prepare, adjust, execute, deliver and receive payment under insurance claims, and collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and apply such amounts at Lenders sole discretion, toward repayment of the Obligations or replacement of the Collateral.
8.5 Application of Proceeds. Any Proceeds and other monies or property received by Lender pursuant to the terms of this Agreement or any Loan Document may be applied by Lender first to the payment of expenses of collection, including without limitation reasonable attorneys fees, and then to the payment of the Obligations in such order of application as Lender may elect. Any surplus shall be paid to Borrower or such other parties as are legally entitled thereto.
8.6 Deficiency. If the Proceeds of any disposition of the Collateral are insufficient to cover all costs and expenses of such sale and the payment in full of all the Obligations, plus all other sums required to be expended or distributed by Lender, then Borrower shall be liable for any such deficiency.
8.7 Lender Transfer. Upon the transfer of all or any part of the Obligations, Lender may transfer all or part of the Collateral and shall be fully discharged thereafter from all liability and responsibility with respect to such Collateral so transferred, and the transferee shall be vested with all the rights and powers of Lender hereunder with respect to such Collateral so transferred, but with respect to any Collateral not so transferred, Lender shall retain all rights and powers hereby given.
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8.8 Lenders Duties.
(a) Lender shall use reasonable care in the custody and preservation of any Collateral in its possession. Without limitation on other conduct which may be considered the exercise of reasonable care, Lender shall be deemed to have exercised reasonable care in the custody and preservation of such Collateral if such Collateral is accorded treatment substantially equal to that which Lender accords its own property, it being understood that Lender shall not have any responsibility for ascertaining or taking action with respect to calls, conversions, exchanges, maturities, declining value, tenders or other matters relative to any Collateral, regardless of whether Lender has or is deemed to have knowledge of such matters; or taking any necessary steps to preserve any rights against any Person with respect to any Collateral. Under no circumstances shall Lender be responsible for any injury or loss to the Collateral, or any part thereof, arising from any cause beyond the reasonable control of Lender.
(b) Lender may at any time deliver the Collateral or any part thereof to Borrower and the acknowledgement of the receipt of Borrower of such Collateral in good condition (as applicable) shall be a complete and full acquittance for the Collateral so delivered, and Lender shall thereafter be discharged from any liability or responsibility therefor.
(c) Neither Lender, nor any of its directors, officers, employees, agents, attorneys or any other person affiliated with or representing Lender shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of Lender, or any of its directors, officers, employees, agents, attorneys or any other person affiliated with or representing Lender.
8.9 Termination of Security Interests and Loan Documents. Upon the payment in full of the Obligations (other than inchoate indemnity obligations) and satisfaction of all Borrowers obligations under this Agreement and the other Loan Documents, and if Lender has no further obligations under its Commitment, the security interest granted hereby shall automatically terminate and, all rights to the Collateral shall automatically revert to Borrower and this Agreement and the other Loan Documents shall terminate; provided that (i) those obligations, liabilities, covenants and terms that are expressly
specified herein and in any other Loan Document as surviving that respective agreements termination, including without limitation, Borrowers indemnity obligations set forth in this Agreement, shall continue to survive notwithstanding anything to the contrary set forth herein, and (ii) nothing set forth herein shall affect or be deemed to affect those obligations, liabilities, covenants and terms set forth in any warrant instrument issued to Lenders parent company or set forth in any other equity securities or convertible debt securities of Borrower acquired by Lender in connection with this Agreement. Upon any such termination, Lender shall return all Collateral in its possession or control to Borrower and, at Borrowers expense, execute and deliver to Borrower such documents as Borrower shall reasonably request to evidence such termination. In connection therewith, Borrower agrees to provide Lender with such information as may be reasonably requested by Lender as to whether the securities issuable upon the exercise of any Warrant issued in connection with this Agreement constitute qualified small business stock for purposes of Section 1202(c) of the Internal Revenue Code and Section 18152.5 of the California Revenue and Taxation Code.
ARTICLE 9GENERAL PROVISIONS
9.1 Notices. Any notice given by any party under any Loan Document shall be in writing and personally delivered, sent by overnight courier, or United States mail, postage prepaid, or sent by facsimile, or other authenticated message, charges prepaid, to the other partys or parties addresses shown on the Supplement. Each party may change the address or facsimile number to which notices, requests and other communications are to be sent by giving written notice of such change to each other party. Notice given by hand delivery shall be deemed received on the date delivered; if sent by overnight courier, on the next Business Day after delivery to the courier service; if by first class mail, on the third Business Day after deposit in the U.S. Mail; and if by facsimile, on the date of transmission.
9.2 Binding Effect. The Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns; provided, however, that Borrower may not assign or transfer Borrowers rights or obligations under any Loan Document. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lenders rights and obligations under the Loan Documents provided that, so long as no Event of Default has occurred and is continuing, Lender shall not assign any of such rights
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or obligations to any competitor of Borrower. In connection with any of the foregoing, Lender may disclose all documents and information which Lender now or hereafter may have relating to the Loans, Borrower, or its business, provided that any Person who receives such information shall have agreed in writing in advance to maintain the confidentiality of such information on terms no less favorable to Borrower than are set forth in Section 9.13 hereof.
9.3 No Waiver. Any waiver, consent or approval by Lender of any Event of Default or breach of any provision, condition, or covenant of any Loan Document must be in writing and shall be effective only to the extent set forth in writing. No waiver of any breach or default shall be deemed a waiver of any later breach or default of the same or any other provision of any Loan Document. No failure or delay on the part of Lender in exercising any power, right, or privilege under any Loan Document shall operate as a waiver thereof, and no single or partial exercise of any such power, right, or privilege shall preclude any further exercise thereof or the exercise of any other power, right or privilege. Lender has the right at its sole option to continue to accept interest and/or principal payments due under the Loan Documents after default, and such acceptance shall not constitute a waiver of said default or an extension of the maturity of any Loan unless Lender agrees otherwise in writing.
9.4 Rights Cumulative. All rights and remedies existing under the Loan Documents are cumulative to, and not exclusive of, any other rights or remedies available under contract or applicable law.
9.5 Unenforceable Provisions. Any provision of any Loan Document executed by Borrower which is prohibited or unenforceable in any jurisdiction, shall be so only as to such jurisdiction and only to the extent of such prohibition or unenforceability, but all the remaining provisions of any such Loan Document shall remain valid and enforceable.
9.6 Accounting Terms. Except as otherwise provided in this Agreement, accounting terms and financial covenants and information shall be determined and prepared in accordance with GAAP (except for the absence of footnotes and subject to normal year-end adjustments).
9.7 Indemnification; Exculpation. Borrower shall pay and protect, defend and indemnify Lender and Lenders employees, officers, directors, shareholders, affiliates, correspondents, agents and representatives (other than Lender, collectively Agents) against, and hold Lender and each such
Agent harmless from, all claims, actions, proceedings, liabilities, damages, losses, expenses (including, without limitation, attorneys fees and costs) and other amounts incurred by Lender and each such Agent, arising from (i) the matters contemplated by this Agreement or any other Loan Documents, (ii) any dispute between Borrower and a third party, or (iii) any contention that Borrower has failed to comply with any law, rule, regulation, order or directive applicable to Borrowers business; provided, however, that this indemnification shall not apply to any of the foregoing to the extent incurred as the result of Lenders or any Agents gross negligence or willful misconduct. This indemnification shall survive the payment and satisfaction of all of Borrowers Obligations to Lender.
9.8 Reimbursement. Borrower shall reimburse Lender for all documented, out-of-pocket costs and expenses, including without limitation reasonable attorneys fees and disbursements expended or incurred by Lender in any arbitration, mediation, judicial reference, legal action or otherwise in connection with (a) the preparation and negotiation of the Loan Documents, (b) the amendment and enforcement of the Loan Documents, including without limitation during any workout, attempted workout, and/or in connection with the rendering of legal advice as to Lenders rights, remedies and obligations under the Loan Documents, (c) collecting any sum which becomes due Lender under any Loan Document, (d) any proceeding for declaratory relief, any counterclaim to any proceeding, or any appeal, or (e) the protection, preservation or enforcement of any rights of Lender. For the purposes of this section, attorneys fees shall include, without limitation, fees incurred in connection with the following: (1) contempt proceedings; (2) discovery; (3) any motion, proceeding or other activity of any kind in connection with an Insolvency Proceeding; (4) garnishment, levy, and debtor and third party examinations; and (5) postjudgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment. All of the foregoing costs and expenses shall be payable upon demand by Lender, and if not paid within forty-five (45) days of presentation of invoices shall bear interest at the Default Rate.
9.9 Execution in Counterparts; Electronic Signatures. This Agreement and the other Loan Documents may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. This Agreement and each of the other Loan Documents may be executed by electronic signatures. Borrower and Lender expressly agree to conduct the transactions contemplated by this
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Agreement and the other Loan Documents by electronic means (including, without limitation, with respect to the execution, delivery, storage and transfer of this Agreement and each of the other Loan Documents by electronic means and to the enforceability of electronic Loan Documents). Delivery of an executed signature page to this Agreement and each of the other Loan Documents by facsimile or other electronic mail transmission (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) shall be effective as delivery of a manually executed counterpart hereof and thereof, as applicable. The words execution, signed, signature and words of like import herein shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.
9.10 Entire Agreement. The Loan Documents are intended by the parties as the final expression of their agreement and therefore contain the entire agreement between the parties and supersede all prior understandings or agreements concerning the subject matter hereof. This Agreement may be amended only in a writing signed by Borrower and Lender.
9.11 Governing Law and Jurisdiction.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
9.12 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
9.13 Confidentiality. Lender agrees to exercise the same degree of care that it exercises for its own confidential information (but not less than a reasonable degree of care), to hold in confidence all confidential information that it receives from Borrower pursuant to the Loan Documents and not to disclose such information to any third parties, except for disclosure as shall be reasonably required: (a) to legal counsel and accountants for Lender; (b) to other professional advisors to Lender; (c) to regulatory officials having jurisdiction over Lender to the extent required by law; (d) to Lenders investors and prospective investors
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(subject to the same confidentiality obligation set forth herein), and in Lenders SEC filings as required by law; (e) as required by law or legal process or in connection with any legal proceeding to which Lender and Borrower are adverse parties; (f) in connection with a disposition or proposed disposition of any or all of Lenders rights hereunder to any assignee or participant (subject to the same confidentiality obligation set forth herein); (g) to Lenders subsidiaries or Affiliates in connection with their business with Borrower (subject to the same confidentiality obligation set forth herein); (h) as required by valid order of a court of competent jurisdiction, administrative agency or governmental body, or by any applicable law, rule, regulation, subpoena, or any other administrative or legal process, or by applicable regulatory or professional standards, including in connection with any judicial or other proceeding involving Lender relating to this Agreement and the transactions contemplated hereby; and (i) as required in connection with Lenders examination or audit. Lender further agrees not to use any such confidential information for any purposes except for the business purposes contemplated under this Agreement. For purposes of this section, Lender and Borrower agree that confidential information shall mean any information regarding or relating to Borrower other than: (i) information which is or becomes generally available to the public other than as result of a disclosure by Lender in violation of this section, (ii) information which becomes available to Lender from any other source (other than Borrower) which Lender does not know is bound by a confidentiality agreement with respect to the information made available, and (iii) information that Lender knows on a non-confidential basis prior to Borrower disclosing it to Lender. In addition, Borrower agrees that Lender may use Borrowers name, logo and/or trademark in connection with certain promotional materials that Lender may disseminate to the public, including, but are not limited to, brochures, internet website, press releases and any other materials relating to the fact that Lender has a financing relationship with Borrower.
ARTICLE 10 - DEFINITIONS
The definitions appearing in this Agreement or any Supplement shall be applicable to both the singular and plural forms of the defined terms:
Account means any account, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to Borrower (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by Borrower or from any other transaction, whether or not the same involves the sale of goods or services by Borrower (including, without limitation, any such obligation that may be characterized as an account or contract right under the UCC) and all of Borrowers rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of Borrowers rights to any goods represented by any of the foregoing (including, without limitation, unpaid sellers rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by Borrower or in connection with any other transaction (whether or not yet earned by performance on the part of Borrower), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing.
Affiliate means any Person which directly or indirectly controls, is controlled by, or is under common control with Borrower. Control, controlled by and under common control with mean direct or indirect possession of the power to direct or cause the direction of management or policies (whether through ownership of voting securities, by contract or otherwise); provided, that control shall be conclusively presumed when any Person or affiliated group directly or indirectly owns five percent (5%) or more of the securities having ordinary voting power for the election of directors of a corporation.
Agreement means this Loan and Security Agreement and each Supplement thereto, as each may be amended or supplemented from time to time.
Bank Services means cash management services, treasury, depository, overdraft, electronic funds transfer, automatic clearing house arrangements, cash pooling arrangements, netting services, merchant services, interest rate swap arrangements, foreign exchange services and other similar arrangements or financial accommodations, in each case in the ordinary course of business.
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Bankruptcy Code means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as amended.
Basic Interest means the rate of interest payable on the outstanding balance of each Loan at the applicable Designated Rate.
Borrowing Date means the Business Day on which the proceeds of a Loan are disbursed by Lender.
Borrowing Request means a written request from Borrower in substantially the form of Exhibit B to the Supplement, requesting the funding of one or more Loans on a particular Borrowing Date.
Business Day means any day other than a Saturday, Sunday or other day on which commercial banks in New York City or San Francisco are authorized or required by law to close.
Cash Equivalents has the meaning specified in the Supplement.
Change of Control means: (a) any sale, license, or other disposition of all or substantially all of the assets of Borrower; (b) any reorganization, consolidation, merger or other transaction involving Borrower; or (c) any transaction or series of related transactions in which any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, the power to control the management of Borrower, or to control the equity interests of Borrower entitled to vote for members of the Board of Directors or equivalent governing body of Borrower on a fully-diluted basis (and taking into account all such securities that such Person or Persons have the right to acquire pursuant to any option right) representing 50% or more of the combined voting power of such securities (other than in connection with a Qualified Public Offering or a sale to recognized venture capital investors in a transaction or series of transactions effected by Borrower for financing purposes, so long as Borrower identifies to Lender the venture capital investors prior to the closing of the transaction and provides Lender with a description of the material terms of such transaction).
Chattel Paper means any chattel paper, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Closing Date means the date of this Agreement.
Collateral means (I) prior to a Qualified Public Offering, the assets described on Annex I attached hereto; and (II) from and after a Qualified Public Offering, the assets described on Annex II attached hereto.
Commitment means the obligation of Lender to make Loans to Borrower up to the aggregate principal amount set forth in the Supplement.
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 of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or of any other country; (ii) all registrations, applications and recordings in the United States Copyright Office or in any similar office or agency of the United States, any State thereof or any other country; (iii) all continuations, renewals or extensions thereof; and (iv) any registrations to be issued under any pending applications.
Default means an event which with the giving of notice, passage of time, or both would constitute an Event of Default.
Default Rate means the applicable Designated Rate plus five percent (5%) per annum.
Deposit Accounts means any deposit accounts, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Designated Rate means the rate of interest per annum described in the Supplement as being applicable to an outstanding Loan from time to time.
Documents means any documents, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Dollars or $ means lawful currency of the United States.
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Environmental Laws means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, or safety matters.
Equipment means any equipment, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto.
Event of Default means any event described in Section 7.1.
Excluded Account means any cash collateral account, trust account or other fiduciary account identified as such by Borrower in writing to Lender.
Fixtures means any fixtures, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
GAAP means generally accepted accounting principles and practices consistent with those principles and practices promulgated or adopted by the Financial Accounting Standards Board and the Board of the American Institute of Certified Public Accountants, their respective predecessors and successors. Each accounting term used but not otherwise expressly defined herein shall have the meaning given it by GAAP.
General Intangibles means any general intangibles, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest that Borrower may now or hereafter have in or under any contract, all customer lists, Copyrights, Trademarks, Patents, websites, domain names, and all applications therefor and reissues, extensions, or renewals thereof, other items of, and rights to, Intellectual Property, interests in partnerships, joint ventures and other business associations, Licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, recipes, experience, processes, models, drawings, materials and records, goodwill (including, without limitation, the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any
Trademark License), claims in or under insurance policies, including unearned premiums, uncertificated securities, money, cash or cash equivalents, deposit, checking and other bank accounts, rights to sue for past, present and future infringement of Copyrights, Trademarks and Patents, rights to receive tax refunds and other payments and rights of indemnification.
Goods means any goods, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Impel Australia means Impel Neuropharma Australia Pty Ltd, an entity organized under the laws of Australia and a wholly-owned Subsidiary of Borrower.
Indebtedness of any Person means at any date, without duplication and without regard to whether matured or unmatured, absolute or contingent: (i) all obligations of such Person for borrowed money; (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business; (iv) all obligations of such Person as lessee under capital leases; (v) all obligations of such Person to reimburse or prepay any bank or other Person in respect of amounts paid under a letter of credit, bankers acceptance, or similar instrument, whether drawn or undrawn; (vi) all obligations of such Person to purchase securities which arise out of or in connection with the sale of the same or substantially similar securities; (vii) all obligations of such Person to purchase, redeem, exchange, convert or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, except to the extent that such obligations remain performable solely at the option of such Person; (viii) all obligations to repurchase assets previously sold (including any obligation to repurchase any accounts or chattel paper under any factoring, receivables purchase, or similar arrangement); (ix) obligations of such Person under interest rate swap, cap, collar or similar hedging arrangements; and (x) all obligations of others of any type described in clause (i) through clause (ix) above guaranteed by such Person.
Insolvency Proceeding means with respect to a Person (a) any case, action or proceeding before any court or other governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors with respect to such Person, or (b) any general assignment for the benefit of creditors, composition,
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marshalling of assets for creditors, or other, similar arrangement in respect of such Persons creditors generally or any substantial portion of its creditors, undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code, but in each case, excluding any avoidance or similar action against such Person commenced by an assignee for the benefit of creditors, bankruptcy trustee, debtor in possession, or other representative of another Person or such other Persons estate.
Instruments means any instrument, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Intellectual Property means all of Borrowers Copyrights, Trademarks, Patents, Licenses, trade secrets, source codes, customer lists, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, skill, expertise, experience, processes, models, drawings, materials, records and goodwill associated with the foregoing.
Intellectual Property Security Agreement means any Intellectual Property Security Agreement executed and delivered by Borrower in favor of Lender, as the same may be amended, supplemented, or restated from time to time.
Inventory means any inventory, as such term is defined in the UCC, wherever located, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property that are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or that constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrowers business, or the processing, packaging, promotion, delivery or shipping of the same, and all finished goods, whether or not the same is in transit or in the constructive, actual or exclusive possession of Borrower or is held by others for Borrowers account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all such property that may be in the possession or custody of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other Persons.
Investment Property means any investment property, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Letter of Credit Rights means any letter of credit rights, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest, including any right to payment under any letter of credit.
License means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any renewals or extensions thereof.
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, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction.
Loan means an extension of credit by Lender under this Agreement.
Loan Documents means, individually and collectively, this Loan and Security Agreement, each Supplement, each Note, the Intellectual Property Security Agreement, and any other security or pledge agreement(s), any Warrant issued by Borrower in connection with this Agreement, and all other contracts, instruments, addenda and documents executed in connection with this Agreement or the extensions of credit which are the subject of this Agreement.
Material Adverse Effect or Material Adverse Change means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, or financial condition of Borrower; (b) a material impairment of the ability of Borrower to perform under any Loan Document; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against Borrower of any Loan Document.
Note means a promissory note substantially in the form attached to the Supplement as Exhibit A, executed by Borrower evidencing each Loan.
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Obligations means all debts, obligations and liabilities of Borrower to Lender now or hereafter made, incurred or created under, pursuant to or in connection with this Agreement or any other Loan Document (other than the Warrant), whether voluntary or involuntary and however arising or evidenced, whether direct or acquired by Lender by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrower may be liable individually or jointly, or whether recovery upon such debt may be or become barred by any statute of limitations or otherwise unenforceable; and all renewals, extensions and modifications thereof; and all attorneys fees and costs incurred by Lender in connection with the collection and enforcement thereof as provided for in any such Loan Document (other than the Warrant).
Patent License means any written agreement granting any right with respect to any invention on which a Patent is in existence now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Patents means all of the following property now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) all letters patent of, or rights corresponding thereto in, the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto in, the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, continuations, continuations-in-part or extensions thereof; (c) all petty patents, divisionals, and patents of addition; and (d) all patents to be issued under any such applications.
Permitted Lien means:
(a) involuntary Liens which, in the aggregate, would not have a Material Adverse Effect and which in any event would not exceed, in the aggregate, the Threshold Amount;
(b) Liens for current taxes or other governmental or regulatory assessments which are not delinquent, or which are contested in good faith by the appropriate procedures and for which appropriate reserves are maintained;
(c) security interests on any property held or acquired by Borrower in the ordinary course of business securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; provided, that such Lien attaches solely to the property acquired with such Indebtedness (and the Proceeds thereof) and that the principal amount of such Indebtedness does not exceed one hundred percent (100%) of the cost of such property;
(d) Liens in favor of Lender;
(e) bankers liens, rights of setoff and similar Liens incurred on deposits made in the ordinary course of business as long as an account control agreement (or equivalent) for each account in which such deposits are held in a form acceptable to Lender has been executed and delivered to Lender to the extent required under Section 6.11;
(f) materialmens, mechanics, repairmens, warehousemens, carriers, landlords (subject to Section 5.9(e) hereof), employees or other like Liens arising in the ordinary course of business and which are not delinquent for more than 45 days or are being contested in good faith by appropriate proceedings;
(g) any judgment, attachment or similar Lien, unless the judgment arising in circumstances not constituting an Event of Default under Section 7.1(h);
(h) licenses or sublicenses of Intellectual Property in accordance with the terms of Section 6.5 hereof;
(i) Liens securing Subordinated Debt;
(j) Liens which have been approved by Lender in writing prior to the Closing Date, as shown on Schedule 6.2 hereto;
(k) the interests of licensors under inbound licenses to Borrower;
(l) the interests of sub-lessees under subleases of real property and statutory or common law Liens of landlords;
(m) Liens to secure payment of workers compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);
(n) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than capital lease obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature arising as a matter of law and incurred in the ordinary course of business; and
25
(o) zoning restrictions, easements, rights of way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries.
Permitted Transfers is defined in Section 6.5.
Person means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof).
Proceeds means proceeds, as such term is defined in the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to Borrower from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) any claim of Borrower against third parties (i) for past, present or future infringement of any Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.
Qualified Public Offering means the closing of a direct listing of Borrowers common stock, an underwritten public offering of Borrowers common stock or SPAC Transaction, in each case, with aggregate gross proceeds of not less than $75,000,000 (prior to underwriting expenses and commissions).
Receivables means all of Borrowers Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, and letters of credit and Letter of Credit Rights.
Records means all Borrowers computer programs, software, hardware, source codes and data processing information, all written documents, books, invoices, ledger sheets, financial information and statements, and all other writings concerning Borrowers business.
Related Person means any Affiliate of Borrower, or any officer, employee, director or equity security holder of Borrower or any Affiliate.
Rights to Payment means all Borrowers accounts, instruments, contract rights, documents, chattel paper and all other rights to payment, including, without limitation, the Accounts, all negotiable certificates of deposit and all rights to payment under any Patent License, any Trademark License, or any commercial or standby letter of credit.
Securities Act means the Securities Act of 1933, as amended.
Security Documents means this Loan and Security Agreement, the Supplement hereto, the Intellectual Property Security Agreement, and any and all account control agreements, collateral assignments, chattel mortgages, financing statements, amendments to any of the foregoing and other documents from time to time executed or filed to create, perfect or maintain the perfection of Lenders Liens on the Collateral.
Shares means: (a) one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by Borrower in any Subsidiary that is not a controlled foreign corporation (as defined in the Internal Revenue Code), and (b) 65% of the issued and outstanding capital stock, membership units or other securities entitled to vote owned or held of record by Borrower in any Subsidiary that is a controlled foreign corporation (as defined in the Internal Revenue Code).
Subordinated Debt means Indebtedness (i) approved by Lender; and (ii) where the holders right to payment of such Indebtedness, the priority of any Lien securing the same, and the rights of the holder thereof to enforce remedies against Borrower following default have been made subordinate to the Liens of Lender and to the prior payment to Lender of the Obligations, either (A) pursuant to a written subordination agreement approved by Lender in its sole but reasonable discretion or (B) on terms otherwise approved by Lender in its sole but reasonable discretion.
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Subsidiary means any Person a majority of the equity ownership or voting stock of which is directly or indirectly now owned or hereafter acquired by Borrower or by one or more other Subsidiaries.
Supplement means that certain supplement to the Loan and Security Agreement, as the same may be amended or restated from time to time, and any other supplements entered into between Borrower and Lender, as the same may be amended or restated from time to time.
Supporting Obligations means any supporting obligations, as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Termination Date has the meaning specified in the Supplement.
Threshold Amount has the meaning specified in the Supplement.
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 of the following property now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) all trademarks, tradenames, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) reissues, extensions or renewals thereof.
UCC means the Uniform Commercial Code as the same may, from time to time, be 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, Lenders Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of California, the term UCC shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions. Unless otherwise defined herein, terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC.
Warrant has the meaning specified in the Supplement.
[Signature page follows]
27
[Signature page to Loan and Security Agreement]
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
BORROWER: | ||
IMPEL NEUROPHARMA, INC. | ||
By: |
/s/ John Leaman, M.D. |
|
Name: | John Leaman, M.D | |
Title: | Chief Financial Officer | |
LENDER: | ||
AVENUE VENTURE OPPORTUNITIES FUND, L.P. | ||
By: Avenue Venture Opportunities Partners, LLC | ||
Its: General Partner | ||
By: |
/s/ Sonia Gardner |
|
Name: | Sonia Gardner | |
Title: | Authorized Signatory |
[Schedules to Loan and Security Agreement follow]
Annex I to
Loan and Security Agreement
dated as of November __, 2020
between
Impel Neuropharma, Inc.
and
Avenue Venture Opportunities Fund, L.P.
Description of Collateral
The Collateral consists of all of Borrowers right, title and interest in and to the following property, whether now owned or hereafter acquired and wherever located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all General Intangibles (including all Intellectual Property); (e) all Inventory; (f) all Investment Property; (g) all Deposit Accounts; (h) all Shares; (i) all other Goods and personal property of Borrower, whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located; (j) all Records; and (k) all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.
Notwithstanding the foregoing the term Collateral shall not include: (i) more than sixty-five percent (65%) of the issued and outstanding capital stock, membership units or other securities entitled to vote owned or held of record by Borrower in any Subsidiary that is a controlled foreign corporation (as defined in the Internal Revenue Code), provided that the Collateral shall include one hundred percent (100%) of the issued and outstanding non-voting capital stock of such Subsidiary; (ii) intent-to-use trademarks at all times prior to the first use thereof, whether by the actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise, but only to the extent the granting of a security interest in such intent to use trademarks would be contrary to applicable law; or (iii) any contract, Instrument or Chattel Paper in which Borrower has any right, title or interest if and to the extent such contract, Instrument or Chattel Paper includes a provision containing a restriction on assignment such that the creation of a security interest in the right, title or interest of Borrower therein would be prohibited and would, in and of itself, cause or result in a default thereunder enabling another person party to such contract, Instrument or Chattel Paper to enforce any remedy with respect thereto; provided, however, that the foregoing exclusion shall not apply if (A) such prohibition has been waived or such other person has otherwise consented to the creation hereunder of a security interest in such contract, Instrument or Chattel Paper, or (B) such prohibition would be rendered ineffective pursuant to Sections 9-407(a) or 9-408(a) of the UCC, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the Bankruptcy Code or principles of equity); provided, further, that immediately upon the ineffectiveness, lapse or termination of any such provision, the term Collateral shall include, and Borrower shall be deemed to have granted a security interest in, all its rights, title and interests in and to such contract, Instrument or Chattel Paper as if such provision had never been in effect; and provided further that the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect Lenders unconditional continuing security interest in and to all rights, title and interests of Borrower in or to any payment obligations or other rights to receive monies due or to become due under any such contract, Instrument or Chattel Paper and in any such monies and other proceeds of such contract, Instrument or Chattel Paper.
Annex II to
Loan and Security Agreement
dated as of November 5, 2020
between
Impel Neuropharma, Inc.
and
Avenue Venture Opportunities Fund, L.P.
Description of Collateral
The Collateral consists of all of Borrowers right, title and interest in and to the following property, whether now owned or hereafter acquired and wherever located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all General Intangibles (except as noted below); (e) all Inventory; (f) all Investment Property; (g) all Deposit Accounts; (h) all Shares; (i) all other Goods and personal property of Borrower, whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located; (j) all Records; and (k) all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.
Notwithstanding the foregoing the term Collateral shall not include: (i) more than sixty-five percent (65%) of the issued and outstanding capital stock, membership units or other securities entitled to vote owned or held of record by Borrower in any Subsidiary that is a controlled foreign corporation (as defined in the Internal Revenue Code), provided that the Collateral shall include one hundred percent (100%) of the issued and outstanding non-voting capital stock of such Subsidiary; (ii) any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property; if a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Closing Date, include the Intellectual Property to the extent necessary to permit perfection of Lenders security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property; (iii) intent-to-use trademarks at all times prior to the first use thereof, whether by the actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise, but only to the extent the granting of a security interest in such intent to use trademarks would be contrary to applicable law; or (iv) any contract, Instrument or Chattel Paper in which Borrower has any right, title or interest if and to the extent such contract, Instrument or Chattel Paper includes a provision containing a restriction on assignment such that the creation of a security interest in the right, title or interest of Borrower therein would be prohibited and would, in and of itself, cause or result in a default thereunder enabling another person party to such contract, Instrument or Chattel Paper to enforce any remedy with respect thereto; provided, however, that the foregoing exclusion shall not apply if (A) such prohibition has been waived or such other person has otherwise consented to the creation hereunder of a security interest in such contract, Instrument or Chattel Paper, or (B) such prohibition would be rendered ineffective pursuant to Sections 9-407(a) or 9-408(a) of the UCC, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the Bankruptcy Code or principles of equity); provided, further, that immediately upon the ineffectiveness, lapse or termination of any such provision, the term Collateral shall include, and Borrower shall be deemed to have granted a security interest in, all its rights, title and interests in and to such contract, Instrument or Chattel Paper as if such provision had never been in effect; and provided further that the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect Lenders unconditional continuing security interest in and to all rights, title and interests of Borrower in or to any payment obligations or other rights to receive monies due or to become due under any such contract, Instrument or Chattel Paper and in any such monies and other proceeds of such contract, Instrument or Chattel Paper.
Schedules to
Loan and Security Agreement
dated as of November 5, 2020
between
IMPEL NEUROPHARMA, INC.
and
Avenue Venture Opportunities Fund, L.P.
[Intentionally omitted]
SUPPLEMENT
to the
Loan and Security Agreement
dated as of November 5, 2020
between
IMPEL NEUROPHARMA, INC. (Borrower)
and
Avenue Venture Opportunities Fund, L.P. (Lender)
This is a Supplement identified in the document entitled Loan and Security Agreement, dated as of November __, 2020 (as amended, restated, supplemented and modified from time to time, the Loan and Security Agreement), by and between Borrower and Lender. All capitalized terms used in this Supplement and not otherwise defined in this Supplement have the meanings ascribed to them in Article 10 of the Loan and Security Agreement, which is incorporated in its entirety into this Supplement. In the event of any inconsistency between the provisions of the Loan and Security Agreement and this Supplement, this Supplement is controlling.
In addition to the provisions of the Loan and Security Agreement, the parties agree as follows:
Part 1 - Additional Definitions:
Amortization Period means the period commencing on the first day of the first full calendar month following the Interest-only Period and continuing until the Maturity Date.
Cash Equivalents means the following assets or rights of Borrower: (i) marketable direct obligations issued or unconditionally guaranteed by the United States government having maturities of not more than 12 months from the date of acquisition; (ii) domestic certificates of deposit and time deposits having maturities of not more than 12 months from the date of acquisition, and overnight bank deposits, in each case issued by a commercial bank organized under the laws of the United States or any state thereof which at the time of acquisition are rated A-1 or better by Standard & Poors Corporation (or equivalent); (iii) commercial paper maturing not more than 1 year after its date of acquisition; and (iv) money market accounts (subject to control agreements in favor of lender) at least ninety-five percent (95%) of the assets of which constitute cash equivalents of the kinds described in clauses (i) through (iii) of this definition.
Commitment means, subject to the terms and conditions set forth in the Loan and Security Agreement and this Supplement, Lenders commitment to make Growth Capital Loans to Borrower up to the aggregate original principal amount of Twenty Million Dollars ($20,000,000), with Ten Million Dollars ($10,000,000) funded on the Closing Date; and up to Ten Million Dollars ($10,000,000) to be funded between the Tranche 2 Start Date and the Termination Date, subject to the conditions in Section 1(a) of Part 2 (Tranche 2) and mutual agreement of Borrower and Lender.
Designated Rate means, for each Growth Capital Loan, a variable rate of interest per annum equal to the sum of (i) the greater of (A) the Prime Rate and (B) three and one-quarter percent (3.25%), plus (ii) seven and three-quarters percent (7.75%). Changes to the Designated Rate based on changes to the Prime Rate shall be effective as of the next scheduled interest payment date immediately following such change.
FDA means the U.S. Food and Drug Administration or any successor thereto.
Final Payment means a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) equal to four and one-half percent (4.50%) of the Growth Capital Loans funded.
Growth Capital Loan means any Loan requested by Borrower and funded by Lender under its Commitment for general corporate purposes of Borrower.
INP-104 means a combination of drug-device product composed of dihydroergotamine mesylate (DHE) drug product and Borrowers novel I123 Precision Olfactory Delivery (POD) device, which delivers DHE to the nasal cavity.
Interest-only Period means the period commencing on the Closing Date and continuing until the twelfth (12th) month anniversary of the Closing Date; provided, however, that such period shall be extended for twelve (12) months (the First Interest-only Period Extension) if as of the last day of the Interest-only Period then in effect Borrower has achieved the Qualified Public Offering; provided, further, however that such period shall be extended for an additional twelve (12) months if, as of the last day of the Interest-only Period then in effect, Borrower has achieved (a) the First Interest-only Period Extension and (b) FDA approval of INP-104; provided, further, however, that the Interest-only Period shall not exceed thirty-six (36) months. For the avoidance of doubt, the FDA approval of INP-104 may occur before the First Interest-only Period Extension.
IPO as used herein, means a sale of Borrowers securities pursuant to a registration statement filed by Borrower under the Securities Act (or pursuant to the laws of the jurisdiction in which the initial public offering is completed), in connection with the first firm commitment underwritten offering of Borrowers securities to the general public.
Loan or Loans mean, as the context may require, individually a Growth Capital Loan, and collectively, the Growth Capital Loans.
Loan Commencement Date means, with respect to each Growth Capital Loan: (a) the first day of the first full calendar month following the Borrowing Date of such Loan if such Borrowing Date is not the first day of a month; or (b) the same day as the Borrowing Date if the Borrowing Date is the first day of a month.
Maturity Date means November 1, 2023.
Prepayment Fee means, with respect to any prepayment of the Loans:
(i) if the prepayment occurs during the period commencing on the Closing Date and ending on (but including) the one-year anniversary of the Closing Date, an amount equal to the principal amount of the Loans prepaid multiplied by 4.00%;
(ii) if the prepayment occurs during the period commencing on the day immediately following the one-year anniversary of the Closing Date and ending on (but including) the two-year anniversary of the Closing Date, an amount equal to the principal amount of the Loans prepaid multiplied by 3.00%;
(iii) if the prepayment occurs during the period commencing on the day immediately following the two-year anniversary of the Closing Date and ending on (but excluding) the three year anniversary, an amount equal to the principal amount of the Loans prepaid multiplied by 2.00%; and
(iv) if the prepayment occurs during the period commencing on the day immediately following the three-year anniversary of the Closing Date and ending on (but excluding) the Maturity Date, an amount equal to the principal amount of the Loans prepaid multiplied by 1.00%.
Prime Rate is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the prime rate then in effect; provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Supplement; and provided further that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Lender, the Prime Rate shall mean the rate of interest per annum announced by Silicon Valley Bank as its prime rate in effect at its principal office in the State of California (such announced Prime Rate not being intended to be the lowest rate of interest charged by such institution in connection with extensions of credit to debtors); provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Supplement.
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SPAC Transaction means any transaction involving Borrower and any special purpose acquisition company, whether merger, acquisition, public (or other) offering, sale, transfer or other exchange, of equity securities, or otherwise.
Termination Date means the earlier of: (i) the date Lender may terminate making Growth Capital Loans or extending other credit pursuant to the rights of Lender under Article 7 of the Loan and Security Agreement; and (ii) December 31, 2021.
Threshold Amount means Two Hundred Fifty Thousand Dollars ($250,000).
Tranche 2 Start Date means the date Borrower has satisfied the conditions in Part 2, Section 1(a).
Warrant is defined in Part 2, Section 3(a) hereof.
Part 2 - Additional Covenants and Conditions:
1. Growth Capital Loan Facility.
(a) Additional Condition(s) Precedent Regarding Growth Capital Loan Commitments. In addition to the satisfaction of all of the other applicable conditions precedent specified in Sections 4.1 and 4.2 of the Loan and Security Agreement and this Supplement, Lenders obligation to fund Tranche 2 of its Commitment of Growth Capital Loans is subject to (I) receipt by Lender of evidence, as determined by Lender in its reasonable discretion, that (x) Borrower has consummated the Qualified Public Offering; and (y) Borrower has received FDA approval of INP-104; and (II) approval by Lenders investment committee.
Subject to satisfaction of the conditions precedent specified in Sections 4.1 and Section 4.2 of the Loan and Security Agreement and this Supplement, Lender agrees to make Growth Capital Loans to Borrower under Lenders Commitment from time to time from and after the Closing Date up to and including the Termination Date in an aggregate, original principal amount up to, but not exceeding, then then-unfunded portion of Lenders Commitment.
(b) Minimum Funding Amount; Maximum Number of Borrowing Requests. Growth Capital Loans requested by Borrower to be made on a single Business Day shall be for a minimum aggregate, original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000); provided, however, that the initial Growth Capital Loan shall be funded on the Closing Date in a minimum original principal amount of Ten Million Dollars ($10,000,000). Borrower shall not submit a Borrowing Request more frequently than once per calendar month.
(c) Repayment of Growth Capital Loans. Principal of, and interest on, each Growth Capital Loan shall be payable as set forth in a Note evidencing such Growth Capital Loan (substantially in the form attached hereto as Exhibit A), which Note shall provide substantially as follows: principal shall be fully amortized over the Amortization Period in equal, monthly principal installments plus, in each case, unpaid interest thereon at the Designated Rate, commencing after the Interest-only Period of interest-only installments at the Designated Rate. In particular, on the Borrowing Date applicable to such Growth Capital Loan, Borrower shall pay to Lender (i) if the Borrowing Date is earlier than the Loan Commencement Date, interest only at the Designated Rate, in advance, on the outstanding principal balance of the Growth Capital Loan for the period from the Borrowing Date through the last day of the calendar month in which such Borrowing Date occurs, and (ii) the first (1st) interest-only installment at the Designated Rate, in advance, on the outstanding principal balance of the Note evidencing such Loan for the ensuing month. Commencing on the first day of the second (2nd) full month after the Borrowing Date and continuing on the first (1st) day of each month during the Interest-only Period thereafter, Borrower shall pay to Lender interest only at the Designated Rate, in advance, on the outstanding principal balance of the Loan evidenced by such Note for the ensuing month. Commencing on the first (1st) day of the first (1st) full month after the Interest-only Period, and continuing on the first (1st) day of each consecutive calendar month thereafter, Borrower shall pay to Lender principal, plus interest at the Designated Rate, in advance, in equal consecutive monthly installments in an amount sufficient to fully amortize the Loan evidenced by such Note over the Amortization Period. On the Maturity Date, all principal and accrued interest then remaining unpaid and the Final Payment shall be due and payable.
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2. Prepayment. Borrower may prepay all, but not less than all, Growth Capital Loans in whole, but not in part, at any time by tendering to Lender a cash payment in respect of such Loans in an amount determined by Lender equal to the sum of: (i) the aggregate outstanding principal amount of such Loans; (ii) the accrued and unpaid interest on such Loans as of the date of prepayment; (iii) the Prepayment Fee; and (iv) the Final Payment.
3. Issuance of Warrant; Right to Invest.
(a) Warrant. As additional consideration for the making of its Commitment, Lender has earned and is entitled to receive immediately upon the execution of the Loan and Security Agreement and this Supplement, a warrant instrument issued by Borrower (the Warrant).
(b) Warrant General. The Warrant shall be in form and substance reasonably satisfactory to Lender.
(c) Right to Invest. Subject to mutual agreement by Borrower and Lender, Lender shall have the right, in its discretion, but not the obligation, to invest up to Ten Million Dollars ($10,000,000) in equity securities of Borrower on the same terms, conditions, and pricing offered by Borrower to any investor existing at such time, in connection with any private placement concurrent with any IPO (at the initial IPO price) or SPAC Transaction (at the effective price per share in such SPAC Transaction); provided, however, such terms shall exclude the right to designate a seat on the Borrowers Board of Directors or observer thereto, which may be offered to other investors at Borrowers discretion.
4. Commitment Fee. Borrower shall pay to Lender a commitment fee in the amount of one percent (1.00%) of the initial Ten Million Dollar ($10,000,000) Commitment due and payable on the Closing Date, of which Fifty Thousand Dollars ($50,000) has been paid by Borrower to Lender as an advance deposit prior to the date hereof. As an additional condition precedent under Section 4.1 of the Loan and Security Agreement, Lender shall have completed to its satisfaction its due diligence review of Borrowers business and financial condition and prospects, and Lenders Commitment shall have been approved. If this condition is not satisfied, the Fifty Thousand Dollars ($50,000) advance deposit previously paid by Borrower shall be refunded. In the event Lender advances the Tranche 2 Loan, Lender shall net fund an additional Commitment Fee equal to one percent (1.00%) of the Tranche 2 Loan amount on the funding date of such Tranche 2. Except as set forth in this Section 4, the Commitment Fee is not refundable.
5. Documentation Fee Payment. On the Closing Date, Borrower shall reimburse Lender pursuant to Section 9.8(a) of the Loan and Security Agreement for (i) its reasonable and documented out-of-pocket attorneys fees, costs and expenses incurred in connection with the preparation and negotiation of the Loan Documents and (ii) such Lenders costs and filing fees related to perfection of its Liens in the Collateral in any jurisdiction in which the same is located, recording a copy of the Intellectual Property Security Agreement with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, and confirming the priority of such Liens.
6. Borrowers Primary Operating Account and Wire Transfer Instructions:
Institution Name: | ||
Address: | ||
ABA No.: | ||
Contact Name: | ||
Phone No.: | ||
E-mail: | ||
Account Title: | ||
Account No.: |
4
7. Debits to Account for ACH Transfers. For purposes of Sections 2.2 and 5.10 of the Loan and Security Agreement, the Primary Operating Account shall be the bank account set forth in Section 6 above, unless and until such account is changed in accordance with Section 5.10 of the Loan and Security Agreement. Borrower hereby agrees that the Growth Capital Loans will be advanced to the account specified above and regularly scheduled payments of principal, interest and fees will be automatically debited from the same account. Borrower hereby confirms that the bank at which the Primary Operating Account is maintained uses that same ABA Number for incoming wires transfers to the Primary Operating Account and outgoing ACH transfers from the Primary Operating Account.
Part 3 - Additional Representations:
Borrower represents and warrants that as of the Closing Date and, subject to any written updates of the information set forth below by Borrower to Lender, each Borrowing Date:
a) |
Its chief executive office is located at: 201 Elliott Avenue West, Suite 260, Seattle, WA 98119 |
b) |
Its Equipment is located at: 201 Elliott Avenue West, Suite 260, Seattle, WA 98119 and [______________] |
c) |
Its Inventory is located at: 201 Elliott Avenue West, Suite 260, Seattle, WA 98119 and [______________] |
d) |
Its Records are located at: 201 Elliott Avenue West, Suite 260, Seattle, WA 98119 |
e) |
In addition to its chief executive office, Borrower maintains offices or operates its business at the following locations: [___________] |
f) |
Other than its full corporate name, Borrower has conducted business using the following trade names or fictitious business names: [___________] |
g) |
Its Delaware state corporation identification number is: [ ] |
h) |
Its U.S. federal tax identification number is: [___________] |
i) |
Including Borrowers Primary Operating Account identified in Section 6 above, Borrower maintains the following Deposit Accounts and investment accounts: |
Institution Name: | ||
Address: | ||
ABA No.: | ||
Contact Name: | ||
Phone No.: | ||
E-mail: | ||
Account Title: | ||
Account No.: | ||
Account No.: |
5
[Signature page to Supplement to Loan and Security Agreement]
IN WITNESS WHEREOF, the parties have executed this Supplement as of the date first above written.
EXHIBIT A
FORM OF PROMISSORY NOTE
[Intentionally omitted]
EXHIBIT B
FORM OF BORROWING REQUEST
[Intentionally omitted]
EXHIBIT C
FORM OF
COMPLIANCE CERTIFICATE
[Intentionally omitted]
CONSENT AND FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Consent and First Amendment to Loan and Security Agreement (this Amendment) is entered into as of March 5, 2021, by and between AVENUE VENTURE OPPORTUNITIES FUND, L.P., a Delaware limited partnership (Lender) and IMPEL NEUROPHARMA, INC., a Delaware corporation, (Borrower).
RECITALS
Borrower and Lender are parties to that certain Loan and Security Agreement dated as of November 5, 2020 (as amended from time to time, the Agreement). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Notwithstanding any terms of the Agreement to the contrary, and subject to satisfaction of the conditions set forth in Section 6 hereof, Lender hereby consents to the execution, delivery and performance by Borrower of the Investor Transaction Documents and the consummation of the Investor Transaction.
2. The following defined terms in Article 10 of the Agreement hereby are added as follows:
Investor Notes means those certain subordinated unsecured convertible promissory notes issued pursuant to the Investor Transaction Documents.
Investor Transaction means the transaction contemplated by the Investor Transaction Documents, including the issuance to the Investors (as defined in the Investor Transaction Documents) of certain subordinated unsecured convertible promissory notes.
Investor Transaction Documents means that certain Note Purchase Agreement, dated as of March 5, 2021, by and between Borrower and the investors listed on Exhibit A thereto, and such other and further agreements and instruments executed and/or delivered in connection therewith, together with all schedules and exhibits thereto; all in the form attached hereto as Annex O.
3. Section 6.13 of the Agreement hereby is amended and restated as follows:
6.13 Repayment of Subordinated Debt. Repay, prepay, redeem or otherwise satisfy in any manner any Subordinated Debt, except in accordance with the terms of any subordination agreement among Borrower, Lender and the holder(s) of such Subordinated Debt. For the avoidance of doubt, Borrower shall not repay, prepay, redeem or otherwise satisfy in any manner any portion of the obligations evidenced by the Investor Notes until the earlier of (i) ninety-one (91) days after the payment in full of the Obligations (other than inchoate indemnity obligations) and satisfaction of all Borrowers obligations under this Agreement and the other Loan Documents or (ii) Lenders prior written consent, which may be granted or withheld in Lenders sole discretion. Notwithstanding the foregoing, Lender agrees that the conversion or exchange into Borrowers equity securities of any Subordinated Debt and the payment of cash in lieu of fractional shares shall not be prohibited by this Section 6.13.
4. No course of dealing on the part of Lender, nor any failure or delay in the exercise of any right by Lender, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Lenders failure at any time to require strict performance by Borrower of any provision shall not affect any right of Lender thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Lender.
-1-
5. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Loan Documents (as defined in the Agreement). The Loan Documents, as amended hereby, shall be and remain in full force and effect in accordance with their respective terms and hereby are ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Lender under the Loan Documents, as in effect prior to the date hereof.
6. Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
7. As a condition to the effectiveness of this Amendment, Lender shall have received, in form and substance satisfactory to Lender, the following:
(a) this Amendment, duly executed by Borrower;
(b) fully executed copies of the Investor Transaction Documents;
(c) evidence of consummation of the Investor Transaction;
(d) a fully executed Subordination Agreement;
(e) all reasonable Lender expenses incurred through the date of this Amendment, which Borrower shall remit via wire transfer on the date of execution of this Amendment per the instructions set forth on Annex A hereto; and
(f) such other documents, and completion of such other matters, as Lender may reasonably deem necessary or appropriate.
8. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Balance of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
IMPEL NEUROPHARMA, INC. | ||
By: |
/s/ Adrian Adams |
|
Title: |
Chief Executive Officer |
|
AVENUE VENTURE OPPORTUNITIES FUND, L.P. | ||
By: | Avenue Venture Opportunities Partners, LLC | |
Its: | General Partner | |
By: |
/s/ Sonia Gardner |
|
Name: |
Sonia Gardner |
|
Title: |
Authorized Signatory |
[Signature Page to Consent and First Amendment to Loan and Security Agreement]
ANNEX A
(Barnes & Thornburg Wire Instructions)
Annex O
(Investor Transaction Documents)
[To be attached]
Exhibit 10.11
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE AND DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT) OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF (A) SUCH REGISTRATION, OR (B) AN OPINION OF COUNSEL IN A FORM REASONABLY ACCEPTABLE TO COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED DUE TO AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Date of Issuance: November 5, 2020
WARRANT TO PURCHASE
SHARES OF STOCK OF
IMPEL NEUROPHARMA, INC.
(Void after October 31, 2030)
This certifies that AVENUE VENTURE OPPORTUNITIES FUND, LP, a Delaware limited partnership, or permitted assigns (Holder), for value received, is entitled to purchase from IMPEL NEUROPHARMA, INC., a Delaware corporation (Company), the Applicable Number (hereinafter defined) of fully paid and nonassessable shares of, at Holders option, either (i) the Series D Preferred Stock of Company (Series D Preferred Stock) or (ii) Next Round Stock (hereinafter defined) of Company (the Series D Preferred Stock or the Next Round Stock, as applicable, Warrant Stock), for cash, at a purchase price per share equal to the Stock Purchase Price (hereinafter defined). Holder may also exercise this Warrant on a cashless or net issuance basis as described in Section 1(b) below, and this Warrant shall be deemed to have been exercised in full on such basis on the Expiration Date (hereinafter defined), to the extent not fully exercised prior to such date. This Warrant is issued in connection with that certain Loan and Security Agreement and Supplement thereto, both of even date herewith (as amended, restated and supplemented from time to time, the Loan Agreement and the Supplement, respectively), between Company, as borrower, and Holder, as lender (Lender). Capitalized terms used herein and not otherwise defined in this Warrant shall have the meaning(s) ascribed to them in the Loan Agreement and the Supplement, unless the context would otherwise require.
Applicable Number means the number of shares of Warrant Stock purchasable hereunder obtained by dividing (x) as of the Date of Issuance, (A) One Million Two Hundred Fifty Thousand Dollars ($1,250,000) (such amount sometimes referred to hereinafter as the Initial Coverage Amount) by (B) the Stock Purchase Price; plus, without any further action of Holder or Company, (y) as of the date of funding of any amount under (and as defined in the Supplement as) Tranche 2, (A) twelve and one-half percent (12.50%) of such additional funded amount (the Additional Coverage Amount and collectively with the Initial Coverage Amount, the Coverage Amount) by (B) the Stock Purchase Price.
Company Capitalization means the number of shares of the capital stock of the Company (on an as-converted basis) issued and outstanding, assuming exercise or conversion of all outstanding vested and unvested options, warrants and other convertible securities, but excluding (1) all SAFEs, (2) all convertible promissory notes, (3) all outstanding warrants for capital stock of the Company for which the exercise price of such warrants is greater than the fair market value of such capital stock, (4) all outstanding vested and unvested options for which the exercise price of such options is greater than the fair market value of the Common Stock, and (5) all shares of Common Stock reserved and available for future grant under any equity incentive or similar plan of the Company and/or any equity incentive or similar plan to be created or increased.
Series D Price means the lower of (i) $0.709095 divided by the Company Capitalization, calculated at the time of exercise and (ii) the lowest conversion price, as defined in any convertible note issued by the Company since December 31, 2019 and prior to the Next Round.
Stock Purchase Price means (i) if Holder chooses for this Warrant to be exercisable for Series D Preferred Stock, at a per share price equal to the Series D Price, or (ii) if Holder chooses for this Warrant to be exercisable for Next Round Stock, the Next Round Price (hereinafter defined).
Next Round Price means the lower of (i) the lowest price per share paid to the Company by cash investors for the Companys preferred equity securities issued in the Next Round (hereinafter defined) (the Next Round Stock), including for this purpose the value of all consideration given by an investor for such preferred equity securities and specifically including any discounts afforded to investors and stockholders of Company upon conversion of any convertible securities held by such investors and stockholders in connection with the Next Round or otherwise and (ii) the lowest conversion price, as defined in any convertible note issued by the Company since December 31, 2019 and prior to the Next Round. Next Round means the next bona fide round of equity financing if any, after the date hereof in which Company sells or issues shares of its preferred equity securities, and includes (and Holder shall be entitled to receive (as calculated in relation to the Coverage Amount)) any options, warrants, or other convertible securities or similar consideration issued or delivered to investors in connection with the Next Round; provided that the term Next Round excludes any additional sales of Companys Series D Preferred Stock.
Notwithstanding anything to the contrary in the preceding paragraphs, if prior to the Next Round, Company consummates a Bridge Financing (hereinafter defined) then Holder may elect to surrender this Warrant to Company at any time prior to the occurrence of a Trigger Event (hereinafter defined) and receive in exchange therefor (in lieu of all rights to purchase either shares of Series D Preferred Stock or shares of Next Round Stock represented by this Warrant), all of the same consideration, securities, instruments (e.g., convertible promissory notes) and rights (collectively, the Bridge Financing Securities) that Holder would have received had it participated as a lender in such Bridge Financing with a loan in the notional principal amount equal to the Coverage Amount. Bridge Financing means any round of debt financing incurred by Company, whether the purpose of such financing is to bridge Company to the Next Round, a Change of Control (as such term is defined in Section 4.3 hereof), or an IPO (as such term is defined in Section 4.3 hereof) where the investors who provide Company with such financing will be entitled to receive from Company an amount (e.g., a liquidation preference) that is greater than the outstanding principal amount of the indebtedness incurred by Company in such financing, together with accrued interest thereon at a customary rate. Trigger Event means the occurrence of an event that will trigger the conversion or repayment of the corresponding Bridge Financing Securities. Company agrees to provide Holder with prior written notice of the occurrence of a Trigger Event.
As soon as reasonably practicable after the occurrence or non-occurrence of the latest event or condition necessary to determine (i) the actual number and type of shares of Warrant Stock issuable upon exercise of this Warrant, or (ii) the Stock Purchase Price, if applicable, Company shall deliver a supplement to this Warrant (subsequent to a request by Holder therefor), in substantially the form of Exhibit A attached hereto, specifying the total number and series of shares of Warrant Stock issuable hereunder after giving effect to the foregoing calculations, and otherwise completed with such quantity and price terms and other information as have been determined as a result of the occurrence or non-occurrence of such events or conditions. The provisions of such supplement, once completed and executed, shall control the interpretation and exercise of this Warrant; provided, however, that the failure of Company to deliver such supplement shall not affect the rights of Holder to receive the number and type of shares of Warrant Stock as set forth herein.
Subject to Section 4.3, this Warrant may be exercised at any time or from time to time up to and including 5:00 p.m. (Pacific time) on October 31, 2030 (the Expiration Date), upon surrender to Company at its principal
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office at 201 Elliott Avenue W., Ste. 260, Seattle, WA 98119 (or at such other location as Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly completed and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to further adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
(a) Unless an election is made pursuant to clause (b) of this Section 1, this Warrant shall be exercisable at the option of Holder, at any time or from time to time, on or before the Expiration Date for all or any portion of the shares of Warrant Stock (but not for a fraction of a share) which may be purchased hereunder for the Stock Purchase Price multiplied by the number of shares to be purchased. In the event, however, that pursuant to Companys Certificate of Incorporation, as amended and restated from time to time (the Charter), an event causing automatic conversion of Companys Warrant Stock shall have occurred prior to the exercise of this Warrant, in whole or in part, then this Warrant shall be exercisable for the number of shares of the common stock of Company (Common Stock) into which the Warrant Stock not purchased upon any prior exercise of this Warrant would have been so converted (and, where the context requires, reference to Warrant Stock shall be deemed to be or include such Common Stock, as may be appropriate). Company agrees that the shares of Warrant Stock purchased under this Warrant shall be and are deemed to be issued to Holder as the record owner of such shares as of the close of business on the date on which the form of subscription shall have been delivered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares of Warrant Stock so purchased, together with any other securities or property to which Holder is entitled upon such exercise, shall be delivered to Holder by Company at Companys expense within a reasonable time after the rights represented by this Warrant have been so exercised. Except as provided in clause (b) of this Section 1, in case of a purchase of less than all the shares which may be purchased under this Warrant, Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under this Warrant surrendered upon such purchase to Holder within a reasonable time. Each stock certificate so delivered shall be in such denominations of Warrant Stock as may be requested by Holder and shall be registered in the name of such Holder or such other name as shall be designated by such Holder, subject to the limitations contained in Section 2.
(b) Holder, in lieu of exercising this Warrant by the cash payment of the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at any time on or before the Expiration Date, to surrender this Warrant and receive that number of shares of Warrant Stock computed using the following formula:
X = |
Y(A B) |
|
A |
Where: |
X |
= | the number of shares of Warrant Stock to be issued to Holder. | |||
Y |
= | the number of shares of Warrant Stock that Holder would otherwise have been entitled to purchase hereunder pursuant to Section 1(a) (or such lesser number of shares as Holder may designate in the case of a partial exercise of this Warrant). | ||||
A |
= | the Per Share Price (as defined in Section 1(c) below) of one (1) share of Warrant Stock at the time the net issuance election under this Section 1(b) is made. | ||||
B |
= | the Stock Purchase Price then in effect. |
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Election to exercise under this Section 1(b) may be made by delivering a signed form of subscription to Company via facsimile or email, to be followed by delivery of this Warrant. Notwithstanding anything to the contrary contained in this Warrant, if as of the close of business on the last business day preceding the Expiration Date this Warrant remains unexercised as to all or a portion of the shares of Warrant Stock purchasable hereunder, then effective as 9:00 a.m. (Pacific time) on the Expiration Date, Holder shall be deemed, automatically and without need for notice to Company, to have elected to exercise this Warrant in full pursuant to the provisions of this Section 1(b), and upon surrender of this Warrant shall be entitled to receive that number of shares of Warrant Stock computed using the above formula, provided that the application of such formula as of the Expiration Date yields a positive number for X.
(c) For purposes of Section 1(b), Per Share Price means:
(i) If this Warrant is exercised on the date of Companys initial public offering of Common Stock, and if Companys registration statement relating to such public offering has been declared effective by the Securities and Exchange Commission, then the Per Share Price shall be, if the Warrant is exercisable for Warrant Stock, the product of (A) the initial Price to Public of the Common Stock specified in the final prospectus with respect to the offering, and (B) the number of shares of Common Stock into which each share of Warrant Stock exercised is convertible at the date of calculation, or, if the Warrant is exercisable for Common Stock, the initial Price to Public of the Common Stock specified in the final prospectus with respect to the offering.
(ii) If (i) is not applicable, the Per Share Price shall be determined in good faith by the Board of Directors of Company (the Board) based on relevant facts and circumstances at the time of the net exercise under Section 1(b), including in the case of a Change of Control (as defined in Section 4.3 hereof) the consideration receivable by the holders of the Warrant Stock in such Change of Control and the liquidation preference (including any declared but unpaid dividends), if any, then applicable to the Warrant Stock.
2. Limitation on Transfer.
(a) This Warrant and the Warrant Stock shall not be transferable except upon the conditions specified in this Section 2, which conditions are intended to ensure compliance with the provisions of the Securities Act of 1933, as amended (the Securities Act). Each holder of this Warrant or the Warrant Stock issuable hereunder will cause any proposed transferee of the Warrant or Warrant Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2. Notwithstanding the foregoing and any other provision of this Section 2 but subject to the last sentence of Section 2(c), Holder may freely transfer all or part of this Warrant or the shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the shares, if any) at any time to any affiliate of Lender under the Loan Agreement provided that any such transferee is an accredited investor as defined in Regulation D promulgated under the Securities Act, by giving Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to Company for reissuance to the transferees(s) (and Holder, if applicable).
(b) Each certificate representing (i) this Warrant, (ii) the Warrant Stock, (iii) shares of Companys Common Stock issued upon conversion of the Warrant Stock and (iv) any other securities issued in respect to the Preferred Stock or Common Stock issued upon conversion of the Warrant Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of this Section 2 or unless such securities have been registered under the Securities Act or sold under Rule 144) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE AND DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
4
ACT) OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF (A) SUCH REGISTRATION, OR (B) AN OPINION OF COUNSEL IN A FORM REASONABLY ACCEPTABLE TO COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED DUE TO AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A 180 DAY MARKET STAND-OFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SECURITIES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SECURITIES.
(c) Holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to Company and agrees (by acceptance of such transfer) that it will not transfer this Warrant (or securities issuable upon exercise hereof unless a registration statement under the Securities Act was in effect with respect to such securities at the time of issuance thereof) unless (i) there is an effective registration statement under the Securities Act and applicable state securities laws covering any such transaction, (ii) pursuant to Rule 144 under the Securities Act (or any other rule under the Securities Act relating to the disposition of securities), or (iii) Company receives an opinion of counsel, reasonably satisfactory to Company, that an exemption from such registration is available. Notwithstanding the foregoing or any other provision of this Section 2, Holder shall not transfer this Warrant (or securities issuable upon exercise hereof, or securities issuable, directly or indirectly, upon conversion of such securities, if any) to any person or entity who competes with the Company, as determined in good faith by the Company, without the prior written consent of Company.
(d) In connection with either (i) the initial underwritten public offering by the Company of its equity securities or (ii) a SPAC Transaction (as defined in the Supplement), Holder agrees that it will not, without the prior written consent of the managing underwriter or the Company, as applicable, during the period commencing on the date of the final prospectus relating to the registration by Company or the closing of the SPAC Transaction, as applicable, for its own behalf of shares of its Common Stock or other equity securities under the Securities Act and ending on the date specified by Company and the managing underwriter (such period not to exceed 180 days, which period may be extended upon the request of the managing underwriter or the Company, as applicable, if all other parties to a lock-up agreement are subject to the same extension), (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for such offering or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Section 2(d) shall be applicable to Holder only if all officers and directors of the Company and holders of two percent (2%) or more of Companys shares of outstanding Common Stock (assuming for purposes of this calculation the conversion into Common Stock of all then outstanding preferred stock of the Company) are subject to the same restrictions. The underwriters in connection with such registration are intended third party beneficiaries of this Section 2(d) and shall have the right, power, and authority to enforce the provisions hereof as though they were a party hereto. Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration or the Company in connection with such SPAC Transaction that are consistent with this Section 2(d) or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, Company may impose stop transfer instructions with respect to this Warrant and the securities issuable pursuant to the exercise hereof until the end of such period.
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(e) As a condition to the exercise of this Warrant and the issuance of Warrant Stock, if requested by the Company by reasonable notice to Holder, Holder shall agree in writing to be fully bound by any investors rights, shareholder, right of first refusal, or similar agreements applicable to holders of Warrant Stock (Investor Agreements), provided that Holder shall not be required to agree to any terms of such agreements that are inconsistent with the terms of this Warrant.
3. Shares to be Fully Paid; Reservation of Shares. Company covenants and agrees that all shares of Warrant Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes, liens and charges with respect to the issue thereof. Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Warrant Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. Company will take all such action as may be necessary to assure that such shares of Warrant Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Warrant Stock may be listed. Company will not take any action which would result in any adjustment of the Stock Purchase Price (as described in Section 4 hereof) (i) if the total number of shares of Warrant Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Warrant Stock then outstanding and all shares of Warrant Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Warrant Stock then authorized by Companys Charter, (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Warrant Stock together with all shares of Common Stock then outstanding and then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by Companys Charter or (iii) if the par value per share of the Warrant Stock would exceed the Stock Purchase Price.
4. Adjustment of Stock Purchase Price and Number of Shares. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4, provided however, that notwithstanding the terms of this Section 4, no such adjustment shall result in a duplication of economic effect in the event of any occurrence described in this Section 4 is reflected in the Company Capitalization calculated at the time of determining the Series D Price. Upon each adjustment of the Stock Purchase Price, Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case Company shall at any time subdivide its outstanding shares of Warrant Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Warrant Stock of Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased.
4.2 Dividends. If at any time or from time to time the holders of Warrant Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive,
(a) Warrant Stock, or any shares of stock or other securities whether or not such securities are at any time directly or indirectly convertible into or exchangeable for Warrant Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution,
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(b) any cash paid or payable including as a cash dividend, or
(c) Warrant Stock or other or additional stock or other securities or property (including cash) by way of spin off, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Warrant Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above),
then and in each such case, Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Warrant Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had it been the holder of record of such Warrant Stock as of the date on which holders of Warrant Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property.
4.3 Change of Control; IPO. Upon the earliest to occur of (i) a Change of Control (as hereinafter defined) or (ii) the consummation of a sale of Companys securities pursuant to a registration statement filed by Company under the Securities Act (or pursuant to the laws of the jurisdiction in which the initial public offering is completed), in connection with the first firm commitment underwritten offering of Companys securities to the general public, or (iii) any SPAC Transaction (as defined in the Supplement), in each case, that occurs after the date this Warrant is issued (collectively, as under herein, IPO), this Warrant shall be automatically exchanged for a number of shares of Companys securities, such number of shares being equal to the maximum number of shares issuable pursuant to the terms hereof (after taking into account all adjustments described herein) had Holder elected to exercise this Warrant immediately prior to the closing of such Change of Control or IPO and purchased all such shares pursuant to the cash exercise provision set forth in Section 1(a) hereof (as opposed to the cashless exercise provision set forth in Section 1(b)). Company acknowledges and agrees that Holder shall not be required to make any payment (cash or otherwise) for such shares as further consideration for their issuance pursuant to the terms of the preceding sentence. Change of Control shall mean any sale, license, or other disposition of all or substantially all of the assets of Company, any reorganization, consolidation, merger or other transaction involving Company where the holders of Companys securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction; provided that an issuance of equity securities for the primary purpose of raising capital shall not be considered a Change of Control under this Warrant. This Warrant shall terminate upon Holders receipt of the number of shares of Companys equity securities described in this Section 4.3.
4.4 Sale or Issuance Below Purchase Price; Pay-to-Play Exemption.
(a) The other antidilution rights applicable to the shares of Warrant Stock purchasable hereunder, if any, are set forth in Companys Charter. Such antidilution rights shall not be restated, amended, modified or waived in any manner without Holders prior written consent if the effect of such restatement, amendment, modification or waiver on Holder would be more adverse to Holder with respect to the shares of Warrant Stock issuable upon the exercise of this Warrant than, and substantially dissimilar to, its effect on the other holders of the same class or series of Companys Warrant Stock. Company shall promptly provide Holder with any restatement, amendment, modification or waiver of the Charter with respect to any such antidilution rights promptly after the same has been made.
(b) In the event that Companys Charter provides, or is amended to so provide, for the amendment or modification of the rights, preferences or privileges of the shares of Warrant Stock issuable upon the exercise of this Warrant, or the reclassification, conversion or exchange of the outstanding shares of such Warrant Stock, in the event that a holder of shares thereof fails to participate in an equity financing or debt financing transaction (as applicable, a Pay-to-Play Provision), and in the event that such Pay-to-Play Provision becomes operative in a transaction occurring after the date hereof, this Warrant, only to the extent of shares of Warrant Stock not previously exercised, shall automatically and without any action required become exercisable for that type of
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shares of equity securities as would have been issued or exchanged, or would have remained outstanding, in respect of the shares of Warrant Stock issuable hereunder had this Warrant been exercised in full prior to such event (and for that number of shares of equity securities as would have been issued or exchanged, or would have remained outstanding, in respect of the shares of Warrant Stock issuable hereunder had this Warrant been exercised in full prior to such event, if applicable), and had Holder participated in the equity or debt financing to the maximum extent permitted, up to its full pro rata amount.
4.5 Notice of Adjustment. Upon any adjustment of the Stock Purchase Price, and/or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, Company shall give written notice thereof to Holder pursuant to Section 12. The notice, which may be substantially in the form of Exhibit A attached hereto, shall be signed by Companys chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
4.6 Other Notices. If at any time:
(a) Company shall declare any cash dividend upon its Warrant Stock;
(b) Company shall declare any dividend upon its Warrant Stock payable in stock or make any special dividend or other distribution to the holders of its Warrant Stock;
(c) Company shall offer for subscription pro rata to the holders of its Warrant Stock any additional shares of stock of any class or other rights;
(d) there shall be any capital reorganization or reclassification of the capital stock of Company, or consolidation or merger of Company with, or sale of all or substantially all of its assets to, another entity;
(e) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of Company; or
(f) Company shall take or propose to take any other action, notice of which is actually provided to holders of the Warrant Stock;
then, in any one or more of said cases, Company shall give Holder, pursuant to Section 12, (i) at least 10 business days prior written notice of the date on which the books of Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action, at least 10 business days written notice of the date when the same shall take place. Any notice given in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Warrant Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Warrant Stock shall be entitled to exchange their Warrant Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action as the case may be.
4.7 Certain Events. If any change in the outstanding Warrant Stock of Company or any other event occurs as to which the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly effect the adjustments to this Warrant in accordance with the essential intent and principles of such provisions, then the Board shall make in good faith an adjustment in the number and class of shares issuable under
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this Warrant, the Stock Purchase Price and/or the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give Holder of this Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as Holder would have owned had this Warrant been exercised prior to the event and had Holder continued to hold such shares until after the event requiring adjustment.
5. Issue Tax. The issuance of certificates for shares of Warrant Stock upon the exercise of this Warrant shall be made without charge to Holder of this Warrant for any issue tax in respect thereof; provided, however, that Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of this Warrant being exercised.
6. Closing of Books. Company will at no time close its transfer books against the transfer of this Warrant or of any shares of Warrant Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant.
7. No Voting Rights; Limitation of Liability. Nothing contained in this Warrant shall be construed as conferring upon Holder hereof the right to vote or to consent as a stockholder in respect of meetings of stockholders for the election of directors of Company or any other matters or any rights whatsoever as a stockholder of Company. No dividends or interest shall be payable in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised; provided, however, that if any dividends are due or paid at any time on the underlying securities for which this Warrant is exercisable, then upon exercise, the securities issued to Holder shall be deemed to have accrued dividends and be paid identical dividends from the same time as the outstanding shares for which this Warrant is exercisable were first issued (or, if later, the date of this Warrant). No provisions hereof, in the absence of affirmative action by Holder to purchase shares of Warrant Stock, and no mere enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a stockholder of Company, whether such liability is asserted by Company or by its creditors.
8. Amendment of Charter. Unless Holder consents thereto in writing, Company shall not amend its Charter prior to the exercise of this Warrant if the Warrant Stock would be adversely affected by such amendment in a manner that would be more adverse to Holder with respect to the shares of Warrant Stock issuable upon the exercise of this Warrant than, and substantially dissimilar to, such amendments effect on the other holders of the same class or series of Warrant Stock.
9. Stand-Off Agreement. Holder agrees to be bound by the restrictions set forth in any Market Stand-Off provision contained in the Rights Agreement (as defined below), to the same extent and on the same terms and conditions as those other investors who are parties thereto.
10. Registration Rights. Holder shall be entitled, with respect to (i) the shares of Warrant Stock issued upon exercise hereof, or (ii) the shares of Common Stock or other securities issued upon conversion of such Warrant Stock, as the case may be, to all of the registration rights set forth in the Amended and Restated Investors Rights Agreement, dated as of December 4, 2018 (as amended from time to time, the Rights Agreement), to the same extent and on the same terms and conditions as possessed by the Investors thereunder with the following exceptions and clarifications: (i) Holder will have no right to make a written request under the Rights Agreement that Company file a registration statement under Form S-1 of the Securities Act; (ii) Holder will be subject to the same provisions regarding indemnification as contained in the Rights Agreement; and (iii) the registration rights are freely assignable by Holder of this Warrant in connection with a permitted transfer of this Warrant or the shares issuable upon exercise hereof. Company and Holder shall take such action as may be reasonably necessary to assure that the granting of such registration rights to Holder does not violate the provisions of the Rights Agreement or any of Companys charter documents or rights of prior grantees of registration rights.
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11. Rights and Obligations Survive Exercise of Warrant. The rights and obligations of Company, of Holder of this Warrant and of the holder of shares of Warrant Stock issued upon exercise of this Warrant, contained in Sections 6, 8 and 19 shall survive the exercise of this Warrant.
12. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request or other document required or permitted to be given or delivered to Holder or Company shall be deemed to have been given (i) upon receipt if delivered personally or by courier (ii) upon confirmation of receipt if by telecopy or electronic mail or (iii) three business days after deposit in the US mail, with postage prepaid and certified or registered, to each such Holder at its address as shown on the books of Company or to Company at the address indicated therefor in the opening paragraphs of this Warrant (or at such other location as Company may advise Holder in writing).
14. Survival of Certain Obligations. All of the obligations of Company relating to the Warrant Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of Company shall inure to the benefit of and be binding upon the successors and permitted assigns of Holder. Company will, at the time of the exercise of this Warrant, in whole or in part, upon request of Holder but at Companys expense, acknowledge in writing its continuing obligation to Holder in respect of any rights (including, without limitation, any right to registration of the shares of Common Stock) to which Holder shall continue to be entitled after such exercise in accordance with this Warrant; provided, that the failure of Holder to make any such request shall not affect the continuing obligation of Company to Holder in respect of such rights.
15. Descriptive Headings and Governing Law. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware.
16. Lost Warrants or Stock Certificates. Company agrees that upon receipt of evidence reasonably satisfactory to Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
17. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant. Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price.
18. Representations of Holder. With respect to this Warrant, Holder represents and warrants to Company as follows:
18.1 Experience. It is experienced in evaluating and investing in companies engaged in businesses similar to that of Company; it understands that investment in this Warrant involves substantial risks; it has made detailed inquiries concerning Company, its business and services, its officers and its personnel; the officers of Company have made available to Holder any and all written information it has requested; the officers of Company have answered to Holders satisfaction all inquiries made by it; in making this investment it has relied upon information made available to it by Company; and it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in Company and it is able to bear the economic risk of that investment.
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18.2 Investment. It is acquiring this Warrant for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. It understands that this Warrant, the shares of Warrant Stock issuable upon exercise thereof and the shares of Common Stock issuable upon conversion of the Warrant Stock, have not been registered under the Securities Act, nor qualified under applicable state securities laws.
18.3 Rule 144. It acknowledges that this Warrant, the Warrant Stock and the Common Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. It has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act.
18.4 Access to Data. It has had an opportunity to discuss Companys business, management and financial affairs with Companys management and has had the opportunity to inspect Companys facilities.
18.5 Accredited Investor. It is an accredited investor within the meaning of Regulation D promulgated under the Securities Act.
19. Additional Representations and Covenants of Company. Company hereby represents, warrants and agrees as follows:
19.1 Corporate Power. Company has all requisite corporate power and corporate authority to issue this Warrant and to carry out and perform its obligations hereunder.
19.2 Authorization. All corporate action on the part of Company, its directors and stockholders necessary for the authorization, execution, delivery and performance by Company of this Warrant has been taken. This Warrant is a valid and binding obligation of Company, enforceable in accordance with its terms.
19.3 Offering. Subject in part to the truth and accuracy of Holders representations set forth in Section 17 hereof, the offer, issuance and sale of this Warrant is, and the issuance of Warrant Stock upon exercise of this Warrant and the issuance of Common Stock, as applicable, upon conversion of the Warrant Stock will be exempt from the registration requirements of the Securities Act, and are exempt from the qualification requirements of any applicable state securities laws; and neither Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemptions.
19.4 Listing; Stock Issuance. Company shall secure and maintain the listing of the Warrant Stock issuable upon exercise of this Warrant and the shares of Common Stock or other securities issuable upon conversion of such Warrant Stock, as applicable, upon each securities exchange or over-the-counter market upon which securities of the same class or series issued by Company are listed, if any. Upon exercise of this Warrant, Company will use commercially reasonable efforts to cause stock certificates representing the shares of Warrant Stock purchased pursuant to the exercise to be issued in the names of Holder, its nominees or assignees, as appropriate at the time of such exercise. Upon conversion of the shares of Warrant Stock into shares of Common Stock, as applicable, Company will issue the Common Stock in the names of Holder, its nominees or assignees, as appropriate.
19.5 Charter Documents. Company has provided Holder with true and complete copies of Companys Charter, By-Laws, and each Certificate of Designation or other charter document setting, forth any rights, preferences and privileges of Companys capital stock, each as amended and in effect on the date of issuance of this Warrant.
19.6 Conversion of Preferred Stock. As of the date hereof, each share of Series D Preferred Stock is convertible into one share of the Common Stock.
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19.7 Financial and Other Reports. Until the earlier of (a) the Expiration Date, and (b) the termination of this Warrant pursuant to Section 4.3, Company shall furnish to Holder (i) promptly following delivery to the Board after the close of each fiscal year of Company, a balance sheet, together with an income statement, a cash flow statement and a statement of changes in equity, for such fiscal year, in substantially the same form as such annual financial statements are furnished to the Board; (ii) within 60 days after the close of each fiscal quarter of Company, an unaudited balance sheet, income statement and cash flow statement, each at and as of the end of such quarter. In addition, Company agrees to provide Holder at any time and from time to time with such information as Holder may reasonably request for purposes of Holders compliance (as determined by Holder in its reasonable discretion) with regulatory, accounting and reporting requirements applicable to Holder (e.g., Fair Value Accounting Standard 157), including any 409A valuation reports (or equivalent reports to the extent such reports have been prepared) and budgets, as well as information with respect to whether the securities issuable upon the exercise hereof constitute qualified small business stock for purposes of Section 1202(c) of the Internal Revenue Code. Holder agrees to hold and treat all such information provided by Company in strict confidence in accordance with the provisions of Section 9.13 of the Loan Agreement. Notwithstanding the foregoing, Company shall not be required to furnish to Holder the financial information described in this Section 18.7 in the event such financial information has been previously delivered to Lender pursuant to the Loan Agreement.
20. Counterparts; Facsimile. Holders execution and delivery of Holders counterpart signature page to this Warrant via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) shall constitute Holders effective execution and delivery of this Warrant and agreement to and acceptance of the terms hereof for all purposes.
[Remainder of this page intentionally left blank; signature page follows]
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[Signature Page to Warrant]
IN WITNESS WHEREOF, Company has caused this Warrant to be duly executed by its officer, thereunto duly authorized as of the date of issuance set forth on the first page hereof.
IMPEL NEUROPHARMA, INC. | ||
By: |
/s/ John Leaman, MD |
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Name: |
John Leaman, MD |
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Title: |
Chief Financial Officer |
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AGREED AND ACCEPTED: | ||
HOLDER: | ||
AVENUE VENTURE OPPORTUNITIES FUND, LP | ||
By: | Avenue Venture Opportunities Partners, LLC | |
Its: | General Partner | |
By: |
/s/Sonia Gardner |
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Name: |
Sonia Gardner |
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Title: |
Authorized Signatory |
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
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The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, (1) ( ) shares1 (the Shares) of Stock of and herewith makes payment of Dollars ($ ) therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, , whose address is . |
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The undersigned hereby elects to convert percent ( %) of the value of the Warrant pursuant to the provisions of Section 1(b) of the Warrant. |
The undersigned acknowledges that it has reviewed the representations and warranties contained in Section 17 of this Warrant and by its signature below hereby makes such representations and warranties to Company.
Dated |
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Holder: |
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By: |
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Its: |
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(Address) | ||
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Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Warrant Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be issuable upon exercise. |
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Warrant Stock covered thereby set forth herein below, unto:
Name of Assignee |
Address |
No. of Shares |
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Dated |
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Holder: |
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EXHIBIT A
[On letterhead of Company]
Reference is hereby made to that certain Warrant dated October , 2020 issued by IMPEL NEUROPHARMA, INC., a Delaware corporation (the Company), to AVENUE VENTURE OPPORTUNITIES FUND, LP, a Delaware limited partnership (the Holder).
[IF APPLICABLE] The Warrant provides that the actual number and type of shares of Companys capital stock issuable upon exercise of the Warrant and the initial exercise price per share are to be determined by reference to one or more events or conditions subsequent to the issuance of the Warrant. Such events or conditions have now occurred or lapsed, and Company wishes to confirm the actual number of shares issuable and the initial exercise price. The provisions of this Supplement to Warrant are incorporated into the Warrant by this reference, and shall control the interpretation and exercise of the Warrant.
[IF APPLICABLE] Notice is hereby given pursuant to Section 4.5 of the Warrant that the following adjustment(s) have been made to the Warrant: [describe adjustments, setting forth details regarding method of calculation and facts upon which calculation is based].
This certifies that Holder is entitled to purchase from Company , at the Holders option, either (i) ( ) fully paid and nonassessable shares of Companys Stock at a price of Dollars ($ ) per share or (ii) ( ) fully paid and nonassessable shares of Companys Stock at a price of Dollars ($ ) per share. The applicable Stock Purchase Price and the number of shares purchasable under the Warrant remain subject to adjustment as provided in Section 4 of the Warrant.
Executed this day of , 20 .
IMPEL NEUROPHARMA, INC. | ||
By: |
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Name: |
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Title: |
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EXHIBIT 21.1
SUBSIDIARY OF IMPEL NEUROPHARMA, INC.
Name of Subsidiary |
Jurisdiction |
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Impel Neuropharma Australia Pty Ltd | Victoria, Australia |
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our report dated March 23, 2021, in the Registration Statement (Form S-1) and related Prospectus of Impel NeuroPharma, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
April 2, 2021