UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     

Commission File Number: 001-33004

Acer Therapeutics Inc.

(Exact name of registrant as specified in its charter)

 

Texas   

One Gateway Center, Suite 351

(300 Washington Street)

76-0333165

(State or other jurisdiction of   

Newton, Massachusetts 02458

(I.R.S. Employer

Incorporation or organization)  

(Address of principal executive    

Identification No.)

 

offices and zip code)

 

(844) 902-6100

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes    No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No 

As of May 1, 2018, there were 7,497,433 shares of the issuer’s Common Stock outstanding.

 

 


ACER THERAPEUTICS INC.

For the three months ended March 31, 2018

INDEX

 

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

1

 

 

 

 

Condensed Consolidated Statements of Operations: For the three months ended March 31, 2018 and 2017

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows: For the three months ended March 31, 2018 and 2017

3

 

 

 

 

Notes to Condensed Consolidated Financial Statements

4

 

 

 

Item 2.

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

9

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

15

 

 

 

Item 4.

Controls and Procedures

16

 

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

17

 

 

 

Item 1A.

Risk Factors

17

 

 

 

Item 5.

Other Information

48

 

 

 

Item 6.

Exhibits

50

 

 

 

Signatures

51

 

 

 

 


 

PART I - FINANC IAL INFORMATION

Item 1.

Financial Statements.

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,368,625

 

 

$

15,644,355

 

Prepaid expenses

 

 

826,429

 

 

 

881,887

 

Total current assets

 

 

13,195,054

 

 

 

16,526,242

 

Property and equipment, net

 

 

66,512

 

 

 

62,984

 

Other assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

7,647,267

 

 

 

7,647,267

 

In-process research and development

 

 

118,600

 

 

 

118,600

 

Other non-current assets

 

 

16,148

 

 

 

13,648

 

Total assets

 

$

21,043,581

 

 

$

24,368,741

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

325,535

 

 

$

95,873

 

Accrued expenses

 

 

2,152,486

 

 

 

1,937,331

 

Total liabilities

 

 

2,478,021

 

 

 

2,033,204

 

Commitments

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; authorized 10,000,000 shares;

   none issued and outstanding

 

 

 

 

 

 

Common stock, $0.01 par value; authorized 150,000,000 shares;

   7,497,433 shares issued and outstanding at March 31, 2018 and

   December 31, 2017

 

 

74,974

 

 

 

74,974

 

Additional paid-in capital

 

 

48,025,842

 

 

 

47,812,215

 

Accumulated deficit

 

 

(29,535,256

)

 

 

(25,551,652

)

Total stockholders’ equity

 

 

18,565,560

 

 

 

22,335,537

 

Total liabilities, and stockholders’ equity

 

$

21,043,581

 

 

$

24,368,741

 

 

See notes to unaudited condensed consolidated financial statements.

1


 

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

2,073,971

 

 

$

3,033,539

 

General and administrative

 

 

1,917,030

 

 

 

333,529

 

Total operating expenses

 

 

3,991,001

 

 

 

3,367,068

 

Loss from operations

 

 

(3,991,001

)

 

 

(3,367,068

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

30,690

 

 

 

 

Interest expense

 

 

 

 

 

(12,630

)

Foreign currency transaction loss

 

 

(23,293

)

 

 

 

Total other income (expense), net

 

 

7,397

 

 

 

(12,630

)

Net loss

 

$

(3,983,604

)

 

$

(3,379,698

)

Net loss per share - basic and diluted

 

$

(0.53

)

 

$

(1.38

)

Weighted average common shares outstanding - basic and diluted

 

 

7,497,433

 

 

 

2,450,000

 

 

See notes to unaudited condensed consolidated financial statements.

 

2


 

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(3,983,604

)

 

$

(3,379,698

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Non-cash interest expense

 

 

 

 

 

13,031

 

Share-based compensation

 

 

252,374

 

 

 

15,876

 

Depreciation

 

 

6,224

 

 

 

905

 

Write-off of deferred financing costs

 

 

 

 

 

1,901

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

55,458

 

 

 

327,493

 

Accounts payable

 

 

229,662

 

 

 

464,083

 

Accrued expenses

 

 

215,155

 

 

 

483,480

 

Other non-current assets

 

 

(2,500

)

 

 

 

Net cash used in operating activities

 

 

(3,227,231

)

 

 

(2,072,929

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(9,752

)

 

 

 

Net cash used in investing activities

 

 

(9,752

)

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Costs associated with the issuance of common stock

 

 

(38,747

)

 

 

 

Deferred financing costs

 

 

 

 

 

(62,974

)

Proceeds from convertible notes payable

 

 

 

 

 

3,125,000

 

Net cash (used in) provided by financing activities

 

 

(38,747

)

 

 

3,062,026

 

Net (decrease) increase in cash and cash equivalents

 

 

(3,275,730

)

 

 

989,097

 

Cash and cash equivalents, beginning of period

 

 

15,644,355

 

 

 

1,834,018

 

Cash and cash equivalents, end of period

 

$

12,368,625

 

 

$

2,823,115

 

Supplemental non-cash financing transactions:

 

 

 

 

 

 

 

 

Accretion of issuance costs on Series A Convertible Redeemable

   Preferred stock

 

 

 

 

$

3,710

 

Accretion of issuance costs on Series B Convertible Redeemable

   Preferred stock

 

 

 

 

$

9,127

 

 

See notes to unaudited condensed consolidated financial statements.

 

3


 

ACER THERAPEUTICS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(Unaudited)

 

1.

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Business

Acer Therapeutics Inc., a Texas corporation (the “Company”), formerly known as Opexa Therapeutics, Inc. (the “Registrant”), is a pharmaceutical company focused on the acquisition, development, and commercialization of therapies for patients with serious rare and ultra-rare diseases with critical unmet medical need. The Company’s late-stage clinical pipeline includes two candidates for severe genetic disorders: EDSIVO™ (celiprolol) for vascular Ehlers-Danlos syndrome (“vEDS”), and ACER-001 (a fully taste-masked, immediate release formulation of sodium phenylbutyrate) for urea cycle disorders (“UCD”) and Maple Syrup Urine Disease (“MSUD”). There are no FDA-approved drugs for vEDS and MSUD and limited options for UCD, which collectively impact approximately 7,000 patients in the United States. The Company’s products have clinical proof-of-concept and mechanistic differentiation, and it intends to seek approval for them in the U.S. by using the regulatory pathway established under section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FFDCA, that allows an applicant to rely at least in part on third-party data for approval, which may expedite the preparation, submission, and approval of a marketing application.

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company has not generated any product revenue to date and may never generate any product revenue in the future.

Merger and Reverse Stock Split

On September 19, 2017, the Registrant completed its business combination with Acer Therapeutics Inc., a Delaware corporation (“Private Acer”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2017, by and among the Registrant, Opexa Merger Sub, Inc. (“Merger Sub”) and Private Acer (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Private Acer, with Private Acer surviving as a wholly-owned subsidiary of the Registrant (the “Merger”). This transaction was approved by the Registrant’s shareholders at a special meeting of its shareholders on September 19, 2017. Also on September 19, 2017, in connection with, and prior to the completion of, the Merger, the Registrant effected a 1-for-10.355527 reverse stock split of its then outstanding common stock (the “Reverse Split”) and immediately following the Merger, the Registrant changed its name to “Acer Therapeutics Inc.” pursuant to amendments to its certificate of formation filed with the Texas Secretary of State on September 19, 2017. All share numbers have been adjusted to reflect the Reverse Split.

Following the completion of the Merger, the business conducted by the Registrant became primarily the business conducted by Private Acer, which is a pharmaceutical company that acquires, develops and intends to commercialize therapies for patients with serious rare and ultra-rare diseases with critical unmet medical need.

Basis of Presentation

Accounting principles generally accepted in the United States require that a company whose security holders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes. Accordingly, the Merger was accounted for as a reverse acquisition whereby Private Acer was treated as the acquirer for accounting and financial reporting purposes. Private Acer was incorporated on December 26, 2013, as part of a reorganization whereby Acer Therapeutics, LLC was converted into a corporation organized under the laws of the State of Delaware.

The accompanying consolidated financial statements are of (i) Private Acer up to September 18, 2017, and (ii) the Registrant and its wholly-owned subsidiary Private Acer, for the period beginning on September 19, 2017.  

All intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

4


 

Going Concern Uncertainty

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced recurring losses since inception and expects to continue to incur losses for the foreseeable future as it continues its development of, and seeks marketing approvals for, its product candidates.

The Company has historically relied on raising capital to finance its operations and plans to raise additional capital through public or private equity and/or debt financings. There is no assurance, however, that the Company will be able to raise sufficient capital to fund its operations on terms that are acceptable, or that its operations will ever be profitable.

Based on available resources, the Company believes that its cash and cash equivalents currently on hand are sufficient to fund its anticipated operating and capital requirements through the end of 2018. There is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying financial statements are issued. These financial statements do not include any adjustments relating to the recoverability of recorded asset amounts that might be necessary as a result of the above uncertainty.

2.

SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2, “Significant Accounting Policies,” in its 2017 Annual Report on Form 10-K.

Share-Based Compensation

The Company records share-based payments at fair value. The measurement date for compensation expense related to employee awards is generally the date of the grant. The measurement date for compensation expense related to nonemployee awards is generally the date that the performance of the awards is completed and, until such time, the fair value of the awards is remeasured at the end of each reporting period. Accordingly, the ultimate expense is not fixed until such awards are vested. The fair value of awards, net of expected forfeitures, is recognized as an expense in the statement of operations over the requisite service period, which is generally the vesting period. The fair value of options is calculated using the Black-Scholes option pricing model. This option valuation model requires the use of assumptions including, among others, the volatility of stock price, the expected term of the option, and the risk-free interest rate.

The following assumptions were used to estimate the fair value of stock options granted during the three-month period ending March 31, 2018 using the Black-Scholes option pricing model. No options were granted during the three-month period ending March 31, 2017:

 

 

 

2018

 

Risk-free interest rate

 

2.43%

 

Expected life (years)

 

6.25

 

Volatility

 

60%

 

Dividend rate

 

0%

 

 

Use of Estimates

The Company’s accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates having relatively higher significance include the accounting for acquisitions, stock-based compensation, and income taxes. Actual results could differ from those estimates and changes in estimates may occur.

Basic and Diluted Net Loss per Common Share

Basic and diluted net loss per common share is computed by dividing net loss in each period by the weighted average number of shares of common stock outstanding during such period. For the periods presented, common stock equivalents, consisting of options, convertible redeemable preferred stock and warrants, were not included in the calculation of the diluted loss per share because to do so would be anti-dilutive.

5


 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , which establishes new accounting and disclosure requirements for leases. FASB ASU No. 2016-02 requires lessees to classify most leases as either finance or operating leases and to initially recognize a lease liability and right-of-use asset. Entities may elect to account for certain short-term leases (with a term of one year or less) using a method similar to the current operating lease model. The statements of operations will include, for finance leases, separate recognition of interest on the lease liability and amortization of the right-of-use asset and for operating leases, a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. While the Company is in the early stages of its implementation process for FASB ASU No. 2016-02 and has not yet determined its impact on its consolidated financial position or results of operations, these leases would potentially be required to be presented on the balance sheet in accordance with the requirements of FASB ASU No. 2016-02, which is effective for annual reporting periods beginning after December 15, 2018, including interim periods therein, with early adoption permitted. FASB ASU No. 2016-02 must be applied using a modified retrospective approach, which requires the recognition and measurement of leases at the beginning of the earliest period presented, with certain practical expedients available.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) .  This ASU eliminates step 2 from the goodwill impairment test by comparing the fair value of a reporting unit with the carrying amount of the reporting unit.  If the carrying amount exceeds the fair value, an impairment charge for the excess is recorded. The amendments of this ASU are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  The Company is currently evaluating the impact of the adoption of this ASU on the consolidated financial statements.

 

3.

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2018 and December 31, 2017:

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Computer hardware and software

 

$

24,482

 

 

$

16,555

 

Leasehold improvements

 

 

7,648

 

 

 

7,968

 

Furniture and fixtures

 

 

44,648

 

 

 

42,503

 

Less accumulated depreciation

 

 

(10,266

)

 

 

(4,042

)

 

 

$

66,512

 

 

$

62,984

 

 

 

4.

ACCRUED EXPENSES

Accrued expenses consisted of the following at March 31, 2018 and December 31, 2017:

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Accrued legal

 

$

129,783

 

 

$

174,592

 

Accrued pre-commercial costs

 

 

331,892

 

 

 

341,159

 

Accrued consulting

 

 

186,905

 

 

 

102,156

 

Accrued audit and tax

 

 

48,745

 

 

 

111,250

 

Accrued license fees

 

 

840,791

 

 

 

817,578

 

Accrued contract manufacturing

 

 

342,437

 

 

 

218,108

 

Accrued contract research

 

 

188,723

 

 

 

99,140

 

Accrued miscellaneous expenses

 

 

83,210

 

 

 

73,348

 

 

 

$

2,152,486

 

 

$

1,937,331

 

 

 

5.

COMMITMENTS

Litigation

From time to time, the Company or its subsidiaries may become involved in litigation or proceedings relating to claims arising from the ordinary course of business.

6


 

On September 27, 2017, Piper Jaffray & Co. filed a lawsuit against Private Acer, Piper Jaffray & Co. v. Acer Therapeutics Inc., Index No. 656055/2017, in the Supreme Court of the State of New York, County of New York. The complaint alleges that Private Acer breached its obligations to Piper Jaffray & Co. pursuant to an August 30, 2016 engagement letter between the parties and an April 28, 2017 addendum thereto by failing to pay Piper Jaffray & Co. (i) a fee of $1,097,207 in connection with the financing which closed on September 19, 20 17 for aggregate consideration of approximately $15.7 million and (ii) $67,496 in reimbursement for expenses incurred by Piper Jaffray & Co. pursuant to the engagement letter.  On November 10, 2017, Private Acer filed an answer and counterclaim in the laws uit, denying Piper Jaffray & Co.’s breach of contract allegation, asserting several defenses, and bringing several counterclaims, including claims for breach of contract and breach of the duty of good faith and fair dealing.  Piper Jaffray & Co. filed a re ply to the counterclaims denying the essential allegations, and discovery has commenced. The Company has not recorded a liability as of March 31, 2018, because a potential loss is not probable or reasonably estimable given the preliminary nature of the pro ceedings.

Newton Lease

The Company entered into a Lease Agreement effective March 6, 2018 (the “Newton Lease”) with Commonwealth Development LLC, as trustee of the Gateway Realty Trust (the “Newton Landlord”). Pursuant to the Newton Lease, the Company has leased certain premises consisting of 2,760 square feet of office space located at One Gateway Center, Suite 351, 300 Washington Street, Newton, Massachusetts (the “Newton Premises”) to serve as its corporate headquarters. The term of the Newton Lease commences on October 1, 2018 and expires on September 30, 2021. The Company currently occupies the Newton Premises as a subtenant pursuant to a Sublease, dated October 16, 2017, which expires on September 30, 2018.

The Newton Lease provides for base rent as follows:

 

Month of Term Under Newton Lease

Monthly Base Rent

1 to 12

$ 8,480

13 to 24

$ 8,710

25 to 36

$ 8,940

The Company’s total commitment for rent under the full term of the Newton Lease is $313,560. In addition, the Company is required to share in certain taxes and operating expenses of the Newton Premises. Upon execution of the Newton Lease, the Company made a security deposit of $17,880 to the Newton Landlord.

6.

STOCKHOLDERS’ EQUITY

2010 Stock Incentive Plan

The Company’s 2010 Stock Incentive Plan, as amended and restated (the “2010 Plan”), provides for the grant of up to 470,170 shares of common stock as incentive or non-qualified stock options, stock appreciation rights, restricted stock units and/or restricted common stock to employees, officers, directors, consultants and advisers. The 2010 Plan was amended to increase the shares reserved for issuance from 113,465 to 470,170 shares and such amendment was approved by the Registrant’s shareholders on September 19, 2017. The Board of Directors or the Compensation Committee, as applicable, administers the 2010 Plan and has discretion to determine the recipients, the number and types of equity awards to be granted and the terms and conditions of the equity awards, including the period of their exercisability and vesting. Subject to a limitation on repricing without shareholder approval, the Board or the Compensation Committee, as applicable, may also determine the exercise price of options granted under the 2010 Plan. Option awards are generally granted with an exercise price equal to the fair value of the common stock at the date of grant and have contractual terms of 10 years. Stock options granted to executive officers and employees vest over a four-year period, with 25% vesting on the one-year anniversary of the grant date and the remaining 75% vesting quarterly over the remaining three years, assuming continued service, and with vesting acceleration in full immediately prior to a change in control. Stock options granted to outside non-employee directors vest either (a) in full on the one-year anniversary of the grant date, assuming continued service, for awards to continuing directors, with vesting acceleration in full immediately prior to a change in control, or (b) quarterly over a three-year period, assuming continued service, for awards to new directors, with vesting acceleration in full immediately prior to a change in control.  At March 31, 2018, 97,072 shares of common stock remained available for the grant of future awards under the 2010 Plan.

 

2013 Stock Incentive Plan

Private Acer’s 2013 Stock Incentive Plan, as amended (the “2013 Plan”), which was assumed by the Company in connection with the Merger, provides for the issuance of up to 165,000 shares of common stock as incentive or non-qualified stock options and/or restricted common stock to employees, officers, directors, consultants and advisers. Option awards are generally granted with an exercise price equal to the fair value of the common stock at the date of grant and have contractual terms of 10 years. At March 31, 2018, all shares available under the 2013 Plan were subject to outstanding equity awards, and the Company does not intend to make any new awards under the 2013 Plan.

7


 

A summary of option activity under the 2010 Plan and the 2013 Plan for the three months ended March 31, 2018 , is as follows:

 

 

 

Number

of Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (Years)

 

 

Aggregate

Intrinsic

Value

(in millions)

 

Options outstanding at December 31, 2017

 

 

463,600

 

 

$

11.23

 

 

 

9.5

 

 

 

 

 

Granted

 

 

62,500

 

 

 

17.92

 

 

 

 

 

 

 

 

 

Options outstanding at March 31, 2018

 

 

526,100

 

 

$

12.31

 

 

 

9.18

 

 

$

3.7

 

Options exercisable at March 31, 2018

 

 

141,134

 

 

$

3.62

 

 

 

7.86

 

 

$

2.2

 

 

At March 31, 2018, there was approximately $2.9 million of unrecognized compensation expense related to the share-based compensation arrangements granted under both plans and the average remaining vesting period is 3.5 years. The weighted average grant date fair value of options granted during the three months ended March 31, 2018 was $10.00. The amount of stock-based compensation expense recorded to research and development, and general and administrative was approximately $153,000 and $100,000, respectively, for the three months ended March 31, 2018.

Warrants

A summary of warrant activity for the three months ended March 31, 2018 is presented below:

 

 

 

Number

of Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contract Term

(# years)

 

Intrinsic

Value

 

Outstanding and exercisable at December 31, 2017

 

 

317,630

 

 

$

123.61

 

 

0.54

 

 

 

Canceled/forfeited

 

 

(5,204

)

 

$

84.25

 

 

 

 

 

 

 

Outstanding and exercisable at March 31, 2018

 

 

312,426

 

 

$

124.27

 

 

0.02

 

 

 

On January 23, 2018, all outstanding and unexercised Series J warrants to purchase an aggregate of 2,942 shares of common stock expired. On January 29, 2018, all outstanding and unexercised Series K warrants to purchase an aggregate of 2,262 shares of common stock expired.

 

7.

NET LOSS PER SHARE

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding. Diluted net loss per share is computed similarly to basic net loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted net loss per share is the same as basic net loss per common share, since the effects of potentially dilutive securities are antidilutive.

As of March 31, 2018, and 2017, the number of shares of common stock underlying potentially dilutive securities include:

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Convertible redeemable preferred stock

 

 

 

 

 

1,608,654

 

Convertible promissory notes

 

 

 

 

 

188,593

 

Warrants

 

 

312,426

 

 

 

 

Options to purchase common stock

 

 

526,100

 

 

 

122,000

 

Total

 

 

838,526

 

 

 

1,919,247

 

 

8


 

Item 2.

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

The following discussion and analysis of our financial condition is as of March 31, 2018.  Our results of operations and cash flows should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report and the audited consolidated financial statements and the notes thereto included in our Form 10-K for the year ended December 31, 2017.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements contained in this report, other than statements of historical fact, constitute “forward-looking statements.” The words “expects,” “believes,” “hopes,” “anticipates,” “estimates,” “may,” “could,” “intends,” “exploring,” “evaluating,” “progressing,” “proceeding” and similar expressions are intended to identify forward-looking statements.

These forward-looking statements do not constitute guarantees of future performance. Investors are cautioned that statements which are not strictly historical statements, including, without limitation, statements regarding current or future financial payments, costs, returns, royalties, performance and position, plans and objectives for future operations, plans and objectives for product development, plans and objectives for present and future clinical trials and results of such trials, plans and objectives for regulatory approval, litigation, intellectual property, product development, manufacturing plans and performance, management’s initiatives and strategies, and the development of our product candidates, including EDSIVO™ (celiprolol) and ACER-001, constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties include, but are not limited to, those risks discussed in “Risk Factors,” as well as, without limitation, risks associated with:

 

the strategies, prospects, plans, expectations and objectives of management for future operations, including the anticipated timing of filings;

 

the progress, scope or duration of the development of product candidates or programs;

 

the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication;

 

our ability to protect our intellectual property rights;

 

our anticipated operations, financial position, costs or expenses;

 

statements regarding future economic conditions or performance;

 

statements concerning proposed new products, services or developments;

 

the expected benefits of and potential value created by the September 19, 2017 merger with Acer Therapeutics Inc., a Delaware corporation (the “Merger”), for our shareholders; and

 

statements of belief and any statement of assumptions underlying any of the foregoing.

These forward-looking statements speak only as of the date made. We assume no obligation or undertaking to update any forward-looking statements to reflect any changes in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. You should, however, review additional disclosures we make in the reports we file with the Securities and Exchange Commission, or SEC.

Overview

We are a pharmaceutical company focused on the acquisition, development, and commercialization of therapies for patients with serious rare and ultra-rare diseases with critical unmet medical need. Our late-stage clinical pipeline includes two candidates for severe genetic disorders: EDSIVO™ (celiprolol) for vascular Ehlers-Danlos syndrome, or vEDS, and ACER-001 (a fully taste-masked, immediate release formulation of sodium phenylbutyrate) for urea cycle disorders, or UCD, and Maple Syrup Urine Disease, or MSUD. There are no FDA-approved drugs for vEDS and MSUD and limited options for UCD, which collectively impact

9


 

approximately 7,000 patients in the United States. Our products have clinical proof-of-concept and mechanistic differentiation, and we intend to s eek approval for them in the United States by using the regulatory pathway established under section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, that allows an applicant to rely at least in part on third-party data for approval, which m ay expedite the preparation, submission, and approval of a marketing application.

Merger and Reverse Stock Split

On September 19, 2017, Acer Therapeutics Inc., a Texas corporation, formerly known as Opexa Therapeutics, Inc. (the “Registrant”), completed its business combination with Acer Therapeutics Inc., a Delaware corporation (“Private Acer”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2017, by and among the Registrant, Opexa Merger Sub, Inc. (“Merger Sub”) and Private Acer (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Private Acer, with Private Acer surviving as a wholly-owned subsidiary of the Registrant (the “Merger”). This transaction was approved by the Registrant’s shareholders at a special meeting of its shareholders on September 19, 2017. Also on September 19, 2017, in connection with, and prior to the completion of, the Merger, the Registrant effected a 1-for-10.355527 reverse stock split of its then outstanding common stock (the “Reverse Split”) and immediately following the Merger, the Registrant changed its name to “Acer Therapeutics Inc.” pursuant to amendments to its certificate of formation filed with the Texas Secretary of State on September 19, 2017. All share numbers in this report have been adjusted to reflect the Reverse Split.

Following the completion of the Merger, the business conducted by the Registrant became primarily the business conducted by Private Acer, which is a pharmaceutical company that acquires, develops and intends to commercialize therapies for patients with serious rare and ultra-rare diseases with critical unmet medical need.

For accounting and financial reporting purposes, Private Acer was considered to have acquired the Registrant in the Merger. Private Acer was incorporated on December 26, 2013, as part of a reorganization whereby Acer Therapeutics, LLC was converted into a corporation organized under the laws of the State of Delaware.

Revenue

We have no products approved for commercial sale and have not generated any revenue from product sales.

In the future, we may generate revenue by entering into licensing arrangements or strategic alliances. To the extent we enter into any license arrangements or strategic alliances, we expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of achievement of pre-clinical, clinical, regulatory and commercialization milestones, if at all, the timing and amount of payments relating to such milestones, as well as the extent to which any products are approved and successfully commercialized.

If our product candidates are not developed in a timely manner, if regulatory approval is not obtained for them, or if such product candidates are not commercialized, our ability to generate future revenue, and our results of operations and financial position, would be adversely affected.

Research and Development Expenses

 

Research and development expenses consist of costs associated with the development of our product candidates. Our research and development expenses include:

 

 

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

 

external research and development expenses incurred under arrangements with third parties, such as contract research organizations, contract manufacturing organizations, consultants, and our scientific advisors; and

 

license fees.

 

We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.

At any time, we are working on multiple programs, primarily within our therapeutic areas of focus. Our internal resources, employees, and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not generate meaningful information regarding the costs incurred for these early stage research and drug discovery programs on a specific project basis. However, we are currently spending the vast majority of our research and development resources on our two lead development programs.

10


 

Since Private Acer’s inception in December 2013, we have spent a total of approximately $18.0 million in research and development expenses through March 31, 2018. Of the approximately $18.0 million in research and development expenses, approximately $16.0 million is directly related to EDSIVO TM an d approximately $1.9 million is directly related to ACER-001. Other research and development costs, such as legal and travel costs, have not been identified as directly attributable to a specific research and development project.

We expect our research and development expenses to increase for the foreseeable future as we continue to conduct our ongoing regulatory activities, initiate new preclinical and clinical trials, and build upon our pipeline. The process of conducting clinical trials and pre-clinical studies necessary to obtain regulatory approval, preparing to seek regulatory approval, and preparing for commercialization in the event of regulatory approval, is costly and time-consuming. We may never succeed in achieving marketing approval for any of our product candidates.

Successful development of product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each product candidate, the timing and ability to obtain regulatory approval for our product candidates (if any), and ongoing assessments as to each product candidate’s commercial potential. We will need to raise additional capital and may seek to do so through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates and pursue regulatory approval.

General and Administrative Expenses

General and administrative expenses consist primarily of professional fees for legal, business consulting, auditing, and tax services. We expect that general and administrative expenses will increase in the future as we expand our operating activities. Additionally, as we prepare for the filing of our application with the FDA we expect to begin to incur significant expenses associated with preparing for the commercial launch, if approved by the FDA, of EDSIVO TM , or “pre-commercial” costs.

We expect to incur significant additional costs associated with being a publicly-traded company. These increases will likely include legal fees, costs associated with Sarbanes-Oxley compliance, accounting fees, and directors’ and officers’ liability insurance premiums.

 

Other income (expense), net

 

Other income (expense), net consists primarily of interest income and expense, and various income or expense items of a non-recurring nature. We earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents. Interest expense has historically been comprised of interest and other related non-cash charges incurred under convertible notes payable with our investors. Additionally, we record as part of other income (expense), net, transactional gains and losses on foreign currency denominated assets and liabilities when they are revalued each period due to changes in underlying exchange rates.

 

Critical Accounting Polices and Estimates

 

This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates. There have been no material changes to our critical accounting policies during the three months ended March 31, 2018. Please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2017 for a discussion of our critical accounting policies and significant judgments and estimates.

 

11


 

Business Combinations

 

Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Accounting for business acquisitions may require management to make judgments and estimates as to fair value of consideration transferred. This judgment and determination may affect the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.

 

Goodwill

 

Goodwill represents the excess of cost over fair value of net assets acquired in the Merger and in our prior acquisition of Anchor Therapeutics, Inc. (“Anchor”). We evaluate the recoverability of goodwill annually or more frequently, if events or changes in circumstances indicate that the carrying value of goodwill might be impaired. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. This step serves as the basis for determining whether it is necessary to perform the two-step goodwill impairment test. If we determine it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we will perform the two-step test. The two-step test first compares the fair value of the reporting unit to its carrying value. If the fair value exceeds the carrying value, no impairment exists, and the second step is not performed. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded as part of the second step of the test, to the extent that the implied fair value of the reporting unit goodwill is less than the carrying value.

 

We review intangible assets annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment. If the carrying value of an asset exceeds its undiscounted cash flows, we write down the carrying value of the intangible asset to its fair value in the period identified.

 

In-process Research and Development

 

In-process research and development (“IPRD”) represents the value of the three G-protein-coupled receptor targets (the “Targets”) from the GPCR Target Pools of Anchor that we obtained the rights to in the March 20, 2015, acquisition of Anchor by Private Acer . IPRD was recorded at fair value in conjunction with the Anchor acquisition during 2015 and is an indefinite-lived intangible asset. As such, it is tested at least annually for impairment.

 

Stock-Based Compensation

 

We account for stock-based compensation expense related to stock options granted to employees and members of our board of directors under our 2013 Stock Incentive Plan, as amended, and our 2010 Stock Incentive Plan, as amended and restated, by estimating the fair value of each stock option or award on the date of grant using the Black-Scholes model. We recognize stock-based compensation expense on a straight-line basis over the vesting term.

 

We account for stock options issued to non-employees by valuing the award using an option pricing model and re-measuring such awards to the current fair value until the awards are vested or a performance commitment has otherwise been reached.

 

Research and Development

 

Research and development costs are expensed as incurred and include compensation and related benefits, license fees and outside contracted research and manufacturing consultants. We often make nonrefundable advance payments for goods and services that will be used in future research and development activities. These payments are capitalized and recorded as an expense in the period that we receive the goods or when the services are performed.

 

Clinical Trial and Pre-Clinical Study Accruals

 

We make estimates of accrued expenses as of each balance sheet date in our consolidated financial statements based on certain facts and circumstances at that time. Our accrued expenses for pre-clinical studies and clinical trials are based on estimates of costs incurred for services provided by contract research organizations (“CRO”), manufacturing organizations, and for other trial-related activities. Payments under our agreements with external service providers depend on a number of factors such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, we obtain information from various sources and estimate the level of effort or expense allocated to each period. Adjustments to our research and development expenses may be necessary in future periods as our estimates change. As these activities are generally material to our overall financial statements, subsequent changes in estimates may result in a material change in our accruals.

 

12


 

Results of Operations

 

Comparison of the three months ended March 31, 2018 and 2017

 

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

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

Research and development

 

$

2,073,971

 

 

$

3,033,539

 

 

$

(959,568

)

 

 

(32

)%

General and administrative

 

 

1,917,030

 

 

 

333,529

 

 

 

1,583,501

 

 

 

475

%

Other income (expense), net

 

 

7,397

 

 

 

(12,630

)

 

 

20,027

 

 

 

(159

)%

Net loss

 

 

(3,983,604

)

 

 

(3,379,698

)

 

 

(603,906

)

 

 

18

%

 

Research and Development Expenses

Research and development expense was approximately $2.1 million during the three months ended March 31, 2018, as compared to approximately $3.0 million during the three months ended March 31, 2017. This decrease of approximately $1.0 million was principally due to a decrease in spending for contract research, data licenses and manufacturing services relating to EDSIVO TM .  Research and development expense for the three months ended March 31, 2018, was comprised of approximately $2.2 million related to EDSIVO TM , which was offset by approximately net $93,000 resulting from a refund from a supplier related to ACER-001. Research and development expense for the three months ended March 31, 2017, was comprised of approximately $2.9 million related to EDSIVO TM and approximately $66,000 related to ACER-001.  Other research and development costs such as legal and travel costs have not been identified as directly attributable to a specific research and development project.

 

 

General and Administrative Expenses

 

General and administrative expense was approximately $1.9 million for the three months ended March 31, 2018 as compared to approximately $334,000 for the three months ended March 31, 2017. This increase of approximately $1.6 million was primarily due to an increase in pre-commercial costs, personnel costs, and legal related expenses.

 

Other Income (Expense), Net

 

Other income (expense), net of approximately $7,000 during the three months ended March 31, 2018 was primarily attributable to interest income, offset by foreign exchange transaction losses. Other expense, net of approximately $13,000 during the three months ended March 31, 2017 was primarily attributable to interest expense on convertible promissory notes payable.

 

Liquidity and Capital Resources

 

We have never been profitable and have incurred operating losses in each year since inception. From inception to March 31, 2018, we have raised net cash proceeds of approximately $39.0 million, primarily from private placements of convertible preferred stock, common stock and debt financings. As of March 31, 2018, we had approximately $12.4 million in cash and cash equivalents. Our net loss was approximately $4.0 million for the three months ended March 31, 2018. As of March 31, 2018, we had an accumulated deficit of approximately $29.5 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. The following table shows a summary of our cash flows for the three months ended March 31, 2018, and 2017:

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Net cash (used in) provided by:

 

 

 

 

 

 

 

 

Operating activities

 

$

(3,227,231

)

 

$

(2,072,929

)

Investing activities

 

 

(9,752

)

 

 

 

Financing activities

 

 

(38,747

)

 

 

3,062,026

 

Net (decrease) increase in cash and cash

   equivalents

 

$

(3,275,730

)

 

$

989,097

 

 

13


 

Operating Activities

 

Cash used in operating activities was approximately $3.2 million for the three months ended March 31, 2018, as compared to approximately $2.1 million for the three months ended March 31, 2017. The increase of approximately $1.1 million was principally the result of an increase in net loss due to increased operating expense as well as timing differences in accounts payable and accrued expenses.

 

Investing Activities

 

Net cash used in investing activities during the three months ended March 31, 2018, related to nominal purchases of computer equipment.

 

Financing Activities

 

Net cash used in financing activities during the three months ended March 31, 2018, consisted of approximately $39,000 of residual costs related to our offering of common stock in December 2017. Net cash provided by financing activities during the three months ended March 31, 2017, consisted of net proceeds from the issuance of convertible notes payable.

 

Future Capital Requirements

 

We have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development and manufacturing activities, particularly as we continue the research, development, manufacture and clinical trials of, and seek regulatory approval for, our product candidates. In addition, subject to obtaining regulatory approval of any of our product candidates and thereafter successfully commercializing any such product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations.

 

As of March 31, 2018, we had approximately $12.4 million in cash and cash equivalents. We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our product candidates in or towards clinical development or potential regulatory approval.

 

Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:

 

our ability to obtain adequate levels of financing to meet our operating plan;

 

the costs associated with filing, outcome, and timing of regulatory approvals;

 

the terms and timing of any strategic alliance, licensing and other arrangements that we may establish;

 

the cost and timing of hiring new employees to support our continued growth;

 

the costs and timing of having clinical supplies of our product candidates manufactured;

 

the initiation and progress of ongoing pre-clinical studies and clinical trials for our product candidates;

 

the costs involved in patent filing, prosecution, and enforcement; and

 

the number of programs we pursue.

 

Based on available resources, we believe that our cash and cash equivalents currently on hand are sufficient to fund our currently anticipated operating and capital requirements through the end of 2018. However, our current capital resources are not sufficient to fund our planned operations for the next 12 months from the date of the financial statements included in this report and thus there is substantial doubt about the Company’s ability to continue as a going concern within one year after such date. We will continue to require substantial additional capital to continue our clinical development and pursuit of regulatory approval activities. Accordingly, we will need to raise substantial additional capital to continue to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development, regulatory and commercialization efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop and potentially commercialize (if approved) our product candidates.

 

14


 

We expect to incur significant expenses and increasing operating losses for at least the next two years as we initiate and continue the clinical development of, seek regulatory approval for, and potentially commercialize (if approved) our product candidates and add personnel necessary to operate as a public company with an advanced clinical pipeline of product candidates. In addition, operating as a publicly-traded company involves the hiring of additional financial and other personnel, upg rading financial information systems, and incurring costs associated with operating as a public company. We expect that our operating losses will fluctuate significantly from quarter-to-quarter and year-to-year due to the timing of clinical development pro grams, efforts to achieve regulatory approval and planning for potential commercialization (if approved) of our product candidates.

 

Until we can generate a sufficient amount of revenue to finance our cash requirements, which would require us to obtain regulatory approval for and successfully commercialize one or more of our product candidates, we expect to finance our future cash needs primarily through the issuance of additional equity and potentially through borrowing and strategic alliances with partner companies. We do not maintain any external lines of credit or have any sources of debt or equity capital committed for funding, other than the legacy sales agreement entered into on March 25, 2016 between the Registrant and IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.). This agreement provides a facility for the offer and sale of shares of common stock from time to time depending upon market demand, in transactions deemed to be an “at-the-market” (“ATM”) offering.  We will need to keep current our shelf registration statement and the offering prospectus relating to the ATM facility, in addition to providing certain periodic deliverables under the sales agreement, in order to use such facility. To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or pursuit of regulatory approval efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and, if applicable, market ourselves.

 

Contractual Commitments

 

License Agreements

 

In August 2016, Private Acer entered into an agreement with AP-HP granting it the exclusive worldwide rights to access and use data from a multicenter, prospective, randomized, open trial related to the use of celiprolol for the treatment of vEDS. We intend to use this pivotal clinical data to support an NDA filing for EDSIVO TM for the treatment of vEDS. The agreement requires us to make certain upfront payments to AP-HP, reimburse certain of AP-HP’s costs, make payments upon achievement of defined milestones and pay royalties on net sales of celiprolol over the royalty term.

 

In April 2014, we obtained exclusive rights to patents and certain other intellectual property relating to ACER-001 and preclinical and clinical data, through an exclusive license agreement with Baylor College of Medicine, or BCM. Under the terms of the agreement, as amended, we have worldwide exclusive rights to develop, manufacture, use, sell and import products incorporating the licensed intellectual property. The license agreement requires us to make upfront and annual payments to BCM, reimburse certain of BCM’s legal costs, make payments upon achievement of defined milestones, and pay royalties on net sales of any developed product over the royalty term.

 

Off-Balance Sheet Arrangements

 

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

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

Not Applicable.

15


 

 

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive officer and principal financial officer (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of March 31, 2018, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of March 31, 2018, our disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

16


 

PART II - OTHE R INFORMATION

Item 1.

Legal Proceedings.  

 

From time to time, the Company or its subsidiaries may become involved in litigation or proceedings relating to claims arising from the ordinary course of business.

 

See Note 5 to our unaudited condensed consolidated financial statements included in this report for a description of our litigation with Piper Jaffray & Co.

 

Item 1A.

Risk Factors.  

 

Investing in our securities involves a high degree of risk.  You should consider the following risk factors, as well as other information contained or incorporated by reference in this report, before deciding to invest in our securities.  The following factors affect our business, our intellectual property, the industry in which we operate and our securities.  The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presently known or which we consider immaterial as of the date hereof may also have an adverse effect on our business.  If any of the matters discussed in the following risk factors were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected, the market price of our securities could decline and you could lose all or part of your investment in our securities.

Risks Related to Our Business and Financial Condition

We have a limited operating history and have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future and may never achieve or maintain profitability. The absence of any commercial sales and our limited operating history make it difficult to assess our future viability.

We are a development-stage pharmaceutical company with a limited operating history. On September 19, 2017, we completed the reverse merger, or the Merger, with Acer Therapeutics Inc., a Delaware corporation, or Private Acer, in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2017, by and among Private Acer, ourselves and Opexa Merger Sub, Inc. Also on September 19, 2017, in connection with, and prior to the completion of, the Merger, we effected a 1-for-10.355527 reverse stock split of our common stock and changed our name to “Acer Therapeutics Inc.”

Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are focused principally on repurposing and/or reformulating existing drugs for rare and ultra-rare orphan diseases with significant unmet medical need. We are not profitable and Private Acer had incurred losses in each year since its inception in 2013. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the specialty pharmaceutical industry. We have not generated any revenue to date. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net loss for the year ended December 31, 2017, was $14.2 million and our net loss for the three months ended March 31, 2018 was $4.0 million. As of March 31, 2018, we had an accumulated deficit of $29.5 million. We expect to continue to incur losses for the foreseeable future as we continue our development of, and seek marketing approvals for, our product candidates.

We have devoted substantially all of our financial resources to identify, acquire, and develop our product candidates, including providing general and administrative support for our operations. To date, we have financed our operations primarily through the sale of equity securities and convertible promissory notes. The amount of our future net losses 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 grants. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We expect losses to increase as we conduct clinical trials and continue to develop our lead product candidates. We expect to invest significant funds into the research and development of our current product candidates to determine the potential to advance these product candidates to regulatory approval.

If we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of any markets in which our product candidates may receive approval and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for our product candidates in those markets. Even if we obtain adequate market share for our product candidates, because the potential markets in which our product candidates may ultimately receive regulatory approval could be very small, we may never become profitable despite obtaining such market share and acceptance of our products.

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We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, and our expenses will increase substantially if and as we:

 

continue the clinical development of our product candidates;

 

continue efforts to discover new product candidates;

 

undertake the manufacturing of our product candidates or increase volumes manufactured by third parties;

 

advance our programs into larger, more expensive clinical trials;

 

initiate additional pre-clinical, clinical, or other trials or studies for our product candidates;

 

seek regulatory and marketing approvals and reimbursement for our product candidates;

 

establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval and market for ourselves;

 

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

 

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

 

seek to maintain, protect and expand our intellectual property portfolio;

 

seek to attract and retain skilled personnel; and

 

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

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

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

Since our inception, substantially all of our resources have been dedicated to the clinical development of our product candidates. As of March 31, 2018, we had an accumulated deficit of $29.5 million, cash and cash equivalents of $12.4 million and current liabilities aggregating $2.5 million. Based on available resources, we believe that our cash and cash equivalents currently on hand are sufficient to fund our anticipated operating and capital requirements through the end of 2018. However, our current capital resources are not sufficient to fund our planned operations for the next 12 months from the date of the financial statements included in this report and thus there is substantial doubt about the Company’s ability to continue as a going concern within one year after such date.

We believe that we will continue to expend substantial resources for the foreseeable future on the completion of clinical development and regulatory preparedness of our product candidates, preparations for a commercial launch of our product candidates, if approved, and development of any other current or future product candidates we may choose to further develop. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining marketing approvals, and manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any drug development process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current product candidates, if approved, or future product candidates, if any.

Our operating plan may change as a result of factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to shareholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future capital requirements depend on many factors, including:

 

the scope, progress, results, and costs of researching and developing our current product candidates, future product candidates and conducting preclinical and clinical trials;

 

the cost of seeking regulatory and marketing approvals and reimbursement for our product candidates;

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the cost of commercialization activiti es if our current product candidates and future product candidates are approved for sale, including marketing, sales and distribution costs, and preparedness of our corporate infrastructure;

 

the cost of manufacturing current product candidates and future product candidates that we obtain approval for and successfully commercialize;

 

our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

 

the number and characteristics of any additional product candidates we may develop or acquire;

 

any product liability or other lawsuits related to our products or commenced against us;

 

the expenses needed to attract and retain skilled personnel;

 

the costs associated with being a public company;

 

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property rights, including litigation costs and the outcome of such litigation; and

 

the timing, receipt and amount of sales of, or royalties on, any future approved products, if any.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:

 

delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for our current product candidates or future product candidates, if any;

 

delay, limit, reduce or terminate our research and development activities; or

 

delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our future product candidates.

We currently have no source of product sales revenue and may never be profitable.

We have not generated any revenues from commercial sales of any of our current product candidates, EDSIVO TM (for vascular Ehlers-Danlos syndrome, or vEDS) and ACER-001 (for urea cycle disorders, or UCD, and Maple Syrup Urine Disease, or MSUD). Our ability to generate product revenue depends upon our ability to successfully identify, develop and commercialize these product candidates or other product candidates that we may develop, in-license or acquire in the future. Our ability to generate future product revenue from our current or future product candidates also depends on a number of additional factors, including our ability to:

 

successfully complete research and clinical development of current and future product candidates;

 

establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of product candidates;

 

obtain regulatory approval from relevant regulatory authorities in jurisdictions where we intend to market our product candidates;

 

launch and commercialize future product candidates for which we obtain marketing approval, if any, and if launched independently, successfully establish a sales force and marketing and distribution infrastructure;

 

obtain coverage and adequate product reimbursement from third-party payors, including government payors;

 

achieve market acceptance for our approved products, if any;

 

establish, maintain and protect our intellectual property rights; and

 

attract, hire and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with clinical product development, including that our product candidates may not successfully advance through development or achieve regulatory approval, we are unable to predict the timing or amount of any potential future product sales revenues. Our expenses also could increase beyond expectations if we decide to or are required by the United States Food and Drug Administration, or FDA, or comparable foreign regulatory authorities, to perform studies or trials in addition to those that we currently anticipate. Even if we complete the development and regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing these products.

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Our auditors have expressed doubt in their audited financial report in respect of our 2017 fiscal year about our ability to continue as a going concern.

In their audited financial report in respect of our 2017 fiscal year, our independent registered public accounting firm included in its report an emphasis-of-a-matter indicating that the recurring losses from our operations raised a substantial doubt as to our ability to continue as a going concern. As of March 31, 2018, we had an accumulated deficit of $29.5 million, cash and cash equivalents of $12.4 million and current liabilities aggregating $2.5 million. Based on available resources, we believe that our cash and cash equivalents currently on hand are sufficient to fund our anticipated operating and capital requirements through the end of 2018. However, our current capital resources are not sufficient to fund our planned operations for the next 12 months from the date of the financial statements included in this report. Moreover, we expect to continue to incur losses for the foreseeable future as we continue our development of and seek marketing approvals for, our product candidates. These matters raise substantial doubt about our ability to continue as a going concern. Because we have been issued an opinion by our independent registered public accounting firm that substantial doubt exists as to whether we can continue as a going concern, it may be more difficult for us to attract investors.  Unless we are able to raise additional capital, it is possible that the opinion of our independent registered public accounting firm on our audited financial report in respect of future years may include a similar going concern qualification.

Funding from our ATM facility may be limited or be insufficient to fund our operations or to implement our strategy.

We will need to keep current our shelf registration statement and an offering prospectus relating to the ATM facility with Brinson Patrick (now a division of IFS Securities, Inc.) in order to use the program to sell shares of our common stock, as well as provide certain periodic deliverables required by the sales agreement for the facility. The number of shares and price at which we may be able to sell shares under our ATM facility may be limited due to market conditions and other factors beyond our control.

We have incurred, and expect to continue to incur, increased costs and risks as a result of being a public company.

As a public company, we are required to comply with the Sarbanes-Oxley Act of 2002, or SOX, as well as rules and regulations implemented by the SEC and The Nasdaq Stock Market, or Nasdaq. Changes in the laws and regulations affecting public companies, including the provisions of SOX and rules adopted by the SEC and by Nasdaq, have resulted in, and will continue to result in, increased costs as we respond to their requirements. Given the risks inherent in the design and operation of internal controls over financial reporting, the effectiveness of our internal controls over financial reporting is uncertain. If our internal controls are not designed or operating effectively, we may not be able to conclude an evaluation of our internal control over financial reporting as required or we or our independent registered public accounting firm may determine that our internal control over financial reporting was not effective. We currently have a very limited workforce, and it may be difficult to adhere to appropriate internal controls over financial reporting or disclosure controls with such limited staffing. In addition, our independent registered public accounting firm may either disclaim an opinion as it relates to management’s assessment of the effectiveness of our internal controls or may issue an adverse opinion on the effectiveness of our internal controls over financial reporting, especially in light of the fact that we currently have a very limited workforce. Investors may lose confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline and which could affect our ability to run our business effectively. New rules could also make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is the same or similar to our current coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees and as executive officers. We cannot predict or estimate the total amount of the costs we may incur or the timing of such costs to comply with these rules and regulations.

Under the corporate governance standards of Nasdaq, a majority of our board of directors and each member of our Audit and Compensation Committees must be an independent director. If any vacancies on our Board or Audit or Compensation Committees occur that need to be filled by independent directors, we may encounter difficulty in attracting qualified persons to serve on our Board and, in particular, our Audit Committee. If we fail to attract and retain the required number of independent directors, we may be subject to SEC enforcement proceedings and delisting of our common stock from the Nasdaq Capital Market.

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

We are subject to the reporting requirements of the Exchange Act, SOX and Nasdaq rules and regulations. SOX requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Annual Report on Form 10-K filing for that year, as required by Section 404 of SOX. As a private company, Private Acer had never been required to test its internal controls within a specified period. This will require that we incur substantial internal costs to continue to expand our accounting and finance functions and that we expend significant management efforts. We may experience difficulty in meeting these reporting requirements in a timely manner.

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Although we are committed to continuing to improve our internal control processes, and although we will continue to diligently and vigorously review our internal controls over financial reporting, we cannot be certain that, in the future, a material weakness or significant deficiency will not exist or otherwise be discovered. We may discover weaknesses in our system of internal financial and accounting controls and procedur es that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only rea sonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

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

Any acquisitions that we make could disrupt our business and harm our financial condition.

We expect to evaluate potential strategic acquisitions of complementary businesses, products or technologies worldwide. We may also consider joint ventures, licensing and other collaborative projects. We may not be able to identify appropriate acquisition candidates or strategic partners, or successfully negotiate, finance or integrate acquisitions of any businesses, products or technologies. Furthermore, the integration of any acquisition and management of any collaborative project may divert our management’s time and resources from our core business and disrupt our operations. As a company, we have limited experience with acquiring other companies, or with acquiring products outside of the United States. Any cash acquisition we pursue would potentially divert the cash we have on our balance sheet from our present clinical development programs. Any stock acquisitions would dilute our stockholders’ ownership.

Risks Related to the Clinical Development and Marketing Approval of Our Product Candidates

The marketing approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain marketing approval for our product candidates, our business will be substantially harmed.

None of our current product candidates have gained marketing approval in our target indications for sale in the United States or any other country, and we cannot guarantee that we will ever have marketable products. Our business is substantially dependent on our ability to complete the development of, obtain marketing approval for, and successfully commercialize our product candidates in a timely manner. We cannot commercialize our product candidates in the United States without first obtaining approval from the FDA to market each product candidate. Similarly, we cannot commercialize our product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. Our product candidates could fail to receive marketing approval for many reasons, including the following:

 

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

 

the FDA or comparable foreign regulatory authorities may find the human subject protections for our clinical trials inadequate and place a clinical hold on an Investigational New Drug Application, or IND, at the time of its submission precluding commencement of any trials or a clinical hold on one or more clinical trials at any time during the conduct of our clinical trials;

 

the FDA could determine that we cannot rely on Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, for any or all of our product candidates;

 

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

 

the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

 

the FDA could determine that we have identified the wrong reference listed drug or drugs or that approval of our 505(b)(2) application for any of our product candidates is blocked by patent or non-patent exclusivity of the reference listed drug or drugs;

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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an application to obtain marketing approval in the United States or elsewhere;

 

the FDA or comparable foreign regulatory authorities may find inadequate the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner that would delay marketing approval.

Before obtaining marketing approval for the commercial sale of any drug product for a target indication, we must demonstrate in preclinical studies and well-controlled clinical trials and, to the satisfaction of the applicable regulatory authorities, that the product is safe and effective for its intended use and that the manufacturing facilities, processes, and controls are adequate to preserve the drug’s identity, strength, quality and purity. In the United States, it is necessary to submit and obtain approval of a New Drug Application, or NDA, from the FDA. An NDA must include extensive preclinical and clinical data and supporting information to establish the product safety and efficacy for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing, and controls for the product. After the submission but before approval of the NDA, the manufacturing facilities used to manufacture a product candidate must be inspected by the FDA to ensure compliance with the applicable Current Good Manufacturing Practice, or cGMP, requirements. The FDA and the Competent Authorities of the Member States of the European Economic Area, or EEA, and comparable foreign regulatory authorities, may also inspect our clinical trial sites and audit clinical study data to ensure that our studies are properly conducted in accordance with the IND regulations, human subject protection regulations, and good clinical practice, or cGCP.

Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and approval may not be obtained. Upon submission of an NDA, the FDA must make an initial determination that the application is sufficiently complete to accept the submission for filing. We cannot be certain that any submissions will be accepted for filing and reviewed by the FDA, or ultimately be approved. If the application is not accepted for review, the FDA may require that we conduct additional clinical studies or preclinical testing, or take other actions before it will reconsider our application. If the FDA requires additional studies or data, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, the FDA may not consider any additional information to be complete or sufficient to support the filing or approval of the NDA.

Regulatory authorities outside of the United States, such as in Europe and Japan and in emerging markets, also have requirements for approval of drugs for commercial sale with which we must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our product candidates. Clinical trials conducted in one country may not be accepted or the results may not be found adequate by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. However, the failure to obtain regulatory approval in one jurisdiction could have a negative impact on our ability to obtain approval in a different jurisdiction. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval could require additional non-clinical studies or clinical trials, which could be costly and time-consuming. Foreign regulatory approval may include all of the risks associated with obtaining FDA approval. For all of these reasons, we may not obtain foreign regulatory approvals on a timely basis, if at all.

The process to develop, obtain marketing approval for, and commercialize product candidates is long, complex and costly, both inside and outside of the United States, and approval is never guaranteed. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. Even if our product candidates were to successfully obtain approval from regulatory authorities, any such approval might significantly limit the approved indications for use, including more limited patient populations, require that precautions, warnings or contraindications be included on the product labeling, including black box warnings, require expensive and time-consuming post-approval clinical studies, risk evaluation and mitigation strategies or surveillance as conditions of approval, or, through the product label, the approval may limit the claims that we may make, which may impede the successful commercialization of our product candidates. Following any approval for commercial sale of our product candidates, certain changes to the product, such as changes in manufacturing processes and additional labeling claims, as well as new safety information, may require new studies and will be subject to additional FDA notification, or review and approval. Also, marketing approval for any of our product candidates may be withdrawn. If we are unable to obtain marketing approval for our product candidates in one or more jurisdictions, or any approval contains significant limitations, our ability to market to our full target market will be reduced and our ability to realize the full market potential of our product candidates will be impaired. Furthermore, we may not be able to obtain sufficient funding or generate sufficient revenue and cash flows to continue or complete the development of any of our current or future product candidates.

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If we are unab le to submit an application for approval under Section 505(b)(2) of the FFDCA or if we are required to generate additional data related to safety and efficacy in order to obtain approval under Section 505(b)(2), we may be unable to meet our anticipated dev elopment and commercialization timelines.

Our current strategy for seeking marketing authorization in the United States for our product candidates relies primarily on Section 505(b)(2) of the FFDCA, which permits use of a marketing application, referred to as a 505(b)(2) application, where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use. The FDA interprets this to mean that an applicant may rely for approval on such data as that found in published literature or the FDA’s finding of safety or effectiveness, or both, of a previously approved drug product owned by a third party. There is no assurance that the FDA would find third-party data relied upon by us in a 505(b)(2) application sufficient or adequate to support approval, and the FDA may require us to generate additional data to support the safety and efficacy of our product candidates. Consequently, we may need to conduct substantial new research and development activities beyond those we currently plan to conduct. Such additional new research and development activities would be costly and time-consuming and there is no assurance that such data generated from such additional activities would be sufficient to obtain approval.

If the data to be relied upon in a 505(b)(2) application are related to drug products previously approved by the FDA and covered by patents that are listed in the FDA’s Orange Book, we would be required to submit with our 505(b)(2) application a Paragraph IV Certification in which we must certify that we do not infringe the listed patents or that such patents are invalid or unenforceable, and provide notice to the patent owner or the holder of the approved NDA. The patent owner or NDA holder would have 45 days from receipt of the notification of our Paragraph IV Certification to initiate a patent infringement action against us. If an infringement action is initiated, the approval of our NDA would be subject to a stay of up to 30 months or more while we defend against such a suit. Approval of our product candidates under Section 505(b)(2) may, therefore, be delayed until patent exclusivity expires or until we successfully challenge the applicability of those patents to our product candidates. Alternatively, we may elect to generate sufficient clinical data so that we would no longer need to rely on third-party data, which would be costly and time-consuming and there would be no assurance that such data generated from such additional activities would be sufficient to obtain approval.

We may not be able to obtain shortened review of our applications, and the FDA may not agree that our product candidates qualify for marketing approval. If we are required to generate additional data to support approval, we may be unable to meet anticipated or reasonable development and commercialization timelines, may be unable to generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing approval of our product candidates. If the FDA changes its interpretation of Section 505(b)(2) allowing reliance on data in a previously approved drug application owned by a third party, or there is a change in the law affecting Section 505(b)(2), this could delay or even prevent the FDA from approving any Section 505(b)(2) application that we submit.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. The FDA and comparable foreign regulatory authorities have substantial discretion in the approval process and determining when or whether marketing approval will be obtained for our current product candidates. Even if we believe the data collected from clinical trials of our current product candidates are promising, such data may not be sufficient to support approval by the FDA or comparable foreign authorities. Our future clinical trial results may not be successful.

It is impossible to predict the extent to which the clinical trial process may be affected by legislative and regulatory developments. Due to these and other factors, our current product candidates or future product candidates could take a significantly longer time to gain marketing approval than expected or may never gain marketing approval. This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of our current product candidates.

Preclinical trials must also be conducted in accordance with FDA and comparable foreign authorities’ legal requirements, regulations or guidelines, including Good Laboratory Practice, or GLP, an international standard meant to harmonize the conduct and quality of nonclinical studies and the archiving and reporting of findings. Preclinical studies including long-term toxicity studies and carcinogenicity studies in experimental animals may result in findings that may require further evaluation, which could affect the risk-benefit evaluation of clinical development, or which may even lead the regulatory agencies to delay, prohibit the initiation of or halt clinical trials or delay or deny marketing authorization applications. Failure to adhere to the applicable GLP standards or misconduct during the course of preclinical trials may invalidate the data and require one or more studies to be repeated or additional testing to be conducted.

Clinical trials must also be conducted in accordance with FDA and comparable foreign authorities’ legal requirements, regulations or guidelines, including human subject protection requirements and GCP. Clinical trials are subject to further oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our current product candidates produced under cGMP and other requirements. Our clinical trials are conducted at multiple sites, including some sites in countries outside the United States and

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the European Union, which may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of foreign and non-EU clinica l research organizations, as well as expose us to risks associated with clinical investigators who are unknown to the FDA or the European regulatory authorities, and with different standards of diagnosis, screening and medical care.

The commencement and completion of clinical trials for our current product candidates may be delayed, suspended or terminated as a result of many factors, including but not limited to:

 

the delay or refusal of regulators or IRBs to authorize us to commence a clinical trial at a prospective trial site and changes in regulatory requirements, policies and guidelines;

 

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

 

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

 

delays in patient enrollment and variability in the number and types of patients available for clinical trials;

 

the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically significant treatment effects;

 

lower than anticipated retention rates of patients and volunteers in clinical trials;

 

clinical sites deviating from trial protocol or dropping out of a trial;

 

adding new clinical trial sites;

 

negative or inconclusive results, which may require us to conduct additional preclinical or clinical trials or to abandon projects that we expect to be promising;

 

safety or tolerability concerns could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks;

 

regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

 

our third-party research and manufacturing contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

 

delays in establishing the appropriate dosage levels;

 

the quality or stability of our current product candidates falling below acceptable standards;

 

the inability to produce or obtain sufficient quantities of our current product candidates to complete clinical trials; and

 

exceeding budgeted costs due to difficulty in predicting accurately the costs associated with clinical trials.

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

There are significant requirements imposed on us and on clinical investigators who conduct clinical trials that we sponsor. Although we are responsible for selecting qualified clinical investigators, providing them with the information they need to conduct the clinical trial properly, ensuring proper monitoring of the clinical trial, and ensuring that the clinical trial is conducted in accordance with the general investigational plan and protocols contained in the IND, we cannot ensure the clinical investigators will maintain compliance with all regulatory requirements at all times. The pharmaceutical industry has experienced cases where clinical investigators have been found to incorrectly record data, omit data, or even falsify data. We cannot ensure that the clinical investigators in our trials will not make mistakes or otherwise compromise the integrity or validity of data, any of which would have a significant negative effect on our ability to obtain marketing approval, our business, and our financial condition.

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trial is being conducted, by the data safety monitoring board, or DSMB, for such trial, or by the FDA or comparable foreign regulatory authorities. We or such authorities may impose a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site

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by the FDA or comparable foreign regulatory authorities resulting in the imposition of a clinical hold, safety issues or adverse side effec ts, failure to demonstrate a benefit from using the drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion or termination of any clinical tri al of our current product candidates, the commercial prospects of our current product candidates will be harmed, and our ability to generate product revenues from our product candidates will be delayed. In addition, any delays in completing our clinical tr ials will increase our costs, slow our development and approval process and jeopardize our ability to commence product sales and generate revenues. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of our product candidates.

Any of these occurrences could materially adversely affect our business, financial condition, results of operations, and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of our current product candidates. Significant clinical trial delays could also allow our competitors to bring products to market before we are able to do so, shorten any periods during which we have the exclusive right to commercialize our current product candidates and impair our ability to commercialize our current product candidates, which may harm our business, financial condition, results of operations, and prospects.

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

Clinical failure can occur at any stage of our clinical development. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical or preclinical testing. Data obtained from tests are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent marketing approval. In addition, the design of a clinical trial can determine whether our results will support approval of a product or approval of a product for desired indications, and flaws or shortcomings in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval for our desired indications. Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts. If one of our product candidates is found to be unsafe or lack efficacy, we will not be able to obtain marketing approval for it and our business would be harmed. For example, if the results of our clinical trials of our product candidates do not achieve pre-specified endpoints or we are unable to provide primary or secondary endpoint measurements deemed acceptable by the FDA or comparable foreign regulators or if we are unable to demonstrate an acceptable level of safety relative to the efficacy associated with our proposed indications, the prospects for approval of our product candidates would be materially and adversely affected. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in Phase 2 and Phase 3 clinical trials, even after seeing promising results in earlier clinical trials.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including differences in trial protocols and design, the size and type of the patient population, adherence to the dosing regimen and the rate of dropout among clinical trial participants. We do not know whether any clinical trials we may conduct will demonstrate consistent and/or adequate efficacy and safety to obtain marketing approval for our product candidates.

As an organization, we have not yet completed any clinical trial and may be unable to do so efficiently or at all for our current product candidates or any product candidate we develop.

We intend to conduct clinical trials of our product candidates. The conduct of clinical trials and the submission of a successful NDA is a complicated process. As an organization, we have not completed a clinical trial before, and we have limited experience in preparing and submitting regulatory filings. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to NDA submission and approval of our current product candidates or for any other product candidate we develop. We may require more time and incur greater costs than anticipated and may not succeed in obtaining marketing approval of the product candidates we develop. Failure to commence or complete, or delays in, our planned clinical trials would prevent us from or delay us in commercializing our current product candidates or any other product candidate we develop.

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Marketing approval may be substantially delayed or may not be obtained for one or all of our product candidates if regulatory authorit ies require additional or more time-consuming studies to assess the safety and efficacy of our product candidates.

We may be unable to initiate or complete development of our product candidates on schedule, if at all. The completion of the studies for our product candidates will require us to obtain substantial additional funding beyond our current resources. In addition, regulatory authorities may require additional or more time-consuming studies to assess the safety or efficacy of our product candidates than we are currently planning. We may not be able to obtain adequate funding to complete the necessary steps for approval for any or all of our product candidates. Additional delays may result if the FDA, an FDA Advisory Committee (if one is convened to review our NDA) or other regulatory authority indicates that a product candidate should not be approved or there should be restrictions on approval, such as the requirement for a REMS, to ensure the safe use of the drug. Delays in marketing approval or rejections of applications for marketing approval in the United States or other markets may result from many factors, including:

 

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

 

regulatory requests for additional analyses, reports, data, non-clinical and preclinical studies and clinical trials;

 

regulatory questions or disagreement by the FDA or comparable regulatory authorities regarding interpretations of data and results and the emergence of new information regarding our current or future product candidates or the field of research;

 

unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results regarding safety or efficacy of our product candidates during clinical trials;

 

failure to meet the level of statistical significance required for approval;

 

inability to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

lack of adequate funding to commence or continue our clinical trials due to unforeseen costs or other business decisions;

 

regulatory authorities may find inadequate the manufacturing processes or facilities of the third-party manufacturers with which we contract for clinical and commercial supplies;

 

we may have insufficient funds to pay the significant user fees required by the FDA upon the filing of an NDA; and

 

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner that would delay marketing approval.

The lengthy and unpredictable approval process, as well as the unpredictability of future clinical trial results, may result in our failure to obtain marketing approval to market our other product candidates, which would significantly harm our business, results of operations and prospects.

Our product candidates may cause undesirable adverse effects or have other properties that could delay or prevent their marketing approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if obtained.

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 a more restrictive label or the delay or denial of marketing approval by the FDA or other comparable foreign authorities. If any of our current product candidates or any other product candidate we develop is associated with serious adverse, undesirable or unacceptable side effects, we may need to abandon such candidate’s development or limit development to certain uses or subpopulations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early-stage or clinical testing have later been found to cause side effects that prevented further development of the compound. Results of our trials could reveal a high and unacceptable prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims.

If our product candidates receive marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

regulatory authorities may withdraw approvals of such product;

 

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

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additional restrictions may be imposed on the marketing of the particular product or the manufacturing process for the product or any component thereof;

 

regulatory authorities may require the addition of labeling statements, such as a precaution, “black box” warning or other warnings or a contraindication;

 

we or our collaborators may be required to implement a REMS or create a medication guide outlining the risks of such side effect for distribution to patients;

 

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

 

the product may become less competitive; and

 

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates, if approved, and could materially adversely affect our business, financial condition, results of operations and prospects.

Even if we receive marketing approval for our product candidates, such approved products will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions, and we may be subject to penalties and legal sanctions if we fail to comply with regulatory requirements or experience unanticipated problems with our approved products.

If the FDA approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP regulations and GCP for any clinical trials that we conduct post-approval. Any marketing 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.

Later discovery of previously unknown problems with an approved product, including adverse events of unanticipated severity or frequency, or with manufacturing operations or processes, or failure to comply with regulatory requirements, or evidence of acts that raise questions about the integrity of data supporting the product approval, may result in, among other things:

 

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

fines, warning letters, or holds on clinical trials;

 

refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals;

 

product seizure or detention, or refusal to permit the import or export of products; and

 

injunctions or the imposition of civil or criminal penalties.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval, manufacturing or commercialization 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 we are 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.

Agencies such as the FDA and national competition regulators in European countries regulate the promotion and uses of drugs not consistent with approved product labeling requirements. If we are found to have improperly promoted our current product candidates for uses beyond those that are approved, we may become subject to significant liability.

Regulatory authorities such as the FDA and national competition agencies in Europe strictly regulate the promotional claims that may be made about prescription products, such as EDSIVO TM or ACER-001, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or comparable foreign regulatory authorities as reflected in the product’s approved labeling, known as “off-label” use, nor may it be promoted prior to obtaining marketing approval. If we receive marketing approval for our product candidates for our proposed indications, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the approved label if the physicians personally believe in their professional medical judgment it could be used in such manner. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses.

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In addition, the FDA requires that promotional claims not be “false or misleading” as such terms are defined in the FDA’s regulations. For example, the FDA requires substantial evidence, which generally consists of two adequate and well-contro lled head-to-head clinical trials, for a company to make a claim that its product is superior to another product in terms of safety or effectiveness. Generally, unless we perform clinical trials meeting that standard comparing our product candidates to com petitive products and these claims are approved in our product labeling, we will not be able promote our current product candidates as superior to other products. If we are found to have made such claims we may become subject to significant liability. In t he United States, the federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in improper promotion. The FDA has also requested that companies enter into consent decrees or corporate integrity agreements. The FDA could also seek permanent injunctions under which specified promotional conduct is monitored, changed or curtailed.

Our current and future relationships with healthcare professionals, investigators, consultants, collaborators, actual customers, potential customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to sanctions.

Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any drug candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, investigators, consultants, collaborators, actual customers, potential customers and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, that may constrain the business or financial arrangements and relationships through which we sell, market and distribute any drug candidates for which we obtain marketing approval. In addition, we may be subject to physician payment transparency laws and patient privacy and security regulation by the federal government and by the U.S. states and foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws that may affect our ability to operate include the following:

 

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid;

 

federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent;

 

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 healthcare 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 healthcare benefit program, regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense 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, healthcare benefits, items or services relating to healthcare matters;

 

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which impose obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

the federal Open Payments program, created under Section 6002 of the Patient Protection and Affordable Care Act, or the Affordable Care Act, and its implementing regulations, which imposed annual reporting requirements for manufacturers of drugs, devices, biologicals and medical supplies for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members, where failure to submit timely, accurately and completely the required information for all covered payments, transfers of value and ownership or investment interests may result in civil monetary penalties; and

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analogous state and foreign laws, such as state anti-kickback and false claim s laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufactu rers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances , many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Further, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided that the government may assert 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 False Claims Act.

Efforts to ensure that our future business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could significantly harm our business. If any of the physicians or other healthcare providers or entities with whom we expect to do business, including our current and future collaborators, if any, are found not to be in compliance with applicable laws, those persons or entities may be subject to criminal, civil or administrative sanctions, including exclusion from participation in government healthcare programs, which could also affect our business.

The impact of recent healthcare reform legislation and other changes in the healthcare industry and healthcare spending on us is currently unknown, and may adversely affect our business model.

In the United States and some foreign jurisdictions, legislative and regulatory changes and proposed changes regarding the healthcare system could prevent or delay marketing approval of our drug candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any drug candidates for which we obtain marketing approval.

Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly regulated industry and new laws and judicial decisions, or new interpretations of existing laws or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, financial condition, results of operations and prospects. There is significant interest in promoting healthcare reform, as evidenced by the enactment in the United States of the Affordable Care Act. Among other things, the Affordable Care Act contains provisions that may reduce the profitability of drug products, including, for example, revising the methodology by which rebates owed by manufacturers for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated, extending the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans, imposing mandatory discounts for certain Medicare Part D beneficiaries, and subjecting drug manufacturers to payment of an annual fee.

We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue or commercialize our drugs.

It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation including the Affordable Care Act. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

 

the demand for any drug products for which we may obtain marketing approval;

 

our ability to set a price that we believe is fair for our products;

 

our ability to obtain coverage and reimbursement approval for a product;

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our ability to generate revenues and achieve or maintain profitability; and

 

the level of taxes that we are required to pay.

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

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

Other Risks Related to Our Business

If we fail to attract and retain key management and scientific personnel, we may be unable to successfully develop or commercialize our product candidates.

Our success as a specialty pharmaceutical company depends on our continued ability to attract, retain and motivate highly qualified management and scientific and clinical personnel. The loss of the services of any of our senior management could delay or prevent obtaining marketing approval or commercialization of our product candidates.

We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among specialty pharmaceutical businesses, and other pharmaceutical, biotechnology and other businesses. Our failure to attract, hire, integrate and retain qualified personnel could impair our ability to achieve our business objectives.

We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.

As of March 31, 2018, we had ten full-time employees and no part-time employees, in addition to a number of consultants or independent contractors working for us. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial, legal and other resources. Our management may need to divert a significant amount of our attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. As we advance our product candidates through clinical trials, 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 such third parties, as well as additional collaborators and suppliers.

We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees, and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

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We may not be able to win government, academic institution or non-profit contracts or grants.

From time to time, we may apply for contracts or grants from government agencies, non-profit entities and academic institutions. Such contracts or grants can be highly attractive because they provide capital to fund the ongoing development of our product candidates without diluting our shareholders. However, there is often significant competition for these contracts or grants. Entities offering contracts or grants may have requirements to apply for or to otherwise be eligible for certain contracts or grants that our competitors may be able to satisfy that we cannot. In addition, such entities may make arbitrary decisions as to whether to offer contracts or make grants, to whom the contracts or grants may or will be awarded and the size of the contracts or grants to each awardee. Even if we are able to satisfy the award requirements, there is no guarantee that we will be a successful awardee. Therefore, we may not be able to win any contracts or grants in a timely manner, if at all.

If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, we could be forced to pay substantial damage awards.

The use of any of our product candidates in clinical trials, and the sale of any approved products, may expose us to product liability claims. We currently maintain product liability insurance coverage in amounts we consider to be reasonable for our stage of development. We intend to monitor the amount of coverage we maintain as the size and design of our clinical trials evolve, and if we are successful in obtaining approval to commercialize any of our product candidates, and adjust the amount of coverage we maintain accordingly. However, there is no assurance that such insurance coverage will fully protect us against some or all of the claims to which we might become subject. We might not be able to maintain adequate insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against potential losses. In the event a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as uncovered damages awards resulting from a claim brought successfully against us.

Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to direct financial and managerial resources to such defense and adverse publicity could result, all of which could harm our business.

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

We are exposed to the risk that our employees and other third parties may engage in fraudulent conduct or other illegal activity. Misconduct by employees and other third parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA, manufacturing standards, federal and state healthcare fraud and abuse laws and regulations, or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee and other third-party 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. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare 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 internal computer systems, or those of our development collaborators, third-party clinical research organizations or other contractors or consultants, may fail or suffer cybersecurity or other security breaches, which could result in a material disruption of our product development programs.

Despite the implementation of security measures, our internal computer systems and those of our current and any future CROs and other contractors, consultants and collaborators are vulnerable to cybersecurity breaches and damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our marketing approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we intend to rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our

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business. To the extent that any disruption or cybersecurity or other security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed.

We are involved in litigation that may be expensive and time consuming, and if resolved adversely, could harm our business, financial condition, or results of operations.

As described in Note 5 to our unaudited condensed consolidated financial statements included in this report, Piper Jaffray & Co. has filed a lawsuit against Private Acer alleging breach of contract. Defending against this lawsuit may be costly and may significantly divert the time and attention of our management from our operations. There can be no assurance that a favorable outcome will be obtained. A negative outcome, whether by final judgment or an unfavorable settlement, could result in payment of significant monetary damages and could adversely affect our financial condition and results of operations.

Risks Related to Commercialization of Our Product Candidates

Our product candidate EDSIVO TM has not been approved for any indication in the United States, which may result in greater research and development expenses, regulatory issues that could delay or prevent approval, or discovery of unknown or unanticipated adverse effects.

EDSIVO TM is a repurposing of celiprolol for the treatment of vEDS. An NDA for this drug for the treatment of hypertension was submitted to the FDA in 1987, however, the NDA was withdrawn prior to review. However, celiprolol has been approved in Europe for the treatment of hypertension since 1984. Regulatory approval of EDSIVO TM may be more expensive and take longer than for other, more well-known or extensively studied pharmaceutical product candidates due to our and regulatory agencies’ lack of experience with celiprolol. The novelty of this product candidate may lengthen the regulatory review process, require us to conduct additional studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. There is also an increased risk that we may discover previously unknown or unanticipated adverse effects during our clinical trials and beyond. Any such events could adversely impact our business prospects, financial condition and results of operations.

Even if we obtain the required regulatory approvals in the United States and other territories, the commercial success of our product candidates will depend on market awareness and acceptance of our product candidates.

Even if we obtain marketing approval for our current product candidates or any other product candidates that we may develop or acquire in the future, the products may not gain market acceptance among physicians, key opinion leaders, healthcare payors, patients and the medical community. Market acceptance of any approved products depends on a number of factors, including:

 

the timing of market introduction;

 

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

 

the clinical indications for which the product is approved and the label approved by regulatory authorities for use with the product, including any precautions, warnings or contraindications that may be required on the label;

 

acceptance by physicians, key opinion leaders and patients of the product as a safe and effective treatment;

 

the cost, safety and efficacy of treatment in relation to alternative treatments;

 

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

 

the number and clinical profile of competing products;

 

the growth of drug markets in our various indications;

 

relative convenience and ease of administration;

 

marketing and distribution support;

 

the prevalence and severity of adverse side effects; and

 

the effectiveness of our sales and marketing efforts.

Market acceptance is critical to our ability to generate revenue. Any product candidate, if approved and commercialized, may be accepted in only limited capacities or not at all. If any approved products are not accepted by the market to the extent that we expect, we may not be able to generate revenue and our business would suffer.

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If the market opportunities for our product candidates are smaller than we b elieve they are, then our revenues may be adversely affected and our business may suffer.

The diseases that our current and future product candidates are being developed to address are rare. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, and our assumptions relating to pricing are based on estimates. Given the small number of patients who have the diseases that we are targeting, our eligible patient population and pricing estimates may differ significantly from the actual market addressable by our product candidates.

Currently, most reported estimates of the prevalence of vEDS, UCD and MSUD are based on studies of small subsets of the population of specific geographic areas, which are then extrapolated to estimate the prevalence of the diseases in the broader world population. It is difficult to precisely measure the incidence or prevalence of vEDS in any population. Studies estimate the prevalence of vEDS as ranging from approximately 1 in 90,000 to 1 in 250,000. In 2017, we commissioned a patient-finder study that phenotypically identified 4,169 vEDS patients in the United States from an analysis of a commercially available patient claims database, with data of over 180 million unique patient lives. Based on that information, we estimate the prevalence of phenotypically-defined vEDS in the United States could be greater than 1 in 45,000. Studies indicate that MSUD affects an estimated 1 in 185,000 infants worldwide. Approximately 3,000 patients suffer from MSUD worldwide, of whom approximately 800 are located in the United States. It is estimated that vEDS, UCD and MSUD collectively impact approximately 7,000 patients in the United States. As new studies are performed the estimated prevalence of these diseases may change. The number of patients may turn out to be lower than expected. There can be no assurance that the prevalence of vEDS, UCD or MSUD in the study populations accurately reflect the prevalence of these diseases in the broader world population. If our estimates of the prevalence of vEDS, UCD or MSUD or of the number of patients who may benefit from treatment with EDSIVO TM or ACER-001 prove to be incorrect, the market opportunities for our product candidates may be smaller than we believe they are, our prospects for generating revenue may be adversely affected and our business may suffer. Likewise, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our business, financial condition, results of operations and prospects.

We currently have limited marketing and sales experience. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.

We have never commercialized a product candidate, and we currently have no marketing and sales organization. To the extent our product candidates are approved for marketing, if we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates or generate product revenue.

We have never commercialized a product candidate, and we currently do not have marketing, sales or distribution capabilities for our product candidates. In order to commercialize any of our products that receive marketing approval, we would have to build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. In the event of successful development of our product candidates, if we elect to build a targeted specialty sales force, such an effort would be expensive and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may choose to collaborate with third parties that have their own sales forces and established distribution systems, in lieu of or to augment any sales force and distribution systems we may create. If we are unable to enter into collaborations with third parties for the commercialization of approved products, if any, on acceptable terms or at all, or if any such collaborator does not devote sufficient resources to the commercialization of our product or otherwise fails in commercialization efforts, we may not be able to successfully commercialize our product candidates if we receive marketing approval. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.

If we fail to enter into strategic relationships or collaborations, our business, financial condition, commercialization prospects and results of operations may be materially adversely affected.

Our product development programs and the potential commercialization of our current product candidates will require substantial additional cash to fund expenses. Therefore, in addition to financing the development of our product candidates through additional equity financings or through debt financings, we may decide to enter into collaborations with pharmaceutical or biopharmaceutical companies for the development and potential commercialization of our product candidates.

We face significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming to negotiate and document. We may also be restricted under existing and future collaboration agreements from entering into agreements on certain terms with other potential collaborators. We may not be able to negotiate collaborations on acceptable terms, or at all. If that

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were to occur, we may have to curtail the development of a particular product, reduce or delay one or more of our development programs, delay our potential commercialization or reduce the scope of our sale s or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to ob tain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market and generate product revenue. If we do enter into a collaboration agr eement, it could be subject to the following risks, each of which may materially harm our business, commercialization prospects and financial condition:

 

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

 

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

 

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

 

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

 

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

 

Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably.

There is significant uncertainty related to third-party coverage and reimbursement of newly approved pharmaceuticals. Market acceptance and sales of any approved product candidates will depend significantly on the availability of coverage and adequate reimbursement from third-party payors and may be affected by existing and future healthcare reform measures. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Government authorities and third-party payors, such as private health insurers, health maintenance organizations, and government payors like Medicare and Medicaid, decide which drugs they will pay for and establish reimbursement levels. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs and products. Coverage and reimbursement may not be available for any product that we commercialize and, even if coverage is provided, the level of reimbursement may not be satisfactory. Inadequate reimbursement levels may adversely affect the demand for, or the price of, any drug candidate for which we obtain marketing approval.

Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is, among other things:

 

a covered benefit under its health plan;

 

safe, effective and medically necessary;

 

appropriate for the specific patient;

 

cost-effective; and

 

neither experimental nor investigational.

Obtaining coverage and adequate 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 conduct expensive pharmacoeconomic studies and provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and adequate reimbursement. In addition to examining the medical necessity and cost-effectiveness of new products, coverage may be limited to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. There may also be formulary placements that result in lower reimbursement levels and higher cost-sharing borne by patients, any of which could have an adverse effect on our revenues and profits. Moreover, a third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular drug product does not ensure that other payors will also provide coverage for the drug product, or even if coverage is available, establish an adequate reimbursement rate. In addition, pricing of orphan and rare disease drug treatments is under increased pressure given the overall health care cost climate generally, and pricing of pharmaceutical products specifically.

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We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Also, w e cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize certain of our products. In the United States, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of drug products and medical services and questioning safety and efficacy. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patient s for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs. Additionally, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on drug pricing. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover the products for which we receive FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products a t a profit.

Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time, and there is the potential for significant movement in these areas in the foreseeable future. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.

The life sciences industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are generally developing and marketing therapeutic products. Such competition may include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic companies and medical technology companies. 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 for the treatment of orphan and ultraorphan diseases for which there is a small patient population in the United States. A drug designated an orphan drug may receive up to seven years of exclusive marketing in the United States for that indication. Our objective is to design, develop and commercialize product candidates by repurposing or reformulating existing drugs for orphan diseases with significant unmet medical need.

Many of our potential competitors have significantly greater financial, manufacturing, marketing, development, technical and human resources than we do. Large pharmaceutical and biotechnology companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing clinical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and have collaborative arrangements in our target markets with leading companies and research institutions. Established companies may also invest heavily to accelerate discovery and development of compounds that could make the product candidates that we develop obsolete. As a result of all of these factors, the obtaining of orphan drug designation for our product candidates is essential to our viability since our competitors may, among other things:

 

have greater name and brand recognition, financial and human resources;

 

develop and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;

 

obtain quicker marketing approval;

 

establish superior proprietary positions;

 

have access to more manufacturing capacity;

 

implement more effective approaches to sales and marketing; or

 

form more advantageous strategic alliances.

Should any of these events occur, our business, financial condition, results of operations, and prospects could be materially adversely affected. If we are not able to compete effectively against potential competitors, our business will not grow and our financial condition and operations will suffer.

We believe that our ability to successfully compete will depend on our ability to obtain orphan drug designation as well as:

 

our ability to design and successfully execute appropriate clinical trials;

 

our ability to recruit and enroll patients for our clinical trials;

 

the results of our clinical trials and the efficacy and safety of our product candidates;

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the speed at which we develop our product candidates;

 

achieving and maintaining compliance with regulatory requirements applicable to our business;

 

the timing and scope of regulatory approvals, including labeling;

 

adequate levels of reimbursement under private and governmental health insurance plans, including Medicare and Medicaid;

 

our ability to protect intellectual property rights related to our product candidates;

 

our ability to commercialize and market any of our product candidates that may receive marketing approval;

 

our ability to manufacture and sell commercial quantities of any approved product candidates to the market;

 

acceptance of our product candidates by physicians, other healthcare providers and patients; and

 

the cost of treatment in relation to alternative therapies.

If our competitors are able to obtain orphan drug exclusivity for their products that are the same drug as our product candidates, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time or benefit from that exclusivity.

We have orphan drug exclusivity in the United States for EDSIVO TM for vEDS and ACER-001 for MSUD. We expect to seek orphan drug exclusivity from the European Medicines Agency, or the EMA, for ACER-001 for MSUD, however, there can be no assurance that we will be successful. If we are unable to maintain our current orphan drug exclusivity or are unable to secure orphan status in Europe for ACER-001 for MSUD, it may have a material negative effect on our business.

Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, that product is entitled to a period of marketing exclusivity, which precludes the applicable regulatory authority from approving another marketing application for the same drug for the same indication for that time period. The applicable period is seven years in the United States and ten years in the European Union. The exclusivity period in the European Union can be reduced to six years if the product no longer meets the criteria for orphan drug designation or if its commercialization is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to ensure sufficient quantity of the product to meet the needs of patients with the rare disease or condition. Maintaining and/or obtaining orphan drug exclusivity for EDSIVO TM and ACER-001 may be important to the product candidate’s success. Even if we obtain orphan drug exclusivity, we may not be able to maintain it. For example, if a competitive product that treats the same disease as our product candidate is shown to be clinically superior to our product candidate, any orphan drug exclusivity we have obtained will not block the approval of such competitive product and we may effectively lose what had previously been orphan drug exclusivity. Orphan drug exclusivity for EDSIVO TM or ACER-001 also will not bar the FDA from approving another celiprolol drug product or a sodium phenylbutyrate, or NaPB product, for another indication. In the United States, reforms to the Orphan Drug Act, if enacted, could also materially affect our ability to maintain orphan drug exclusivity for EDSIVO TM for vEDS and ACER-001 for MSUD.

Price controls may be imposed in foreign markets, which may adversely affect our future profitability.

In some countries, particularly 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 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 reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

Rapid technological change could make our products obsolete.

Pharmaceutical technologies have undergone rapid and significant change, and we expect that they will continue to do so. As a result, there is significant risk that our product candidates may be rendered obsolete or uneconomical by new discoveries before we recover all or any expenses incurred in connection with their development. If our product candidates are rendered obsolete by advancements in pharmaceutical technologies, our business will suffer.

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Government controls and healthcare reform measures c ould adversely affect our business.

The business and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payors to contain or reduce the costs of healthcare. In the United States and in foreign jurisdictions, there have been, and we expect that there will continue to be, a number of legislative and regulatory proposals aimed at changing the healthcare system. For example, in some foreign countries, particularly in Europe, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct additional clinical trials that compare the cost-effectiveness of any product candidate to other available therapies. If reimbursement of any product candidate is unavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability in such country. In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. Any negotiated prices for any product candidate covered by a Part D prescription drug plan will likely be lower than the prices that might otherwise be obtained outside of the Medicare Part D prescription drug plan. Moreover, while Medicare Part D applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment under Medicare Part D may result in a similar reduction in payments from non-governmental payors.

The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell any product candidate. Among policy-makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect: the demand for any product candidate; the ability to set a price that we believe is fair for any product candidate; our ability to generate revenues and achieve or maintain profitability; the level of taxes that we are required to pay; and the availability of capital.

Risks Related to Third Parties

We rely on third-party suppliers and other third parties for production of our product candidates and our dependence on these third parties may impair the advancement of our research and development programs and the development of our product candidates.

We do not currently own or operate manufacturing facilities for clinical or commercial production of our product candidates. We lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. Instead, we rely on, and expect to continue to rely on, third parties for the supply of raw materials and manufacture of drug supplies necessary to conduct our preclinical studies and clinical trials. Our reliance on third parties may expose us to more risk than if we were to manufacture our current product candidates or other products ourselves. Delays in production by third parties could delay our clinical trials or have an adverse impact on any commercial activities. In addition, the fact that we are dependent on third parties for the manufacture of and formulation of our product candidates means that we are subject to the risk that the products may have manufacturing defects that we have limited ability to prevent or control. Although we oversee these activities to ensure compliance with our quality standards, budgets and timelines, we have had and will continue to have less control over the manufacturing of our product candidates than potentially would be the case if we were to manufacture our product candidates. Further, the third parties we deal with could have staffing difficulties, might undergo changes in priorities or may become financially distressed, which would adversely affect the manufacturing and production of our product candidates. In addition, a third party could be acquired by, or enter into an exclusive arrangement with, one of our competitors, which would adversely affect our ability to access the formulations we require.

The facilities used by our current contract manufacturers and any future manufacturers to manufacture our product candidates must be inspected by the FDA after we submit our NDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers for compliance with the regulatory requirements, known as cGMPs, for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, the FDA may refuse to approve our NDA. If the FDA or a comparable foreign regulatory authority does not approve our NDA because of concerns about the manufacture of our product candidates or if significant manufacturing issues arise in the future, we may need to find alternative manufacturing facilities,

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which would significantly impact our a bility to develop our product candidates, to obtain marketing approval of our NDA or to continue to market our product candidates, if approved. Although we are ultimately responsible for ensuring compliance with these regulatory requirements, we do not hav e day-to-day control over a contract manufacturing organization, or CMO, or other third-party manufacturer’s compliance with applicable laws and regulations, including cGMPs and other laws and regulations, such as those related to environmental health and safety matters. Any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could be revoked, whic h would adversely affect our business and reputation. In addition, third-party contractors, such as our CMOs, may elect not to continue to work with us due to factors beyond our control. They may also refuse to work with us because of their own financial d ifficulties, business priorities or other reasons, at a time that is costly or otherwise inconvenient for us. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial acti vities could be harmed.

Problems with the quality of the work of third parties may lead us to seek to terminate our working relationships and use alternative service providers. However, making this change may be costly and may delay clinical trials. In addition, it may be very challenging, and in some cases impossible, to find replacement service providers that can develop and manufacture our drug candidates in an acceptable manner and at an acceptable cost and on a timely basis. The sale of products containing any defects or any delays in the supply of necessary services could adversely affect our business, financial condition, results of operations, and prospects.

Growth in the costs and expenses of components or raw materials may also adversely affect our business, financial condition, results of operations, and prospects. Supply sources could be interrupted from time to time and, if interrupted, supplies may not be resumed (whether in part or in whole) within a reasonable timeframe and at an acceptable cost or at all.

We plan to rely on third parties to conduct clinical trials for our product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, it may cause delays in commencing and completing clinical trials of our product candidates or we may be unable to obtain marketing approval for or commercialize our product candidates.

Clinical trials must meet applicable FDA and foreign regulatory requirements. We do not have the ability to independently conduct Phase 2 or Phase 3 clinical trials for any of our product candidates. We expect to rely on third parties, such as CROs, medical institutions, clinical investigators and contract laboratories, to conduct all of our clinical trials of our product candidates; however, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with our investigational plan and protocol. Moreover, the FDA and other foreign regulatory authorities require us to comply with IND and human subject protection regulations and current good clinical practice standards, commonly referred to as GCPs, for conducting, monitoring, recording, and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. Our reliance on third parties does not relieve us of these responsibilities and requirements. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our third-party contractors fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. There is no assurance that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCPs. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the marketing approval process.

There are significant requirements imposed on us and on clinical investigators who conduct clinical trials that we sponsor. Although we are responsible for selecting qualified CROs or clinical investigators, providing them with the information they need to conduct the clinical trials properly, ensuring proper monitoring of the clinical trials, and ensuring that the clinical trials are conducted in accordance with the general investigational plan and protocols contained in the IND, we cannot ensure that the CROs or clinical investigators will maintain compliance with all regulatory requirements at all times. The pharmaceutical industry has experienced cases where clinical investigators have been found to incorrectly record data, omit data, or even falsify data. We cannot ensure that the CROs or clinical investigators in our trials will not make mistakes or otherwise compromise the integrity or validity of data, any of which would have a significant negative effect on our ability to obtain marketing approval, our business, and our financial condition.

We or the third parties we rely on may encounter problems in clinical trials that may cause us or the FDA or foreign regulatory agencies to delay, suspend or terminate our clinical trials at any phase. These problems could include the possibility that we may not be able to manufacture sufficient quantities of materials for use in our clinical trials, conduct clinical trials at our preferred sites, enroll a sufficient number of patients for our clinical trials at one or more sites, or begin or successfully complete clinical trials in a timely fashion, if at all. Furthermore, we, the FDA or foreign regulatory agencies may suspend clinical trials of our product candidates at any time if we or they believe the subjects participating in the trials are being exposed to unacceptable health risks, whether as a result of adverse events occurring in our trials or otherwise, or if we or they find deficiencies in the clinical trial process or conduct of the investigation.

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The FDA and foreign regulatory agencies could also require addi tional clinical trials before or after granting of marketing approval for any products, which would result in increased costs and significant delays in the development and commercialization of such products and could result in the withdrawal of such produc ts from the market after obtaining marketing approval. Our failure to adequately demonstrate the safety and efficacy of a product candidate in clinical development could delay or prevent obtaining marketing approval of the product candidate and, after obta ining marketing approval, data from post-approval studies could result in the product being withdrawn from the market, either of which would likely have a material adverse effect on our business.

Risks Related to Our Intellectual Property

Our proprietary rights may not adequately protect our technologies and product candidates.

Our commercial success will depend in part on our ability to obtain additional patents and protect our existing patent position as well as our ability to maintain adequate protection of other intellectual property for our technologies, product candidates, and any future products in the United States and other countries. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. The laws of some foreign countries do not protect our proprietary rights to the same extent or in the same manner as U.S. laws, and we may encounter significant problems in protecting and defending our proprietary rights in these countries. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies, product candidates and any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.

We apply for patents covering both our technologies and product candidates, as we deem appropriate. However, we may fail to apply for patents on important technologies or product candidates in a timely fashion, or at all. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products and technologies. We cannot be certain that our patent applications will be approved or that any patents issued will adequately protect our intellectual property.

While we are responsible for and have control over the filing and prosecuting of patent applications and maintaining patents which cover making, using or selling EDSIVO TM and ACER-001, we may lose such rights if we decide to allow any licensed patent to lapse. If we fail to appropriately prosecute and maintain patent protection for any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.

Moreover, the patent positions of pharmaceutical companies are highly uncertain and involve complex legal and factual questions for which important legal principles are evolving and remain unresolved. As a result, the validity and enforceability of patents cannot be predicted with certainty. In addition, we do not know whether:

 

we or our licensors were the first to make the inventions covered by each of our issued patents and pending patent applications;

 

we or our licensors were the first to file patent applications for these inventions;

 

any of the patents that cover our product candidates will be eligible to be listed in the FDA’s compendium of “Approved Drug Products with Therapeutic Equivalence Evaluation,” sometimes referred to as the FDA’s Orange Book;

 

others will independently develop similar or alternative technologies or duplicate any of our technologies;

 

any of our or our licensors’ pending patent applications will result in issued patents;

 

any of our or our licensors’ patents will be valid or enforceable;

 

any patents issued to us or our licensors and collaborators will provide us with any competitive advantages, or will be challenged by third parties;

 

we will develop additional proprietary technologies that are patentable;

 

the U.S. government will exercise any of its statutory rights to our intellectual property that was developed with government funding; or

 

our business may infringe the patents or other proprietary rights of others.

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The actual protection afforded by a patent varies based on products or processes, 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, the validity and enforceability of the patents and our financ ial ability to enforce our patents and other intellectual property. Our ability to maintain and solidify our proprietary position for our products will depend on our success in obtaining effective claims and enforcing those claims once granted. Our issued patents and those that may issue in the future, or those licensed to us, may be challenged, narrowed, invalidated or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages agai nst competitors with similar products. Due to the extensive amount of time required for the development, testing and regulatory review of a potential product, it is possible that, before any of our product candidates can be commercialized, any related pate nt may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.

We may also rely on trade secrets to protect some of our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to maintain. While we use reasonable efforts to protect our trade secrets, we or any of our collaborators’ employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose our proprietary information to competitors and we may not have adequate remedies in respect of that disclosure. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than U.S. courts to protect trade secrets. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be able to assert our trade secrets against them and our business could be harmed.

We are a party to license agreements under which we license intellectual property and receive commercialization rights relating to EDSIVO TM and ACER-001. If we fail to comply with obligations in such agreements or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business; any termination of such agreements would adversely affect our business.

In April 2014, we entered into an agreement with Baylor College of Medicine pursuant to which we obtained an exclusive worldwide license to develop and commercialize NaPB (ACER-001) for treatment of MSUD. In August 2016, we entered into an agreement with Assistance Publique—Hôpitaux de Paris, Hôpital Européen Georges Pompidou, or AP-HP, pursuant to which we obtained an exclusive worldwide right to access and use data from the Ong trial, which we intend to use to support an NDA filing for EDSIVO TM for the treatment of vEDS. Under each license agreement, we are subject to commercialization and development diligence obligations, royalty payments and other obligations. If we fail to comply with any of these obligations or otherwise breach any of these license agreements, the licensor may have the right to terminate the license in whole or in part or to terminate the exclusive nature of the license. The loss of the licenses granted to us under our agreements with these licensors or the rights provided therein would prevent us from developing, manufacturing or marketing products covered by the license or subject to supply commitments, and could materially harm our business, financial condition, results of operations and prospects.

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

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement rights are not as strong as those in the United States. These products may compete with our product candidates in jurisdictions where we do not have any issued patents and our patent claims or other intellectual rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

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The patent protection for our product candidates may expire before we are able to maximize their commercial value, which may subject us to increased competition and reduce or eliminate our opportunity to generate product revenue.

The patents for our product candidates have varying expiration dates and, if these patents expire, we may be subject to increased competition and we may not be able to recover our development costs or market any of our approved products profitably. In some of the larger potential market territories, such as the United States and Europe, patent term extension or restoration may be available to compensate for time taken during aspects of the product’s development and regulatory review. For example, depending on the timing, duration and specifics of FDA marketing approval of our product candidates, if any, one of the U.S. patents covering each of such approved product(s) or the use thereof may be eligible for up to five years of patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA-approved product. Patent term extension also may be available in certain foreign countries upon regulatory approval of our product candidates.

Nevertheless, we may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than we request. In addition, even though some regulatory authorities may provide some other exclusivity for a product under their own laws and regulations, we may not be able to qualify the product or obtain the exclusive time period. If we are unable to obtain patent term extension/restoration or some other exclusivity, we could be subject to increased competition and our opportunity to establish or maintain product revenue could be substantially reduced or eliminated. Furthermore, we may not have sufficient time to recover our development costs prior to the expiration of our U.S. and foreign patents.

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

The United States Patent and Trademark Office, or USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent prosecution process. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on any issued patent and/or pending patent applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of a patent or patent application. We employ an outside firm and rely on our outside counsel to pay these fees. While an inadvertent lapse may sometimes be cured by payment of a late fee or by other means in accordance with the applicable rules, there are many situations in which noncompliance 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. If we fail to maintain the patents and patent applications directed to our product candidates, our competitors might be able to enter the market earlier than should otherwise have been the case, which would have a material adverse effect on our business.

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

Competitors may infringe our patents or other intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringement claims, directly or through our licensors, which can be expensive and time consuming. In addition, in an infringement proceeding, a court may decide that a patent of our licensor is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of the patents we license at risk of being invalidated or interpreted narrowly and could put our licensors’ patent applications at risk of not issuing.

Interference proceedings brought by the USPTO may be necessary to determine the priority of inventions with respect to our patents or the patents of our licensors. An unfavorable outcome could require us to cease using the technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distraction of our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our proprietary rights, particularly in countries where the laws may not protect those rights as fully as in the United States. In addition, potential infringers of our intellectual property rights may have substantially more resources than we do to defend their position, which could adversely affect the outcome of any such dispute.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential and proprietary 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. 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.

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Third-party claims of intellectual property infringement or misappropriation may adversely affect our business and could prevent us from developing or commercial izing our product candidates.

Our commercial success depends in part on us not infringing the patents and proprietary rights of third parties. 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, ex-parte review and inter partes reexamination and post-grant review proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which we are developing and may develop our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties. If a third party claims that we infringe on their products or technology, we could face a number of issues, including:

 

infringement and other intellectual property claims which, with or without merit, can be expensive and time-consuming to litigate and can divert management’s attention from our core business;

 

substantial damages for past infringement, which we may have to pay if a court decides that our product infringes on a competitor’s patent;

 

a court prohibiting us from selling or licensing our product unless the patent holder licenses the patent to us, which the collaborator would not be required to do;

 

if a license is available from a patent holder, we may have to pay substantial royalties or grant cross licenses to our patents; and

 

redesigning our processes so they do not infringe, which may not be possible or could require substantial funds and time.

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates that we failed to identify. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until issued as patents. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published only after a waiting period of approximately 18 months after the earliest filing. Therefore, patent applications covering our product candidates could have been filed by others without the knowledge of us or our licensors. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our product candidates or the use or manufacture of our product candidates. We may also face a claim of misappropriation if a third party believes that we inappropriately obtained and used trade secrets of such third party. If we are found to have misappropriated a third party’s trade secrets, we may be prevented from further using such trade secrets, limiting our ability to develop our product candidates, and we may be required to pay damages.

If any third-party patents were held by a court of competent jurisdiction to cover aspects of our materials, formulations, methods of manufacture or methods for treatment, the holders of any such patents would be able to block our ability to develop and commercialize the applicable product candidate until such patent expired or unless we obtain a license. These licenses may not be available on acceptable terms, if at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property.

Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time-consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development collaborations that would help us bring our product candidates to market.

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

As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly on obtaining and enforcing patents and patent rights. Obtaining and enforcing patents and patent rights in the specialty pharmaceutical industry involves both technological and legal complexity, and therefore, is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Further, several recent U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. 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 and patent rights, once obtained.

For our U.S. patent applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law. In September 2011, the Leahy-Smith America Invents Act, or the America Invents Act, or AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted, reviewed after issuance, and may also affect patent litigation. The USPTO is currently developing regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA. It is not clear what other, if any, impact the AIA will have on the operation of our business. Moreover, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of patent rights, all of which could have a material adverse effect on our business and financial condition.

An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-inventor-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before a licensor or us could therefore be awarded a patent covering an invention of ours even if said licensor or we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, our ability to obtain and maintain valid and enforceable patent rights depends on whether the differences between the licensor’s or our technology and the prior art allow our technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that a licensor or we were the first to either (a) file any patent application related to our product candidates or (b) invent any of the inventions claimed in our patents or patent applications.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court 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 as unpatentable even though the same evidence may 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 patent rights that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, 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.

Intellectual property rights do not address all potential threats to our competitive advantage.

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

 

Others may be able to make products that are similar to our product candidates but that are not covered by the claims of the patents that we license from others or may license or own in the future.

 

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

 

Any of our collaborators might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we license or will, in the future, own or license.

 

Any of our collaborators might not have been the first to file patent applications covering certain of the patents or patent applications that we license or will, in the future, license.

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Issued patents that have been licensed to us may not provid e us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.

 

Our competitors might conduct research and development activities in countries where we do not have license rights, or in countries where research and development safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.

 

Ownership of patents or patent applications licensed to us may be challenged by third parties.

 

The patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.

Confidentiality agreements with employees, consultants and others may not adequately prevent disclosure of trade secrets and protect other proprietary information.

We consider proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and/or confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and/or confidential know-how can be difficult to maintain as confidential.

To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements with us. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.

Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect our competitive position. Moreover, our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets and/or confidential know-how.

We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

A third party may hold intellectual property, including patent rights that are important or necessary to the development or commercialization of our product candidates. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our product candidates, in which case we would be required to obtain a license from these third parties. Such a license may not be available on commercially reasonable terms or at all, which could materially harm our business.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly used or disclosed confidential information of these third parties or our employees’ former employers.

Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. We may also be subject to claims that former employees, consultants, independent contractors, collaborators or other third parties have an ownership interest in our patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging our right to and use of confidential and proprietary information. If we fail in defending any such claims, in addition to paying monetary damages, we may lose our rights therein. Such an outcome could have a material adverse effect on our business.

Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.

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We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents and other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of 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 ownership. 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, valuable intellectual property. Such an outcome could have a material adverse effect on our business. 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.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to assist with research and development and to manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with in the future will usually expect to be granted rights to publish data arising out of such collaboration, provided that we are notified in advance and given the opportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property rights arising from the collaboration, in addition to the opportunity to remove confidential or trade secret information from any such publication. In the future we may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

Risks Related to Our Securities

There is currently a limited market for our securities, and any trading market that exists in our securities may be highly illiquid and may not reflect the underlying value of our net assets or business prospects.

Although our common stock is traded on the Nasdaq Capital Market, there is currently a limited market for our securities and there can be no assurance that an active market will ever develop. Investors are cautioned not to rely on the possibility that an active trading market may develop.

Our stock may be delisted from Nasdaq, which could affect our market price and liquidity.

We are required to meet certain qualitative and financial tests (including a minimum bid price for our common stock of $1.00 per share and a minimum shareholders’ equity of $2.5 million), as well as certain corporate governance standards, to maintain the listing of our common stock on the Nasdaq Capital Market. While we are exercising diligent efforts to maintain the listing of our common stock on Nasdaq, there can be no assurance that we will be able to do so, and our securities could be delisted.

Our share price is volatile, and you may not be able to resell your shares at a profit or at all.

The market price of our common stock could be subject to significant fluctuations. The market prices for securities of pharmaceutical and biotechnology companies, and early-stage drug discovery and development companies like ours in particular, have historically been highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:

 

announcements of significant changes in our business or operations;

 

the development status of any of our drug candidates, such as EDSIVO TM or ACER-001, including clinical study results and determinations by regulatory authorities with respect thereto;

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the initiation, termination or reduction in the scope of any collaboration arrangements or any disputes or de velopments regarding such collaborations;

 

our inability to obtain additional funding;

 

announcements of technological innovations, new commercial products or other material events by our competitors or by us;

 

disputes or other developments concerning our proprietary rights;

 

changes in, or failure to meet, securities analysts’ or investors’ expectations of our financial performance;

 

additions or departures of key personnel;

 

discussions of our business, products, financial performance, prospects or stock price by the financial and scientific press and online investor communities;

 

public concern as to, and legislative action with respect to, the pricing and availability of prescription drugs or the safety of drugs and drug delivery techniques;

 

regulatory developments in the United States and in foreign countries; or

 

dilutive effects of sales of shares of common stock by us or our shareholders, and sales of common stock acquired upon exercise or conversion by the holders of options.

Broad market and industry factors, as well as economic and political factors, also may materially adversely affect the market price of our common stock.

We may be or become the target of securities litigation, which is costly and time-consuming to defend.

In the past, following periods of market volatility in the price of a company’s securities or the reporting of unfavorable news, security holders have often instituted class action litigation. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we become involved in this type of litigation, regardless of the outcome, we could incur substantial legal costs and our management’s attention could be diverted from the operation of our business, causing our business to suffer.

Our “blank check” preferred stock could be issued to prevent a business combination not desired by management or our majority shareholders.

Our charter authorizes the issuance of “blank check” preferred stock with such designations, rights and preferences as may be determined by our board of directors without shareholder approval. Our preferred stock could be utilized as a method of discouraging, delaying, or preventing a change in control and as a method of preventing shareholders from receiving a premium for their shares in connection with a change of control.

Future sales of our securities could cause dilution, and the sale of such securities, or the perception that such sales may occur, could cause the price of our stock to fall.

Sales of additional shares of our common stock, as well as securities convertible into or exercisable for common stock, could result in substantial dilution to our shareholders and cause the market price of our common stock to decline. An aggregate of 7,497,433 shares of common stock were outstanding as of March 31, 2018. As of such date, another (i) 526,100 shares of common stock were issuable upon exercise of outstanding options and (ii) 312,426 shares of common stock were issuable upon the exercise of outstanding warrants. On April 9, 2018, all outstanding and unexercised Series M warrant to purchase an aggregate of 301,452 shares of our common stock expired. A substantial majority of the outstanding shares of our common stock and warrants (as well as a substantial majority of the shares of common stock issuable upon exercise of outstanding options and warrants) are freely tradable without restriction or further registration under the Securities Act of 1933.

We may sell additional shares of common stock, as well as securities convertible into or exercisable for common stock, in subsequent public or private offerings. We may also issue additional shares of common stock, as well as securities convertible into or exercisable for common stock, to finance future acquisitions. We will need to raise additional capital in order to initiate or complete additional development activities for EDSIVO TM in vEDS and for ACER-001 in UCD and MSUD, or to pursue additional disease indications for our product candidates, and this may require us to issue a substantial amount of securities (including common stock as well as securities convertible into or exercisable for common stock). There can be no assurance that our capital raising efforts will be able to attract the capital needed to execute on our business plan and sustain our operations. Moreover, we cannot predict the size of

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future issuances of our common stock, as well as securities convertible into or exercisable for common stock, or the effect, if any, that future issuances and sales of our securities will have on the market price of our common stock. Sales of substantial amounts of our common stock, as well as securities convertible into or exercisable for common stock, including shares issued in connection with an acquisition or securing funds to complete any clinical trial plans, or the perception that such sales could occur, may result in substantial dilution and may adversely affect prevailing market prices for our common stock.

We presently do not intend to pay cash dividends on our common stock.

We currently anticipate that no cash dividends will be paid on the common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that all earnings, if any, will be retained to finance the future expansion of our business.

Our shareholders may experience substantial dilution in the value of their investment if we issue additional shares of our capital stock.

Our charter allows us to issue up to 150,000,000 shares of common stock and to issue and designate the rights of, without shareholder approval, up to 10,000,000 shares of preferred stock. In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share paid by other investors, and dilution to our shareholders could result. We may sell shares or other securities in any other offering at a price per share that is less than the price per share paid by investors, and investors purchasing shares or other securities in the future could have rights superior to existing shareholders. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by other investors.

We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.

In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, guarantees, preferred stock, hybrid securities, or securities convertible into or exchangeable for equity securities. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive distributions of available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue securities in future offerings may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings or debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.

Our management has significant flexibility in using the current available cash.

In addition to general corporate purposes (including working capital, research and development, business development and operational purposes), we currently intend to use our available cash to continue the development of our drug candidates, such as EDSIVO TM and ACER-001, to seek regulatory approval for EDSIVO™, and to invest in precommercial activities for EDSIVO™. Depending on future developments and circumstances, we may use some of our available cash for other purposes which may have the potential to decrease our cash runway. Notwithstanding our current intentions regarding use of our available cash, our management will have significant flexibility with respect to such use. The actual amounts and timing of expenditures will vary significantly depending on a number of factors, including the amount and timing of cash used in our operations and our research and development efforts. Management’s failure to use these funds effectively would have an adverse effect on the value of our common stock and could make it more difficult and costly to raise funds in the future.

Because the Merger resulted in an ownership change under Section 382 of the Internal Revenue Code, our pre-Merger net operating loss carryforwards and certain other tax attributes will be subject to limitation or elimination. The net operating loss carryforwards and certain other tax attributes of Private Acer may also be subject to limitations as a result of ownership changes.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Internal Revenue Code, or Section 382, the corporation’s net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain shareholders that exceeds fifty percentage points by value over a rolling three-year period. Similar rules may apply under state tax laws. The Merger resulted in an ownership change for us and, accordingly, our net operating loss carryforwards and certain other tax attributes will now be subject to limitation and possibly elimination. It is possible that Private Acer’s net operating loss carryforwards and certain other tax attributes may also be subject to limitation as a result of prior shifts in

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equity ownership and/or the Merger. Additional ownership changes in the future could result in additional limitations on our and Priva te Acer’s net operating loss carryforwards and certain other tax attributes. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of our or Private Acer’s net operating loss carryforwards and certain other tax at tributes, which could increase our tax obligations and thus have a material adverse effect on cash flow and results of operations.

Because the ownership of our common stock is highly concentrated, it may prevent shareholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.

Our executive officers and directors and their affiliates beneficially own or control approximately 57% of the outstanding shares of our common stock. Accordingly, these executive officers, directors and their affiliates will have substantial influence over the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These shareholders may also delay or prevent a change of control of our company, even if such a change of control would benefit our other shareholders. 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.

Anti-takeover provisions in our organizational documents and Texas law might discourage or delay acquisition attempts for our company that you might consider favorable.

Our certificate of formation and bylaws contain provisions that may delay or prevent an acquisition or change in control of our company. Among other things, these provisions:

 

authorize the board of directors to issue without shareholder approval blank-check preferred stock that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by the board of directors;

 

establish advance notice requirements for shareholder nominations of directors and for shareholder proposals that can be acted on at shareholder meetings; and

 

limit who may call shareholder meetings.

Further, as a Texas corporation, we are also subject to provisions of Texas law, which may impair a takeover attempt that our shareholders may find beneficial. These anti-takeover provisions and other provisions under Texas law could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our shareholders may deem advantageous, or negatively affect the trading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

 

Item 5. Other Information.

Newton Lease

We entered into a Lease Agreement effective March 6, 2018 (the “Newton Lease”) with Commonwealth Development LLC, as trustee of the Gateway Realty Trust (the “Newton Landlord”). Pursuant to the Newton Lease, we have leased certain premises consisting of 2,760 square feet of office space located at One Gateway Center, Suite 351, 300 Washington Street, Newton, Massachusetts (the “Newton Premises”) to serve as our corporate headquarters. The term of the Newton Lease commences on October 1, 2018 and expires on September 30, 2021. We currently occupy the Newton Premises as a subtenant pursuant to a Sublease, dated October 16, 2017, with Bradley A. MacDonald, as sublandlord, which expires on September 30, 2018.

The Newton Lease provides for base rent as follows:

 

Month of Term Under Newton Lease

Monthly Base Rent

1 to 12

$ 8,480

13 to 24

$ 8,710

25 to 36

$ 8,940

In addition, we are required to share in certain taxes and operating expenses of the Newton Premises. Upon execution of the Newton Lease, we delivered a $17,880 security deposit to the Newton Landlord.

A copy of the Newton Lease is attached hereto as Exhibit 10.5 and incorporated herein by reference. The foregoing description of the Newton Lease is qualified in its entirety by reference to the full text of the Newton Lease.

48


 

Bend Lease

We entered into a Triple Net Lease (the “Bend Lease”) effective April 1, 2018 with Eastern Western Corp. (the “Bend Landlord”). Pursuant to the Bend Lease, we have leased certain premises consisting of 2,288 square feet of office space located at 1000 NW Wall Street, Suite 220, Bend, Oregon (the “Bend Premises”) to serve as a satellite facility. The term of the Bend Lease commenced on April 1, 2018 and expires on March 31, 2021 (the “Bend Term”). We have an option to extend the Bend Term for up to two additional periods of three years and a right of first refusal to lease an additional suite in the same building.

The Bend Lease provides for base rent as follows:

 

Month of Term Under Bend Lease

Monthly Base Rent

1 to 12

$ 4,004

13 to 24

$ 4,124

25 to 36

$ 4,248

 

In addition, we are required to share in certain taxes and operating expenses of the Bend Premises. Upon execution of the Bend Lease, we delivered a $2,500 security deposit to the Bend Landlord.

A copy of the Bend Lease is attached hereto as Exhibit 10.6 and incorporated herein by reference. The foregoing description of the Bend Lease is qualified in its entirety by reference to the full text of the Bend Lease.

49


 

Item 6.

Exhibits

 

Exhibit No.

 

Description

 

 

 

10.1+

 

Employment Agreement, dated February 22, 2018, by and between Acer Therapeutics Inc. and Chris Schelling (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 27, 2018).

 

 

 

10.2+

 

Employment Agreement, dated February 22, 2018, by and between Acer Therapeutics Inc. and William Andrews (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 27, 2018).

 

 

 

10.3+

 

Employment Agreement, dated February 22, 2018, by and between Acer Therapeutics Inc. and Harry Palmin (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 27, 2018).

 

 

 

  10.4+*

 

Employment Agreement, dated April 20, 2018, by and between Acer Therapeutics Inc. and Donald Joseph.

 

 

 

10.5*

 

Lease Agreement, dated March 6, 2018, by and between Acer Therapeutics Inc. and Commonwealth Development LLC, as trustee of the Gateway Realty Trust.

 

 

 

10.6*

 

Triple Net Lease, dated April 1, 2018, by and between Acer Therapeutics Inc. and Eastern Western Corp.

 

 

 

31.1*

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2*

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1*

 

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2*

 

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101*

 

Financial statements from the Quarterly Report on Form 10-Q of the Company as of and for the period ended March 31, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements.

 

 

*

Filed herewith

+

Management contract or compensatory plan or arrangement.

 

50


 

SIGNA TURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ACER THERAPEUTICS INC.

 

 

 

Date: May 14, 2018 

By:

/s/  Harry Palmin

 

 

Harry Palmin

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

51

Exhibit 10.4

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “ Agreement ”) is made and entered into effective as of April 20, 2018, by and between Acer Therapeutics Inc., a Delaware corporation (the “ Company ”), and Donald R. Joseph (“ Key Employee ”).  The Company and Key Employee are hereinafter collectively referred to as the “ Parties .”

W I T N E S S E T H:

A. The Company desires assurance of the continued association and services of Key Employee in order to retain Key Employee’s skills, abilities, background and knowledge, and is willing to continue to engage Key Employee’s services on the terms and conditions set forth in this Agreement.

B. Key Employee desires to continue to be in the employ of the Company and is willing to continue to accept such employment on the terms and conditions set forth in this Agreement.

NOW, THEREFORE , for and in consideration of the employment by the Company, the compensation and other remuneration paid and to be paid by the Company and received and to be received by Key Employee for such employment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Key Employee, it is agreed by and between the Parties hereto as follows:

1. Duties .   As the Company’s Chief Legal Officer, Key Employee will perform such duties as are ordinary, customary and necessary in Key Employee’s role.  Key Employee will report directly to the Company’s Chief Executive Officer (the “ CEO ”) who will be primarily responsible for evaluating Key Employee’s performance.  The Company may change Key Employee’s duties, compensation, benefits and place of employment from time to time as it deems necessary.  In addition, during Key Employee’s employment with the Company, Key Employee shall devote Key Employee’s best efforts and Key Employee’s full business time, skill and attention to the performance of Key Employee’s duties on behalf of the Company.

2. Salary and Bonus .   Key Employee will be compensated for full-time service (pro-rated for any part-time service) at a base rate of $340,000 per year, less all deductions and withholdings, to be paid in accordance with the Company’s standard payroll practices, as they may be changed from time to time.  In addition, Key Employee shall be eligible to receive an annual discretionary bonus with a target (the “ Target Bonus ”) of thirty-five percent (35%) of Key Employee’s base salary per 12‑month period (pro-rated for any partial period of less than 12 months), based upon a determination by the CEO and the Company’s Board of Directors (the “ Board ”) of the achievement of objectives to be set from time to time by the Board, provided that Key Employee must remain employed through the payment date in order to earn the bonus.  The measurement period for this purpose will end on approximately December 31 of each year.  The annual discretionary bonus, if otherwise earned subject to continued employment through the payment date, will be paid as soon as practicable after the achievement of objectives for the measurement period has been determined, but in no event will such bonus be paid after March 15 following the last day of the measurement period. The Company may modify Key Employee’s compensation and benefits from time to time at its sole discretion.

 

 

 


 

3. Other Benefits .    The Company will provide Key Employee with participation in Company-sponsored employee benefits programs on the same basis as such benefits are generally available to its e mployees , as determined from time to time by the Board.  The Company may, from time t o time, change these benefits.

4. Employee Nondisclosure and Developments Agreement . One of the conditions of Key Employee’s employment with the Company is the maintenance of the confidentiality (and proprietary nature) of the Company’s proprietary and confidential information.  Key Employee previously executed and delivered to the Company an Employee Nondisclosure and Developments Agreement (the “ Confidentiality Agreement ”), the terms and conditions of which are (i) incorporated herein by reference and (ii) reaffirmed by Key Employee as of the date of this Agreement.

5. At-Will Employment .  Key Employee’s employment with Company is “at-will.”  This means that either Key Employee or the Company may terminate Key Employee’s employment at any time, with or without cause, and with or without notice.  Any contrary representations or agreements which may have been made to Key Employee are superseded by this Agreement.  The “at-will” nature of Key Employee’s employment described in this Agreement shall constitute the entire agreement between Key Employee and the Company concerning the nature and duration of Key Employee’s employment.  Though Key Employee’s duties, compensation, benefits and place of employment may change over time and Key Employee may be subject to incremental discipline that does not include a termination, none of these events change the agreement that Key Employee is an “at-will” employee.  In addition, the fact that the rate of Key Employee’s salary or other compensation is stated in units of years or months, and that Key Employee’s vacation and sick leave accrue annually or monthly, does not alter the at-will nature of the employment, and does not mean and should not be interpreted to mean that Key Employee is guaranteed employment to the end of any period of time or for any period of time.  The “at-will” term of Key Employee’s employment with the Company can only be changed in a writing signed by Key Employee and the Company.

6. Severance Payment .  Without limiting the provisions of the foregoing Section 5 , assuming Key Employee’s employment with the Company shall have been continuous from Key Employee’s start date through the occurrence of the applicable event and Key Employee executes and delivers, within twenty-one (21) days (or, to the extent required by law, forty-five (45) days) following the termination date, a general release of claims against the Company or persons affiliated with the Company (with any revocation periods having expired) substantially in the form as set forth on Exhibit A attached hereto (a “ Release ”) , then:

a. In the event of any Termination without Cause (as defined below) or any Constructive Termination (as defined below) which occurs during the period commencing one (1) month prior to a Change in Control (as defined below) and terminating twelve (12) months after such Change in Control (the “ Change in Control Period ”), Key Employee will be entitled to the following:

i. a lump sum payment (paid on the sixtieth (60 th ) day following such termination of employment) equal to the sum of (A) Key Employee’s then current base salary rate calculated for a period of twelve (12) months and (B) one (1) times the Target Bonus calculated for a period of twelve (12) months ( i.e., no proration); and

2

 


 

ii. if Key Employee elects to continue Key Employee s health insurance coverage under COBRA, then the Company will reimburse Key Employee for the same portion of Key Employee s monthly premiums over such twelve ( 12 ) month period under COBRA (or, if applicable, such lesser period as is available to Key Employee under COBRA) as the Company is then paying (relative to health insurance coverage) for active employees; and

b. In the event of any Termination without Cause or any Constructive Termination which occurs outside of a Change in Control Period, Key Employee will be entitled to the following:

i. a lump sum payment (paid on the sixtieth (60 th ) day following such termination of employment) equal to Key Employee’s then current base salary rate calculated for a period of twelve (12) months; and

ii. if Key Employee elects to continue Key Employee’s health insurance coverage under COBRA, then the Company will reimburse Key Employee for the same portion of Key Employee’s monthly premiums over such twelve (12) month period under COBRA as the Company is then paying (relative to health insurance coverage) for active employees; and

iii. the vesting arrangements with respect to any equity-based compensation ( e.g. , any stock options and any shares of restricted stock) other than any equity-based incentive awards that are earned based upon achievement of performance measures during a performance period (which shall remain subject to the terms of the applicable award agreement), will thereupon accelerate such that Key Employee will be vested in an additional twelve (12) months’ worth of vesting beyond the date of such Termination without Cause or Constructive Termination, with the Company’s standard post-termination exercise period as set forth in such equity award.

The following definitions shall apply for purposes of this Section 6 :

A Change in Control ” has the meaning set forth in the Company’s Amended and Restated 2010 Stock Incentive Plan.

Constructive Termination ” means Key Employee’s election in a written notice to the Company to terminate any employment relationship where such notice is delivered within ninety (90) days after any of the following:  (i) a material reduction in Key Employee’s level of duties or responsibilities or the nature of Key Employee’s functions; (ii) a material reduction in Key Employee’s base salary or potential total cash compensation (consisting of base salary and target bonus); (iii) a relocation of Key Employee’s principal place of employment by more than fifty (50) miles, if the new location is both (A) more than fifty (50) miles from Key Employee’s principal residence and (B) farther from Key Employee’s principal residence than Key Employee’s principal place of employment immediately before such relocation; or (iv) any material breach of Key Employee’s employment agreement by the Company; provided , that in all cases such action is not cured within thirty (30) days following written notice and, if the Company has not cured such action within the cure period, termination of employment occurs within thirty (30) days after the end of such cure period.

3

 


 

Termination without Cause ” means the termination by the Company of any employment relationship with Key Employee for any reason other than: (i) commission by Key Employee of any act of fraud or embezzlement with regard to the Company or one or more of its parent or subsidiary corporations; (ii) any material, intentional and unauthorized use or disclosure of material confidential information or trade secrets of the Company or one or more of its parent or subsidiary corporations by Key Employee (other than in the good-faith performance of Key Employee ’s duties); (iii) any other intentional misconduct by Key Employee with regard to the Company or one or more of its parent or subsidiary corporations (including severe absenteeism other than as a result of physical or mental incapacity) which adversely affects the business or affairs of the Company or one or more of its parent or subsidiary corporations in a material manner; or (iv) Key Employee ’s failure to attempt in good faith to either perform duties consistent with Key Employee ’s position with the Company or one or more of its parent or subsidiary corporations or to follow the reasonable requests of the Company’s Board, so long as Key Employee has been provided with an opportunity for a period of at least ten (10) business days following written notice to Key Employee to cure such failure; provided , however , that clause (iv) shall no longer apply following a Change in Control.

7. Separation for Any Other Reason.   In the event that Key Employee’s employment is terminated in any instance not addressed by Section 6 (including, without limitation, a termination by the Company other than a Termination without Cause, a resignation by Key Employee other than for a Constructive Termination, in the event of Key Employee’s death, or in the event Key Employee is unable to perform the essential functions of Key Employee’s job position, with or without accommodation, due to mental or physical disability), Key Employee shall not be entitled to any compensation or any other sum (other than accrued but unpaid base salary, accrued vacation pay and such other benefits if any as may be required by applicable law).

8. Code Section 409A .   The intent of the Parties is that payments and benefits under this Agreement and any equity-based compensation ( e.g. , any stock options and any shares of restricted stock) comply with, or be exempt from, Section 409A of the Internal Revenue Code (the “ Code ”) and, accordingly, to the maximum extent permitted, this Agreement and any equity-based compensation shall be interpreted to be in compliance therewith or exempt therefrom.  If Key Employee notifies the Company (with specificity as to the reason therefor) that Key Employee believes that any provision of this Agreement or any equity-based compensation (or of any award of compensation) would cause Key Employee to incur any additional tax or interest under Code Section 409A and the Company concurs with such belief or the Company independently makes such determination, the Company shall, after consulting with Key Employee, reform such provision to try to comply with Code Section 409A through good-faith modifications to the minimum extent reasonably appropriate to conform with Code Section 409A.  To the extent that any provision hereof is modified in order to comply with Code Section 409A, such modification shall be made in good-faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to Key Employee and the Company of the applicable provision without violating the provisions of Code Section 409A.

4

 


 

a. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment that are considered “nonqualified deferred compensation” under Code Section 409A unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”  If Key Employee is deemed on the date of termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment that is considered nonqualified deferred compensation under Code Section 409A payable on account of a “separation from service,” such payment or benefit shall be made or provided at the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of Key Employee ’s “separation from service” and (B) the date of Key Employee ’s death (the “ Delay Period ”).  Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 8 (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Key Employee in a lump sum with interest at the prime rate as published in The Wall Street Journal on the first business day following the end of the Delay Period, and any remaining payments and benefits due under this letter shall be paid or provided in accordance with the normal payment dates specified for them herein.

b. With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Code Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of Key Employee’s taxable year following the taxable year in which the expense occurred.

c. For purposes of Code Section 409A, Key Employee’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.  In no event may Key Employee, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that is considered nonqualified deferred compensation.

9. Excess Parachute Payments and Limitations .   If any payment or distribution made to Key Employee in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) (a “ Payment ”) or portion thereof would constitute a “parachute payment” within the meaning of Section 280G of the Code and, but for this sentence, would be subject to the excise tax imposed under Section 4999 of the Code (the “ Excise Tax ”) (all such Payments (or portions thereof) being hereinafter referred to as the “ Total Payments ”), then such Total Payments shall be whichever of the following amounts, after taking into account all applicable federal, state and local employment taxes, income taxes and the Excise Tax, that results in Key Employee’s receipt, on an after-tax basis, of the greater amount:  (a) the net amount of the Total Payments that would result in no portion of the Total Payments being subject to the Excise Tax; or (b) the net amount of the Total Payments without reduction (notwithstanding that all or some portion of

5

 


 

the Total Payments may be subject to the Excise Tax).  If a reduction in the Total Payments is necessary so that the Total Payments equal the a mount described in clause (a ) above , reduction shall occur in the following order: ( i ) the cancellation of acceleration of vesting of any equity awards for which the exercise price exceeds the then fair market value of the underlying equity (the “ GAP ”) that have a ninety (90) day or less exercise period, starting with such equity awards with the largest amount of GAP , ( ii ) reduction of cash payments (in reverse order of the date otherwise due), ( iii ) reduction of employee benefits (in reverse order of the date otherwise due), and ( iv ) the cancellation of vesting of any equity awards not covered in clause ( i ) above , provided , that such cancellation will first apply to equity awards that are “fully valued” under Section 280G of the Code (including those subject to present value adjustments) and thereafter, to equity awards valued on an acceleration of vesting basis, and provided , further , within each category, the cancellation shall be in a manner as providing Key Employee with the highest net amount; provided , however , that to the extent permitted by Code Section 409A and Sections 280G and 4999 of the Code, if a different reduction procedure would be permitted without violating Code Section 409A or losing the benefit of the reduction under Sections 280G and 4999 of the Code, Key Employee may designate a different order of reduction.  For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, ( x ) no portion of the Total Payments the receipt or enjoyment of which Key Employee shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account; ( y ) no portion of the Total Payments shall be taken into account which, in the written opinion of Wolf & Company, P.C. or such accounting or consulting firm with particular expertise regarding excise taxes under Section 4999 of the Code selected by the Board in good faith prior to the applicable Change in Control (the “ Accounting Firm ”) , does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the Accounting Firm, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and ( z ) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Accounting Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

10. Miscellaneous .   Key Employee agrees to abide by all applicable laws and regulations and all Company policies and procedures as they are established.  Violation of such laws, regulations, policies, procedures or the Confidentiality Agreement may lead to immediate termination of employment.  The terms of this Agreement and Key Employee’s employment with the Company shall be governed in all aspects by the laws of the Commonwealth of Massachusetts.  This Agreement may be executed in more than one counterpart, and signatures transmitted via facsimile or PDF shall be deemed equivalent to originals.  

11. Integrated Agreement .   This Agreement supersedes any prior agreements, representations or promises of any kind, whether written, oral, express or implied between the Parties with respect to the subject matters herein.  Likewise, the terms of this Agreement and the Confidentiality Agreement incorporated herein by reference shall constitute the full, complete and exclusive agreement between Key Employee and the Company with respect to the subject matters herein.  This Agreement may only be changed by a writing, signed by Key Employee and an authorized representative of the Company.

6

 


 

12. Withholding .   Any payments or other compensation provided to Key Employee or for Key Employee s benefit will be subject to (and thus reduced by) all applicable deductions and withholdings.

13. Severability .   If any term herein is held to be invalid, void or unenforceable, the remainder of the terms herein shall remain in full force and effect and shall in no way be affected, and the Parties shall use their best efforts to find an alternative way to achieve the same result.

14. Successors .  

a. This Agreement is personal to Key Employee and, without the prior written consent of the Company, shall not be assignable by Key Employee otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by Key Employee’s legal representatives.

b. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

15. Amendment .  No amendment or other modification of this Agreement shall be effective unless made in writing and signed by the parties hereto.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

 

THE COMPANY:

 

KEY EMPLOYEE:

 

 

 

 

 

 

 

ACER THERAPEUTICS INC.

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Chris Schelling

 

By:

 

/s/ Donald Joseph

 

 

Chris Schelling

 

 

 

Donald R. Joseph

 

 

CEO & Founder

 

 

 

 

 

 

 

7

 


 

Exhibit A

(General Release of Claims)

 

NOTE :  This Agreement will not become effective or enforceable (and none of the consideration set forth in Section 1 below will be paid or recognized) until the seven (7) day revocation period referenced in Section 14 below has expired.

RELEASE

This Release (“ Agreement ”) is entered into effective [__________ __, 20__] by and between [________________] (“ Key Employee ”) and Acer Therapeutics Inc., a Delaware corporation (“ Acer ” or “ Company ”), with reference to the following facts:

A. Key Employee's employment relationship with Acer terminated effective [_______ __, 20__] (the “ Termination Date ”).

B. [ As applicable:]   [It is acknowledged that Key Employee resigned from each of Key Employee’s positions as an officer of the Company (including, without limitation, President, Chief Operating Officer, Chief Financial Officer and/or Secretary) and Key Employee’s membership on the Company’s Board of Directors effective as of the Termination Date.]

C. Key Employee [has been paid in full for]/[is entitled to receive] all accrued wages and accrued and unused vacation through the Termination Date.  [Key Employee has also been reimbursed by Acer for all expenses incurred in connection with Key Employee’s employment relationship with Acer through the Termination Date.]

NOW, THEREFORE, the parties hereby agree as follows:

1. Severance Consideration .  In consideration of the covenants and promises contained in this Agreement, and as full and final compensation to Key Employee for all services as an employee of Acer, Key Employee shall receive from Acer (less appropriate deductions and withholdings) the severance payments set forth in Section 6 of Key Employee’s Employment Agreement dated [________ __, 20__] (the “ Employment Agreement ”). Key Employee shall be fully responsible for all COBRA continuation payments (if any), and such amounts will not be withheld from the Severance Consideration.

2. Release .   In exchange for the Severance Consideration, Key Employee does hereby unconditionally, irrevocably and absolutely release and discharge Company, together with all of its shareholders, related direct or indirect holding, parent or subsidiary entities, predecessors and or affiliates [(including but not limited to {___if any___}] and each of their respective directors, officers, employees, agents, advisors, consultants, attorneys, owners, insurers, affiliates, successors or assigns, or any person acting by, through, under or in concert with them (“ Company Affiliates ”) (Company and Company Affiliates are hereinafter collectively referred to as the “ Released Parties ”), from any and all liability, claims, demands, causes of action, suits of any type, liabilities, damages and expenses (including, but not limited to, attorneys’ fees) of any nature whatsoever, whether in law and/or in equity, known or unknown, suspected or unsuspected, related directly or indirectly or in any way connected with any

 

 


 

transaction, affair, occurrence or circumstance between the Key Employee and any Released Party to date, including, but not limited to, Key Employee’s employment with Company, or the separation or termination of such employment and any and all claims related to salary, bonuses, commissions, stock, stock options, vacation pay, fringe benefits and expense reimbursements under any federal, state or local law;  provided, however, that nothing in this Agreement shall waive any rights or claims of Key Employee that arise after Key Employee signs this Agreement, impair or preclude Key Employee’s right to take action to enforce the terms of this Agreement, or waive Key Employee’s right to file an application for an award for original information submitted pursuant to Section 21F of the Securities Exchange Act of 1934.  

This total and complete release shall include but not be limited to a release of all claims under any legal or equitable theory arising under any state or federal statute or common law regulating or affecting employment in any way, regardless of applicability to Key Employee or any of the Released Parties, including (as they may have been amended through the Effective Date) Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 1981, the Age Discrimination in Employment Act (“ ADEA ”), the Older Workers Benefit Protection Act (“ OWBPA ”), the National Labor Relations Act (“ NLRA ”), the Sarbanes-Oxley Act of 2002, the Americans with Disabilities Act (“ ADA ”), Sections 503 and 504 of the Rehabilitation Act of 1973, the Employee Retirement Income Security Act (“ ERISA ”), the Consolidated Omnibus Budget Reconciliation Act (“ COBRA ”), the Equal Pay Act and all similar state laws which prohibit paying men and women unequal pay for equal work, the Family and Medical Leave Act and all similar state laws which relate to leave from employment (“ FMLA ”), the federal Occupational Safety and Health Act and all similar state laws regarding workplace safety (“ OSHA ”), the Workers’ Adjustment and Retraining Notification Act  and all similar state statute or laws regarding layoffs, (“ WARN ”), the Fair Labor Standards Act and all state, local and municipal laws relating to wages and work hours (“ FLSA ”), the Fair Credit Reporting Act and all similar state laws regarding background checks (“ FCRA ”), any Massachusetts (or any other state) or federal statute, regulation or executive order concerning or relating to employment or employee rights, including but not including but not limited to Mass. Gen. L. C. 151B, the Massachusetts Payment of Wages statute (M.G.L. c. 149, §§ 148 & 150), all federal or state or local “whistleblower” statutes, and any other federal, state or local statute, code, regulation or ordinance, common law, contract law, or tort (including but not limited to fraudulent inducement to enter into this Agreement, wrongful discharge, fraud, misrepresentation, intentional and negligent infliction of emotional distress, harassment, and any claims that any Released Party has dealt with Key Employee unfairly or in bad faith),  along with all claims for wages, damages, penalties, interest, costs and/or attorneys’ fees and the like.  This provision is intended to constitute a general release of all of Key Employee’s presently existing claims against each of the Released Parties, to the maximum extent permitted by law.  Notwithstanding any provision of this Agreement to the contrary, this general release does not apply to (i) workers compensation benefits; (ii) claims arising under section 7 of the National Labor Relations Act, as amended; (iii) state unemployment insurance benefits; (iv) any other claim or cause of action that, by virtue of statute, public policy or otherwise, may not be released by an agreement knowingly and voluntarily entered into by the parties; (v) any indemnification from (or insurance coverage through) Acer in Key Employee’s capacity as a director or officer of Acer or any entity where Key Employee served as an officer, director or other fiduciary at the request of Acer; [(vi) vested rights under the following benefit plans: {___if any___}]; and (vii) any other claim or cause of action that, by virtue of law or statute, cannot be waived or released by an agreement voluntarily

2

 


 

entered into between private parties or without the participation and approval of the applicable state or federal agency. Notwithstanding any provision of this Agreement to the contrary, Key Employee does not waive any right or release any claim against Acer which claim or right arises from Acer failing to perform its undertakings as set forth in this Agreement, and further, nothing in this Agreement shall waive your right to file an application for an award for original information submitted pursuant to Section 21F of the Securities Exchange Act of 1934.  Key Employee represents that Key Employee knows of no claim that Key Employee may have that has not been released by this Section 2 .

3. Claims .   It is the intention of the parties that, with the execution of this Agreement, and to the maximum extent permitted by law, each of the Released Parties will be absolutely, unconditionally and forever discharged of and from all obligations to or on behalf of Key Employee related in any way to the matters discharged herein.   Key Employee represents that Key Employee has not filed any complaints, claims, or actions against Acer with any court or administrative agency.  This Agreement recognizes the rights of the Equal Employment Opportunity Commission (“ EEOC ”), and any analogous state agencies to enforce the statutes which come under their jurisdiction.  As such, and without limiting the finality or scope of the release provided herein, NO PROVISION IN THIS AGREEMENT SHALL BE DEEMED TO PROHIBIT KEY EMPLOYEE FROM CHALLENGING THE VALIDITY OF THIS RELEASE OR FROM FILING A CHARGE OR COMPLAINT WITH THE EEOC OR OTHER EQUIVALENT STATE OR LOCAL AGENCY, OR FROM PARTICIPATING IN ANY INVESTIGATION OR PROCEEDING CONDUCTED BY SUCH AGENCY; however, any named Released Party may seek immediate dismissal of any such charge or complaint on the basis that this Agreement  constitutes  a full release of any individual rights under federal, state and local discrimination laws.  Key Employee also waives and will remit to Acer any monetary recovery from any such proceeding. Key Employee further represents that Key Employee has reported to Acer any and all known work-related injuries that Key Employee has suffered or sustained during Key Employee’s employment with Acer.

4. Unknown Claims .  Except as provided in Section 2 above, Key Employee understands and agrees that this release extends to all claims of every nature, known or unknown, suspected or unsuspected, past or present, and that any and all rights granted to Key Employee under Section 1542 of the California Civil Code or any analogous federal law or regulation are hereby expressly waived.  Said Section 1542 of the California Civil Code reads as follows:

“A general release does not extend to claims which the creditor does not know of or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

5. Effect on Previous Agreements .   Except as provided in Section 2 above , this Agreement is intended to resolve any and all issues between Acer and Key Employee, including, without limitation, any and all claims for wages, severance pay, compensation, stock options, stock grants, benefits, or other aspects of the employment relationship between Acer and Key Employee.  This Agreement shall supersede and extinguish all prior employment agreements, express or implied, verbal or written, between Acer and Key Employee; provided, however, that this Agreement shall have no effect on any of the following agreements previously executed by

3

 


 

Key Employee:  (i) any proprietary information and invention agreements (or similar arrangements); (ii) any confidentiality agreements; and [(iii) the following agreements: { ___if  any___}].   Without limiting the foregoing,, this Agreement shall (x) have no effect on any obligation of Key Employee under Key Employee’s proprietary information and invention agreements (or similar arrangements), including all of Key Employee’s obligations concerning non-solicitation, or (y) not in any way supersede or affect any obligation of Key Employee, contractual or otherwise, with respect to the disclosure, use or protection of any proprietary or confidential information of Employer, including any trade secrets, or with respect to the disclosure and assignment of inventions made or conceived by Key Employee during Key Employee’s employment at Acer.  All previous written agreements and obligations imposed by any contract relating to the intellectual property of Acer or any of its subsidiaries, affiliates, partners or customers, or any other third party with which Key Employer has any business relations shall remain in full force and effect and survive the execution of this Agreement.  Key Employee acknowledges that Key Employee’s breach of such duties shall constitute a breach of this Agreement.

6. Binding Effect .   The terms of this Agreement shall survive and continue in effect after the Severance Consideration is fully paid.   Key Employee further declares and represents that no promise, inducement or agreement not expressed herein has been made to Key Employee and that this Agreement contains the entire agreement between the parties relating to the subject matter hereof; the provisions of this Agreement may not be waived, altered, amended, modified or repealed in whole or in part, except by a writing signed by the parties hereto.

7. Successors .  Acer and Key Employee understand and expressly agree that this Agreement shall bind and benefit the heirs, partners, successors, employees, directors, stockholders, officers, attorneys, affiliates, predecessors, representatives and assigns of Acer and Key Employee.

8. Severability .  The terms of this Agreement are severable and if any terms of this Agreement are found unenforceable for any reason, the remaining terms of this Agreement shall be enforced in full.

9. Confidentiality .   Key Employee agrees not to disclose or publicize the existence of this Agreement or the terms hereof to any other party, except as may be necessary to enforce this Agreement or as may be required by law.   This provision shall not preclude Key Employee from disclosing, in confidence, the terms of this Agreement to (i) Key Employee’s legal or financial advisors, (ii) Key Employee’s spouse, or (iii) the appropriate Acer personnel with responsibility for the performance by Acer contemplated hereby (including, without limitation, effecting the severance payments set forth in Section 6 of Key Employee’s Employment Agreement dated [___________ __, 20__] . Nothing in this Section is intended to restrict Key Employee from providing testimony or documents pursuant to a lawful subpoena or other compulsory legal process or from providing truthful information upon request in connection with a governmental investigation or legal proceeding that has been independently initiated by another individual or governmental body, or from making disclosures to any governmental or law enforcement agency that are protected under the whistleblower provisions of applicable state or federal laws or regulations.   In particular, nothing in this Agreement is intended to conflict with federal law protecting confidential disclosures of a trade secret to the government or in a court filing, 18 U.S.C. § 1833(b), or to create liability for disclosures of information that are expressly allowed by 18 U.S.C. § 1833(b).   Additionally, this Agreement may be used as evidence in any bona fide legal claim in which Employee alleges Employer has broken promises made in this Agreement.

4

 


 

10. Interpretation .   Except as provided in Section 11 below , the validity, interpretation, and performance of this Agreement shall be construed and interpreted according to the laws of the Commonwealth of Massachusetts, without reference to any conflict or choice of laws provision that would make the laws of another jurisdiction applicable.  In the event of any legal proceeding for breach and/or enforcement of this Agreement that is brought outside of or in advance of arbitration, Key Employee consents to personal jurisdiction in the courts of Massachusetts.  This Agreement shall not be interpreted for or against either party hereto on the ground that such party drafted or caused this Agreement to be drafted.  If any provision of this Agreement, or part thereof, is held invalid, void or voidable as against public policy or otherwise, the invalidity shall not affect other provisions, or parts thereof, which may be given effect without the invalid provision or part.  To this extent, the provisions, and parts thereof, of this Agreement are declared to be severable.

11. Resolution of Employment Related Disputes .  Except as prohibited by law, Key Employee and Acer agree that any and all disputes, claims, or demands in any way arising out of or relating to the terms of this Agreement, Key Employee’s employment relationship with Acer, or the termination of Key Employee’s employment relationship with Acer, shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in Boston, Massachusetts, conducted before a single neutral arbitrator selected and administered in accordance with the commercial arbitration rules of the Judicial Arbitration and Mediation Services (JAMS).   By agreeing to this arbitration procedure, Key Employee and Acer waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding in any jurisdiction.   Key Employee will have the right to be represented by legal counsel at any arbitration proceeding, at Key Employee’s expense.  The arbitrator shall:  (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based; and (c) award to the prevailing party recovery of reasonable attorneys’ fees and costs, and determine which party shall be deemed the prevailing party and to what extent.  Acer shall pay the arbitration fee unless, at Key Employee’s request, Key Employee elects to pay up to one-half of the fees.  Nothing in this Agreement is intended to prevent either Key Employee or Acer from obtaining injunctive relief in court to prevent irreparable harm (including, without limitation, pending the conclusion of any arbitration).  This arbitration provision shall supersede any and all prior agreements between Acer and Key Employee on the subject of arbitration of employment-related claims.

12. Return of Property .  Key Employee represents and warrants that Key Employee has returned to and/or left with Acer all property and data that belongs to Acer, including but not limited to Acer’ computers, PDAs, blackberries, cell phones, credit cards, memoranda, documents, records, manuals, computer programs, discs, data, CDs, flash drives, email, and all other property and information pertaining to the business of Acer (including, without limitation, the duties Key Employee performed for Acer).  Notwithstanding the foregoing, Key Employee may retain Key Employee’s rolodex and similar address books provided that such items only include contact information.   Key Employee acknowledges that, as of the Termination Date, Key Employee’s authority to act on behalf of Acer ended.

5

 


 

13. Admissions .  It is understood that this Agreement is not an admission of any liability whatsoever by either Acer or Key Employee.  

14. Cooperation and Non-Disparagement .   Key Employee agrees that Key Employee will not disparage Acer or any of the Released Parties in any communications, and will use Key Employee’s best efforts to ensure that Key Employee’s departure from Acer is not disruptive.  Keu Employee further agrees to cooperate with Acer by providing all information that Acer Employer may hereafter reasonably request with respect to matters involving the work Key Employee has performed and Key Employee’s responsibilities and duties during his employment, so long as such requests do not unreasonably interfere with any other job in which Key Employee is engaged.

15. Older Workers Benefit Protection Act Acknowledgements .  Key Employee acknowledges and agrees that the consideration set forth in Section 1 above constitutes consideration beyond that which, but for the mutual covenants set forth in this Agreement, Acer would be obligated to provide, or Key Employee otherwise would be entitled to receive.   Key Employee acknowledges that Key Employee has twenty-one (21) days after actual receipt of this Agreement in which to consider and execute this Agreement.  Changes to this Agreement, whether material or immaterial, do not restart the twenty-one (21) day period.  Key Employee agrees and acknowledges that if Key Employee chooses to sign this Agreement before twenty-one (21) days after Key Employee received it, that Key Employee has done so voluntarily.   Furthermore, Key Employee has a period of seven (7) days following the execution of this Agreement in which to revoke this Agreement.   Accordingly, this Agreement shall not become effective or enforceable (and none of the consideration set forth in Section 1 above shall be paid or recognized) until such seven (7) day revocation period has expired.  

16. Counsel .  Key Employee acknowledges that Key Employee fully understands Key Employee’s right to discuss this Agreement with independent counsel of Key Employee’s choice, that Key Employee has carefully read and fully understands this entire Agreement and that Key Employee is voluntarily entering into this Agreement.

6

 


 

IN WITNESS WHEREOF, the undersigned have executed this Agreement on this [___] day of [________, 20__], at [_______________________] .

 

KEY EMPLOYEE:

 

ACER:

 

 

 

 

ACER THERAPEUTICS INC.

 

 

 

 

 

By:

 

 

 

By:

 

 

Name:

 

 

 

Name:

 

 

 

 

 

 

Title:

 

 

 

7

 

 

Exhibit 10.5

 

 

 

 

 

 

 

 

 

 

 

 

ONE GATEWAY CENTER
NEWTON, MASSACHUSETTS

 

OFFICE BUILDING LEASE

 

 

 

Tenant: Acer Therapeutics Inc.

Landlord: Gateway Realty Trust

 

 

 

 

 

 

 

 


 

TABLE OF CONTENTS

 

1.0

 

 

REFERENCE DATA

 

1

 

 

 

 

 

 

 

2.0

 

 

DESCRIPTION OF PREMISES

 

3

 

 

 

 

2.1

 

Premises.

 

3

 

 

 

 

2.2

 

Appurtenant rights.

 

3

 

 

 

 

2.3

 

Reservations.

 

3

 

 

 

 

 

 

 

 

 

 

3.0

 

 

TERM OF LEASE

 

3

 

 

 

 

3.1

 

Term.

 

3

 

 

 

 

 

 

 

 

 

 

4.0

 

 

TAKING OCCUPANCY

 

3

 

 

 

 

4.1

 

Occupancy As Is.

 

3

 

 

 

 

4.2

 

Delivery of Possession.

 

4

 

 

 

 

 

 

 

 

 

 

5.0

 

 

USE OF PREMISES

 

4

 

 

 

 

5.1

 

Permitted Use.

 

4

 

 

 

 

5.2

 

Prohibited Uses.

 

4

 

 

 

 

5.3

 

Licenses and Permits.

 

5

 

 

 

 

 

 

 

 

 

 

6.0

 

 

RENT

 

5

 

 

 

 

6.1

 

Annual Base Rent.

 

5

 

 

 

 

6.2

 

Security Deposit.

 

5

 

 

 

 

6.3

 

Taxes.

 

6

 

 

 

 

6.4

 

Operating Expenses.

 

6

 

 

 

 

6.5

 

Intentionally Omitted.

 

7

 

 

 

 

6.6

 

Late Payment Charge.

 

7

 

 

 

 

6.7

 

Books and Records.

 

7

 

 

 

 

 

 

 

 

 

 

7.0

 

 

UTILITIES AND LANDLORD'S SERVICES

 

8

 

 

 

 

7.1

 

Electricity.

 

8

 

 

 

 

7.2

 

Water and Sewer Charges.

 

8

 

 

 

 

7.3

 

Heat and Air Conditioning.

 

9

 

 

 

 

7.4

 

Additional Heat and Air Conditioning Services.

 

9

 

 

 

 

7.5

 

Elevator Service.

 

9

 

 

 

 

7.6

 

Cleaning.

 

9

 

 

 

 

7.7

 

Repairs and Other Services.

 

9

 

 

 

 

7.8

 

Interruption or Curtailment of Services.

 

9

 

 

 

 

 

 

 

 

 

 

8.0

 

 

MAINTENANCE OF AND IMPROVEMENTS TO PREMISES

 

10

 

 

 

 

8.1

 

Changes or Alterations by Landlord.

 

10

 

 

 

 

8.2

 

Alterations and Improvements by Tenant.

 

10

 

 

 

 

8.3

 

Tenant's Contractors - Mechanics' and Other Liens - Standard of Tenant's Performance - Compliance with Laws.

 

10

 

 

 

 

8.4

 

Fixtures, Equipment and Improvements - Removal by Tenant.

 

11

 

 

 

 

8.5

 

Repairs by Tenant.

 

11

 

 

 

 

8.6

 

Locks.

 

11

 

 

 

 

8.7

 

Tenant's Improvements and Condition of Premises at Termination.

 

11

 

 

 

 

 

 

 

 

 

 

9.0

 

 

INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION

 

12

 

 

 

 

9.1

 

Insurance.

 

12

 

 

 

 

9.2

 

Additional Insureds.

 

13

 

 

 

 

9.3

 

Certificates of Insurance.

 

13

 

 

 

 

9.4

 

Tenant's Compliance.

 

13

i


 

 

 

 

 

9.5

 

Indemnification.

 

13

 

 

 

 

9.6

 

Property of Tenant.

 

14

 

 

 

 

9.7

 

Landlord's Liability.

 

14

 

 

 

 

9.8

 

Waiver of Subrogation.

 

14

 

 

 

 

9.9

 

Massachusetts Turnpike Authority.

 

15

 

 

 

 

 

 

 

 

 

 

10.0

 

 

ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.

 

15

 

 

 

 

 

 

 

 

11.0

 

 

MISCELLANEOUS COVENANTS

 

18

 

 

 

 

11.1

 

Rules and Regulations.

 

18

 

 

 

 

11.2

 

Nuisance.

 

19

 

 

 

 

11.3

 

Access to Premises.

 

19

 

 

 

 

11.4

 

Accidents to Sanitary and other Systems.

 

19

 

 

 

 

11.5

 

Signs, Blinds and Drapes.

 

19

 

 

 

 

11.6

 

Estoppel Certificate.

 

20

 

 

 

 

11.7

 

Requirements of Law - Fines and Penalties.

 

20

 

 

 

 

11.8

 

Floor Loading.

 

20

 

 

 

 

11.9

 

Tenant's Access.

 

20

 

 

 

 

11.10

 

Survival

 

20

 

 

 

 

 

 

 

 

 

 

12.0

 

 

PARKING

 

20

 

 

 

 

 

 

 

 

13.0

 

 

CASUALTY

 

21

 

 

 

 

 

 

 

 

14.0

 

 

CONDEMNATION - EMINENT DOMAIN

 

22

 

 

 

 

 

 

 

 

15.0

 

 

DEFAULT

 

23

 

 

 

 

15.1

 

Conditions of Limitation - Re-entry - Termination.

 

23

 

 

 

 

15.2

 

Damages - Termination.

 

23

 

 

 

 

15.3

 

Fees and Expenses.

 

24

 

 

 

 

15.4

 

Landlord's Remedies Not Exclusive.

 

25

 

 

 

 

15.5

 

Grace Period.

 

25

 

 

 

 

 

 

 

 

 

 

16.0

 

 

ABANDONED PROPERTY

 

25

 

 

 

 

 

 

 

 

17.0

 

 

SUBORDINATION

 

25

 

 

 

 

 

 

 

 

18.0

 

 

QUIET ENJOYMENT

 

26

 

 

 

 

 

 

 

 

19.0

 

 

ENTIRE AGREEMENT - WAIVER - SURRENDER

 

26

 

 

 

 

19.1

 

Entire Agreement.

 

26

 

 

 

 

19.2

 

Waiver by Landlord and Tenant.

 

26

 

 

 

 

19.3

 

Surrender.

 

26

 

 

 

 

 

 

 

 

 

 

20.0

 

 

INABILITY TO PERFORM - EXCULPATORY CLAUSE

 

26

 

 

 

 

 

 

 

 

21.0

 

 

LANDLORD'S CONSENT

 

27

 

 

 

 

 

 

 

 

22.0

 

 

RIGHT TO RELOCATE

 

27

 

 

 

 

 

 

 

 

23.0

 

 

BILLS AND NOTICES

 

28

 

 

 

 

 

 

 

 

24.0

 

 

HOLDOVER

 

28

 

 

 

 

 

 

 

 

25.0

 

 

NO OPTION

 

28

 

 

 

 

 

 

 

 

26.0

 

 

PARTIES BOUND - SEIZIN OF TITLE

 

28

 

 

 

 

 

 

 

ii


 

 

27.0

 

 

MISCELLANEOUS

 

29

 

 

 

 

27.1

 

Separability.

 

29

 

 

 

 

27.2

 

Independent Covenants.

 

29

 

 

 

 

27.3

 

Captions.

 

29

 

 

 

 

27.4

 

Landlord or Tenant.

 

29

 

 

 

 

27.5

 

Broker.

 

29

 

 

 

 

27.6

 

Governing Law.

 

29

 

 

 

 

27.7

 

Assignment of Lease and/or Rents.

 

29

 

 

 

 

27.8

 

Notice of Lease.

 

30

 

 

EXHIBITS

 

 

 

 

 

 

 

A - Lease Plan

 

 

 

 

 

 

B - Cleaning Services

 

 

 

 

 

 

C - Rules and Regulations

 

 

 

 

 

 

D - Work Letter

 

 

 

 

 

 

E - Building Standard Construction Items

 

 

 

 

 

iii


 

LEASE AGREEMENT

THIS LEASE made this March 6, 2018 between Commonwealth Development LLC (formerly Commonwealth Development Group LLC), as TRUSTEE of the GATEWAY REALTY TRUST, a Massachusetts nominee trust, under an Amended and Restated Declaration of Trust dated as of November 30, 1998 (amending and restating a Declaration of Trust dated March 1, 1968, recorded with Middlesex County (South) Registry of Deeds (the “Registry”) in Book 11478, Page 134, as amended) and recorded with the Registry in Book 29595, Page 469 as affected by trustee appointments and resignations recorded with the Registry in Book 31343 at Pages 596-598 and Book 31847 at Page 3, as amended, and having offices at One Gateway Center, Newton, Massachusetts 02458 (“Landlord”), and Acer Therapeutics Inc., a Delaware corporation, with offices located in Newton, Massachusetts (“Tenant”).

In consideration of the rents and the covenants to be paid and performed by Tenant and upon the terms and conditions of this Lease, Landlord hereby leases to Tenant and Tenant hires from Landlord a portion of the Building (as “Building is defined below) and as shown on the plan attached hereto as Exhibit A and made a part hereof (hereinafter referred to as the “Premises”).

1.0

REFERENCE DATA

Each reference in this Lease to any term defined in this Article shall be deemed and construed to incorporate the data stated following that term in this Article.

 

Additional Parking Spaces:

1Parking Space

Additional Parking Space Charge:

NONE

Additional Rent:

Sums or other charges payable by Tenant to Landlord under this Lease, other than Annual Base Rent.

Annual Base Rent:

 

Period:

Annual Base Rent:

Monthly Installment

of Annual Base Rent:

October 1, 2018 through September 30, 2019

$101,760.00

$8,480.00

October 1, 2019 through September 30, 2020

$104,520.00

$8,710.00

October 1, 2020 through September 30, 2021

$107,280.00

$8,940.00

 

Broker:

NONE

Building:

Landlord's nine-story office building, commonly referred to as “One Gateway Center” in Newton, Massachusetts.

Business Day:

All days except Saturdays, Sundays and days defined as “legal holidays”.

Garage:

Landlord's multistory parking facility numbered 334 Washington Street, Newton, Massachusetts.

Land:

The parcel(s) of land on which the Building and other buildings (if any) owned by Landlord are situated.

Lease Year:

A twelve (12) month period beginning on the Term Commencement Date or an anniversary thereof.

Landlord's Address:

c/o J. F. White PropertiesOne Gateway Center
Newton, MA 02458

 


Page 2

Mortgage:

A mortgage, deed of trust, trust indenture, or other security instrument of record creating an interest in or affecting title to the Land or Building or the Property or any part thereof, and any renewal, modification, consolidation or extension of any such instrument.

Mortgagee:

The holder of any Mortgage.

Operating Expense Base:

The Operating Expenses for the Building for Landlords fiscal year ending December 31, 2019

Parking Areas:

Those areas on the Property designated by Landlord to be used for parking automobiles.

Parking Spaces:

6 Parking Spaces.

Premises:

Approximately 2,760 square feet of rentable area (the calculation of “rentable” area includes an allocation of the Building’s common areas) on the third floor of the Building, and as more fully described in the Article of this Lease entitled “ DESCRIPTION OF PREMISES ”.

Property:

The Building, the Garage and the Land and any improvements on the Land including, without limitation, the Building and other buildings (if any) owned by Landlord.

Real Estate Tax Base:

Real Estate Taxes for the Building for the City of Newton's Fiscal Year ending June 30, 2019.

Rent:

Annual Base Rent and Additional Rent.

Security Deposit:

$17,880.00

Tenant's Address:

The Premises.

Tenant's Proportionate Share of Operating Expenses:

1.74%

Tenant's Proportionate Share of Real Estate Taxes:

1.59%

Term Commencement Date:

October 1, 2018

Term Expiration Date:

September 30, 2021

Term:

A period of time commencing on the Term Commencement Date and ending on the Term Expiration Date.

Use of the Premises:

General Office.

 


Page 3

2.0

DESCRIPTION OF PREMISES

 

2.1.

Premises. The premises leased by Tenant under this Lease shall be the Premises (as the same may from time to time be constituted after changes therein, additions thereto and eliminations therefrom pursuant to rights of Landlord hereinafter reserved).

 

2.2.

Appurtenant Rights.   Tenant shall have, as appurtenant to the Premises, rights to use in common with others those common roadways, walkways, elevators, hallways and stairways necessary for access to the Premises or generally available to other tenants of the Building; provided, however, that such rights shall be subject to such rules and regulations as may be made by Landlord from time to time as provided for in Section 11.1 of this Lease, “ Rules and Regulations. ”.

 

2.3.

Reservations.   All the perimeter walls of the Premises except the inner surfaces thereof, any balconies, terraces or roofs adjacent to the Premises, and any spaces in or adjacent to the Premises used for serving other portions of the Building or other portions of the Property exclusively or in common with the Premises, including without limitation (where applicable) shafts, stacks, pipes, conduits, wires and appurtenant fixtures, fan rooms, ducts, electric or other utilities, sinks or other Building or Property facilities, and the use thereof, as well as the right of access through the Premises for the purpose of operation, maintenance, decoration and repair, are expressly reserved to Landlord.

3.0

TERM OF LEASE

 

3.1.

Term.   The term of this Lease shall be for the Term (or until such Term shall sooner cease or expire) commencing on the Term Commencement Date and ending on the Term Expiration Date.

4.0

TAKING OCCUPANCY

 

4.1.

Occupancy As Is.   Tenant currently occupies the Premises as a subtenant pursuant to a Sublease, dated October 16, 2017, with Bradley A. MacDonald, as sublandlord (the “Sublease”) and a Consent to Sublease agreement dated October 25, 2017 between Tenant, Landlord and sublandlord (the “Consent”).  Tenant acknowledges and agrees Tenant has accepted occupancy of the Premises "as is", and any work necessary or desired by Tenant in the Premises shall be performed by Tenant in compliance with the terms and provisions of this Lease at Tenant's own expense; provided, however, notwithstanding the forgoing to the contrary in this sentence, the following shall apply.

Landlord shall Substantially Complete certain work in the Premises in accordance with the Work Letter attached hereto as Exhibit A (the “Work”).  Exhibit A is referred to as the “Work Letter”.  “Substantially Complete” shall mean that Landlord has completed the Work to the extent that there remain to be done in the Premises only so-called punch list items such as minor details of construction and minor mechanical adjustments and such other items which do not materially adversely interfere with Tenant's use of or access to the Premises for the permitted Use of the Premises.  Landlord shall use diligent efforts to Substantially Complete the Work prior to July 1, 2018 (the “Target Completion Date”).  Failure on the part of Landlord to Substantially Complete the Work by the Target Completion Date shall not constitute a breach or default on the part of Landlord under the Lease or give rise to any claim of damage or expenses of any kind against Landlord by Tenant.  To the extent there remain any so-called punch list items after July 1, 2018, Landlord shall use diligent efforts to promptly complete such items.

Whereas Tenant currently occupies the Premises, to the extent the Work requires Landlord to perform construction or other activities in the Premises, Tenant agrees that, without Rent abatement or other obligation or liability on the part of Landlord, Landlord may perform construction or other activities in the Premises while Tenant continues to use and occupy the Premises.  Landlord agrees to use commercially reasonable efforts to minimize interference with Tenant’s use of the Premises for the permitted Use of the Premises, provided, however, while Landlord may elect to perform certain work during non-business hours, increase staffing of certain portions of the work, or make other adjustments to Landlord’s typical tenant fit-up construction process to accelerate completion of construction, whether for Tenant’s or

 


Page 4

Landlord’s benefit, Landlord shall not be obligated to do either.  Notwithstanding the immediately preceding sentence, Tenant acknowledges that the Work by its nature may from time to time preclude Tenant from using certain portions of the Premises, which portions may from time to time include, without limitation, cubical areas, office areas, conference rooms, kitchen and storage areas and circulation spaces as applicable.  In addition, Tenant, at Tenant’s expense, agrees to cooperate and coordinate with Landlord during the Work, including, without limitation, moving and or storing, temporarily or permanently, Tenant's personal property, furniture, fixtures or equipment as may be required to facilitate the Work.  Tenant specifically agrees that, notwithstanding Landlord’s obligation to complete the Work, under no circumstances shall Landlord be obligated to move or store, temporarily or permanently, Tenant’s personal property, furniture, fixtures or equipment and if such moving or storage is required in order for Landlord to perform the Work, such moving and storage shall be at Tenant’s sole cost and expense.

If the Work is not Substantially Complete by the Target Completion Date as a result of (i) delays caused by Tenant (“Tenant Delays”), including, without limitation, Tenant requested changes to the scope of work, design, finishes or other specifications set forth in the Work Letter or Tenant’s failure to respond in a timely manner to Landlord’s inquires related to the Work or  Tenant’s failure to timely cooperate and coordinate as required pursuant to the immediately preceding grammatical paragraph or (ii) force majeure delays (“Force Majeure Delays”), including, without limitation, delays relating to strikes, labor difficulties, difficulties in obtaining materials, fire, governmental regulations, the failure of existing tenants to vacate and or any other circumstances beyond Landlord's reasonable control, then the Target Completion Date shall be postponed to the extent of such delays

 

4.2.

Delivery of Possession.    Intentionally Omitted .

5.0

USE OF PREMISES

 

5.1.

Permitted Use.   Tenant shall continuously during the Term of this Lease occupy and use the Premises for the permitted Use of the Premises and for no other purpose.  Service and utility areas (whether or not a part of the Premises) shall be used only for the particular purpose for which they are designated.

 

5.2.

Prohibited Uses.   Tenant shall not use, permit the use of, permit anything to be done in or on or anything to be brought into or onto or kept in or on the Premises, the Building, the Property or any part of thereof (i) which would violate any covenant, agreement, term, provision or condition of this Lease, (ii) for any unlawful purpose or in any unlawful manner, or (iii) which, in the reasonable judgment of Landlord shall in any way (a) impair or tend to impair the appearance or reputation of the Building or the Property, (b) impair or interfere with or tend to impair or interfere with any of the Building or Property services or the proper and economic heating, cleaning, air conditioning or other servicing of the Building or the Property or any portion thereof or with the use of the Building or the Property or any portion thereof, or (c) occasion discomfort, inconvenience or annoyance to any other tenant, licensee or other occupant of the Building or the Property or any neighboring property, whether through the transmission of noise or odors or vibrations or otherwise.

Without limiting the generality of the foregoing, Tenant shall not permit any vending machines in the Premises or use or occupy or permit the use or occupation of the Premises or any part of the Premises as or for a restaurant business or for the sale or furnishing free of charge of food, liquors, frozen deserts, ice cream, beverages, or other edible products, for public stenography, or for the conducting of any aspect of banking business; no food shall be prepared or served for consumption on or about the Premises; no intoxicating liquors or alcoholic beverages shall be sold or otherwise permitted in or about the Premises, the Building or elsewhere on the Property; no lottery tickets (even where the sale of such tickets is not illegal) shall be sold and no gambling, betting or wagering shall otherwise be permitted in or about the Premises, the Building or elsewhere on the Property; no loitering shall be permitted in or about the Premises, the Building or elsewhere on the Property; and no loading or unloading of supplies or other material to or from the Premises shall be permitted in the Building or elsewhere on the Property

 


Page 5

except at times and in locations to be designated by Landlord.  Tenant shall not bring or permit to be brought into or keep in or on the Premises, the Building or elsewhere on the Property any oil or any toxic, hazardous, inflammable, combustible or explosive fluids, materials, chemicals or substances, (including without limitation any hazardous substances within the meaning of Chapter 21E of the Massachusetts General Laws and any medical waste or any fluid, material, chemical or substance considered to be biologically hazardous) (except in the Premises where such are related to Tenant's use of the Premises, provided that the same are stored and handled in a proper fashion consistent with applicable legal standards), or cause or permit any odors to emanate from or permeate the Premises.

The Premises shall be maintained in a sanitary condition, and kept free of rodents and vermin.  Tenant shall suitably store all trash and rubbish in the Premises, the Building or elsewhere on the Property in locations designated by Landlord from time to time.  The language of this Section prohibiting the preparation or serving of food for consumption on or about the Premises notwithstanding, but subject to the other terms and conditions of the Lease and subject to the other terms and conditions of this Section entitled “ Prohibited Uses. ”, Tenant may, with Landlord's prior written consent, install at Tenant's sole expense, one bottled water dispenser (utilizing water bottles with a capacity of not more than five gallons each and dispensing not more than one bottle at a time without manually removing and replacing the one bottle from which water is dispensed), coffee maker, microwave and refrigerator for use by Tenant.

 

5.3.

Licenses and Permits.   If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business in the Premises, Tenant, at Tenant's expense, shall duly procure and maintain such license or permit and submit the same to inspection by Landlord.  Tenant, at Tenant's expense, shall at all times comply with the terms and conditions of each such license or permit.

 

6.0

RENT

 

6.1.

Annual Base Rent.   Tenant shall pay to Landlord, without any demand, setoff or deduction, at Landlord's Address, or to such other person or at such other place as Landlord may designate by notice to Tenant, the Annual Base Rent.  The Annual Base Rent shall be paid in equal Monthly Installments in advance on or before the first Business Day of each calendar month during the Term of this Lease and shall be apportioned for any fraction of a month in which the Term Commencement Date or the last day of the Term of this Lease may fall.  Rent for the first full month of the initial Term for which Rent is due shall be paid by Tenant upon the execution of this Lease.

 

6.2.

Security Deposit.   It is understood that upon the execution of this Lease, Tenant shall have deposited the sum of the Security Deposit as security for the faithful performance and observance by Tenant of the terms, conditions, provisions and covenants of this Lease, it being further understood however, that said deposit is not to be considered prepaid Rent.  In the event Tenant defaults in respect to any of the terms, conditions, provisions and covenants of this Lease, including, but not limited to the payment of Rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any Rent or any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default with respect to this Lease, including but not limited to any amount for which Tenant is liable under the Article contained herein entitled “ DEFAULT ” provided, however, that such Security Deposit shall in no way be construed as liquidated damages for any default or breach of any term, condition, provision and covenant of this Lease, nor shall Landlord be required, because of said deposit, to waive its right under the Article contained herein entitled “ DEFAULT ” to terminate this Lease in the event of default.  In the event Landlord uses, applies or retains any part or all of the Security Deposit and the Lease continues or Tenant's occupancy continues in the Premises, Tenant shall within ten (10) days after written notice from Landlord make such further or other deposit of moneys as may be necessary to bring the balance of the deposit to a sum equal to the Security Deposit.

In the event Tenant shall fully and faithfully comply with all of the terms, conditions, provisions and covenants of this Lease, the Security Deposit made hereby (or what may remain thereof) shall be returned, without interest, to Tenant within 30 days after the termination of the Lease and delivery of possession of the Premises to Landlord.

 


Page 6

 

6.3.

Taxes.   “Real Estate Taxes” shall mean all taxes, assessments and betterments, levied, assessed or imposed by any governmental authority upon the Property or any portion thereof, or arising from, or imposed on, the ownership or operation of the Property or any portion thereof, or the ownership of the tenant's interest under any ground lease (the term "ground lease" shall refer to the lease dated April 1, 1968 between Landlord and the Massachusetts Turnpike Authority, as amended, or any other underlying lease of space in which the Building and the Garage are located) and any payment in addition to or in lieu of any of the same required now or in the future.

Tenant shall pay to Landlord as Additional Rent “Tenant's Proportionate Share of Real Estate Taxes” of all Real Estate Taxes in excess of the Real Estate Tax Base, prorated with respect to any portion of a fiscal year in which the Term of this Lease begins or ends.  Such payments are to be made by Tenant to Landlord in installments corresponding to the installments in which said taxes are payable by Landlord.  Each payment shall be due and payable within ten (10) days after written notice by Landlord to Tenant of the amount of such installment.

If Landlord shall receive any refund of any real estate taxes of which Tenant has paid a portion pursuant to this Section, then, out of any balance remaining after deducting Landlord's expenses incurred in obtaining such refund, Landlord shall pay or credit to Tenant the same proportionate share of said balance, prorated as set forth above, but in no event more than the amount paid by Tenant with respect to the year in question.  Landlord shall have no obligation to seek any such refund and Tenant shall have no right to seek or to control any abatement, dispute, or other proceeding with any governmental agencies or entities with respect to the real estate taxes as described in this Section.

Tenant shall, if as and when demanded by Landlord and with each Monthly Installment of Annual Base Rent, make tax fund payments to Landlord.  “Tax fund payments” refer to such payments as Landlord shall determine to be sufficient to provide in the aggregate a fund adequate to pay, when they become due and payable, all payments required from Tenant under this Section.  In the event that tax fund payments are so demanded, and if the aggregate of said tax fund payments is not adequate to pay Tenant's share of such taxes, Tenant shall pay to Landlord the amount by which such aggregate is less than the amount of said share, such payment to be due and payable at the time set forth above.  Any surplus tax fund payments shall be accounted for to Tenant after such surplus has been determined, and may be credited by Landlord against future tax fund payments or refunded to Tenant at Landlord's option.

If during the term of this Lease or any extension thereof, a tax or excise on rents or other tax (excluding income tax), however described, shall be levied or assessed against Landlord by the Commonwealth of Massachusetts or any political subdivision thereof on account of the rental hereunder, such tax or excise on rents or other taxes assessed on the land and buildings of which the Premises form a part shall be deemed to constitute Real Estate Taxes for the purposes of this Section.  It is also understood and agreed that the term Real Estate Taxes includes betterments and improvement assessments, provided, however, that Landlord shall for the purposes of this Section, be deemed to have elected to pay any such assessments over the longest period of time permitted by law (whether or not Landlord in fact makes such election), and only those installments which are or would be payable with respect to the tax years which are included in the term of this Lease or any extension thereof (with interest which is or would be payable thereon) shall be included in the Real Estate Taxes for said tax years for the purposes hereof.

In the event the taxing authorities shall, during the term of this Lease, or any extension thereof, assess along with Real Estate Taxes, a personal property tax on Tenant's trade fixtures, leasehold improvements, furnishings, lighting fixtures, heating and cooling equipment, or other equipment in the Premises, the Building or elsewhere on the Property, whether or not such are owned and installed by Landlord, the taxes thus assessed shall be paid by Tenant within ten (10) days of notice by Landlord of the amount due.

 

6.4.

Operating Expenses.   Tenant shall pay to Landlord as Additional Rent “Tenant's Proportionate Share of Operating Expenses” of all costs and expenses in excess of the Operating Expense Base incurred by Landlord in the management, operation and maintenance of the Property or

 


Page 7

 

any portion thereof , including, without limiting the generality of the foregoing, all such costs and expenses in connection with (l) insurance, license fees, janitorial service, landscaping and snow removal, (2) wages, salaries, management fees, employee benefits, payroll taxes, office expenses, administrative and auditing expenses, and equipment and materials for the operation, management and maintenance of the Property, (3) capital expenditures (amortized, with interest, on such reasonable basis as Landlord shall determine) made by Landlord for the purpose of reducing other operating expenses or complying with any governmental requirement, (4) water and sewer charges, (5) the furnishing of heat, air conditioning, electricity, utilities, and any other services, (6) the operation and servicing of any computer system installed to regulate Building equipment or other equipment serving the Property and (7) the furnishing of repairs and services referred to in the Article contained herein entitled UTILITIES AND LANDLORD'S SERVICES (the foregoing being collectively referred to as “O perating E xpenses ”).

If, during a portion of a fiscal year for which Operating Expenses are being computed pursuant to this Section, less than the entire rentable area of the Building is occupied or Landlord is not supplying all occupants with the same services being supplied hereunder, such costs and expenses shall be reasonably extrapolated in order to take into account the costs and expenses which would have been incurred had the entire rentable area of the Building been occupied and had such services been supplied to all occupants.

As soon as Tenant's Proportionate Share of Operating Expenses with respect to a fiscal year can be determined, Landlord shall notify Tenant of the same and the same will become payable to Landlord within ten (10) days following such notification, subject to proration with respect to any portion of a fiscal year in which the Term of this Lease begins or ends.

Tenant shall, if, as and when demanded by Landlord and with each monthly installment of Annual Base Rent, make Operating Fund Payments to Landlord.  “Operating Fund Payments” refer to such payments as Landlord shall determine to be sufficient to provide in the aggregate a fund adequate to pay, when they become due and payable, all payments required from Tenant under this Section.  In the event that Operating Fund Payments are so demanded, and if the aggregate of said Operating Fund Payments is not adequate to pay Tenant's Proportionate Share of Operating Expenses, Tenant shall pay to Landlord the amount by which such aggregate is less than the amount of said share, such payment to be due and payable at the time set forth above.  Any surplus Operating Fund Payments shall be accounted for to Tenant after such surplus has been determined, and may be credited by Landlord against future Operating Fund Payments or refunded to Tenant at Landlord's option.

 

6.5.

Intentionally omitted.

 

6.6.

Late Payment Charge.   If any installment of Rent or Additional Rent or any other sum due from Tenant shall not be received by Landlord on the date such installment or sum is due, Landlord reserves the right to assess, and Tenant then shall pay, a late payment charge equal to two and one half percent (2.5%) of the total amount that is in arrears and a further late payment charge equal to two and one half percent (2.5%) of the amount then outstanding may be assessed for each additional thirty (30) day period (or any fraction thereof) that such amount remains unpaid.  Acceptance of such late payment charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of Landlord's other rights and remedies granted by this Lease.

 

6.7.

Books and Records.   Within 15 days of any request by Landlord, Tenant shall furnish to Landlord a balance sheet as of the last day of the most recently completed fiscal quarter or such more recent fiscal period for which a balance sheet is reasonably available and a similarly current statement of Tenant's income and expenses for the twelve months preceding the date of the aforementioned balance sheet, both of which shall be prepared in reasonable detail in accordance with generally accepted accounting principles and certified as being true and correct by an officer or principal of Tenant.  In addition to the foregoing, within 15 days of any request by Landlord, Tenant shall provide such other financial or business plan related information as Landlord shall reasonably request, including without limitation, information related to the capitalization of Tenant's business.

 


Page 8

7.0

UTILITIES AND LANDLORD'S SERVICES

 

7.1.

Electricity.   Landlord shall furnish electricity to the Premises for lighting and other general office purposes.  If Tenant requires electricity elsewhere in the Building or on the Property, then such electricity shall be furnished in all respects at Tenant's sole cost and expense.  Tenant's use of electrical energy in the Premises, the Building and elsewhere on the Property shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Premises or Tenant's electrical energy needs elsewhere in the Building or on the Property (as the case may be).  In order to insure that such capacity is not exceeded and to avert possible adverse effect upon the electrical services for the Building or the Property, Tenant shall give notice to Landlord and obtain Landlord's prior written consent whenever Tenant shall connect to the Building's or the Property's electrical distribution system any fixtures, appliances or equipment other than lamps, typewriters, personal computers and similar small machines.  Any additional feeders or risers to supply Tenant's electrical requirements in addition to those originally installed and all other equipment proper and necessary in connection with such feeders or risers, shall be installed by Landlord upon Tenant's request, at the sole cost and expense of Tenant, provided that such additional feeders and risers are permissible under applicable laws and insurance regulations and the installation of such feeders or risers will not cause permanent damage or injury to the Building or any other portion of the Property or cause or create a dangerous condition or unreasonably interfere with other tenants of the Building or the Property.  Tenant agrees that it will not make any alteration or material addition to the electrical equipment in the Premises, the Building or elsewhere on the Property without the prior written consent of Landlord in each instance first obtained.  Tenant, at Tenant's expense, shall purchase, install and replace all light bulbs or tubes used in the Premises or used exclusively by Tenant in the Building or elsewhere on the Property, except that Landlord shall furnish the light bulbs and tubes and labor for the initial installation of light bulbs and tubes in the Premises.  Landlord shall not in any way be liable or responsible to Tenant for any loss, damage or expense which Tenant may incur if the quantity, character, or supply of electrical energy is changed or is no longer available or suitable for Tenant's requirements.

Landlord, at any time, at its option and upon not less than sixty (60) days prior notice to Tenant, may discontinue furnishing electric current to the Premises or for Tenant's exclusive use elsewhere in the Building or on the Property; and in either such case Tenant shall contract with the public service company supplying electric current for the purchase by Tenant of electric current directly from such company.  In such event, Landlord shall (i) permit its risers, conduits and feeder, to the extent available, suitable and safely capable, to be used to enable Tenant so to purchase electric current, (ii) without cost to Tenant, make such alterations and additions to the electrical equipment and/or appliances in the Building or elsewhere on the Property as may be required for such direct purchase, and (iii) at Landlord's expense, shall furnish and install any necessary metering equipment, which Tenant shall thereafter maintain and repair at its expense.  In the event Landlord shall exercise such option, the Annual Base Rent and the Operating Expense Base shall be decreased by an amount equal to the cost (which cost shall be determined by Landlord in Landlord's sole reasonable discretion) of electricity furnished by Landlord to the Premises and for Tenant's exclusive use elsewhere in the Building or on the Property as of the Term Commencement Date.

 

7.2.

Water and Sewer Charges.   Landlord shall furnish water for ordinary cleaning, toilet, lavatory and drinking purposes, provided, however, that Tenant shall maintain and replace if necessary any water heating, plumbing and plumbing related equipment exclusively serving the Premises (if any) or exclusively serving Tenant elsewhere in the Building or on the Property (if any) and any electricity, gas or other source of energy consumed by such water heating or plumbing related equipment shall be reimbursed to Landlord.

If Tenant requires, uses or consumes water for any purpose other than for such purpose, Landlord may (i) assess a reasonable charge for the additional water so used or consumed by Tenant or (ii) install a water meter and thereby measure Tenant's water consumption for all purposes.  In the latter event, Tenant shall pay the cost of the meter and the cost of installing any equipment required in connection therewith, and Tenant shall keep said meter and installation

 


Page 9

equipment in good working order and repair, and shall pay for water consumed, as shown on said meter, together with the sewer charge based on said meter charges, as and when bills are rendered.  On default in making such payment Landlord may pay such charges and collect the same from Tenant, along with any additional costs related to such collection.

 

7.3.

Heat and Air Conditioning.   Landlord shall furnish to and distribute in the Premises heat and air conditioning as normal seasonal changes may require on Business Days from 8:00 a.m. to 6:00 p.m. when reasonably required for the comfortable occupancy of the Premises by Tenant.  Tenant agrees to lower and close the blinds or drapes when necessary because of the sun's position whenever the air conditioning system is in operation, and to cooperate fully with Landlord with regard to, and to abide by all the regulations and requirements which Landlord may prescribe for the proper functioning and protection of, the heating and air conditioning system.  The air conditioning system shall be capable of providing 80 degrees Fahrenheit dry bulb and 50% relative humidity with outside conditions of 95 degrees Fahrenheit dry bulb and 75 degrees Fahrenheit wet bulb, provided Tenant acknowledges that the air conditioning system servicing the Building is designed to provide cooling based upon an occupancy of not more than one person per one hundred (100) square feet of floor area, and upon a combined lighting and standard electrical load not to exceed 4.0 watts per square foot.  In the event Tenant exceeds such condition or introduces into the Premises equipment which overloads such system, or in any other way causes such system not to adequately perform its proper functions, supplementary systems may at Landlord's option be provided by Landlord at Tenant's expense.

 

7.4.

Additional Heat and Air Conditioning Services.   Landlord shall, upon reasonable advance written notice from Tenant of its requirements in that regard, furnish additional heat or air conditioning services to the Premises on days and at times other than as provided in this Article.  Tenant will pay to Landlord a reasonable charge for such additional heat or air conditioning services required by Tenant.

 

7.5.

Elevator Service.   Landlord shall provide passenger elevator service to the Premises on Business Days from 8:00 a.m. to 6:00 p.m. and on a reduced basis at all other times.  Upon 48 hours advance notice by Tenant to Landlord, freight elevator service shall be available in common with other tenants on Business Days from 9:00 a.m. to 4:00 p.m. at reasonable charge.

 

7.6.

Cleaning.   Landlord shall furnish cleaning services to the Premises and the common areas of the Building appurtenant to the Premises substantially in accordance with the specifications attached hereto as Exhibit B and made a part hereof.

 

7.7.

Repairs and Other Services.   Except as otherwise provided in the Articles entitled “ CASUALTY ” and “ CONDEMNATION - EMINENT DOMAIN ”, and subject to Tenant's obligations in the Article contained herein entitled “ MAINTENANCE OF AND IMPROVEMENTS TO PREMISES ” and elsewhere in this Lease, Landlord shall (a) keep and maintain the roof, exterior walls, structural floor slabs and columns of the Building in as good condition and repair as they are in on the Term Commencement Date, reasonable use and wear excepted, (b) keep and maintain in workable condition the Building's sanitary, electrical, heating, air conditioning and other systems, (c) keep all walkways on the Property clean and remove all snow and ice therefrom and (d) provide grounds maintenance to all landscaped areas.

 

7.8.

Interruption or Curtailment of Services.   Landlord reserves the right to interrupt, curtail, stop or suspend the furnishing of services and the operation of any Building or Property system, when necessary by reason of accident or emergency, or of repairs, alterations, replacements or improvements in the reasonable judgment of Landlord desirable or necessary to be made, or of difficulty or inability in securing supplies or labor, or of strikes, or of any other cause beyond the reasonable control of Landlord, whether such other cause be similar or dissimilar to those herein above specifically mentioned, until said cause has been removed.  Landlord shall have no responsibility or liability for any such interruption, curtailment, stoppage, or suspension of service or system, except that Landlord shall exercise reasonable diligence to eliminate the cause of same.  Landlord agrees to provide reasonable notice prior to interrupting, curtailing, stopping or suspending the furnishing of services and the operation of any Building systems for the purpose of making elective alterations, replacements or improvements.

 


Page 10

Except when made necessary by an act or omission of Tenant, or Tenant’s employees, agents, contractors or invitees, or except when made necessary by reason of accident, emergency, difficulty or inability in securing supplies of labor, strikes, or of any other cause beyond the reasonable control of Landlord, if the Premises are rendered unusable for Use of the Premises solely because the Landlord interrupts, curtails, stops or suspends the furnishing of services or the operation of any building system to make alterations, replacements or improvements and such interruption, curtailment, stoppage or suspension and the related inability to use the Premises for the Use of the Premises continues for more than 20 consecutive Business Days, the Annual Base Rent shall abate thereafter until the Premises are usable for the Use of the Premises.

8.0

MAINTENANCE OF AND IMPROVEMENTS TO PREMISES

 

8.1.

Changes or Alterations by Landlord.   Landlord reserves the right, exercisable by itself or its nominee, at any time and from time to time without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor or otherwise affecting Tenant's obligations under this Lease, to make such changes, alterations, additions, improvements, repairs or replacements in or to the Building or elsewhere on the Property and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, elevators, and stairways thereof, as it may deem necessary or desirable, and to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets, or other public parts of the Building or other portions of the Property, provided, however, that there be no unreasonable obstruction of the right of access to, or unreasonable interference with the use and enjoyment of the Premises by Tenant, except that Landlord shall not be obligated to employ labor at so-called “overtime” or other premium pay rates.  Nothing contained in this Article shall be deemed to relieve Tenant of any duty, obligation or liability of Tenant with respect to making or causing to be made any repair, replacement or improvement or complying with any law, order or requirement of any governmental or other authority.  Landlord reserves the right to from time to time change the address of the Building or the Property.  Neither this Lease nor any use by Tenant shall give Tenant any right or easement or the use of any door or any passage or any concourse connecting with any other building or to any public convenience, and the use of such doors, passages and concourses and of such conveniences may be regulated or discontinued at any time and from time to time by Landlord without notice to Tenant and without affecting the obligations of Tenant hereunder or incurring any liability to Tenant therefor.

 

8.2.

Alterations and Improvements by Tenant.   Tenant shall make no alterations, decorations, installations, removals, additions or improvements in or to the Premises, the Building or elsewhere on the Property, nor permit any holes to be drilled or made in or on the Premises, the Building or elsewhere on the Property except in each instance in such place and manner and by contractors or mechanics all as shall first have been approved in writing by Landlord.  No such installations or other work shall be undertaken or begun by Tenant until Landlord has approved written plans and specifications therefor; and no amendments or additions to such plans and specifications shall be made without prior written consent of Landlord.  Any such alteration, decoration, installation, removal, addition and improvement shall be done at the sole expense of Tenant and at such times and in such manner as Landlord may designate.  If Tenant shall make any alterations, decorations, installations, removals, additions or improvements, then Landlord may elect to require Tenant, at Tenant's expense, at the expiration of this Lease, to restore the Premises, the Building and the Property (as the case may be) to substantially the same condition as existed at the Term Commencement Date.

 

8.3.

Tenant's Contractors - Mechanics' and Other Liens - Standard of Tenant's Performance - Compliance with Laws.   Whenever Tenant shall make any alteration, decoration, installation, removal, addition or improvement or do any other work in or to the Premises, the Building or elsewhere on the Property, Tenant will strictly observe the following covenants and agreements:

(a) In no event shall any material or equipment be incorporated in or added to the Premises, the Building or any other portion of the Property in connection with any such alteration, decoration, installation, addition or improvement which is subject to any lien, charge, mortgage or other encumbrance of any kind whatsoever or is subject to any security interest or any form of title

 


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retention agreement.  Any notice of contract or mechanic's or materialmen's lien filed against the Premises, the Building, the Property or any portion thereof for work claimed to have been done for, or materials claimed to have been furnished to Tenant shall be removed or discharged by Tenant within ten (10) days thereafter, at the expense of Tenant, by filing the bond required by law or otherwise.  If Tenant fails so to remove or discharge any lien, Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord for any expenses or costs incurred by Landlord in so doing within fifteen (15) days after rendition of a bill therefor .

(b) All installations or work done by Tenant under this or any other Article of this Lease shall be at its own expense (unless expressly otherwise provided) and shall at all times comply with (i) laws, rules, orders and regulations of governmental authorities having jurisdiction thereof; (ii) orders, rules and regulations of any insurance rating bureau if and as applicable; and (iii) plans and specifications prepared by and at the expense of Tenant and approved by Landlord prior to the commencement of any work.

(c) Tenant shall procure all necessary permits before undertaking any work in the Premises, the Building or elsewhere on the Property; do all such work in a good and workmanlike manner, employing materials of good quality and complying with all governmental requirements, and defend, save harmless, exonerate and indemnify Landlord from all injury, loss or damage to any person or property occasioned by or arising out of such work.

 

8.4.

Fixtures, Equipment and Improvements - Removal by Tenant.   All fixtures, equipment, improvements and appurtenances attached to or built into the Premises (or the Building or elsewhere on the Property with respect to Tenant's tenancy) prior to or during the Term, or any extension thereof, whether by Landlord, at its expense or at the expense of Tenant, or by Tenant shall be and remain part of the Premises and shall not be removed by Tenant at the end of the Term unless Landlord, in its sole discretion, shall request Tenant to remove any of such fixtures, equipment, improvements and appurtenances in which event Tenant shall remove such at Tenant's expense.  Where not built into the Premises, and if furnished and installed by and at the sole expense of Tenant, all removable furniture, trade fixtures and business equipment shall not be deemed to be included in such fixtures, equipment, improvements and appurtenances and may be, and upon the request of Landlord shall be, removed by Tenant, at Tenant's expense, upon the condition that such removal shall not materially damage the Premises, the Building, the  Property or any portion thereof and that the cost of repairing any damages to the Premises, the Building, the Property or any portion thereof (as the case may be) arising from such removal shall be paid by Tenant, provided, however, that any of such items toward which Landlord shall have granted any allowance or credit to Tenant shall be deemed not to have been furnished and installed in the Premises by or at the sole expense of Tenant.

 

8.5.

Repairs by Tenant.   Tenant shall keep or cause to be kept the Premises in such repair, order and condition as the same are in on the Term Commencement Date or such better condition as the Premises may be put in during the Term hereof.  Without limiting the generality of the foregoing, Tenant shall keep all interior windows and other interior glass whole and in good condition, and shall replace the same whenever broken with glass of the same quality.

 

8.6.

Locks.   Tenant agrees that it will not change, alter or replace the locks provided to the Premises or common access doors, nor will it add locks to same, without the written permission of Landlord.  Tenant agrees that all repairs necessary to such locks (except such locks which are used in common with other tenants of the Building or the Property) will be at Tenant's sole expense.

 

8.7.

Tenant's Improvements and Condition of Premises at Termination.   Upon the termination of this Lease and any extension thereof, by its own terms or otherwise, Tenant will remove its goods and effects and those of all persons claiming under Tenant from the Premises, the Building and all other portions of the Property and will peaceably yield up to Landlord the Premises and all alterations, erections, additions and improvements pursuant to the Section entitled “ Fixtures, Equipment and Improvements - Removal by Tenant. ”, in good repair, order, and condition in all respects, reasonable use and wear (which for the purposes of this paragraph shall not be deemed to include holes in floors or walls or special wiring caused by the

 


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installation of Tenant's fixtures or equipment) excepted.  It is further agreed and understood that at the termination of this Lease or any extension thereof, Tenant shall have restored the Premises and any portion of the Building and the Property (as the case may be) used exclusively by Tenant to good repair, order and condition in all respects, including but not limited to repair of all floor surfaces damaged by the removal of partitions, machinery and equipment, and shall restore all floor areas to a good condition and repair, using materials to provide a consistent floor surface, satisfactory to Landlord; and shall have cleaned and removed accumulations of dirt and particles, oils, greases, and discolorations from all surfaces resulting from Tenant's processes and shall leave the Premises and any portion of  the Building or the Property (as the case may be) used exclusively by Tenant broom clean.

9.0

INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION

 

9.1.

Insurance.   Tenant shall procure, keep in force and pay for insurance covering all claims and demands for injury to or death of persons or damage to property arising out of or related to Tenant's occupancy of the Premises.  Insurance shall not be in amounts less than the following:

COMMERCIAL GENERAL LIABILITY

$1,000,000 combined single limit per occurrence, Coverage A

$1,000,000 personal and advertising injury liability, Coverage B

$1,000,000 products/completed operations liability aggregate

$       5,000 medical payments

$     50,000 fire damage legal liability

$2,000,000 general aggregate, applying per location, per project OR $4,000,000 general aggregate

The general liability insurance is to be written on the 2001 Insurance Services Office form or its equivalent.

UMBRELLA LIABILITY

$5,000,000 each occurrence

$5,000,000 aggregate

WORKERS' COMPENSATION

Coverage A Workers' Compensation –Statutory

Coverage B Employer's Liability -

$500,000 bodily injury by accident, each accident

 

$500,000 bodily injury by disease, each employee

 

$500,000 bodily injury by disease, policy aggregate

AUTOMOBILE LIABILITY

$1,000,000 Combined single limit, each accident applying to all owned, hired and nonowned automobiles

GLASS COVERAGE

Covering interior glass windows in the Premises, if any, in such reasonable amounts as may be established from time to time by Landlord.

CONTENTS AND LEASEHOLD IMPROVEMENTS COVERAGE

Adequately insuring all property situated in the Premises, the Building or elsewhere on the Property and belonging to or removable by Tenant along with any leasehold improvements made by Tenant.

BUSINESS INTERRUPTION COVERAGE

Insurance shall not be less than such higher amounts as are customarily carried by responsible tenants of comparable premises in the Greater Boston area and as may be required by Landlord from time to time.

 


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9.2.

Additional Insureds.    Tenant shall add Landlord and such other entities or individuals as Landlord may, from time to time, direct as Additional Insureds on a primary basis on Tenant's Commercial General Liability, Umbrella Liability and Automobile Liability policies.

With respect to glass, contents and leasehold improvement and business interruption coverages, Landlord shall be named as Loss Payee As Their Interest May Appear.

 

9.3.

Certificates of Insurance.   All insurance required under the Lease shall be effected with insurers authorized to do business in the Commonwealth of Massachusetts under valid and enforceable policies.  Such insurance shall provide that, prior to policy cancellation, insurer shall provide reasonable notice to Landlord and each insured named therein.  On or before the first day of the term of this Lease and thereafter not less than fifteen (15) days prior to the expiration date of each expiring policy, original copies of the policies herein provided for, issued by the respective insurers, or certificates of such policies, setting forth in full the provisions thereof and issued by such insurers, together with evidence satisfactory to Landlord of the payment of all premiums for such policies, shall be delivered by Tenant to Landlord, or to any additional insureds, entities or individuals as Landlord may from time to time direct.

 

9.4.

Tenant's Compliance.   Tenant covenants and agrees that during said term and for such further time as Tenant shall hold the Premises or any part thereof, Tenant will comply with all requirements of the Insurance Services Offices of Massachusetts and/or the Factory Mutual Engineering Association (or any similar bodies succeeding to their respective powers) and any local Board of Fire Underwriters; will not make or allow any use or occupation of the Premises, the Building or any other portion of the Property that may make any insurance on the Building or any other portion of the Property, or the contents thereof, void or voidable; and that in the event that Tenant does or permits anything to be done in the Premises, the Building or elsewhere on the Property (including, without limiting the generality of the foregoing, anything which in any way affects the sprinkler system) which:  (a) is classified as a “common hazard” or “special hazard” by said Insurance Services Offices of Massachusetts (or its successor); (b) causes an aftercharge or (c) otherwise increases insurance rates and premium charges over those which would apply but for the doing of such thing, including, but without limiting the generality thereof, increases resulting from the refusal of the Factory Mutual Engineering Association (or any similar body succeeding to its business) to continue coverage of the Building, the Property or any portion thereof; then Tenant will promptly pay to Landlord on demand all increased premium charges caused by the same for any and all of the following insurance:

insurance on the Building, the Property or any portion thereof against damage by fire, with extended coverage, demolition, sprinkler leakage and vandalism and malicious mischief endorsements; Landlord's rental insurance; use and occupancy insurance carried by any tenant of any portion of the Building or the Property; insurance on the contents of Landlord and all other tenants of the Building, the Property or any portion thereof against damage by fire (with extended coverage, sprinkler leakage and vandalism and malicious mischief endorsements) or water.

 

9.5.

Indemnification.   To the fullest extent permitted by law (and not limited by the amounts of any insurance coverage required of Tenant under this Lease), Tenant agrees to defend, indemnify and hold harmless Landlord (which term shall include, without limitation any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals or representatives, disclosed or undisclosed, of Landlord or any managing agent) and such other entities or individuals as Landlord may, from time to time, direct as additional insureds on Tenant's general liability, umbrella liability, automobile, glass, contents and leasehold improvements and business interruption coverage policies, from and against any and all claims, liabilities, penalties, damages or expenses (including without limitation reasonable attorneys' fees) asserted against or incurred by them:

(a) on account of or based upon any injury to person, or loss of or damage to property sustained or occurring on the Premises on account of or based upon the act, omission, fault, negligence or misconduct of any person whomsoever (other than Landlord or its agents, contractors or employees);

 


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(b) on account of or based upon any injury to person or loss of or damage to property, sustained or occurring elsewhere (other than on the Premises) in or about the Building or elsewhere on the Property (and, in particular, without limiting the generality of the foregoing on or about the elevators, stairways, public corridors, sidewalks, roof, or other, appurtenances and facilities used in connection with the Premises, the Building or other portions of the Property) arising out of the use or occupancy of the Premises, the Building or other portions of the Property by Tenant, or any person claiming by, through or under Tenant, and caused by any person other than Landlord or its agents, contractors, or employees; and

(c) on account of or based upon (including moneys due on account of) any work or thing whatsoever done (other than by Landlord or its contractors, or agents or employees of either) in the Premises, the Building or elsewhere on the Property during the Term of this Lease and during the period of time, if any, prior to the Term Commencement Date or after the Term Expiration Date or earlier date on which the Lease is terminated when Tenant may have been given access to the Premises, the Building or any other portion of the Property;

and, in case any action or proceeding be brought against Landlord by reason of any of the foregoing, Tenant, upon notice from Landlord, shall, at Tenant's expense, resist or defend such action or proceeding and employ counsel therefor reasonably satisfactory to Landlord, it being agreed that such counsel as may act for insurance underwriters of Tenant engaged in such defense shall be deemed satisfactory.

 

9.6.

Property of Tenant.   In addition to and not in limitation of the foregoing, and subject only to provisions of applicable law, Tenant covenants and agrees that all merchandise, furniture, fixtures and property of every kind, nature and description which may be in or upon the Premises, the Building or elsewhere on the Property, shall be at the sole risk and hazard of Tenant, and that if the whole or any part thereof shall be damaged, destroyed, stolen or removed for any cause or reason whatsoever other than the gross negligence or willful misconduct of Landlord, no part of said damage or loss shall be charged to, or borne by Landlord.

 

9.7.

Landlord's Liability.   Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, electrical disturbance, water, rain, ice or snow or leaks from any part of the Building or any other portion of the Property or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or caused by any other cause of whatever nature, unless caused by or due to the negligence of Landlord, its agents, contractors or employees; nor shall Landlord or its agents be liable for any such damage caused by other tenants or persons in the Building or elsewhere on the Property or caused by operations in construction of any private, public or quasi-public work; nor shall Landlord be liable for any latent defect in the Premises, the Building or elsewhere on the Property.  All of the limitations on Landlord's liability set forth in this Lease shall be subject to applicable law provided that, in any event, Tenant agrees to pursue and exhaust all claims under its insurance and other remedies prior to seeking reimbursement from Landlord (and to waive such claims against Landlord to the extent Tenant obtains reimbursement through its insurance or other remedies).

 

9.8.

Waiver of Subrogation.   The parties hereto shall each endeavor to procure an appropriate clause in, or endorsement on, any fire or extended coverage insurance policy covering the Premises, the Building or any other portion of the Property and personal property, fixtures and equipment located thereon or therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right of recovery, and having obtained such clauses and/or endorsements of waiver of subrogation or consent to a waiver of right of recovery each party hereby agrees that it will not make any claim against or seek to recover from the other for any loss or damage to its property or the property of others resulting from fire or other perils covered by such fire and extended coverage insurance; provided, however, that the release, discharge, exoneration and covenant not to sue herein contained shall be limited by the terms and provisions of the waiver of subrogation clauses and/or endorsements or clauses and/or endorsements consenting to a waiver of right of recovery and shall be coextensive therewith.

 


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9.9.

Massachusetts Turnpike Authority.   Tenant shall not have or make any claim against Landlord or against the Massachusetts Turnpike Authority for or by reason of the ownership, use or occupancy by said Authority or others of the Massachusetts Turnpike, including without limitation, any claim on account of noise, vibration, fumes, odors or electrical interference resulting from such ownership, use or occupancy or any claim arising from or connected with any accident or other occurrence on said Turnpike .

10.0

ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.

Tenant covenants and agrees that neither this Lease nor the term and estate hereby granted nor any interest herein or therein, will be assigned, mortgaged, pledged, encumbered or otherwise transferred (whether voluntarily or by operation of law), and that neither the Premises, the Building, the Property nor any part thereof, will be encumbered in any manner by reason of any act or omission on the part of Tenant, or used or occupied, or permitted to be used or occupied, or utilized for any reason whatsoever, by anyone other than Tenant, or for any use or purpose other than Use of the Premises as stated in the Article contained herein entitled “ REFERENCE DATA ”, or be sublet, or offered or advertised for subletting, without the prior written consent of Landlord in every case.  For purposes hereof, the transfer of a controlling interest in the corporation or other entity constituting Tenant shall be deemed an assignment of this Lease.

Notwithstanding the foregoing language of this Article to the contrary, provided that

(a) the Lease is in full force and effect,

(b) Tenant is not at the time of the effective date of a Permitted Transfer in default under the Lease beyond any applicable notice and cure period and no condition known to Tenant or Landlord exists which with the passage of time or the giving of notice would constitute a default under the Lease,

(c) the Affiliate (as defined below) shall assume, by written recordable instrument, in reasonable form and content satisfactory to Landlord (the "Assumption Document"), the due performance of all Tenant's obligations under this Lease, including any accrued obligations at the time of the assignment or subletting,

(d) At the time of the Permitted Transfer, the ultimate parent (if any) of the Affiliate shall guaranty the full performance of Tenant's obligations under the Lease in a reasonable form acceptable to Landlord, and

(e) Tenant provides Landlord with a Notice of Permitted Transfer (as described and in accordance with the provisions below),

Landlord's consent shall not be required with respect to an assignment of this Lease or subletting of the entire Premises or any portion thereof to an Affiliate for such time as such entity remains an Affiliate.  The foregoing shall be deemed a "Permitted Transfer".

For purposes of this Article, the term "Affiliate" shall be deemed to mean (a) any entity which controls, is controlled by or is under common control with Tenant or (b) any person or entity having a net worth equal to or greater than the greater of  (x) the net worth of Tenant upon the date of this Lease or (y) the net worth of Tenant immediately prior to the Permitted Transfer (as determined in accordance with generally accepted accounting principles) and (i) to which a controlling interest in Tenant is transferred (e.g. by transfer of capital stock) or (ii) which acquires all or substantially all of the assets of Tenant (except in the case of bankruptcy) where the business of Tenant will continue to be operated as a going concern substantially the same as prior to such acquisition of such assets or (iii) which succeeds to the entire business of Tenant pursuant to a merger or corporate reorganization or consolidation, but in the instance of clause (a) of this paragraph, only for so long as such entity remains an "Affiliate" and thereafter Landlord's consent shall be required as otherwise provided above.

For purposes of this Article, the term "Notice of Permitted Transfer" shall be deemed to mean a notice to Landlord at least 10 Business Days in advance of any assignment or subleasing to an Affiliate (subject to any legal restrictions governing the timing of such notice and provided further

 


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that if the terms of Tenant’s agreement with the proposed Affiliate prohibit pre-closing disclosure of the terms of the assignment or subleasing, then Tenant promptly shall so notify Landlord in writing that Tenant has confidential information relating to a proposed assignment or subleasing, and so long as Landlord provides to Tenant a letter in commercially reasonable form and content confirming that Landlord shall maintain the confidentiality of the Notice of Permitted Transfer, Tenant shall nonetheless be required to provide the Notice of Permitted Transfer 10 Business Days in advance of the assignment or subleasing), which notice shall contain (1) the name and address of the Affiliate to which the Lease will be assigned or the entire Premises (or any portion thereof) will be sublet, (2) a description satisfactory to Landlord of the relationship between the Affiliate and Tenant, (3) evidence of the Affiliates financial condition in the form of a current balance sheet and income and expense statements (all prepared in accordance with generally accepted accounting principles and certified as true, accurate and complete by an authorized officer of the Affiliate), (4) the effective date of the Permitted Transfer, (5) a copy of either (a) an assignment and assumption agreement wherein the assignee assumes all of Tenant's obligations under the Lease or (b) a sublease agreement wherein the subtenant acknowledges that the sublease is subject and subordinate to this Lease, (6) a copy of the Assumption Document (if not included as part of 5a or 5b above) and (7) a copy of the guaranty (or the guarantees, as the case may be) if applicable.

In connection with any request by Tenant for such consent, Tenant shall submit to Landlord, in writing, a statement containing the name of the proposed assignee, subtenant or other third party, such information as to its financial responsibility and standing as Landlord may require, all of the terms and provisions upon which the proposed transaction is to take place and such other information as Landlord may require.  In addition, along with Tenant's written request for consent, Tenant shall deliver to Landlord a non-refundable assignment/sublease review fee of $1,500 which shall be applied against assignment/sublease costs (if any) which are to be reimbursed by Tenant to Landlord as provided below in this Article 10.0, “ ASSIGNMENT, MORTGAGING, SUBLETTING, ETC. ”.

In addition to Landlord's other rights under this Article and elsewhere in this Lease, if (i) the proposed consideration (including, without limitation, all forms of rent and additional rent) payable by the proposed assignee or subtenant on account of a proposed assignment or sublease is less than the fair market rent (as determined by Landlord in Landlord's sole discretion) for the space subject to any such assignment or sublease or (ii) the proposed assignee or subtenant was procured using the services of a broker other than a broker approved in each instance in advance and in writing by Landlord, Landlord reserves the right to withhold its consent to such assignment or sublease.

The “Assignment/Sublease Consideration” shall be the consideration (including, without limitation, all forms of rent and additional rent) payable by the assignee or subtenant on account of an assignment of the Lease or sublease of all or a portion of the Premises.  For the purposes of this calculation, the Assignment/Sublease Consideration shall be deemed to not include so called “pass-through” charges or charges that will be passed through to an assignee or sub-tenant.  The following are examples (without limitation) of typical “pass-through” charges:  Tenant's proportionate share of costs and expenses in excess of the Operating Expense Base, sub-metered electricity (if any), parking fees (if any), off-hour heat and air conditioning related fees and the like.

The “Lease rent” shall be the Annual Base Rent and Additional Rent pursuant to the Lease, prorated on a per diem basis and allocated on a per square foot basis to the portion of the Premises subject to an assignment or sublease.  For the purposes of this calculation, “Additional Rent” shall be deemed to exclude the Assignment/Sublease Excess Rent as defined below and any pass-through charges not included in the Assignment/Sublease Consideration pursuant to the immediately preceding paragraph.

“Tenant’s Assignment/Sublease Costs” shall be deemed to include the actual out-of-pocket expenses paid by Tenant to third parties in connection with the assignment of the Lease or sublease of all or a portion of the Premises for (a) brokerage commissions and (b) construction of certain improvements in the Premises (or construction “allowances” applicable for such improvements if and to the extent such improvements are actually approved by Landlord in advance, completed and paid for all in accordance with the terms of this Lease).  For the purpose of calculating Tenant’s

 


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Assignment/Sublease Costs, such improvements in the Premises shall be deemed to specifically include only changes in the locations of walls and doors (and plumbing, electrical, HVAC, fire protection and ceiling changes related to such changes in the locations of walls and doors) and shall specifically not include changes in telecommunications or data wiring or related equipment or any other changes.  For purposes of the calculation hereunder, Tenant’s Assignment/Sublease Costs shall be amortized over the term of the Assignment or Sublease, as the case may be, and applied on a monthly basis to the determination of Assignment/Sublease Excess Rent (as set forth below)

Except in the case of a Permitted Transfer, if the Assignment/Sublease Consideration exceeds the Lease rent plus Tenant’s Assignment/Sublease Costs, Tenant shall pay to Landlord 100% of such excess (the “Assignment/Sublease Excess Rent”).  The Assignment/Sublease Excess Rent shall be paid to Landlord as Additional Rent in equal monthly installments during the balance of the Term with respect to an assignment and over the sublease term with respect to a sublease, and shall be payable on the first day of each month beginning with the first full month during which the assignment or sublease is effective.

Notwithstanding the foregoing provisions of this Article: (l) in the event Tenant proposes to assign this Lease or enter into a sublease such that all or substantially all of the Premises will have been sublet, Landlord, at Landlord's option, may give to Tenant, within thirty (30) days after the submission by Tenant to Landlord of the statement required to be submitted in connection therewith, a notice terminating this Lease on the date (referred to as the “Earlier Termination Date”) immediately prior to the effective date of the proposed assignment or the proposed commencement date of the term of the proposed subletting, as set forth in such statement, and, in the event such notice is given, this Lease and the Term shall come to an end and expire on the Earlier Termination Date with the same effect as if it were the date originally fixed herein for the end of the Term of this Lease, and the Rent shall be apportioned as of said Earlier Termination Date and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant; or (2) in the event Tenant proposes to sublet any portion of the Premises, Landlord, at Landlord's option, may give to Tenant, within thirty (30) days after the submission by Tenant to Landlord of the statement required to be submitted in connection with such proposed subletting, a notice electing to eliminate such portion of the Premises (said portion is referred to as the “Eliminated Space”) from the Premises during the period (referred to as the “Elimination Period”) commencing on the date (referred to as the “Elimination Date”) immediately prior to the proposed commencement date of the term of the proposed subletting, as set forth in such statement, and ending on a date specified by Landlord, which date shall be on or after the proposed expiration date of the term of the proposed subletting, as set forth in such statement, and in the event such notice is given (i) the Eliminated Space shall be eliminated from the Premises during the Elimination Period; (ii) Tenant shall surrender the Eliminated Space to Landlord on or prior to the Elimination Date in the same manner as if said Date were the date originally fixed in this Lease for the end of the Term of this Lease; (iii) if the Eliminated Space shall constitute less than an entire floor, Landlord, at Landlord's expense, shall have the right to make any alterations and installations in the Premises required, in Landlord's judgment, reasonably exercised, to make the Eliminated Space a self-contained rental unit with access through corridors to the elevators and core toilets serving the Eliminated Space, and if the Premises shall contain any core toilets or any corridors (including any corridors proposed to be constructed by Landlord pursuant to this subdivision (iii) providing access from the Eliminated Space to the core area), Landlord and any tenant or other occupant of the Eliminated Space shall have the right to use such toilets and corridors in common with Tenant and any other permitted occupants of the Premises, and the right to install signs and directional indicators in or about such corridors indicating the name and location of such tenant or other occupant; (iv) during the Elimination Period, the Annual Base Rent shall be reduced in the proportion which the area of the Eliminated Space bears to the total area of the Premises immediately prior to the Elimination Date (including an equitable portion of the area of any corridors referred to in subdivision (iii) of this sentence as part of the area of the Eliminated Space for the purpose of computing such reduction), and any prepaid Rent for any period after the Elimination Date allocable to the Eliminated Space shall be refunded by Landlord to Tenant; (v) there shall be an equitable apportionment of any Additional Rent payable pursuant to the Article contained herein entitled “RENT” for the relevant fiscal and calendar years in which said Elimination Date shall occur; and (vi) if the Elimination Period shall end prior to the date fixed in this Lease for the end of the Term of this Lease, the Eliminated Space, in its then existing condition, shall be deemed restored to and once again a part of

 


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the Premises subject to the provisions of this Lease as if said elimination had not occurred during the period (referred to as the Restoration Period ) commencing on the date next following the expiration of the Elimination Period and ending on the date originally fixed in this Lease for the end of the Term of this Lease, except in the event that Landlord is unable to give Tenant possession of the Eliminated Space at the expiration of the Elimination Period by reason of the holding over or retention of possession of any tenant or other occupant, in which event (x) the Restoration Period shall not commence, and the Eliminated Space shall not be deemed restored to or a part of the Premises, until the date upon which Landlord shall give Tenant possession of such Space free of occupancies, (y) neither the date fixed in this Lease for the end of the Term of the Lease, nor the validity of this Lease shall be affected, and (z) Tenant waives any right to recover any damages which may result from the failure of Landlord to deliver possession of the Eliminated Space at the end of the Elimination Period.  At the request of Landlord, Tenant shall execute and deliver an instrument or instruments, in form satisfactory to Landlord, setting forth any modifications to this Lease contemplated in or resulting from the operation of the foregoing provisions of this Article; however, neither Landlord's failure to request any such instrument nor Tenant's failure to execute or deliver any such instrument shall vitiate the effect of the foregoing provisions of this Article.  The failure by Landlord to exercise its option under this Article with respect to any assignment or subletting shall not be deemed a waiver of such option with respect to any extension of such sublease or any subsequent assignment or subletting.

Tenant shall reimburse Landlord promptly, as Additional Rent, for Landlord's reasonable legal, professional, administrative, managerial and all other expenses (which expenses may include, without limitation, hourly fees for administrative and management personnel and an allocation for overhead and profit) related to any request by Tenant for any consent required under the provisions of this Article.

The listing of any name other than that of Tenant, whether at any door of the Premises or in or on any Building or Property directory, or otherwise, shall not operate to vest any right or interest in this Lease or in the Premises or be deemed to be the written consent of Landlord mentioned in this Article, it being expressly understood that any such listing is a privilege extended by Landlord revocable at will by written notice to Tenant.

If this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anybody other than Tenant, Landlord may at any time and from time to time, collect Rent and other charges from the assignee, subtenant or occupant, and apply the net amount collected to the Rent and other charges herein reserved, but no such assignment or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant or occupant as a tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained.  The consent by Landlord to an assignment or subletting or occupancy shall not in any way be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or subletting or occupancy.

Notwithstanding any consent by Landlord, no assignment or subletting of the Premises by Tenant shall relieve the assigning or subleasing Tenant from Tenant's obligation to pay Rent to Landlord or from Tenant's obligation to observe or perform any and all of the terms, provisions, covenants and conditions of this Lease.  The intent of the preceding sentence is that the assigning or subleasing Tenant remains primarily liable in addition to the liability of the assignee or subtenant as the case may be.

11.0

MISCELLANEOUS COVENANTS

 

11.1.

Rules and Regulations.   Tenant and Tenant's servants, employees, agents, visitors and licensees will faithfully observe such Rules and Regulations as are attached hereto as Exhibit C and made a part hereof or as Landlord hereafter at any time or from time to time may make and which in the reasonable judgment of Landlord shall be necessary for the reputation, safety, care or appearance of the Building or other portions of the Property, or the preservation of good order therein, or the operation or maintenance of the Building or other portions of the Property, or the equipment thereof, or the comfort of tenants or others in the Building or other portions of the Property, provided, however, that in the case of any conflict between the provisions of this Lease and any such Rules and Regulations, the provisions of this Lease shall control, and provided further that nothing contained in this Lease shall be construed to impose upon

 


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Landlord any duty or obligation to enforce such Rules and Regulations or the terms, covenants or conditions in any other lease as against any other tenant and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors, invitees or licensees.

 

11.2.

Nuisance.   Tenant shall not permit any nuisance or use or practice on or about the Premises, the Building or elsewhere on the Property which is in violation of Landlord's rules and regulations or any municipal ordinance, law, rule or regulation or any State or Federal laws or which unreasonably interferes with or is an unreasonable annoyance to the peaceful possession or proper use of the premises of other tenants or occupants; the determination of such interference or annoyance to be at the sole discretion of Landlord.

 

11.3.

Access to Premises.   Tenant shall: (i) permit Landlord to erect, use and maintain pipes, ducts and conduits in and through the Premises, provided the same do not materially reduce the floor area or materially adversely affect the appearance thereof; (ii) permit Landlord and any Mortgagee to have free and unrestricted access to and to enter upon the Premises at all reasonable hours for the purposes of inspecting equipment (including, without limitation, sanitary, electrical, heating, air conditioning or other systems) or making repairs, replacements or improvements in or to the Premises, the Building or elsewhere on the Property or complying with all laws, orders and requirements of governmental or other authority or of exercising any right reserved to Landlord by this Lease (including the right during the progress of any such repairs, replacements or improvements or while performing work and furnishing materials in connection with compliance with any such laws, orders or requirements to take upon or through, or to keep and store within, the Premises all necessary materials, tools and equipment); and (iii) permit Landlord, at reasonable times, to show the Premises during ordinary business hours to any Mortgagee, prospective purchaser of any interest of Landlord in the Building, the Property or any portion thereof, prospective Mortgagee, or prospective assignee of any Mortgage, and during the period of twelve months next preceding the Term Expiration Date to any person contemplating the leasing of the Premises or any part thereof.  If during the last month of the Term, Tenant shall have removed substantially all of Tenant's property from the Premises, Landlord may immediately enter and alter, renovate and redecorate the Premises, without elimination or abatement of Rent, or incurring liability to Tenant for any compensation, and such acts shall have no effect upon this Lease.  If Tenant shall not be personally present to open and permit any entry into the Premises at any time when for any reason an entry therein shall be necessary or permissible, Landlord or Landlord's agents must nevertheless be able to gain such entry by contacting a responsible representative of Tenant, whose name, address and telephone number shall be furnished by Tenant.  Landlord shall exercise its rights of access to the Premises permitted under any of the terms and provisions of this Lease in such manner as to minimize, to the extent practicable, interference with Tenant's use and occupation of the Premises.  If an excavation shall be made or authorized by Landlord to be made upon the Property, Tenant shall afford, to the person causing or authorized to cause such excavation, license to enter upon the Premises for the purpose of doing such work as said person shall deem necessary to preserve the Building, the Property or any portion thereof from injury or damage and to support the same by proper foundations without any claim for damage or indemnity against Landlord, or diminution or abatement of Rent.

 

11.4.

Accidents to Sanitary and other Systems.   Tenant shall give to Landlord prompt notice of any fire or accident in the Premises, the Building or elsewhere on the Property and of any damage to, or defective condition in, any part or appurtenance of the Building's or the Property's sanitary, electrical, heating and air conditioning or other systems located in, or passing through, the Premises.

 

11.5.

Signs, Blinds and Drapes.   Tenant shall not place any signs on the exterior of the Building or elsewhere on the Property or on or in any window, public corridor or door visible from the exterior of the Premises.  No drapes or blinds may be put on or in any window nor may any drapes or blinds be removed by Tenant.

 


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11.6.

Estoppel Certificate.   Tenant shall at any time and from time to time upon not less than ten (10) Business D ays' prior notice by Landlord or by a Mortgagee to Tenant, execute, acknowledge and deliver to the party making such request a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), and the dates to which Rent has been paid in advance, if any, and stating whether or not to the best knowledge of the signer of such certificate Landlord is in default in performance of any covenant, agreement, term, provision or condition contained in this Lease and, if so, specifying each such default of which the signer may have knowledge, it being intended that any such statement delivered pursuant hereto may be relied upon by any prospective purchaser of any interest in the Building, the Property or any portion thereof, any Mortgagee or prospective Mortgagee, any tenant or prospective tenant thereof, any prospective assignee of any Mortgage, or any other party designated by Landlord.  The form of any such estoppel certificate requested by a Mortgagee shall be satisfactory to such Mortgagee.

 

11.7.

Requirements of Law - Fines and Penalties.   Tenant at its sole expense shall comply with all laws, rules, orders and regulations of federal, state, county and local governments (including without limitation, the Americans with Disabilities Act, Public Law 101-336, 42 U.S.C. §§12101 et seq., as amended; the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., as amended; the Comprehensive Environmental Response, Compensation and Responsibility Act of 1980, codified in scattered sections of 26 U.S.C., 33 U.S.C., 42 U.S.C. and 42 U.S.C. §9602 et seq., as amended; the Toxic Substances Control Act, 15 U.S.C. §2061 et seq., as amended; the Massachusetts Oil and Hazardous Materials Release Prevention and Response Act, M.G.L. c.21E, as amended; and the Massachusetts Hazardous Waste Management Act, M.G.L. c.21C, as amended) and with any direction of any public officer or officers, pursuant to law, which shall impose any duty upon Landlord or Tenant with respect to and arising out of Tenant's use or occupancy of the Premises, the Building or any other portion of the Property.  If Tenant receives notice of any violation of law, ordinance, order or regulation applicable to the Premises, the Building or any other portion of the Property, it shall give prompt notice thereof to Landlord.

 

11.8.

Floor Loading.   Tenant shall not place a load upon any floor of the Premises, the Building or other portion of the Property exceeding the floor load per square foot area which such floor was designed to carry and which is allowed by law.  Landlord reserves the right to prescribe the weight and position of all equipment and fixtures, including computers and safes, which shall be placed so as to distribute weight and which shall be placed and maintained by Tenant at Tenant's expense in settings sufficient in Landlord's judgment to absorb and prevent vibration, noise and annoyance.

 

11.9.

Tenant's Access.   Subject to such reasonable rules and regulations as Landlord may impose from time to time, and causes beyond Landlord's reasonable control, Tenant shall have the right, during the Term of the Lease, to have access to the Premises, twenty-four hours per day, seven days per week.  Any rules, regulations, mechanisms or procedures of Landlord with respect to controlling or regulating access to the Premises, the Building or other portions of the Property shall not be interpreted as imposing any duty on Landlord to provide security for the Premises, the Building or any portion of the Property or any person in the Premises, the Building or elsewhere on the Property.

 

11.10.

Survival.   Any and all liability for payments under this Lease, and any and all liability for obligations (including, without limitation, indemnification provisions) relating to the period prior to the expiration of the Term or earlier termination of this Lease and/or for obligations that by their nature arise thereafter, shall survive such expiration or earlier termination.

12.0

PARKING

From 8:00 am to 6:00 pm on Business Days, in the Garage and in common with other tenants (on an unreserved, non-exclusive basis), Tenant shall have the right to use the number of parking spaces shown in Article 1.0 of this Lease, “ REFERENCE DATA: ”, under the defined term “ Parking Spaces: ”.

 


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Tenant's use of Parking Areas on the Property shall be solely by Tenant's employees and visitors . Landlord shall not be liab le to Tenant and this Lease shall not be affected if any parking rights of Tenant hereunder are impaired by any law, ordinance or other governmental regulation imposed after the date of the execution of this Lease.  Landlord reserves the right to grant to any other tenant, person or entity the exclusive right to use specific parking spaces and certain Parking Areas, including, without limitation, certain Parking Areas within the Garage or elsewhere on the Property, which are now or may at some future time be within controlled systems established by Landlord for the use by certain tenants.  Landlord reserves the right to from time to time make changes in Parking Areas and to from time to time implement or change procedures or systems as Landlord determines necessary to monitor and/or control the use of Parking Areas.

Tenant agrees to abide by all rules, regulations and procedures established by Landlord for the use of Parking Areas as such may be changed from time to time.  Landlord shall have the right to tow vehicles that are in violation of any rule or regulation established by Landlord.

Notwithstanding anything herein contained to the contrary, Landlord agrees to provide Tenant with Additional Parking Spaces in the Garage in common with other tenants (on an unreserved, non-exclusive basis), and Tenant shall pay to Landlord as Additional Rent, the Additional Parking Space Charge.  Landlord may at Landlord’s discretion, by giving notice to Tenant, terminate Tenant's right to use any one or all of such Additional Parking Spaces.  In the event Tenant's right to use such Additional Parking Spaces is terminated, the Additional Parking Space Charge for the use of each such Additional Parking Space so terminated shall be abated from the date of such termination, and there shall be no further reduction of Rent.

13.0

CASUALTY

In the event of loss of, or damage to, the Premises, the Building or the Property or any portion thereof by fire or other casualty, the rights and obligations of the parties hereto shall be as follows:

(a) If the Premises, or any part thereof, shall be damaged by fire or other casualty, Tenant shall give prompt notice thereof to Landlord, and Landlord, upon receiving such notice, shall proceed promptly and with due diligence, subject to unavoidable delays and the terms of this Article 13.0, to repair, or cause to be repaired, such damage; provided that Landlord shall not be required (i) to repair any Tenant improvements except to the extent that, at least 30 days prior to the fire or other casualty, Landlord receives notice of such improvements, proof of the costs thereof and such other information as Landlord's insuror may require and (ii) to expend in excess of the net insurance proceeds obtained by Landlord and made available to Landlord for such repairs less all costs and expenses including adjustor's and attorney's fees of obtaining such insurance proceeds.  In addition, Landlord's obligations shall be subject to the rights of Mortgagees, applicable laws, including, without limitation, zoning laws and building codes then in existence, and insurance regulations.  If the Premises or any part thereof shall be rendered untenantable by reason of such damage, Annual Base Rent shall proportionately abate for the period from the date of such damage to the date when such damage shall have been repaired.

(b) If, as a result of fire or other casualty, the whole or a substantial portion of the Building or the Property is rendered untenantable, Landlord, within ninety (90) days from the date of such fire or casualty, may terminate this Lease by notice to Tenant, specifying a date not less than twenty (20) nor more than forty (40) days after the giving of such notice on which the Term of this Lease shall terminate.  If Landlord does not so elect to terminate this Lease, then Landlord shall proceed with diligence to repair the damage to the Premises and all facilities serving the same, if any, which shall have occurred, and the Annual Base Rent shall meanwhile proportionately abate, all as provided in Paragraph (a) of this Article.  However, if such damage is not repaired and the Premises restored to substantially the same condition as they were prior to such damage within six (6) months from the date of such damage, Tenant within thirty (30) days from the expiration of such six (6) month period or from the expiration of any extension thereof by reason of unavoidable delays as hereinafter provided, may terminate this Lease by notice to Landlord, specifying a date not more than sixty (60) days after the giving of such notice on which the Term of this Lease shall terminate.  The period within which the required repairs may be accomplished shall be extended by the number of days, not to exceed one hundred eighty (180) days, lost as a result of unavoidable delays, which term shall be defined to include all delays referred to in the Article contained herein entitled “ INABILITY TO PERFORM - EXCULPATORY CLAUSE ”.

 


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(c) Landlord shall not be required to repair or replace any of Tenant's business machinery, equipment, cabinet work, furniture, personal property or other installations, and no damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of the Premises, the Building, the Property or any portion thereof.

(d) The provisions of this Article shall be considered an express agreement governing any instance of damage or destruction of the Premises, the Building or any portion thereof by fire or other casualty, and any law now or hereafter in force providing for such a contingency in the absence of express agreement shall have no application.

(e) In the event of any termination of this Lease pursuant to this Article, the Term of this Lease shall expire as of the effective termination date as fully and completely as if such date were the date originally fixed herein for the end of the Term of this Lease.  Tenant shall have access to the Premises for a period of thirty (30) days after the date of termination in order to remove Tenant's personal property.

(f) Landlord's Architect's certificate, given in good faith, shall be deemed conclusive of the statements therein contained and binding upon Tenant with respect to the performance and completion of any repair or restoration work undertaken by Landlord pursuant to this Article or the Article contained herein entitled “ CONDEMNATION - EMINENT DOMAIN ”.

14.0

CONDEMNATION - EMINENT DOMAIN

In the event that the Building, the Property or any portion thereof shall be taken or appropriated by eminent domain or shall be condemned for any public or quasi-public use, or (by virtue of any such taking, appropriation or condemnation) shall suffer any damage (direct, indirect or consequential) for which Landlord or Tenant shall be entitled to compensation, then (and in any such event) this Lease and the term hereof may be terminated at the election of Landlord by a notice in writing of its election so to terminate which shall be given by Landlord to Tenant within sixty (60) days following the date on which Landlord shall have received notice of such taking, appropriation or condemnation.  In the event that the entire Premises or a portion of the Premises or the access to the Premises shall be so taken, appropriated or condemned such that Tenant shall be precluded from effectively utilizing the Premises, then (and in any such event) this Lease and the Term hereof may be terminated at the election of Tenant by a notice in writing of its election so to terminate which shall be given by Tenant to Landlord within sixty (60) days following the date on which Tenant shall have received notice of such taking, appropriation or condemnation.

Upon the giving of any such notice of termination (either by Landlord or Tenant) this Lease and the Term hereof shall terminate on or retroactively as of the date on which Tenant shall be required to vacate any part of the Premises or shall be deprived of a substantial part of the means of access thereto, provided, however, that Landlord may in Landlord's notice elect to terminate this Lease and the Term hereof retroactively as of the date on which such taking, appropriation or condemnation became legally effective.  In the event of any such termination, this Lease and the Term hereof shall expire as of the effective termination date as fully and completely as if such date were the date originally fixed herein for the end of the Term of this Lease.  If neither party (having the right so to do) elects to terminate, Landlord will, with reasonable diligence and at Landlord's expense, restore the remainder of the Premises, or the remainder of the means of access, as nearly as practical to the same condition as obtained prior to such taking, appropriation or condemnation in which event (i) a just proportion of the Annual Base Rent, according to the nature and extent of the taking, appropriation or condemnation and the resulting permanent injury to the Premises and the means of access thereto, shall be permanently abated, and (ii) a just proportion of the remainder of the Annual Base Rent, according to the nature and extent of the taking, appropriation or condemnation and the resultant injury sustained by the Premises and the means of access thereto, shall be abated until what remains of the Premises and the means of access thereto shall have been restored as fully as may be for permanent use and occupation by Tenant hereunder.

 


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Except for any award specifically reimbursing Tenant for moving or relocation expenses and except for any award specifically made to Tenant for interruption of Tenant's business, there are expressly reserved to Landlord all rights to compensation and damages created, accrued or accruing by reason of any such taking, appropriation or condemnation.  In implementation and in confirmation of which Tenant does hereby acknowledge that Landlord shall be entitled to receive and retain all such compensation and damages, grants to Landlord all and whatever rights (if any) Tenant may have to such compensation and damages, and agrees to execute and deliver all and whatever further instruments of assignment as Landlord may from time to time request.  In the event of any taking of the Premises or any part thereof for temporary use, (i) this Lease shall be and remain unaffected thereby, and (ii) Tenant shall be entitled to receive for itself any award made for such use, provided, that if any taking is for a period extending beyond the Term of this Lease, such award shall be apportioned between Landlord and Tenant as of the Term Expiration Date.

15.0

DEFAULT

 

15.1.

Conditions of Limitation - Re-entry - Termination.   This Lease and the herein term and estate are upon the condition that if (a) Tenant shall neglect or fail to perform or observe any of Tenant's covenants herein, including (without limitation) the covenants with regard to the payment when due of Rent; or (b) Tenant shall be involved in financial difficulties as evidenced by an admission in writing by Tenant of Tenant's inability to pay its debts generally as they become due, or by the making or offering to make a composition of its debts with its creditors; or (c) Tenant shall make an assignment or trust mortgage, or other conveyance or transfer of like nature, of all or a substantial part of its property for the benefit of its creditors, or (d) the leasehold hereby created shall be taken on execution or by other process of law and shall not be revested in Tenant within sixty (60) days thereafter; or (e) a receiver, sequester, trustee or similar officer shall be appointed by a court of competent jurisdiction to take charge of all or a substantial part of Tenant's property and such appointment shall not be vacated within sixty (60) days; or (f) any proceeding shall be instituted by or against Tenant pursuant to any of the provisions of any Act of Congress or State law relating to bankruptcy, reorganization, arrangements, compositions or other relief from creditors, and, in the case of any such proceeding instituted against it, if Tenant shall fail to have such proceeding dismissed within thirty (30) days or if Tenant is adjudged bankrupt or insolvent as a result of any such proceeding; or (g) any event shall occur or any contingency shall arise whereby this Lease, or the term and estate thereby created, would (by operation of law or otherwise) devolve upon or pass to any person, firm or corporation other than Tenant, except as expressly permitted under the Article of this Lease entitled “A SSIGNMENT, MORTGAGING, SUBLETTING, ETC. ”; or (h) Tenant shall vacate all or substantially all of the Premises; or (i) a default by Tenant under the Sublease, or, if Landlord has exercised its rights under Section 3(a) of the Consent to cause Tenant to assume obligations under the Master Lease, a default by Tenant under the “Master Lease” (as defined in the Consent); then, and in any such event Landlord may, in a manner consistent with applicable law, immediately or at any time thereafter declare this Lease terminated by notice to Tenant or, without further demand or notice, enter into and upon the Premises (or any part thereof in the name of the whole), and in either such case (and without prejudice to any remedies which might otherwise be available for arrears of Rent or other charges due hereunder or preceding breach of covenant and without prejudice to Tenant's liability for damages as hereinafter stated), this Lease shall immediately terminate (“Default Termination”).  The words “re-entry” and “re-enter” as used in this Lease are not restricted to their technical legal meaning.  As used in items (b), (c), (e) and (f) of this Section, the term “Tenant” shall also be deemed to refer to any guarantor of Tenant's obligations hereunder.

 

15.2.

Damages - Termination.   In the event of a Default Termination, Tenant shall be liable to Landlord and shall pay to Landlord (i) monthly in advance all Rent accruing from the date of a Default Termination through the date scheduled for the Term of this Lease to expire had the Default Termination not occurred plus (ii) all other unpaid Rent and other Tenant obligations accruing prior to the Default Termination, which amounts shall be paid immediately upon Default Termination; provided that at Landlord's election, exercisable by Landlord at the time of a Default Termination or at any time thereafter (“Landlord's Acceleration Election”), in addition to all other unpaid Rent and other Tenant obligations accruing prior to Landlord's Acceleration Election (including, without limitation the amounts set forth in (i) and (ii) above in this

 


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paragraph), Tenant shall pay to Landlord as liquidated damages (and not as a penalty) the aggregate amount of Rent accruing or which would accrue during the period starting with the exercise of Landlord's Acceleration Election and ending with the date scheduled for the expiration of the Term of this Lease had the Default Termination not occurred on an accelerated basis.

In the event of a Default Termination, Landlord may lease the Premises, all or any portion thereof, at any time and from time to time to such other parties and on such terms as Landlord, in Landlord's sole discretion, may determine.  Such re-letting shall not release Tenant from any liability whatsoever except that, if and only to the extent required by applicable law, Landlord shall apply monies collected from any such re-letting to Tenant's obligations after first deducting Landlord's expenses incurred to obtain possession of the Premises, remove property belonging to Tenant or persons claiming by through or under Tenant from the Premises (including, without limitation, any warehouse or storage charges), all expenses of every sort incurred by Landlord in conjunction with re-letting the Premises (including, without limitation, brokerage fees, legal and other professional fees and construction and construction management costs) and all administrative and managerial expenses associated with any of the forgoing, which such expenses may include, without limitation, hourly fees for personnel and an allocation for overhead and profit; provided that in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder and provided further that, in any suit for the collection of damages pursuant to this subparagraph, Tenant shall in no event be entitled to a credit for any net rents from a re-letting except to the extent that such net rents are actually received by Landlord.

Suit or suits for the recovery of damages, or any installments thereof, may be brought by Landlord from time to time at Landlord's election, and nothing contained herein shall be deemed to require Landlord to postpone any suit until the date scheduled for the expiration of the Term of this Lease had the Default Termination not occurred.

In the case of any event of default by Tenant under this Lease (whether or not such default results in a Default Termination), in addition to all of Tenant's other obligations under this Lease, Tenant shall be liable to Landlord for and shall pay to Landlord upon demand all expenses, costs and other obligations which Landlord may incur by reason of or related to any such default, including, without limitation, legal, professional, administrative and managerial expenses (which expenses may include, without limitation, hourly fees for personnel and an allocation for overhead and profit).

Nothing in this Section or elsewhere in the Lease shall be construed as limiting or precluding the recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant.

Landlord and Tenant each waive their respective rights to a jury trial of any monetary or non-monetary claim or cause of action based upon or arising out of this Lease, including, without limitation, contract claims, tort claims, breach of duty claims and all other common law or statutory claims.  Each party recognizes and agrees that the foregoing mutual waiver constitutes a material inducement for it to enter into this Lease.  Each party represents and warrants that it has reviewed this waiver with its respective legal counsel and knowingly and voluntarily waives its jury trial rights following such consultation.

 

15.3.

Fees and Expenses.   If Tenant shall default in the performance of any covenant on Tenant's part to be performed as in this Lease contained, Landlord may immediately, or at any time thereafter, without notice, perform the same for the account of Tenant.  If Landlord at any time is compelled to pay or elects to pay any sum of money, or do any act which will require the payment of any sum of money, by reason of the failure of Tenant to comply with any provision hereof, or if Landlord is compelled to or does incur any expense, including without limitation reasonable attorneys' fees, in instituting, prosecuting and/or defending any action or proceeding instituted by reason of any default of Tenant hereunder or any costs incurred in recovering possession of the Premises after the termination of the Lease, Tenant shall on demand pay to Landlord by way of reimbursement the sum or sums so paid by Landlord with all interest, costs and damages.

 


Page 25

 

15.4.

Landlord's Remedies Not Exclusive.   The specified remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time be lawfully entitled, and Landlord may invoke any remedy (including without limitation the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein provided for.

 

15.5.

Grace Period.   Notwithstanding anything to the contrary in this Article contained, Landlord agrees not to take any action to terminate this Lease (a) for default by Tenant in the payment when due of Rent, if Tenant shall cure such default within ten (10) days after written notice thereof given by Landlord to Tenant, or (b) for default by Tenant in the performance of any other covenant, if Tenant shall cure such default within a period of thirty (30) days after written notice thereof given by Landlord to Tenant (except where the nature of the default is such that remedial action should appropriately take place sooner, as indicated in such written notice), or with respect to covenants other than to pay a sum of money within such additional period as may reasonably be required to cure such default if (because of governmental restrictions or any other cause beyond the reasonable control of Tenant) the default is of such a nature that it cannot be cured within such thirty (30)-day period, provided, however, (1) that there shall be no extension of time beyond such thirty (30)-day period for the curing of any such default unless, not more than ten (10) days after the receipt of the notice of default, Tenant in writing (i) shall specify the cause on account of which the default cannot be cured during such period and shall advise Landlord of its intention duly to institute all steps necessary to cure the default and (ii) shall as soon as may be reasonable duly institute and thereafter diligently prosecute to completion all steps necessary to cure such default and, (2) that no notice of the opportunity to cure a default need be given, and no grace period whatsoever shall be allowed to Tenant, if the default is incurable or if the covenant or condition the breach of which gave rise to the default had, by reason of a breach on a prior occasion, been the subject of a notice hereunder to cure such default.

16.0

ABANDONED PROPERTY

Any personal property in which Tenant has an interest which shall remain in the Premises, the Building or elsewhere on the Property after the expiration or termination of the Term of this Lease shall be conclusively deemed to have been abandoned, and may be disposed of in such manner as Landlord may see fit.

17.0

SUBORDINATION

This Lease is subject and subordinate in all respects to the lease dated April 1, 1968 between the Massachusetts Turnpike Authority, as landlord, and Landlord as tenant, as amended, and to any future ground lease, to all mortgages and other matters of record and to mortgages which may hereafter be placed on or affect this Lease, the Building, the Property or any portion thereof or Landlord's interest or estate therein, and to each advance made or hereafter to be made under any such mortgages, and to all renewals, modifications, consolidations, replacements and extensions thereof and substitutions therefor.  This Article shall be self-operative and no further instrument of subordination shall be required.  In confirmation of such subordination, Tenant shall execute and deliver promptly any certificate acknowledging or confirming such subordination that Landlord or any mortgagee or their respective successor in interest may request.

Landlord shall, upon receipt of Tenant’s written request, use reasonable efforts to obtain a Subordination, Non-Disturbance and Attornment agreement from any future Mortgagees holding mortgages covering real estate of which the Premises is a part.  The failure of the Landlord to obtain any such agreement shall not be a default by Landlord under this Lease.  Tenant shall reimburse Landlord upon demand, as Additional Rent, for Landlord's reasonable legal, professional, administrative, managerial and all other expenses (which expenses may include, without limitation, hourly fees for administrative and management personnel and an allocation for overhead and profit) related to any such request by Tenant.

 


Page 26

18.0

QUIET ENJOYMENT

Landlord covenants that if, and so long as, Tenant keeps and performs each and every covenant, agreement, term, provision and condition herein contained on the part and on behalf of Tenant to be kept and performed, Tenant shall quietly enjoy the Premises from and against the claims of all persons claiming by, through or under Landlord subject, nevertheless, to the covenants, agreements, terms, provisions and conditions of this Lease and to all Mortgages to which this Lease is subject and subordinate.

Without incurring any liability to Tenant, Landlord may permit access to the Premises and open the same, whether or not Tenant shall be present, upon any demand of any receiver, trustee, assignee for the benefit of creditors, sheriff, marshall or court officer entitled to, or reasonably purporting to be entitled to, such access for the purpose of taking possession of, or removing Tenant's property or for any other lawful purpose (but this provision and any action by Landlord hereunder shall not be deemed a recognition by Landlord that the person or official making such demand has any right or interest in or to this Lease, or in or to the Premises), or upon demand of any representative of the fire, police, building, sanitation or other department of the city, county, state or federal governments.

19.0

ENTIRE AGREEMENT - WAIVER - SURRENDER

 

19.1.

Entire Agreement.   This Lease and the Exhibits made a part hereof contain the entire and only agreement between the parties relative to the Premises and any and all statements and representations, written and oral, including previous correspondence and agreements between the parties hereto, are merged herein.  Tenant acknowledges that all representations, and statements upon which it relied in executing this Lease are contained herein and that Tenant in no way relied upon any other statements or representations, written or oral.  Any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of this Lease in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought.  Nothing herein shall prevent the parties from agreeing to amend this Lease and the Exhibits made a part hereof as long as such amendment shall be in writing and shall be duly signed by both parties.

 

19.2.

Waiver by Landlord.   The failure of Landlord to seek redress for violation, or to insist upon the strict performance, of any covenant or condition of this Lease, or any of the Rules and Regulations promulgated hereunder, shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation.  The receipt by Landlord of Rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach.  The failure of Landlord to enforce any of such Rules and Regulations against Tenant or any other tenant, licensee or occupant in the Building or elsewhere on the Property shall not be deemed a waiver of any such Rules and Regulations.  No provisions of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord.  No payment by Tenant or receipt by Landlord of a lesser amount than the monthly Rent herein stipulated shall be deemed to be other than on account of the stipulated Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment of rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided.

 

19.3.

Surrender.   No act or thing done by Landlord during the term hereby demised shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid, unless in writing signed by Landlord.  No employee of Landlord or of Landlord's agents shall have any power to accept the keys of the Premises prior to the termination of this Lease.  The delivery of keys to any employee of Landlord or of Landlord's agents shall not operate as a termination of the Lease or a surrender of the Premises.

20.0

INABILITY TO PERFORM - EXCULPATORY CLAUSE

Landlord shall be relieved from performing its obligations under this Lease if Landlord is prevented or delayed from doing so by reason of strikes or labor troubles or any other similar or dissimilar cause whatsoever beyond Landlord's reasonable control, including but not limited to, governmental

 


Page 27

preemption in connection with a national emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the conditions of supply and demand which have been or are affected by war, hostilities or other similar or dissimilar emergency.  In each such instance of inability of Landlord to perform, Landlord shall exercise reasonable diligence to eliminate the cause of such inability to perform.

Tenant shall neither assert nor seek to enforce any claim for breach of this Lease against any of Landlord's assets other than Landlord's interest in the Building of which the Premises are a part, and Tenant agrees to look solely to such interest for the satisfaction of any liability of Landlord under this Lease, it being specifically agreed that in no event shall Landlord (which term shall include, without limitation any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals or representatives, disclosed or undisclosed, of Landlord or any managing agent) ever be personally liable for any such liability.  This paragraph shall not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or to take any other action which shall not involve the personal liability of Landlord to respond in monetary damages from Landlord's assets other than Landlord's interest in said real estate, as aforesaid.  Notwithstanding anything to the contrary contained in this Lease, in no event shall Landlord be liable for consequential damages.

Landlord shall not be in default unless a failure to perform an obligation remains uncured for more than thirty (30) days following written notice from Tenant specifying the nature of such default, or such longer period as may be reasonably required to correct such default.

21.0

LANDLORD'S CONSENT

It is understood and agreed that whenever Landlord's consent or approval is required, either expressed or implied, by any provision of this Lease, the consent or approval may be granted or withheld arbitrarily in Landlord's sole discretion unless otherwise specifically stated in such provision.  Notwithstanding anything to the contrary contained in the Lease, if any provision of the Lease obligates Landlord not to unreasonably withhold its consent or approval, an action for specific performance will be Tenant's sole right and remedy in any dispute as to whether Landlord has breached such obligation.

22.0

RIGHT TO RELOCATE

Landlord reserves the right to relocate the Premises to space elsewhere in the Building comparable to the Premises with respect to size, condition, finish, design and functional layout (the “Relocation Space”) by giving Tenant reasonable prior written notice (the “Relocation Notice”) of Landlord's intention to relocate the Premises.  If within 30 days after the date of the Relocation Notice, Landlord and Tenant have not agreed upon the specific space to which the Premises are to be relocated to and the timing of such relocation, then, at any time until Landlord and Tenant (i) agree upon the specific space to which the Premises are to be relocated and the timing of such relocation and (ii) execute an amendment to this Lease with respect to such agreement, Landlord may terminate this Lease by notice to Tenant.  If Landlord elects to terminate this Lease, then this Lease shall terminate on that date which is 30 days after the date of the notice to terminate this Lease given pursuant to the immediately preceding sentence.  If Landlord and Tenant do agree upon the space to which the Premises are to be relocated to and the timing of such relocation, then Tenant agrees to execute an amendment to the Lease setting forth such agreement.  Landlord agrees to pay the reasonable costs of moving Tenant to such other space (including, without limitation, the reasonable cost to relocate Tenant’s phone and computer systems and the reasonable cost for a moving contractor to pack and unpack Tenant’s personal property to the extent a moving contractor would typically perform such function) and the reasonable cost to replace any letterhead and business cards existing as of the effective date of any relocation if and to the extent such letterhead and business cards are rendered obsolete solely as a result of such relocation.  Except as may be mutually agreed to in writing in the form of an amendment to this Lease, the exercise of Landlord’s rights pursuant to this Article shall not in and of itself give rise to any increase or decrease in Rent.  If construction in the Relocation Space is required in order to make the Relocation Space comparable to the Premises (as required above in this Article 22.0, “RIGHT TO RELOCATE”), such construction shall be performed by Landlord at Landlord’s expense and shall be Substantially Complete prior to any relocation.

 


Page 28

23.0

BILLS AND NOTICES

All bills and statements for reimbursement or other payments or charges due from Tenant to Landlord hereunder shall be due and payable in full thirty (30) days, unless herein otherwise provided, after submission thereof by Landlord to Tenant.  Tenant's failure to make timely payment of any amounts indicated by such bills and statements, whether for work done by Landlord at Tenant's request, reimbursement provided for by this Lease or for any other sums properly owing by Tenant to Landlord, shall be treated as a default in the payment of Rent, in which event Landlord shall have all rights and remedies provided in this Lease for the nonpayment of Rent.

Any notice by either party to the other party shall be in writing.  Any notice from Landlord to Tenant related to the Premises or to the occupancy thereof shall be deemed duly served if and when such notice is (i) addressed to Tenant and left at the Premises or (ii) sent to Tenant at Tenant's Address by registered or certified mail, return receipt requested, postage prepaid or by FedEx, UPS or other nationally known reputable overnight courier service.  Any notice from Tenant to Landlord related to the Premises or to the occupancy thereof shall be deemed duly served if and when such notice is sent to Landlord at Landlord's Address by registered or certified mail, return receipt requested, postage prepaid or by FedEx, UPS or other nationally known reputable overnight courier service.

Landlord may change Landlord's Address and Tenant may change Tenant's Address by delivering or sending a notice in accordance with the foregoing paragraph to the other party  stating the change and setting forth the changed address, provided such changed address is within the United States.

24.0

HOLDOVER

If Tenant remains in the Premises, the Building or elsewhere on the Property beyond the expiration or earlier termination of the Term of this Lease such holding over shall not be deemed to create any tenancy, but Tenant (a) shall be a tenant-at-sufferance only, (b) shall pay Rent to Landlord at the times and manner determined by Landlord at a daily rate in an amount equal to three times the daily rate of the Rent and other sums payable under this Lease as of the last day of the Term of this Lease and (c) shall indemnify, defend and hold harmless Landlord from and against any and all damages, liabilities, claims and losses relating to or arising as a result of such holding over.

25.0

NO OPTION

Employees or agents of Landlord have no authority to make or agree to make a lease or any other agreement or undertaking in connection herewith.  The submission of this document for examination and negotiation does not constitute an offer or agreement to lease, or a reservation of, or option for the Premises and this document shall become effective and binding as a lease only upon the execution and delivery hereof by both Landlord and Tenant.  If Tenant executes all of the execution copies of this document and returns them to Landlord, such action shall constitute an irrevocable offer by Tenant to enter into this document as a lease, which offer Landlord may accept by executing the same and returning one (1) fully executed copy to Tenant at any time within two (2) weeks after receipt of such execution copies by Landlord.  If Landlord does not accept such offer within said two (2) week period, it shall be deemed to have been rejected; and upon rejection (either by lapse of time as aforesaid or by notice from Landlord to Tenant), Landlord will destroy all of said execution copies.  If Tenant is a corporation, it agrees that the person executing this Lease for it has full authority to do so, and also to execute any notice, receipt, consent, amendment of the Lease, or any other document pertaining to the Lease or the Premises until such time as Landlord receives notice from Tenant to the contrary.

26.0

PARTIES BOUND - SEIZIN OF TITLE

The covenants, agreements, terms, provisions and conditions of this Lease shall bind and benefit the successors and assigns of the parties hereto with the same effect as if mentioned in each instance where a party hereto is named or referred to, except that no violation of the provisions of the Article contained herein entitled “ ASSIGNMENT, MORTGAGING, SUBLETTING, ETC. ” hereof shall operate to vest any rights in any successor or assignee of Tenant and that the provisions of this Article shall not be construed as modifying the conditions of limitation contained in the Article contained herein entitled “ DEFAULT ”.

If, in connection with or as a consequence of the sale, transfer or other disposition of the Building, the Property or any portion thereof, Landlord ceases to be the owner of the “landlord's” interest in the Premises, Landlord shall be entirely freed and relieved from the performance and observance

 


Page 29

thereafter of all covenants and obligations hereunder accruing thereafter on the part of Landlord to be performed and observed, it being understood and agreed in such event (and it shall be deemed and construed as a covenant running with the land) that the person succeeding to Landlord's ownership of said reversionary interest shall thereupon and thereafter assume, and perform and observe, any and all of such covenants and obligations of Landlord.

27.0

MISCELLANEOUS

 

27.1.

Separability.   If any provision of this Lease or portion of such provision or the application thereof to any person or circumstance is for any reason held invalid or unenforceable, the remainder of the Lease (or the remainder of such provision) and the application thereof to other persons or circumstances shall not be affected thereby.  In the event that any charge under this Lease is interpreted to be the payment of interest, the rate of interest shall be equal to the lesser of the amount stated in the Lease or the maximum amount permitted by law.

 

27.2.

Independent Covenants. The covenant and agreement of Tenant to pay to Landlord Annual Base Rent, Real Estate Taxes, Operating Expenses, Additional Rent or any other payment to Landlord or any covenant or agreement of Tenant to make payments to third parties (such as direct payments to a taxing authority) shall be independent of any covenant in this Lease to be performed by Landlord; and default in Landlord's performance of any such covenant shall not be a basis for Tenant to cease or reduce payment to Landlord of Annual Base Rent, Real Estate Taxes, Operating Expenses, Additional Rent or any other payment to Landlord, or to cease or reduce payments to third parties, or to terminate this Lease.

 

27.3.

Captions.   The captions are inserted only as a matter of convenience and for reference, and in no way define, limit or describe the scope of this Lease nor the intent of any provisions thereof.

 

27.4.

Landlord or Tenant.   The words “Landlord” and “Tenant” as used in this Lease may extend to and be applied to several parties whether male or female and to corporations and partnerships, and words importing the singular may include the plural and all obligations of Tenant as herein defined shall be joint and several.  Each of the provisions of this Lease shall bind and inure to the benefit of the heirs, legal representatives, successors and assigns of the parties hereto and it is specifically understood that Landlord has the right to assign all of its right, title and interest, or any portion thereof, in and to this Lease and any amendments thereto to any other party or entity during the Term of this Lease and any extension thereof and that Tenant shall execute any and all instruments that may be necessary to acknowledge and assent to such assignment.

 

27.5.

Broker.   Each party represents and warrants that it has not directly or indirectly dealt, with respect to the leasing of space in the Building or elsewhere on the Property, with any broker or had its attention called to the Premises or other space to let in the Building or elsewhere on the Property, by any broker other than the Broker (if any) listed in the Article of this Lease entitled “ REFERENCE DATA ” whose commission shall be the responsibility of Landlord.  Each party agrees to exonerate and save harmless and indemnify the other against any claims for a commission by any other broker, person or firm, with whom such party has dealt in connection with the execution and delivery of this Lease or out of negotiations between Landlord and Tenant with respect to the leasing of other space in the Building or elsewhere on the Property.

 

27.6.

Governing Law.   This Lease is made pursuant to, and shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts.

 

27.7.

Assignment of Lease and/or Rents.   With reference to any assignment by Landlord of its interest in this Lease and/or the Rent payable hereunder, conditional in nature or otherwise, which assignment is made to or held by a bank, trust company, insurance company or other institutional lender holding a Mortgage on the Building, the Property or any portion thereof, Landlord and Tenant agree:

(a) that the execution thereof by Landlord and acceptance thereof by such Mortgagee shall never be deemed an assumption by such Mortgagee of any of the obligations of Landlord hereunder, unless such Mortgagee shall, by written notice sent to Tenant, specifically otherwise elect; and

(b) that, except as aforesaid, such Mortgagee shall be treated as having assumed Landlord's obligations hereunder only upon foreclosure of such Mortgagee's Mortgage and the taking of possession of the Premises after having given notice of its intention to succeed to the interest of Landlord under this Lease.

 


Page 30

 

27.8.

Notice of Lease.   Tenant agrees that it will not record this Lease in any Registry of Deeds or Registry District.

IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be executed under seal, all as of the day and year first above written.

 

GATEWAY REALTY TRUST

 

Acer Therapeutics Inc.

 

 

 

 

 

 

 

BY:

 

Commonwealth Development LLC,

 

 

 

 

as Trustee and not individually

 

 

 

 

 

 

 

 

 

 

 

By

 

/s/ James A. Magliozzi

 

By

 

/s/ Chris Schelling

 

 

James A. Magliozzi, Manager

 

Name:

 

Chris Schelling

 

 

 

 

Title:

 

CEO & Founder, duly authorized

 

 

 

 

 

 

 

 

 

 

 

 

 

4/6/2018

 

 

 

 


 

EXHIBIT A

LEASE PLAN

 

 


 

EXHIBIT B

CLEANING SERVICES

 

LOBBY AND COMMON AREAS

Clean and disinfect water fountains

Clean directory and signage

Clean doors, walls, windows, mullions and metal work

Clean hard surface floors

Dust horizontal surfaces

Empty trash receptacles

High dusting (exit signs, light fixtures and air diffusers)

Vacuum all carpets and mats

 

LAVATORIES

Clean mirrors, walls, rest room supply dispensers and toilet partitions.

Clean and disinfect countertops, sinks and toilets

Empty trash receptacles

High dusting (exit signs, light fixtures and air diffusers)

Refill rest room supply dispensers

Sweep and wash floors

 

TENANT AREAS

Dry mop tile floors

Dust open horizontal surfaces

Empty trash receptacles

High dusting (exit signs, light fixtures and air diffusers)

Vacuum all carpets

 


 

EXHIBIT C

RULES AND REGULATIONS

1.

The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors or halls of the Property shall not be obstructed or encumbered or used for any purpose other than ingress and egress to and from the premises demised to any tenant or occupant.

2.

No awnings or other projections shall be attached to the outside walls or windows of the Building without the prior written consent of Landlord.  No curtains, blinds, shades, or screens shall be attached or hung in, or used in connection with, any window or door of the premises demised to any tenant or occupant, without the prior written consent of Landlord.  Such awnings, projections, curtains, blinds, shades, screens, or other fixtures must be of a quality type, design and color, and attached in a manner, approved by Landlord in writing in advance.

3.

No sign, advertisement, object, notice or other lettering shall be exhibited, inscribed, painted or affixed on any part of the outside or inside of the premises demised to any tenant or occupant of the Building without the prior written consent of Landlord.  Interior signs on doors and directory tables, if any, shall be of a size, color and style approved by Landlord in writing and in advance.

4.

The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed, nor shall any bottles, parcels, or other articles be placed on any window sills.

5.

No show cases or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the halls, corridors, vestibules or other parts of the Building.

6.

The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein.

7.

No tenant or occupant shall mark, paint, drill into, or in any way deface any part of the Building or the premises demised to such tenant or occupant.  No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct.  No tenant or occupant shall install any resilient tile or similar floor covering in the premises demised to such tenant or occupant except in a manner approved by Landlord in writing and in advance.

8.

No bicycles, vehicles, dogs (except for seeing eye dogs and similar animals) or other animals, birds or pets of any kind shall be brought into or kept in or about the premises demised to any tenant.  Bicycles may be stored in racks, if any, furnished for such purpose by Landlord in a common area of the Property.  No cooking shall be done or permitted in the Building by any tenant without the approval of Landlord.  No tenant shall cause or permit any unusual or objectionable odors to emanate from the premises demised to such tenant.

9.

Without the prior written consent of Landlord, no space in the Building shall be used for manufacturing, or for the sale of merchandise, goods or property of any kind at auction.

10.

No tenant shall make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with other tenants or occupants of the Building or neighboring buildings or premises whether by the use of any musical instrument, radio, television set or other audio device, unmusical noise, whistling, singing, or in any other way.  Nothing shall be thrown out of any doors or windows.

11.

Each tenant must, upon the termination of its tenancy, restore to Landlord all keys of stores, storage areas, offices and toilet rooms, either furnished to, or otherwise procured by, such tenant.

12.

All removals from the Building, or the carrying in or out of the Building or the premises demised to any tenant, of any safes, freight, furniture, or bulky matter of any description must take place at such time and in such manner as Landlord or its agents may determine, from time to time.  Landlord reserves the right to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates any of the Building Rules or the provisions of such tenant's lease.

i


 

13.

No tenant or occupant shall purchase spring water, ice, food, beverage, lighting maintenance, cleaning towels or other like service, from any company or person not approved by Landlord in writing and in advance, which approval shall not be unreasonably withheld.

14.

Landlord shall have the right to prohibit any advertising by any tenant or occupant which, in Landlord's opinion, tends to impair the reputation of the Building or its desirability as a building for offices, and upon notice from Landlord, such tenant or occupant shall refrain from or discontinue such advertising.

15.

Each tenant, before closing and leaving the premises demised to such tenant at any time, shall see that all entrance doors are locked and windows closed.

16.

Each tenant shall, at its expense, provide artificial light in the premises demised to such tenant for Landlord's agents, contractors, and employees while performing janitorial or other cleaning services and making repairs or alterations in said premises.

17.

No premises shall be used, or permitted to be used, for lodging or sleeping, or for any immoral or illegal purpose.

18.

There shall not be used in the Building, either by any tenant or occupant or by their agents or contractors, in the delivery or receipt of merchandise, freight or other matter, any hand trucks or other means of conveyance except those equipped with rubber tires, rubber side guards and such other safeguards as Landlord may require.

19.

Canvassing, soliciting and peddling in the Building are prohibited and each tenant and occupant shall cooperate in seeking their prevention.

20.

If the premises demised to any tenant become infested with vermin, such tenant, at its sole cost and expense, shall cause its premises to be exterminated from time to time, to the satisfaction of Landlord, and shall employ such exterminators therefor as shall be approved by Landlord in writing and in advance.

21.

No premises shall be used, or permitted to be used, at any time, without the prior written approval of Landlord, as a store for the sale or display of goods, wires or merchandise of any kind, or as a restaurant, shop, booth, bootblack or other stand, or for the conduct of any business or occupation which predominantly involves direct patronage of the general public in the premises demised to such tenant, or for manufacturing or for other similar purpose.

22.

No tenant shall move, or permit to be moved, into or out of the Building or the premises demised to such tenant, any heavy or bulky matter, without the specific approval of Landlord.  If any such matter requires special handling, only a person holding a Master Rigger's license shall be employed to perform such special handling.  No tenant shall place, or permit to be placed, on any part of the floor or floors of the premises demised to such tenant, a load exceeding the floor load per square foot which such floor was designed to carry and which is allowed by law.  Landlord reserves the right to prescribe the weight and position of safes and other heavy matter, which must be placed so as to distribute the weight.

23.

The requirements of tenants will be attended to only upon application at the office of the Building.  Building employees shall not be required to perform, and shall not be requested by any tenant or occupant to perform, any work outside of their regular duties, unless under specific instructions from the office of the managing agent of the Building.

24.

Tenant shall not block access to heating and air conditioning or other equipment or elements of the Building to be maintained by Landlord, whether by the placement of Tenant’s furniture or equipment or otherwise.  In the event such heating and air conditioning or other equipment or element of the Building is blocked by the placement of Tenant’s furniture or equipment or otherwise, Tenant, at Tenant’s expense, shall upon request of Landlord immediately move such equipment.

1.

ii


 

EXHIBIT D

WORK LETTER

Landlord shall provide all plans and drawings necessary to modify the Premises pursuant to this Work Letter.  If Tenant elects to make material changes to the work described in this Work Letter and such changes increase the cost of the plans and drawings or of the work or cause a delay in the production of the plans and drawings or of the work, then all such changes, delays and any related costs shall be at the sole cost and expense of Tenant.

Landlord shall furnish labor and materials as necessary to modify the Premises pursuant to this Work Letter using Building Standard Construction Items (Building Standard Construction Items are set forth in Exhibit E).  Landlord shall perform the required to be performed by Landlord pursuant to this Work Letter in a good and workman like manner.  Unless otherwise specifically specified in this Work Letter, all items, including, without limitation, construction items which are not Building Standard Construction Items and which are to be provided at Landlord's expense, if any, will be standard basic, in-stock, locally available items and the specific manufacturer, model, and style will be at Landlord's sole discretion.  The additional costs of any custom colors or sizes or any special-order items, the cost of any construction items which are not Building Standard Construction Items, and the cost of any Building Standard Construction Items which are in excess of the quantity of Building Standard Construction Items to be provided pursuant to Exhibit E shall be paid to Landlord by Tenant within 30 days of Tenant's receipt of an invoice for such additional costs.

Notwithstanding anything to the contrary in this Exhibit D, “Work Letter”, or elsewhere in the Lease, Landlord’s obligation to perform modifications in the Premises shall include only as specifically stated in this Work Letter the following: replace existing 2’ x 4’ parabolic lens fluorescent ambient light fixtures with building typical premium LED ambient light fixtures, install a building typical sink and faucets in existing counter top along with sink related plumbing, electrical and other sink related modifications, remove all abandoned telephone/data jacks and related wiring and patch and match affected walls.

In addition to modifying the Premises as required pursuant to this Work Letter with Building Standard Construction Items, Landlord agrees to provide the following construction items at the Landlord's expense:

 

Building typical premium 2’ x 4’ LED ambient light fixtures throughout

 

One building typical sink and faucet set-up with point of use water heater along with modification to existing countertop and lower cabinets as applicable and necessary related plumbing and electrical.

Unless otherwise specifically set forth above, the following items, if applicable, and any related costs will be at the sole expense of Tenant:

 

Any plumbing, plumbing fixtures and equipment required by Tenant, including, without limitation, any plumbing, plumbing fixtures and equipment related to any kitchen or sink areas.

 

Special or dedicated circuits or electrical connections in excess of the number of or of a different type than circuits and receptacles ordinarily provided for standard office space and costs related to the connection of Tenant's computers or other equipment.

 

Other than as provided for standard office space, heating, ventilation, air conditioning, humidification or air filtration (“HVAC”) required because of Tenant's processes, at Tenant's election or to meet any other special needs of Tenant.

 

Millwork, countertop, cabinetry or shelving.

 

Glass and glazing within the Premises.

 

Modifications to the building standard construction of partitions, doors and frames, flooring and base, painting, lighting fixtures, convenience outlets, or air diffusers required because of Tenant's processes, the installation of Tenant's equipment, at Tenant's election or to meet any other special needs of Tenant, including, without limitation, walls extending to underside of slab, blocking,

 


 

 

special sound insulation, modified doors, folding or retractable doors, access or raised flooring and any costs related to the foregoing.

 

Tenant's moving and equipment rigging costs.

Tenant shall provide at its expense, all labor, equipment and materials related to the installation and operation of its own telephone, telecommunications, security and computer systems, and any other fixtures and/or equipment required by Tenant.

Notwithstanding anything to the contrary contained above in this Work Letter or elsewhere in the Lease, Tenant shall, at Tenant’s expense, be responsible for providing Landlord with Tenant’s finish selection specifications, including, without limitation, detailed specifications and locations if and as applicable for paint colors, carpet, vinyl base and VCT, plastic laminate or other counter tops, millwork, blocking in walls, special electrical needs, etc.  Such information shall be delivered to Landlord complete and accurate in the then current industry best-practices format no later than one week after Lease execution.  Failure of Tenant to provide such information by such time and in such format shall constitute a delay in the production of the plans and drawings caused by Tenant.  Landlord shall have no obligation to provide interior design services, the burden for which shall rest solely with Tenant.

 

2


 

EXHIBIT E

BUILDING STANDARD CONSTRUCTION ITEMS

Partitions:

 

2 1/2” wide, 20 gauge metal studs, 24” on center with 1/2” gypsum wall board

Interior Doors and Frames:

 

One door, frame and hardware set per 250 square feet of usable space

 

Door and Frame Construction:  8'-0” x 3'-0” x 1 3/4” solid core flush wood door with oak veneer faces and hollow metal 16 gauge knock down frames

Hardware:

 

Hinges - 4 ea., Stanley, F179 Series, 4 1/2 x 4 1/2”, US 26D finish (or comparable)

 

Passage Set - 1 ea., Schlage “S” Series Lever handle, US 26D finish (or comparable)

 

Door Stop - 1 ea., Ives, floor mounted, #436, US 26D finish (or comparable)

 

Silencers - 3 ea., Ives #20

 

Closer - where required by code

Flooring and Base:

 

Cut Pile Carpet; 30 oz., Shaw Commercial Carpets (or comparable)

 

Loop Pile Carpet; 26 oz., Karastan/Bigelow (or comparable)

 

Vinyl Composition Tile (VCT); 12” x 12” x 1/8” Tarkett “Basics”

 

Vinyl Base; 4” vinyl base, cove edge at vinyl flooring, straight edge at carpeted areas, Nafco Supreme (or comparable)

Ceiling

 

Standard ceiling height 8'-3” +/-, subject to existing building systems

 

Armstrong Fissured Tegular Minatone, 2'x2' lay-in No. L705A

Painting:

 

Walls; primed and 1 coat (flat)

 

Frames; primed and 2 coats (semi-gloss)

 

Doors; 3 coats polyurethane

Lighting Fixtures:

 

One fixture per 100 square feet of usable space

 

Type of fixture:  Fluorescent 18 cube;  2' x 4' lay in, 3 bulb fluorescent fixture

 

One wall switch per room or 10 ceiling fixtures

Convenience Outlets:

 

One standard, white or ivory, duplex electrical receptacle as required by code.

Air Difusers:

 

As required to provide 1 CFM per usable square foot.

 

 

Exhibit 10.6

 

 

TRIPLE NET LEASE

1000 WALL

 

 

 

Between:

 

 

 

EASTERN WESTERN CORP.

(“Landlord”)

 

 

 

And

 

 

ACER THERAPEUTICS INC.

(“Tenant”)

 

 

 

 

Dated April 1, 2018

 

 

 

 

 

 

 

 

 

 


 

Table of Contents

 

 

Page

1.

TERM.

4

2.

RENT.

4

2.1

Base Rent.

5

3.

SECURITY DEPOSIT.

5

4.

ADDITIONAL RENT.

5

4.1

Operating Expenses.

5

4.2

Property Taxes and Insurance.

6

4.3

Payment of Operating Expenses, Taxes ad Insurance.

6

5.

INSURANCE; INDEMNITY

6

5.1

Insurance.

6

5.2

Increases in Premiums.

7

5.3

Indemnity.

7

5.4

Tenant’s Insurance.

7

6.

USE OF PREMISES.

8

7.

TENANT IMPROVEMENTS AND ALTERATIONS.

9

8.

REPAIRS AND MAINTENANCE.

10

8.1

Landlord’s Responsibilities.

10

8.2

Tenant’s Responsibilities.

10

8.3

Inspections.

11

8.4

Landlord’s Work.

11

9.

LIENS; TENANT’S TAXES.

11

10.

UTILITIES.

11

11.

ICE, SNOW, AND DEBRIS.

11

12.

WAIVER OF SUBROGATION; SPECIAL OR CONSEQUENTIAL DAMAGES.

12

13.

INJURY TO TENANT’S PROPERTY.

12

14.

DAMAGE OR DESTRUCTION.

12

14.1

Partial Destruction.

12

14.2

Substantial Damage.

12

14.3

Restoration.

12

15.

EMINENT DOMAIN.

13

15.1

Partial Taking.

13

15.2

Substantial taking of the Property.

13

15.3

Substantial Taking of Premises.

13

15.4

Definition.

13

16.

BANKRUPTCY.

13

17.

DEFAULT.

14

18.

REMEDIES ON DEFAULT.

14

19.

SURRENDER AT EXPIRATION.

15

19.1

Condition of Premises.

15

19.2

Fixtures.

16

19.3

Holdover.

16

20.

ASSIGNMENT AND SUBLETTING.

16

20.1

Landlord’s Consent.

16

20.2

Payment to Landlord and Termination of Lease

17

21.

SUBORDINATION.

17

22.

ESTOPPEL CERTIFICATE.

17

23.

PERFORMANCE BY LANDLORD.

18

24.

LANDLORD’S RIGHT TO CURE DEFAULT.

18

25.

INSPECTION.

18

26.

FOR SALE AND RENT SIGNS.

18

27.

ATTORNEY’S FEES.

18

28.

NOTICES.

18

 


 

29.

BROKERS.

19

30.

LATE CHARGES.

19

31.

NO PERSONAL LIABILITY.

19

32.

MISCELLANEOUS PROVISIONS.

19

33.

EXHIBITS.

20

 

 

 

 


 

SUMMARY OF BASIC LEASE TERMS

The following is a summary of the basic terms contained in this Lease.  In the event of any conflict between any provision contained in this Summary and a provision contained in the balance of the Lease, the latter shall control.

 

1.

Name of Landlord:

 

Eastern Western Corp.

2.

Address for Notices to Landlord:

 

 

 

 

 

PO Box 3228

 

 

 

Portland, OR 97208-3228

 

 

 

 

3.

Address for Rent Payments:

 

Eastern Western Corp.

 

 

 

PO Box 3228

 

 

 

Portland, OR 97208-3228

 

 

 

 

4.

Name of Tenant and Address of Premises:

 

Acer Therapeutics Inc.

 

 

 

1000 NW Wall Street #220

 

 

 

Bend, OR 97701

 

 

 

 

5.

Address for Notices to Tenant:

 

Chris Schelling

 

 

 

Acer Therapeutics Inc.

 

 

 

1000 NW Wall Street #220

 

 

 

Bend, OR 97701

 

 

 

 

6.

Trade Name under Which Tenant Will Operate at Premises:

 

ACER Therapeutics Inc.

 

 

 

 

7.

Business to Be Conducted By Tenant at Premises:

 

General Office

 

 

 

 

8.

Approximate Floor Area of Premises:

 

2,288 SF

 

 

 

 

9.

Lease Term:

 

36 Months

 

 

 

 

10.

Estimated Commencement Date:

 

April 1, 2018

 

 

 

 

11.

Base Rent:

 

$$4,004.00

 

 

 

 

12.

Percentage Rent Rate:

 

% of Gross Sales

 

 

 

 

13.

Landlord's Broker:

 

Nick Vaughn, Fratzke Commercial

 

 

 

 

14.

Tenant's Broker:

 

Brian Fratzke, Fratzke Commercial

 

 

 

 

15.

Security Deposit:

 

$2,500.00

 

 

 

 

 


 

1000 WALL

TRIPLE NET (NNN) LEASE

thIS LEASE is entered into effective 1st day of April, 2018, between Eastern Western Corp, an Oregon corporation (“Landlord”), and Acer Therapeutics Inc. (“Tenant”).  Landlord owns that certain building and other improvements known as 1000 Wall (the “Building”) on that certain property located at 1000 NW Wall Street and 130-180 NW Oregon Avenue , City of Bend , Deschutes County, State of Oregon (the “Property”). Landlord hereby leases to Tenant and Tenant hereby leases from Landlord certain space on the Property located at Suite #220 consisting of approximately 2,288 rentable square feet as outlined on the attached Exhibit A (the “Premises”) on the terms and conditions set forth in this Lease.

1. TERM.  

The term of this Lease (the “Term”) shall be for a period of 36 months, commencing on the first to occur of the following dates: (a)April 1 , 2018   ; (b) the date on which Tenant begins to transact business on, at, or from the Premises; or (c) one day after Landlord has delivered possession of the Premises to Tenant with any work to be performed by Landlord in the Premises (as agreed by Landlord in an exhibit attached to this Lease, if any) substantially completed (the “Commencement Date”). Tenant’s Base Rent shall commence on April 1, 2018.    If applicable, Tenant shall complete any work required in the Premises, and approved by Landlord pursuant to Section 7, within days after Landlord delivers possession of the Premises to Tenant.  If the first day of the Term shall be a day other than the first day of a calendar month, then the Term shall be deemed extended by the number of days between the Commencement Date of this Lease and the first day of the first calendar month thereafter, so that the Term shall expire at the end of a calendar month.  In the event Landlord allows Tenant the right to early possession of the Premises for the purpose of installation of Tenant’s improvements to the Premises or for other purposes, then Tenant’s entry into the Premises shall be subject to all terms and conditions of this Lease except the payment of Rent.  Tenant’s entry shall mean entry by Tenant, its officers, contractors, employees, licensees, agents, servants, guests, invitees, and visitors.  If Landlord, for any reason, cannot deliver possession of the Premises on the estimated commencement date set forth in the Summary of Basic Lease Terms (the “Estimated Commencement Date”), this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting from such delay.  In that event, however, Landlord shall deliver possession of the Premises as soon as practicable.  If Landlord is delayed in deliver possession to Tenant for any reason attributable to Tenant, this Lease shall commence on the Estimated Commencement Date set forth in the Summary of Basic Lease Terms.

2. RENT.   

Beginning on the Commencement Date and continuing during the entire Term, Tenant shall pay Landlord as rent for each “Lease Year” the “Base Rent” as defined in this Section and all “Additional Rent” (as defined in Section 4).  The term “Lease Year” shall mean the period from the Commencement Date through the first December 31 st following the Commencement Date, January 1 st through December 31 st for each subsequent full calendar year during the Term, and January 1 st to the end of the Term for the final Lease Year.  All Rent shall be paid when due without notice, offset, or deduction or for any reason.

4 | 1000 WALL LEASE AGREEMENT


 

2.1 Base Rent.   

The minimum monthly rent during the Term (“Base Rent”) is outlined in the Summary of Basic Lease Terms. Base Rent shall be paid in advance on or before the first day of each calendar month during the Term, except for the first calendar month.  Upon execution of this Lease, Tenant shall pay to Landlord Base Rent for the first full calendar month of the Term.  If the first month of the Term shall be a partial month, Base Rent shall be prorated on a daily basis, based on a 30 day month, and the amount due for such partial month shall be paid on or before the first day of the first full calendar month following the Commencement Date.

 

Months

Base Rent / Month

1-12

$4004.00

13-24

$4124.12

25-36

$4247.84

Plus NNN

(a) General.   All references to “Rent” or “Rental” in this Lease shall mean Base Rent, Additional Rent and all other payments required of Tenant under this Lease unless otherwise expressly specified and all payments required by Tenant under this Lease shall be deemed “Rent.

(b) Place of Payment.   Tenant shall pay Rent and other amounts required to be paid by Tenant hereunder to Landlord at the address for Landlord set forth on the last page of this Lease, or at such other place as Landlord may from time to time designate in writing.

3. SECURITY DEPOSIT.   

Upon execution of this Lease, Tenant shall pay to Landlord a sum equal to the amount set forth on the Summary of Basic Lease Terms, as security for the full and faithful performance by Tenant of all of the covenants and terms of this Lease required to be performed by Tenant.  Such security deposit shall be returned to Tenant after the expiration of this Lease provided Tenant has fully and faithfully carried out Tenant’s entire obligation hereunder, including the payment of all amounts due to Landlord hereunder and the surrender of the Premises to Landlord in the condition required by this Lease.  However, Landlord, at its option, may apply such sum on account of the payment of the last month’s Base Rent or other unpaid Tenant obligations.  Such sum may be commingled with other funds of Landlord and shall not bear interest.  In the event of a sale of the Property, Landlord shall transfer the security deposit to the purchaser to be held under the terms of the Lease, and Landlord shall thereupon be released from all liability for the return of the security deposit.  Tenant agrees to look solely to the new landlord for the return of the security deposit.

4. ADDITIONAL RENT.

4.1 Operating Expenses.   

In addition to Base Rent, Tenant shall pay to Landlord a portion of the Operating Expenses incurred by Landlord in connection with the Property.  The term “Operating Expenses” shall mean all expenses paid or incurred by Landlord or on Landlord’s behalf, as reasonably determined by Landlord to be necessary or appropriate for the efficient operation, management, maintenance, and repair of the land and the Building.  Tenant shall pay their pro-rata share of those Operating Expenses applicable to the land and Building in general. Landlord shall allocate Operating Expenses applicable to the land and the Building in general, as Landlord determines is reasonable.  Without limiting the generality of the foregoing, Operating Expenses shall specifically include the management fee charged by Landlord’s managing agent.

5 | 1000 WALL LEASE AGREEMENT


 

4.2 Property Taxes and Insurance.   

In addition to Base Rent, Tenant shall pay their pro-rata share of all real property taxes and assessments levied, assessed or imposed during the Term upon the Property (”Taxes”) and their pro-rata share of the cost of insurance provided by Landlord pursuant to Section 5.1 (“Insurance”).  Tenant shall pay to Landlord an amount each month, which is equal to one-twelfth of the estimated annual Taxes and Insurance together with Tenant’s payments of Operating Expenses, as provided in Section 4.3) below.  If, during the Term, the voters of the state in which the Premises are located or the state legislature enacts a real property tax limitation, then any substitute taxes, in any name or form, which may be adopted to replace or supplement real property taxes shall be added to Taxes for purposes of this Section 4.2.  Should there be in effect during the Term any law, statute, or ordinance which levies, assesses, or imposes any tax (other than federal or state income tax) upon rents, Tenant shall pay such taxes as may be attributable to the Rents under this Lease or shall reimburse Landlord for any such taxes paid by Landlord within ten days after landlord bills Tenant for the same.

4.3 Payment of Operating Expenses, Taxes and Insurance.

Landlord shall notify Tenant of Tenant’s required estimated monthly payments of Operating Expenses, Taxes, and Insurance.  Beginning on the Commencement Date, and continuing throughout the Term, Tenant shall make such monthly payment on or before the first day of each calendar month.  Landlord may, from time to time, by written notice to Tenant, change the estimated monthly amount to be paid.  No interest or earnings shall be payable by Landlord to Tenant on any amount paid under this Section 4, and Landlord may commingle such payments with other funds of Landlord.  Landlord shall, within 90 days after the close of each calendar year, deliver to Tenant a written statement setting forth the actual Operating Expenses, Taxes and Insurance for the prior year together with a computation of the charge or credit to Tenant of any difference between the actual cost and the estimated cost paid by Tenant for such period; and any such difference shall be paid or reimbursed, as applicable, within 10 days after Landlord gives Tenant notice thereof.  If Tenant has any objections to the annual statement made by landlord, such objections shall be made in writing given to landlord within 30 days after the statement is submitted to Tenant.  If no objections are made within such time period, the annual statement shall be conclusive and binding on Tenant.  If Tenant desires to review any of Landlord’s records pertaining to Operating Expenses, Taxes or Insurance, Tenant may do so after reasonable prior notice given to Landlord, but no more often that once during any calendar year.  Such review shall take place where such records are kept, and shall be conducted by a certified public accountant chosen by Tenant subject to landlord’s prior written approval, which shall not be unreasonably withheld.  Tenant shall pay all costs of such review including without limitation reimbursement for time incurred by landlord’s representatives and photocopy charges.

5. INSURANCE; INDEMNITY

5.1 Insurance.  

During the Term, Landlord shall maintain in full force a policy or policies of standard multi-peril insurance covering the Building and other improvements (exclusive of Tenant’s trade fixtures, tenant improvements and other property) situated on the Property for the perils of fire, lightning, windstorm and other perils commonly covered in such policies.  Additionally, the perils of earthquake, landslide, flood, and/or other perils may be covered at the election of Landlord.  During the Term, Landlord shall maintain in full force a comprehensive liability insurance policy in amounts considered appropriate by Landlord insuring Landlord against liability for bodily injury and property damage occurring in, on or about the Property.  Landlord shall use its reasonable efforts to secure said insurance at competitive rates.

6 | 1000 WALL LEASE AGREEMENT


 

5.2 Increases in Premiums.   

This Lease is entered into on the basis that Tenant’s occupancy will not affect the Property’s classification for insurance rating purposes.  If Tenant’s initial intended use of the Premises results in higher insurance premiums for any buildings situated on the Property, Tenant shall pay for the increased costs of the premiums for insuring any such buildings against loss with standard extended overage endorsements during the Term.  If the insurance premiums on any such buildings are increased during the Term as a result of the installation of equipment on the Premises by Tenant, by reason of Tenant maintaining certain goods or materials on the Premises or as a result of other use or occupancy of the Premises by Tenant, Tenant shall pay the additional cost of the insurance for any such buildings (whether or not Landlord has consented to the activity resulting in the increased insurance premiums).  Tenant shall refrain from any activity in its use of the Premises which would make it impossible to insure the Premises or the buildings situated on the Property against casualty or which would increase the insurance rate of any such buildings or prevent Landlord from taking advantage of the ruling of the Insurance Rating Bureau of the state in which the Premises are situated or its successors allowing Landlord to obtain reduced premium rates for long term fire insurance policies, unless Tenant pays the additional cost of the insurance.  All of Tenant’s electrical equipment shall be U-L approved.  If Tenant installs any electrical equipment that overloads the lines in the Premises or in any such buildings, Tenant shall at its own expense make whatever changes are necessary to comply with the requirements of the Insurance underwriters and governmental authorities having jurisdiction.  Any insurance premiums to be paid by Tenant by reason of its initial intended use of the Premises or any increase in insurance premiums attributable to Tenant’s use or occupancy of the Premises during the Term shall be paid by Tenant to Landlord within thirty days after Landlord bills Tenant for the same.

5.3 Indemnity.

Tenant shall indemnify, defend, and save harmless the Landlord Parties from any and all liability, damage, expenses, attorneys’ fees, causes of actions, suits, claims or judgments, arising out of or connected with (i) the use, occupancy, management, or control of the Premises, (ii) any failure of Tenant to comply with the terms of this Lease, and (iii) the acts or omissions of Tenant, its agents, members, officers, directors, employees, customers or invitees; provided, however, that Tenant shall not be liable for claims caused by the sole negligence of Landlord.  Tenant shall, at its own cost and expense, defend any and all suits which may be brought against Landlord either alone or in conjunction with others upon any such above mentioned cause or claim, and shall satisfy, pay, and discharge any and all judgments that may be recovered against Landlord in any such action or actions in which Landlord may be a party defendant. As used herein, “Landlord Parties” shall mean and refer to Landlord and its members, beneficiaries, owners, officers, directors, employees, agents, management agent, invitees and lenders.

5.4 Tenant’s Insurance.   

Tenant shall at its own expense during the Term carry in full force and effect a comprehensive public liability insurance policy including property and personal injury coverage, insuring the Premises and its contents, including any of Tenant’s leasehold improvements, with an insurance carrier satisfactory to Landlord, naming Landlord, Landlord’s management agent, and Landlord’s lender as additional insureds, with a combined single limit for bodily injury or property damage in an amount of not less than the greater of (a) $1,000,000, or (b) 1,000,000, per occurrence and in aggregate, insuring against and all liability of Tenant with respect to the Premises and under this Lease including without limitation Tenant’s indemnity obligations under this Lease, or arising out of the maintenance, use or occupancy of the Premises.  Tenant shall carry insurance, which fully covers repair and replacement of broken storefront windows, if any.  If engaged in the sale or distribution of alcoholic beverages, Tenant shall carry liquor liability insurance in a form and in such amounts satisfactory to Landlord.  All policies of insurance required to be carried hereunder shall provide that the insurance shall not be cancelable or modified without at least ten (10) days prior written notice to Landlord, shall be deemed primary and noncontributing with other insurance available to Landlord, and shall be issued by one or more insurance companies licensed to do business in the State of Oregon and reasonably acceptable to Landlord.  On or before the Commencement Date, Tenant shall furnish Landlord with a certificate or other acceptable evidence that such insurance is in effect.  Tenant shall also provide and maintain insurance to comply with Worker’s Compensation and Employer’s Liability Laws.

7 | 1000 WALL LEASE AGREEMENT


 

6. USE OF PREMISES.   

The premises shall be used for the purposes described in the Summary of Basic Lease Terms and for no other purpose without Landlord’s written consent.  In connection with the use of Premises, Tenant shall:

6.1 Conform to all applicable laws, statutes, rules, ordinances, orders, regulations and requirements of any public authority (“Laws”) affecting the Premises and the use of the Premises and correct, at Tenant’s own expense, any failure of compliance created through Tenant’s fault or by reason of Tenant’s use, unless such failure is due to Landlord’s default in the performance of the agreements set forth in this Lease to be kept and performed by Landlord.     Landlord represents to Tenant that there is no asbestos in the Building, and Landlord indemnifies Tenant from any liability arising out of the presence of asbestos in the Building.

6.2 Refrain from any activity which would be reasonably offensive to Landlord, to other tenants in any buildings situated on the property, or to owners or users of the adjoining premises, or which would tend to create a nuisance or damage the reputation of the Premises or of any such buildings.  Without limiting the generality of the foregoing, Tenant shall not permit any noise or odor to escape or be emitted from the Premises nor permit the use of flashing (strobe) lights nor shall Tenant permit the sale or display of offensive materials as reasonably determined by Landlord;

6.3 Refrain from loading the floors, electrical systems, plumbing systems, or heating, ventilating and air conditioning systems (“HVAC”), beyond the point considered safe by a competent engineer or architect selected by Landlord and refrain from using electrical, water, sewer, HVAC, and plumbing systems in any harmful way.  If Landlord employs an engineer, architect, electrical, or other consultant to determine whether Tenant's use of the Premises is in violation of this Section 6.3, Tenant shall pay the reasonable costs incurred in connection with that employment.  Tenant shall use hair interceptors, grease traps or other drain protection devices as needed to avoid such harmful use;

6.4 Not permit any pets or other animals in the Premises except for Service Animals;

6.5 Refrain from making any marks on or attaching any sign, insignia, antenna, window covering, aerial or other device to the exterior or interior walls, windows or roof of the Premises without the written consent of the Landlord, which consent shall not be unreasonably withheld.  Landlord need not consent to any sign, which fails to conform to the general design concept of the buildings situated on the Property, as established by Landlord. Notwithstanding Landlord's consent to any signs, Tenant shall (i) comply with all Laws related to such signs at its own cost and expense, and (ii) remove all such signs upon termination of the Lease and repair any damage to the Premises caused thereby, at Tenant's own cost and expense;

6.6 Comply with any reasonable rules respecting the use of the Premises promulgated by Landlord from time to time and communicated to Tenant in writing.  Without limiting the generality of the foregoing, such rules may establish hours during which the common area shall be open for use, may regulate deliveries to the Premises and may regulate parking by employees.  Recognizing that it is in the best interests of all tenants to accommodate the parking needs of customers, Landlord reserves the right to require employees of Tenant to park in designated areas of the common area or to park outside of the common area if Landlord determines that the extent of employee parking is detrimental to the business of the tenants or any of them.  Tenant shall use its best efforts to complete, or cause to be completed, all deliveries, loading and unloading to the Premises by 9 a.m. each day, and to prevent delivery trucks or other vehicles serving the Premises from parking or standing in from of the locations of other tenants;

6.7 Comply with any no smoking (and other health related) policies and procedures established by Landlord from time to time;

6.8 Recognizing that it is in the interest of both Tenant and Landlord to have regulated hours of business, Tenant shall keep the Premises open for business and cause Tenant’s business to be conducted therein during those days and hours as is customary for businesses of like character in the city or county in which the Premises are situated, but in any event during those days and hours reasonably established by Landlord, except to the extent that the use of the Premises is interrupted or prevented by causes beyond Tenant’s reasonable control;

8 | 1000 WALL LEASE AGREEMENT


 

6.9 Not permit any cash, credit card, or coin-operated vending, novelty or gaming machines or equipment on the Premises without the prior written consent of Landlord; and not permit the use of any part of the Premises for a second-hand store, nor for an auction, distress or fire sale, or bankruptcy or going-out-of-business sale or the like;

6.10 Refrain from violating or causing the violation of any exclusive use provision granted to any tenant or other occupant of the Property as to which Tenant has been given written notice;

6.11 Not commit or suffer any harm to the Premises including without limitation the improvements thereon or any part thereof; and Tenant shall keep the Premises in a neat, clean, sanitary, and orderly condition;

6.12 Refrain from any use of any area on the Property which is outside of the Premises unless such use is specifically permitted in writing by Landlord in advance; and

6.13 Not generate, release, store, or deposit on the Premises any environmentally hazardous or toxic substances, materials, wastes, pollutants, oils, or contaminants, as defined by any federal, state, or local law or regulation, including, without limitation, petroleum products (collectively, “Hazardous Substance”).  Tenant shall indemnify, defend, and hold harmless Landlord from and against any and all claims, losses, damages, response costs and expenses of any nature whatsoever (including without limitation attorneys’, experts’, and paralegals’ fees) arising out of or in any way related to the generation, release, storage, or deposit of Hazardous Substances on the Premises by Tenant or any other person or entity other than Landlord on and/or after the date of this Lease.

6.14 Tenant shall not install or display any sign visible from the exterior of the Premises without the Landlord's review and prior written consent as to design, size, location and color.  All signs installed or displayed by Tenant shall conform to Landlord's rules and regulations regarding signs and applicable Legal Requirements. All signage requests must be submitted with a sketch/mock-up to Landlord; only signage which has been approved by Landlord shall be installed. Tenant shall have ten (10) days to remove any non-approved signage upon Landlord’s request; should signage not be removed within said timeframe, Tenant shall be considered in default of the Lease.

7. TENANT IMPROVEMENTS AND ALTERATIONS.   

Except as specified in an exhibit attached to this Lease (if any), Tenant accepts the Premises in their as-is condition as of the Commencement Date and Tenant shall pay for all tenant improvements, whether the work is performed by Landlord or by Tenant.  If any improvements to the Premises or other work on the Premises by Tenant causes the need to comply with any Laws in areas outside of the Premises including without limitation the Americans with Disabilities Act or regulations pertaining to earthquake codes, Tenant shall pay the cost thereof as well.  Tenant shall make no improvements or alterations on the Premises of any kind, including the initial work to be performed by Tenant in the Premises, without the prior written consent of Landlord, which consent shall not be unreasonably withheld.  Prior to the commencement of any work by Tenant, Tenant shall first submit the following to Landlord and obtain Landlord’s written consent to all of the following which consent shall not be unreasonably withheld: Tenant’s plans and specifications; Tenant’s estimated costs; and the names of all of Tenant’s contractors and subcontractors. Landlord to approve, or provide Tenant Improvement comments back to Tenant within 20 days after submittal. If Landlord is to perform some or all of such work, Landlord shall have the right to require Tenant to pay for the cost of the work in advance or in periodic installments.  If the work is to be performed by Tenant, Landlord shall have the right to require Tenant to furnish adequate security to assure timely payment to the contractors and subcontractors for such work.  All work performed by Tenant shall be done in strict compliance with all applicable building, fire, sanitary, and safety codes, and other applicable laws, statutes, regulations, and ordinances, and Tenant shall secure all necessary permits for the same.  Tenant shall keep the Premises free from all liens in connection with any such work.  All work performed by the Tenant shall be carried forward expeditiously, shall not interfere with Landlord’s work or the work to be performed by or for other tenants, and shall be completed within a reasonable time.  Landlord or Landlord’s agents shall have the right at all reasonable times to inspect the quality and progress of such work.  All improvements, alterations and other work performed on the Premises by either Landlord or Tenant shall be the property of Landlord when installed, except for Tenant’s trade fixtures, and may not be removed at the expiration of this Lease unless the applicable Landlord’s consent specifically provides otherwise.  Notwithstanding Landlord’s consent to improvements

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or alterations by Tenant, all such improvement, alteration or other work to be performed by Tenant shall be at the sole cost and expense of Tenant.   Tenant shall give Landlord not less than five (5) business days advance written notice of the date on which any construction will commence so as to give Landlord the opportunity to post a notice of non-responsibility.

8. REPAIRS AND MAINTENANCE.

8.1 Landlord’s Responsibilities.  

The following shall be the responsibility of Landlord:

(a) Structural repairs and maintenance and repairs necessitated by structural disrepair or defects.

(b) Repair and maintenance of the exterior walls, roof, gutters, downspouts and the foundation of the Building.  This shall not include maintenance of the operating condition of doors and windows or replacement of glass, nor maintenance of the store front;

(c) Maintenance of the HVAC system; and

(d) Repair of interior walls, ceilings, doors, windows, floors and floor coverings when such repairs are made necessary because of a failure of Landlord to keep the structure in repair as above provided in this Section 8.1.

(e) If Landlord elects to do so, the hiring of a qualified pest extermination company for regular extermination services.

The cost of such improvements shall be included in the Operating Expenses; provided, however, all capital expenses shall be amortized over their useful life, and only the portion attributable to a Lease Year shall be passed through to Tenant during the Lease Year.

8.2 Tenant’s Responsibilities.   

The following shall be the responsibility of Tenant:

(a) The interior of the Premises including any interior decorating;

(b) All interior fixtures, including light fixtures and bulbs and bathroom fixtures and interior piping;

(c) Any repairs necessitated by the negligence of or use of the Premises by Tenant, its agents, employees and invitees and their use of the Premises;

(d) Maintenance and repair of the interior walls and floor coverings (both hard surfaces and carpeting);

(e) Any repairs or alterations required under Tenant’s obligation to comply with the laws and regulations as set forth in this Lease; and

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(f) All other repairs or maintenance to the Premises which Landlord is not expressly required to make under Section 8 .1 above, which includes, without limiting the generality of the foregoing, the replacement of all glass which may be broken or cracked during the Term with glass of as good or better quality than that in use at the commencement of the Term, any store front within the Premises , wiring, plumbing, drainpipes, sewers, and septic tanks including without limitation, repairs outside of the Premises if the need for the repair arises from Tenant’s use of the Premises.  All of Tenant’s work shall be in full compliance with then-current building code and other governmental requirements.  

8.3 Inspections.   

Landlord shall have the right to inspect the Premises at any reasonable time or times to determine the necessity of repair.  Whether or not such inspection is made, the duty of Landlord to make repairs as outlined above in any area in Tenant’s possession and control shall not mature until a reasonable time after Landlord has received from Tenant written notice of the necessity of repairs, except in the event emergency repairs may be required and in such event Tenant shall attempt to give Landlord appropriate notice considering the damages.  Except in the case of emergency, in which case no notice shall be required, Landlord shall provide Tenant with not less than one Business Day notice to Tenant prior to entering the Premises pursuant to this Section 8.3.

8.4 Landlord’s Work.

All repairs, replacements, alterations or other work performed on or around the Premises by Landlord shall be done in such way as to interfere as little as reasonably possible with the use of the Premises by Tenant.  Tenant shall have neither right to an abatement of Rent nor any claim against Landlord for any inconvenience or disturbance resulting from Landlord’s performance of repairs and maintenance pursuant to this Section 8.

9. LIENS; TENANT’S TAXES.   

Tenant shall keep the Premises free from all liens, arising from any act or omission of Tenant or those claiming under Tenant.  Landlord shall have the right to post and maintain on the Premises or the Building such notices of non-responsibility as are provided for under the lien laws of the state of Oregon.  Tenant shall be responsible for and shall pay when due all taxes assessed during the Term against any leasehold or personal property of any kind owned by or placed upon or about the Premises by Tenant.

10. UTILITIES.   

Tenant shall pay promptly for all water and sewer facilities, gas and electrical services, including heat and light, garbage collection, recycling, and all other facilities and utility services used by Tenant or provided to the Premises during the Term.  If the heating and air-conditioning systems are not on separate meters, Tenant shall pay its proportionate share of such charges, as reasonably determined by Landlord, within ten days after billings therefore. Tenant shall arrange for regular and prompt pickup of trash and garbage and shall store such trash and garbage in only those areas designated by Landlord.  However, if Landlord elects to arrange for garbage collection on a cooperative basis for Tenant and other tenants, Tenant shall pay its proportion share of the garbage collection charges, within ten days after billings therefor.  Tenant shall comply with any recycling programs required by any Law or reasonably required by Landlord.

11. ICE, SNOW, AND DEBRIS.  

Tenant shall keep the walks in front of the Premises, if any, free and clear of ice, snow, rubbish, debris, and obstructions.  Tenant shall save and protect the Landlord Parties from any injury whether to Landlord, to any Landlord Party or to Landlord’s property or to any other person or property caused by Tenant’s failure to perform Tenant’s obligations under this Section 11.  Tenant’s obligations under this Section 11 shall be performed at Tenant’s cost and expense.  Landlord reserves the right to cause the removal of ice, snow, debris and obstruction from the area in front of the Premises and Tenant shall pay the cost thereof within ten days after billing therefor.

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12. WAIVER OF SUBROGATION ; SPECIAL OR CONSEQUENTIAL DAMAGES .   

Neither party shall be liable to the other for any loss or damage that would be covered by any insurance policy required to be carried hereunder.  All claims or rights of recovery for any and all such loss or damage, however caused, are hereby waived.  Without limiting the generality of the foregoing, said absence of liability shall exist whether or not such loss or damage is caused by the negligence of either Landlord or Tenant or by any of their respective agents, servants or employees.  In no event shall Landlord or Tenant be liable for any special or consequential damages.

13. INJURY TO TENANT’S PROPERTY.   

Landlord shall not be liable for any injury to the goods, stock, merchandise or any other property of Tenant or to any person in or upon the Premises or the leasehold improvements in the Premises resulting from fire or collapse of the Building or any portion thereof or any other cause, including but not limited to damage by water or gas, or by reason of any electrical apparatus in or about the Premises. With the exception for Landlords gross negligence or willful misconduct.  Tenant is responsible for carrying insurance to cover the risks described in this Section.

14. DAMAGE OR DESTRUCTION.

14.1 Partial Destruction.  

If the Premises shall be partially damaged by fire or other cause, and Section 14.2 below does not apply, the damages to the Property shall be repaired by Landlord, and all Base Rent until such repair is completed shall be abated proportionately according to the part of the Premises which is un-useable by Tenant, except when such damage occurs because of the fault of Tenant in which case there shall be no abatement.  Landlord shall bear the cost of such repairs unless the damage occurred from a risk which would not be covered by a standard fire insurance policy with an endorsement for extended coverage, including sprinkler leakage, and the damage was the result of the fault of Tenant, in which event Tenant shall bear the expense of the repairs.

14.2 Substantial Damage.   

If the buildings situated on the Property or the Building or the Premises, or any of them, are 50% or more destroyed during the Term by any cause, Landlord may elect to terminate the Lease as of the date of damage or destruction by notice given to Tenant in writing no more than 45 days following the date of damage.  In such event all rights and obligations of the parties shall cease as of the date of termination.  In the absence of an election to terminate, Landlord shall proceed to restore the Premises, if damaged, to substantially the same form as prior to the damage or destruction, so as to provide Tenant useable space equivalent in the quantity and character to that which existed before the damage or destruction.  Work shall be commenced as soon as reasonably possible, and thereafter proceed with diligence, except for work stoppages on account of matters beyond the reasonable control of Landlord.  From the date of damage until the Premises are restored or repaired, Base Rent shall be abated or apportioned according to the part of the Premises useable by Tenant, unless the damage occurred because of the fault of the Tenant in which case there shall be no abatement.  Landlord shall bear the cost of such repairs unless the damage occurred from a risk which is not covered by the insurance policies carried by Landlord, and the damage was the result of the fault of Tenant, in which event Tenant shall bear the expense of the repairs.

14.3 Restoration.   

If the Premises are to be restored by Landlord as provided in this Section 14, Tenant, at its expense, shall be responsible for the repair and restoration of all items which were initially installed at the expense of Tenant (whether the work was done by Landlord or Tenant) or for which an allowance was given by Landlord to Tenant, together with Tenant’s stock in trade, trade fixtures, furnishings, and equipment; and Tenant shall commence the installation of the same promptly upon delivery to it of possession of the Premises, and Tenant shall diligently prosecute such installation to completion.

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15. EMINENT DOMAIN.

15.1 Partial Taking.  

If a portion of the Premises is condemned and neither Section 15.2 nor Section 15.3 apply, the Lease shall continue in effect.  Landlord shall be entitled to all the proceeds of condemnation, and Tenant shall have no claim against Landlord as a result of condemnation.  Landlord shall proceed as soon as reasonably possible to make such repairs and alterations to the Premises as are necessary to restore the remaining Premises to the condition as similar as reasonably practicable to that existing at the time of condemnation.  Base Rent shall be abated to the extent that the Premises are untenantable during the period of alteration and repair.  After the date on which title vests in the condemning authority, Base Rent shall be reduced commensurately with the reduction in value of the Premises as an economic unit on account of the partial taking.

15.2 Substantial taking of the Property.  

If a condemning authority takes any substantial part of the Property or any substantial part of the Building, the Lease shall, at the option of Landlord, terminate as of the date title vests in the condemning authority.  In such event all rights and obligations of the parties shall cease as of the date of termination.  Landlord shall be entitled to all of the proceeds of condemnation, and Tenant shall have no claim against Landlord as a result of the condemnation.  Tenant shall be free to make a separate claim for its moving expenses and lost trade fixtures so long as such claim does not interfere with or reduce Landlord’s claim or award.

15.3 Substantial Taking of Premises.   

If a condemning authority takes all of the Premises or a portion sufficient to render the remaining Premises reasonably unsuitable for Tenant’s use, the Lease shall terminate as of the date title vest in the condemning authority.  In such event all rights and obligations of the parties shall cease as of the date of termination.  Landlord shall be entitled to all of the proceeds of condemnation, and Tenant shall have no claim against Landlord as a result of the condemnation.

15.4 Definition.   

Sale of all or any part of the Premises to a purchaser with the power of eminent domain in the face of a threat or probability of the exercise of the power shall be treated for the purpose of this Lease as taking by condemnation.

16. BANKRUPTCY.  

Subject to Section 17, this Lease shall not be assigned or transferred voluntarily or involuntarily by operation of law.  It may, at the option of Landlord, be terminated, if Tenant be adjudged bankrupt or insolvent, or makes an assignment for the benefit of creditors, or files or is a party to the filing of a petition in bankruptcy, or in case a receiver or trustee is appointed to take charge of any of the assets of Tenant or sublessees or assignees in or on the Premises, and such receiver or trustee is not removed within 30 days after the date of his appointment, or in the event of judicial sale of the personal property in or on the Premises upon judgment against Tenant or any sublessees or assignees hereunder, unless such property or reasonable replacement therefor be installed on the Premises within ten days after such judicial sale.  To the extent permitted by law, this Lease or any sublease hereunder shall not be considered as an asset of a debtor-in-possession or an asset in bankruptcy, insolvency, receivership, or other judicial proceedings.  This Lease shall be considered a lease of real property in a multi-tenanted building within the meaning of Section 365(b)(3) of the US Bankruptcy Code.

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17. DEFAULT.   

The following shall be events of default:

17.1 Failure of Tenant to pay any Rent when due or failure of Tenant to pay any other charge required under this Lease after ten (10) days after it is due.

17.2 Failure of Tenant to execute the documents described in Section 21 or 22 within the time required under such Sections; failure of Tenant to provide or maintain the insurance required of Tenant pursuant to Section 5.3; or failure of Tenant to comply with any Laws as required pursuant to Section 6 within 24 hours after written demand by Landlord.

17.3 Failure of Tenant to comply with any term or condition or fulfill any obligation of this Lease (other than the failures described in Sections 17.1 or 17.2 above) within thirty (30) days after written notice by Landlord specifying the nature of the default with reasonable particularity.  If the default is of such nature that it cannot be completely remedied within the thirty (30) day period, this provision shall be complied with if Tenant begins correction of the default within the thirty (30) day period and thereafter proceeds with reasonable diligence and in good faith to effect the remedy as soon as practicable.  Landlord shall not be obligated to give written notice for the same type of default more than twice during the term of this Lease; at Landlord’s option, a failure to perform an obligation after the second notice shall be an automatic event of default, without notice or any opportunity to cure.

17.4 The abandonment of the Premises by Tenant or the failure of Tenant for fifteen (15) days or more to occupy the Premises for one or more of the designated purposes of this Lease unless such failures is excused under other provisions of this Lease.

17.5 The bankruptcy or insolvency of Tenant or the occurrence of other acts specified in Section 16 of this Lease which give Landlord the option to terminate.

18. REMEDIES ON DEFAULT.  

In the event of a default, Landlord may, at Landlord’s option, exercise any one or more of the rights and remedies available to a landlord in the state of Oregon to redress such default, consecutively or concurrently, including the following:

18.1 Landlord may elect to terminate Tenant’s right to possession of the Premises or any portion thereof by written notice to Tenant.  Following such notice, Landlord may re-enter, take possession of the Premises and remove any persons by legal action or by self-help with the use of reasonable force and without liability for damages.  

18.2 Following re-entry by Landlord, Landlord may relet the Premises for a term longer or shorter than the Term and upon any reasonable terms, including the granting of rent concessions to the new tenant.  Landlord may alter; refurbish or otherwise changes the character or use of the Premises in connection with such reletting.  Landlord shall not be required to relet for any use or purpose, which Landlord may reasonably consider injurious to its property or to any tenant, which Landlord may reasonably consider objectionable.  No such reletting by Landlord following a default by Tenant shall be construed as an acceptance of the surrender of the Premises.  If rent received upon such reletting exceeds the Rent owed under this Lease, Tenant shall have no claim to the excess.

18.3 Following re-entry Landlord shall have the right to recover from Tenant the following damages;

(a) All unpaid rent or other charges for the period prior to re-entry, plus interest at a rate equal to the lesser of:  (i) five percentage points in excess of the discount rate, including any surcharge on the discount rate, on 90-day commercial paper declared by the Federal Reserve Bank in the Federal Reserve district in which Bend, Oregon is located on the date the charge was due (the “Interest Rate”); or (ii) the maximum rate allowed by law.

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(b) An amount equal to the Rent lost during any period during which the Premises are not relet, if Landlord uses reasonable efforts to relet the Premises.  If Landlord lists the Premises with a real estate broker experienced in leasing commercial property in Central Oregon , such listing shall constitute the taking of reasonable efforts to relet the Premises.

(c) All costs incurred in reletting or attempting to relet the Premises, including but without limitation, the cost of cleanup and repair in preparation for a new tenant, the cost of correcting any defaults or restoring any unauthorized alterations, the cost of any tenant improvements necessary for a new tenants, and the amount of any real estate commissions or advertising expenses.

(d) The difference between the Rent reserved under this Lease and the amount actually received by Landlord after reletting, as such amounts accrue.

(e) Reasonable attorney’s fees incurred in connection with the default, whether or not any litigation is commenced.

18.4 Landlord may sue periodically to recover damages as they accrue throughout the Term and no action for accrued damages shall be a bar to a later action for damages subsequently accruing.  To avoid a multiplicity of actions, Landlord may obtain a decree of specific performance requiring Tenant to pay the damages stated in Section 18.3 above as they accrue.  Alternatively, Landlord may elect in any one action to recover accrued damages plus damages attributable to the remaining Term equal to the difference between the Rent under this Lease and the reasonable rental value of the Premises for the remainder of the Term.

18.5 In the event that Tenant remains in possession following default and Landlord does not elect to re-enter, Landlord may recover all back Rent and other charges, and shall have the right to cure any nonmonetary default and recover the cost of such cure from Tenant, plus interest from the date of expenditure at the Interest Rate.  In addition, Landlord shall be entitled to recover attorney’s fees reasonably incurred in connection with the default, whether or not litigation is commenced.  Landlord may sue to recover such amounts as they accrue, and no one action for accrued damages shall bar a later action for damages subsequently accruing.

18.6 The foregoing remedies shall not be exclusive but shall be in addition to other remedies and rights provided under applicable law, and no election to pursue one remedy shall preclude resort to another remedy.

19. SURRENDER AT EXPIRATION.  

19.1 Condition of Premises.

Upon expiration of the Term or earlier termination Tenant shall deliver all keys to Landlord and surrender the Premises broom clean and in substantially the same condition as existed at the commencement of the Lease, ordinary wear and tear excepted; provided, however, improvements and alterations constructed by Tenant shall not be removed or restored to the original condition unless the terms of Landlord’s consent provides otherwise or unless Landlord requests Tenant to remove all or any of such improvements or alterations, in which event Tenant shall remove the same and restore the Premises.  Depreciation and wear from ordinary use for the purpose for which the Premises were let need not be restored, but all repairs for which Tenant is responsible shall be completed to the latest practical date prior to such surrender.  Tenant’s obligations under this Section 19 shall be subject to the provisions of Section 14 relating to damages or destruction.

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19.2 Fixtures.

(a) All fixtures placed upon the Premises during the Term, other than Tenant’s trade fixtures, shall, at Landlord option, become the property of the Landlord.  Movable furniture, decorations, floor covering other than hard surface bonded or adhesively fixed flooring, curtains, drapes, blinds, furnishing and trade fixtures shall remain the property of Tenant if placed on the Premises by Tenant; provided, however, if Landlord granted Tenant an allowance for improvements, installation, floor coverings, curtains, drapes, blinds or other items, such items shall at Landlord’s option become the property of Landlord notwithstanding the installation thereof by Tenant.

(b) If Landlord so elects, Tenant shall remove any or all fixtures, which would otherwise remain the property of Landlord, and shall repair any physical damage resulting from the removal.  If Tenant fails to remove such fixtures, Landlord may do so and charge the cost to Tenant with interest at the Interest Rate.  Tenant shall remove all furnishings, furniture, and furniture and trade fixtures, which remain the property of Tenant.  If Tenant fails to do so, this shall be an abandonment of the property, and Landlord may retain the property and all rights of Tenant with respect to it shall cease.  Landlord may effect a removal and place the property in public or private storage for Tenant’s account.  Tenant shall be liable to Landlord for the cost of removal, and transportation to storage, with interest on all such expenses from the date of expenditure at the Interest Rate.

(c) The time for removal of any property or fixtures which Tenant is required to remove from the Premises upon termination shall be as follows:

(1) On or before the date the Lease terminates because of expiration of the Term or because of a default under Section 18; or

(2) Within 30 days after notice from Landlord requiring such removal where the property to be removed is a fixture which Tenant is not required to remove except after such notice by Landlord, and such date would fall after the date on which Tenant would be required to remove other property.

19.3 Holdover.   

If Tenant does not vacate the Premises at the time required, Landlord shall have the option to treat Tenant as a tenant from month-to-month, subject to all of the provisions of this Lease except the provision for the Term, and except the Base Rent provided herein shall increase 125% during the period of the month-to-month tenancy.  Failure of Tenant to remove fixtures, furniture, furnishings or trade fixtures which Tenant is required to remove under this Lease shall constitute a failure to vacate to which this Section 19.3 shall apply if the property not removed will interfere with occupancy of the Premises by another tenant or with occupancy by Landlord for any purpose including preparation for a new tenant.

20. ASSIGNMENT AND SUBLETTING.

20.1 Landlord’s Consent.   

Tenant shall not, either voluntarily or by operation of law, sell, assign or transfer this Lease or sublet the Premises or any part thereof, or assign any right to use the Premises or any part thereof (each a “Transfer”) without the prior written consent of Landlord, which consent shall not be unreasonably withheld, and any attempt to do so without such prior written consent shall be void and at Landlord’s option, shall terminate this Lease.  If Tenant requests Landlord’s consent to any Transfer, Tenant shall promptly provide Landlord with a copy of the proposed agreement between Tenant and its proposed transferee and with all such other information concerning the business and financial affairs of such proposed transferee as Landlord may request.  Landlord may withhold such consent unless the proposed transferee (i) is satisfactory to Landlord as to credit, managerial experience, net worth, character and business or professional standing; (ii) is a person or entity whose possession of the Premises would not be inconsistent with Landlord’s commitments with other tenants or with the mix of uses Landlord desires at the Property; (iii) will occupy the Premises solely for the use authorized under this Lease; (iv) expressly assumes and agrees in writing to be bound by and directly responsible for all of Tenant’s obligations

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hereunder ; and (v) will conduct a business which does not adversely impact the use of the Property’s common areas.  Landlord’s consent to any such Transfer shall in no event release Tenant from its liabilities hereunder nor relieve Tenant from the requirement of obtaining Landlord’s prior written consent to any further Transfer.  Landlord’s acceptance of rent from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or consent to any Transfer.

20.2 Payment to Landlord and Termination of Lease

(a) Landlord may, as a condition to its consideration of any request for consent to a proposed Transfer, impose a fee to cover Landlord’s administrative and legal expenses in connection therewith.  Such fee shall (i) be payable by Tenant upon demand, (ii) include all legal fees incurred by Landlord, and (iii) be retained by Landlord regardless of whether such consent is granted.

(b) If any such proposed Transfer provides for the payment of, or if Tenant otherwise receives, rent or other consideration for such Transfer which is in excess of the Rent and all other amounts which Tenant is required to pay under this Lease (regardless of whether such excess is payable on a lump sum basis or over a term), then in the event Landlord grants its consent to such Proposed Transfer, Tenant shall pay Landlord the amount of such excess as it is received by Tenant.  Any violations of this paragraph shall be deemed a material and non-curable breach of this Lease.

(c) If Tenant is a corporation, an unincorporated association, a partnership, a limited partnership, or a limited liability company, the transfer, assignment or hypothecation of any stock or interest in such entity in the aggregate in excess of twenty-five percent of the total prior to such event shall be deemed a Transfer of this Lease within the meaning and provision of this Section 20.

21. SUBORDINATION.   

Tenant’s interest hereunder shall be subject and subordinate to all mortgages, trust deeds, and other financing and security instruments placed on the Premises by Landlord from time to time (“Mortgages”) except that no assignment or transfer of Landlord’s rights hereunder to a lending institution as collateral security in connection with a mortgage shall affect Tenant’s right to possession, use and occupancy of the Premises so long as Tenant shall not be in default under any of the terms and conditions of this Lease.  The provisions of this Section 21 shall be self-operating.  Nevertheless, Tenant agrees to execute, acknowledge and deliver to Landlord within ten days after Landlord’s written request, an instrument in recordable form which expressly subordinates Tenant’s interest hereunder to the interests of the holder of any Mortgage, and which includes any other reasonable provisions requested by the holder or prospective holder of any Mortgage.  At Landlord’s request, Tenant shall furnish Landlord current balance sheets, operating statements, and other financial statements, in the form as reasonably requested by Landlord or by the holder or prospective holder of any Mortgage, certified by Tenant as accurate and current.  Tenant agrees to sign an authorization for Landlord to conduct a check of Tenant’s credit as requested by Landlord from time to time.

22. ESTOPPEL CERTIFICATE.  

Tenant shall from time to time, upon not less than 20 days prior notice, submit to Landlord, or to any person designated by Landlord, a statement in writing, in the form submitted to Tenant by Landlord, certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, identifying the same by the date thereof and specifying the nature thereof) that to the knowledge of Tenant no uncured default exists hereunder (or if such uncured default does exist, specifying the same), the dates to which the Rent and other sums and charges payable hereunder have been paid, that Tenant has no claims against Landlord and no defenses or offsets to rental except for the continuing obligations under this Lease (or if Tenant has any such claims, defenses or offsets, specifying the same), and any other information concerning this Lease as Landlord reasonably requests.  A failure of Tenant to timely respond to such request shall constitute a default hereunder and shall constitute Tenant’s agreement with Landlord’s determination as to the matters described in this Section 22.

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23. PERFORMANCE BY LANDLORD and Tenant .

Landlord or Tenant shall not be deemed in default for the nonperformance or for any interruption or delay in performance of any of the terms, covenants and conditions of this Lease if the same shall be due to any labor dispute, strike, lockout, civil commotion or like operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain labor, services or materials, through acts of God, or other cause beyond the reasonable control of Landlord or Tenant, providing such cause is not due to the willful act or neglect of Landlord or Tenant.

24. LANDLORD’S RIGHT TO CURE DEFAULT.   

If Tenant shall fail to perform any of the covenants or obligations to be performed by Tenant, Landlord, in addition to all other remedies provided herein, shall have the option (but not the obligation) to cure such failure to perform after ten days’ written notice to Tenant (except in the case of emergency, in which case, no notice shall be required).  All of Landlord’s expenditures incurred to correct the failure to perform shall be reimbursed by Tenant upon demand with interest from the date of expenditure at the Interest Rate.  Landlord’s right to cure Tenant’s failure to perform is for the sole protection of Landlord and the existence of this right shall not release Tenant from the obligation to perform all of the covenants herein provided to be performed by Tenant, or deprive Landlord of any other right which Landlord may have by reason of default of this Lease by Tenant.

25. INSPECTION.  

Landlord, Landlord’s agents and representatives, shall have the right to enter upon the Premises at any time in the event of emergency and, in other events, at reasonable times after giving  prior 48 hour verbal notice (in person, not voicemail), followed by written notice for the purpose of inspecting the same, for the purpose of making repairs or improvements to the Premises or the Building, for showing the Premises during the final ninety (90) days of the Term, or for any other lawful purpose.

26. FOR SALE AND RENT SIGNS.  

During the period of ninety (90) days prior to the date for the termination of this Lease, Landlord may post on the Premises or in the Windows thereof signs of moderate size notifying the public that the Premises are “for sale” or “for rent” or “for lease”.

27. ATTORNEY’S FEES.   

In the event a suit, action, arbitration, or other proceeding of any nature whatsoever, including without limitation any proceeding under the U.S. Bankruptcy Code, is instituted, or the services of an attorney are retained, to interpret or enforce any provision of this Lease or with respect to any dispute relating to this Lease, the prevailing or non-defaulting party shall be entitled to recover from the losing or defaulting party its attorneys’, paralegals’, accountants’, and other experts’ fees and all other fees, costs, and expenses actually incurred and reasonably necessary in connection therewith.  In the event of suit, action, arbitration, or other proceeding, the amount thereof shall be determined by the judge or arbitrator, shall include fees and expenses incurred on any appeal or review, and shall be in addition to all other amounts provided by law.

28. NOTICES.   

Any notice required or permitted under this Lease shall be in writing and shall be deemed given when actually delivered or two (2) days after being deposited in the United States mail as certified or registered mail, addressed to the addresses set forth on the last page of this Lease or to such other addresses as may be specified from time to time by either of the parties in the manner above provided for the giving of notice.

18 | 1000 WALL LEASE AGREEMENT


 

29. BROKERS.   

Tenant covenants, warrants and represents that it has not engaged any broker, agent or finder who would be entitled to any commission or fee in connection with the negotiation and execution of this Lease except as set forth in the Summary of Basic Lease Terms attached hereto.  Tenant agrees to indemnify and hold harmless Landlord against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including attorneys’ fees and expenses, arising out of any charge or claim for a commission or fee by any broker, agent or finder on the basis of any agreements made or alleged to have been made by or on behalf of Tenant except for brokers listed on the Summary of Basic Lease Terms.  The provisions of this Section 29 shall not apply to any brokers with whom Landlord has an express written brokerage agreement.  Landlord shall be responsible for payment of any such brokers.

30. LATE CHARGES.

Tenant acknowledges that late payment by Tenant to Landlord of any Rent or other charge due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain.  Such costs may include, without limitation, processing and accounting charges and late charges, which may be imposed, on Landlord under the terms of any Mortgage.  Accordingly, if any Rent or other charge is not received by Landlord within ten (10) days after it is due; Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount.  The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs incurred by Landlord by reason of the late payment by Tenant.  Acceptance of any late charge by Landlord shall in no event constitute a waiver of Tenant’s default with respect to the overdue amount in question, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder.

31. NO PERSONAL LIABILITY.   

The liability of Landlord to Tenant for any default by Landlord under the terms of this Lease shall be limited to the interest of Landlord in the Building and the Property, and Landlord shall not be personally liable for any deficiency.  This clause shall not be deemed to limit or deny any remedies which Tenant may have in the event of default by Landlord under this Lease which does not involve the personal liability of Landlord.

32. MISCELLANEOUS PROVISIONS.  

32.1 This Lease does not grant any rights of access to light or air over any part of the Property.  Time is of the essence of this Lease.  

32.2 The acceptance by Landlord of any Rent or other benefits under this Lease shall not constitute a waiver of any default.  Any waiver by Landlord of the strict performance of any of the provisions of this Lease shall not be deemed to be a waiver of subsequent breaches of the same character or of a different character, occurring either before or subsequent to such waiver, and shall not prejudice Landlord’s right to require strict performance of the same provision in the future or of any other provision of this Lease.

32.3 This Lease contains the entire agreement of the parties.  

32.4 The parties acknowledge and agree that any calculations of square footage in the Premises and on the Property are approximations.  

32.5 No recalculation of square footage shall affect the obligations of Tenant under this Lease including without limitation the amount of base Rent or other Rent payable by Tenant under this Lease.  

32.6 This Lease shall not be amended or modified except by agreement in writing, signed by the parties hereto.  

19 | 1000 WALL LEASE AGREEMENT


 

32.7 Subject to the limitations on the assignment or transfer of Tenant’s interest in this Lease, this Lease shall be binding upon and inure to the benefit of the parties, their respective heirs, personal representatives, successors, and assigns.   

32.8 No remedy herein conferred upon or reserved to Landlord or Tenant shall be exclusive of any other remedy herein provided or provided by law, but each remedy shall be cumulative.

32.9 In interpreting or construing this Lease, it is understood that Tenant may be more than one person, that if the context so requires, the singular pronoun shall be taken to mean and include the plural, and that generally all grammatical changes shall be made, assumed, and implied to make the provisions hereof apply equally to corporations, partnerships, and individuals.  

32.10 Section headings are for convenience and shall not affect any of the provisions of this Lease.

32.11 If any provision of this Lease or the applications thereof to any person or circumstance is, at any time or to any extent, held to be invalid or unenforceable, the remainder of this Lease, or the applications of such provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law.  

32.12 All agreements (including, but not limited to, indemnification agreements) set forth in this Lease, the full performance of which is not required prior to the expiration or earlier termination of this Lease, shall survive the expiration or earlier termination of this Lease and be fully enforceable thereafter.  

33. EXHIBITS.

The following Exhibits are attached hereto and incorporated as a part of this Lease:

 

 

Exhibit A

Premises

 

Exhibit B

Tenant Improvements

 

Exhibit C

Rules and Regulations

 

Exhibit D

Tenant’s Options

 

Exhibit E

Brokers

 

Exhibit F

Guaranty

 

Addendum A

Sustainability Addendum

 

IN WITNESS WHEREOF, this Lease may be executed in counterparts, each of which will be deemed an original, but all of which will constitute a single agreement.  Facsimile, scanned and emailed or electronic signatures will be treated as original signatures.  At the request of any party, an originally executed document will be mailed following the sending of any facsimile or scanned and emailed version.

 

 

 

LANDLORD:

 

 

 

TENANT:

 

 

 

 

 

 

 

 

 

Eastern Western Corp.

 

 

 

Acer Therapeutics Inc.

 

 

an Corporation

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Michael McGinley

 

By:

 

/s/ Chris Shelling

Name:

 

Michael E McGinley

 

Name:

 

Chris Schelling

Title:

 

President

 

Title:

 

CEO & Founder

Date:

 

3/29/2018

 

Date:

 

4/2/2018 6:21 AM PDT

 

 

20 | 1000 WALL LEASE AGREEMENT


 

EXHIBIT A
Premise

21 | 1000 WALL LEASE AGREEMENT


 

EXHIBIT C

Rules and Regulations

1. As used in these Rules and Regulations, "Tenant" means Tenant and all of its officers, owners, employees, agents, customers and invitees.

2. Sidewalks, halls, passages, exits, entrances, shall not be obstructed by Tenant or used by Tenant for any purpose other than access to and from the Premises.  

3. Tenant shall not go on the roof of any part of the building.  

4. No awning, canopy, or other projection of any kind, and no sign, poster, light or other material shall be installed on, over or around the windows and only such window coverings as are approved by Landlord shall be used in the Premises.

5. The Premises shall not be used for lodging or sleeping.  Unless specifically authorized in Tenant's lease, no cooking shall be done or permitted by Tenant on the Premises, except the preparation of coffee, tea, and similar items for Tenant and its employees, and use of a microwave oven.

6. Landlord will furnish Tenant with 2 sets of keys and access cards for the Building, elevators and Premises. There shall be a reasonable charge for additional keys and access cards, including a charge for replacements of lost keys.  No additional locking devices shall be installed on the Premises without the prior written consent of Landlord, and Tenant shall furnish Landlord with a key or access card for any such additional locking device. Tenant, upon termination of its tenancy, shall return to Landlord all keys and access cards.  Tenant will pay all reasonable charges imposed by Landlord for changing any locks or codes if necessitated by loss of keys or access cards.

7. Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline, or other flammable or combustible fluid or materials or use any method of heating or air conditioning other than that supplied or approved in writing by Landlord.

8. In case of invasion, mob, riot, public excitement, or other circumstances rendering such action advisable in Landlord's opinion, Landlord reserves the right to prevent access to the Building by such action as Landlord may deem appropriate, including closing entrances to the Building; provided, however, that Landlord shall not be permitted to prevent access to the Building due to a labor disturbance.

9. All perimeter doors to the Building shall remain closed and securely locked at all times after regular Building hours.  The doors of the Premises shall remain closed and securely locked at such time as Tenant's employees leave the Premises, after regular Building hours.

10. The toilet rooms, toilets, urinals, wash bowls, and other apparatus in the Premises and the Building shall not be used for any purpose other than that for which they are intended.  No foreign substance of any kind shall be deposited therein, and any damage resulting from Tenant's misuse shall be paid for by Tenant.  Tenant may administer supervised urinalysis on a periodic basis in the toilet rooms and Tenant shall immediately clean the toilet room when necessary.  Landlord may clean the toilet room at Tenant's expense if necessary.

11. Except with the prior written consent of Landlord, the Premises shall not be used for manufacturing of any kind, or for any business or other activity other than that specifically permitted under Tenant's lease.

12. Tenant shall not install any radio, television, or similar antenna or aerial, nor any loudspeaker or other device, on the roof, exterior walls, or grounds of the Building without obtaining prior written consent from Landlord.

22 | 1000 WALL LEASE AGREEMENT


 

13. Tenant shall not use in the Premises or the Building any hand-truck not equipped with rubber tires and side guards, nor any other material-handling equipment not approved in writing by Landlord.  No vehicles of any kind shall be brought by Tenant into the Premises without Landlord's approval.

14. Tenant shall store its trash, garbage, and recycling within the Premises until removal as may be designated from time to time by Landlord.  No material shall be placed in the Building trash boxes or receptacles if such material may not be disposed of in the ordinary and customary manner in the Bend, Oregon metropolitan area without being in violation of any law or ordinance governing such disposal.  Tenant will participate in recycling programs instituted by Landlord from time to time.

15. All loading and unloading of merchandise, supplies, materials, garbage and refuse and delivery or removal of the same to or from the Premises shall be made only through such entryways and at such time as Landlord may designate.  Landlord shall be given prior notice of Tenant's intent to move any furniture, equipment or any heavy or bulky items into or from the Building.  Such moving shall be scheduled only with Landlord's consent and shall be subject to supervision by the Building manager.  Protective covers shall be used in elevator cabs when used for moving equipment or furniture.  Tenant shall be responsible for all damage to the Building resulting from moving activities.

16. Canvassing, soliciting, peddling, and distributing of handbills or other written material in the Building is prohibited, and Tenant shall cooperate to prevent same.

17. Tenant shall not permit the use or the operation of any vending or amusement machines on the Premises, including without limitation vending machines, video games, pinball machines, or pay telephones, without the prior written consent of Landlord.  However, Tenant shall be permitted to install inside its Premises snack and beverage vending machines for the use of Tenant's employees and invitees.

18. Landlord may direct the use of pest extermination at such intervals as Landlord may determine.

19. Tenant shall, immediately upon request from Landlord (which request need not be in writing), reduce its lighting in the Premises for temporary periods designated by Landlord, when required in Landlord's judgment to prevent overloads of the mechanical or electrical systems of the Building; provided, however, that Tenant shall not be required to reduce its lighting if such reduction would materially interfere with Tenant's use of the Premises for its business.

20. Employees of Landlord shall not perform any work for or on behalf of Tenant or do anything outside of their regular duties unless under special instructions from Landlord.

21. Smoking is prohibited in all areas of the Building and within fifteen (15) feet of all entrances/exits.

22. Tenant must provide, at its own expense, protection to the carpets from chair wheels or other abnormal wear, tear, or staining.  Tenant shall be responsible for replacing carpet where damage has occurred due to lack of such protection.  Tenant shall be responsible for heavy stain removal and periodic shampooing of carpet.  It is recommended that carpets be shampooed at least annually.

23. If Tenant elects to install a monitored security system within its Premises, neither the Landlord nor its contractors shall be held responsible for setting off the alarm mistakenly, or for any fines which may be levied.

24. The normal Building hours are from 7:00 AM to 6:00 PM Monday through Friday, except holidays.  Building holidays are New Year's Day; President's Day; Easter; Memorial Day; Independence Day; Labor Day; Thanksgiving and Christmas.

23 | 1000 WALL LEASE AGREEMENT


 

25. No pets shall be allowed in the Premises.

26. Tenant shall not annoy, obstruct or interfere with the rights of other tenants of the Building.  Tenant shall create no nuisance nor allow any objectionable fumes, noise or vibrations to be emitted from the Premises.  Tenant shall not conduct any activities that will in any manner degrade or damage the reputation of the Building.

27. During times other than normal Building hours, Tenant's employees, customers and invitees may be required to show identification in order to gain access to the Building.  Landlord may refuse access to the Building to anyone Landlord believes to be a threat to the Building or to the safety or its occupants.  Landlord shall have no liability for refusing access to any person.

28. Tenant shall comply with all fire, evacuation, and life safety plans and rules adopted by Landlord.

29. When using the Common Areas, Tenant and its employees, customers and invitees will behave in a manner appropriate for an office building, will observe common courtesies, will clean up their trash, and will refrain from behavior (including making noise) which disturbs tenants in adjacent areas.

30. Landlord may waive any one or more of these Rules and Regulations in favor of a particular Tenant or Tenants, but no such waiver by Landlord shall be construed as a waiver of these Rules and Regulations in favor of any other tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all tenants of the Building.

31. These Rules and Regulations are in addition to, and shall not be construed in any way to modify, alter or amend, the conditions of Tenant's Lease.  In the event of a conflict between these Rules and Regulation and Tenant's Lease, the Lease shall govern.  

Landlord reserves the right to amend these Rules and Regulations and to make such other reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care, and cleanliness of the Building and for the preservation of good order therein; provided, however that any such amendments or additions shall not modify, alter, or amend, in the whole or part, the terms, covenants, agreements, and conditions of Tenant's Lease.

32. Fratzke Commercial Real Estate Advisors, Inc., acted as a scrivener for this lease and provide no legal advice to either Tenant or Landlord.

 

 

24 | 1000 WALL LEASE AGREEMENT


 

EXHIBIT D

Tenant's Options

OPTIONS TO EXTEND LEASE.   

1. Subject to and upon the terms and conditions set forth below, Tenant will have options to extend the term of this Lease for up to two ( 2) additional period of three (3) years.    Tenant will also have a right of first refusal to lease Suite 202 also known as 210.

2. Each of Tenant's options to extend must be exercised by written notice to Landlord no less than 180 days prior (a) to the end of initial term (in the case of the first option) or (b)  the end of the then-current extension term.  

3. If Tenant has more than one option to renew, no option may be exercised for an extension unless any and all prior options have been exercised.

4. Tenant shall not be permitted to extend the term of this Lease pursuant to any of Tenant's options, and no extension will be effective, if:

a. Any Rent which is then due has not been paid as of the date of exercise of any option or as of the date the extended term is to begin; or

b. There exists any Event of Default by Tenant as of the date of exercise of any option or as of the date the extended term is to begin.  

5. Tenant's options are personal to Tenant and cannot be exercised by any successor, assignee or sublessee without the prior written consent of Landlord, which consent may be granted or withheld in Landlord's sole and unfettered discretion. Provided however that Tenant shall be permitted to assign the Lease to an affiliate or a permitted transferee.

6. Effective as of the date each extension term begins, the Base Rent provided for in this Lease will be adjusted to the then-current market rent for the Premises; provided, however, in no event will any such adjustment result in a reduction of the Base Rent.  If Landlord and Tenant cannot agree upon the amount of the adjusted Base Rent within 30 days after Tenant's notice of exercise of an option to extend, the issue will be submitted to a qualified, independent real estate appraiser (the "Appraiser") in the Bend, Oregon area for a final and binding determination.  Landlord will designate by written notice to Tenant three qualified, independent real estate appraisers to make the market rate determination.  Within ten (10) days of receipt of Landlord’s list, Tenant will choose one of the appraisers from such list to be the Appraiser and will give Landlord written notice of its selection.  If Tenant fails to timely select an Appraiser, Landlord may choose any one of the three included on the list.  Each of the parties will have 30 days after the effective date of Tenant's notice of selection, or Landlord’s selection if Tenant fails to timely elect, to submit its initial materials to the Appraiser.  Landlord and Tenant shall each provide copies to the other of the materials submitted to the Appraiser.  Each party will submit any response to the other party's materials within ten days after the effective date of transmission, and will provide the other with a copy of such materials also.  The Appraiser will notify Landlord and Tenant of his or her determination in writing. The costs of the Appraiser will be split between the parties.

25 | 1000 WALL LEASE AGREEMENT


 

EXHIBIT E

Brokers

 

 

 

A.

Landlord's Broker:

 

Name: Nick Vaughn

Company: Fratzke Commercial

Email:Nick@fratcommercial.com

Phone:541-610-8202

Fax:

Address:963 SW Simpson #220, Bend, OR 97701

 

 

B.

Tenant's Broker:

 

Name: Brian Fratzke

Company: Fratzke Commercial

Email: Brian@fratcommercial.com

Phone:541-306-4948

Fax:

Address: 963 SW Simpson #220, Bend, OR 97701

 

 

26 | 1000 WALL LEASE AGREEMENT


 

ADDENDUM A

Sustainability Addendum

1002 NW WALL STREET LLC, an Oregon limited liability company (“Landlord”) and Bounce USA LLC and Natural High Co Pty Ltd (“Tenant”) are parties to a lease agreement dated January 27 th , 2015 (the “Lease”) to which this Sustainability Addendum (this “Addendum”) is attached.   

In order to reflect the interests of Landlord and Tenant in promoting environmental sustainability, and to establish their respective and continuing commitments to perform in accordance therewith (the “Sustainability Practices”), Landlord and Tenant hereby agree to be bound by the terms and conditions set forth in this Addendum.  Capitalized terms used in this Addendum and not otherwise defined shall have the meaning ascribed to such terms in the Lease.

1. EFFECT OF ADDENDUM. This Addendum modifies the Lease to which this Addendum is attached, and the terms hereof are incorporated into the Lease as if fully set forth therein.  In the event of an inconsistency between any term or condition contained in this Addendum and the Lease, the terms and conditions contained in this Addendum shall control.  

2. SUSTAINABILITY PRACTICES.   Landlord and Tenant are subject to the following Sustainability Practices applicable to the Premises:

 

 

Sustainability analysis with local utility providers of available credits and programs.

 

Pursuit of sustainability credits and governmental programs.

 

Energy-efficient lighting.

Low-flow toilet fixtures.

 

Occupant-sensor water faucets.

Bicycle parking.

 

Environmentally-friendly cleaning products.

Recycling program.

 

3. MAINTENANCE; REPAIRS; ALTERATIONS.   In addition to any obligations set forth in the Lease:  (a) Landlord and Tenant agree that all maintenance and repairs performed by either party shall be consistent with the above Sustainability Practices; (b) all alterations, additions, and improvements by either Landlord or Tenant (collectively, “Alterations”) shall also comply with the Sustainability Practices including, without limitation, the use of low- or no‑VOC paints, solvents and adhesives, recycling practices and other commercially reasonable “green” construction standards; and (c) all maintenance, repairs, and Alterations shall be performed in accordance with any applicable LEED Ò , Energy Star Ò , or other sustainability certification that affects the Building, Center and/or Common Areas.  Copies of the sustainability certifications referenced in the preceding subsection (c) shall be made available to Tenant upon request.  No Alterations shall be performed by Tenant without Landlord’s prior written consent.  Further, any Alterations to the Premises installed by Tenant that Landlord requires Tenant to remove upon termination of the Lease shall be removed and disposed of in an environmentally sustainable manner so long as such removal can be accomplished at a commercially reasonable cost.

4. OPERATING EXPENSES.   In addition to the Operating Expenses described in the Lease, “Operating Expenses” shall also include all expenses paid or incurred by Landlord (or on Landlord’s behalf) as reasonably determined by Landlord to be necessary or appropriate for the implementation of sustainable practices (including the Sustainability Practices) in the operation of the Premises, Building, Center and Common Areas including, without limitation, modifications required to:  (a) reduce the use of energy, or to create onsite energy sources; (b) reduce the use of fresh water; (c) reuse storm water; (d) promote sustainable methods of transportation; (e) purchase energy manufactured from “green” or renewable sources for onsite consumption; and (f) other modifications required to achieve or maintain any applicable LEED Ò , Energy Star Ò , or other sustainability certification.  If the Operating Expenses described above (the “Sustainable Operating Expenses”) do no fall within the definition of Operating Expenses set forth in the Lease, Tenant’s obligation to pay Tenant’s proportionate share of Sustainable Operating Expenses shall be limited to the following:  (i) for Sustainable Operating Expenses that constitute capital improvements, Tenant shall only be obligated to pay Tenant’s proportionate share of the amount which is the lesser of the savings reasonably calculated by Landlord to be achieve by such

27 | 1000 WALL LEASE AGREEMENT


 

capital improvement or the total cost of the capital improvement amortized over the useful life of the improvement or otherwise in accordance with generally accepted accounting principles uniformly applied; and (ii) for Sustainable Operating Expenses that do not constitute capital improvements, Tenant’s proportionate share in any Operating Year shall not exceed five (5%) percent of Minimum Rent payable during such Operating Year. Provided however that T enant shall only be responsible for LEED and sustainability measure costs if such measures are cost-saving or cost-neutral , as evidenced in Landlord’s actual operating expense statements.

5. ASSIGNMENT; SUBLETTING.   Notwithstanding anything to the contrary contained in the Lease, Landlord shall have no obligation to approve any assignment or sublease in which the proposed use of the Premises will be contrary to the sustainability goals and provisions in this Addendum.  In addition to any and all other obligations in the Lease relating to assignment or subletting, Landlord’s consent to any proposed assignment or sublease is expressly conditioned on the proposed assignee or sublessee assuming, in writing, all of Tenant’s obligations in this Addendum.  

6. BREACH; REMEDIES.   In addition to the remedies provided in the Lease, upon a breach by either party of any of the terms of this Addendum, such party agrees to indemnify, defend, protect, and hold harmless the other, its managing agent, and its agents, employees, successors, and assigns, from any and all claims, judgments, damages, penalties, fines, costs, liabilities, and losses that arise during or after the term directly or indirectly such breach, including, without limitation, the loss of any environmental certification and tax credits.  The foregoing indemnity further includes, without limitation, all loss, cost, and expense of removing, remediating (regardless of the method of remediation employed), and disposing (in a manner complying with the Sustainability Practices) of materials and/or Alterations located at the Premises that are in violation of the terms of this Addendum and/or the Sustainability Practices.  The indemnification provisions of this Section 6 shall survive any termination of this Addendum or the Lease.

7. RULES AND REGULATIONS.   Landlord and Tenant agree that Landlord may amend the rules and regulations applicable to the Premises as frequently and as necessary to implement and maintain the sustainability goals and provisions in this Addendum.

 

28 | 1000 WALL LEASE AGREEMENT

 

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Chris Schelling, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Acer Therapeutics Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 14, 2018 

 

By:

 

/s/ Chris Schelling        

 

 

 

 

Chris Schelling        

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Harry Palmin, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Acer Therapeutics Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 14, 2018 

 

By:

 

/s/ Harry Palmin        

 

 

 

 

Harry Palmin        

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

 

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Acer Therapeutics Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2018 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Chris Schelling, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 14, 2018  

 

By:

 

/s/ Chris Schelling 

 

 

 

 

Chris Schelling 

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Acer Therapeutics Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2018 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Harry Palmin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 14, 2018  

 

By:

 

/s/ Harry Palmin

 

 

 

 

Harry Palmin

Chief Financial Officer

(Principal Financial and Accounting Officer)