As filed with the Securities and Exchange Commission on January 9, 2018.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Evolus, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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2834
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46-1385614
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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_____________________________
17901 Von Karman Avenue, Suite 150
Irvine, California 92614
(949) 284-4555
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
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Murthy Simhambhatla, Ph.D.
Chief Executive Officer
Evolus, Inc.
17901 Von Karman Avenue, Suite 150
Irvine, California 92614
(949) 284-4555
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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Copies to:
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Michael A. Hedge
Alexa M. Ekman
K&L Gates LLP
1 Park Plaza, Twelfth Floor
Irvine, California 92614
(949) 253-0900
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Jeffrey J. Plumer
Vice President, Legal
Evolus, Inc.
17901 Von Karman Avenue, Suite 150
Irvine, California 92614
(949) 284-4555
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Michael J. Zeidel
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
(212) 735-3000
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
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If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒ (Do not check if a smaller reporting company)
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Smaller reporting company
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☐
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Emerging Growth Company
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☒
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Proposed Maximum Aggregate Offering Price
(1)
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Amount of
Registration Fee
(2)
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Common Stock, $0.00001 par value per share
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$75,000,000
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$9,337.50
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(1)
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Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes the offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any.
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(2)
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Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 2018
PRELIMINARY PROSPECTUS
Shares
Evolus, Inc.
Common Stock
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We are offering shares of our common stock. This is our initial public offering and no public market currently exists for our common stock. We expect the initial public offering price to be between $ and $ per share. We have applied to list our common stock on the Nasdaq Global Market, or Nasdaq, under the symbol “EOLS.”
Upon completion of this offering, our parent company, ALPHAEON Corporation, or ALPHAEON, will own shares of our outstanding common stock, representing approximately % of the total voting power of our outstanding common stock (or approximately % of the total voting power of our outstanding common stock, if the underwriters exercise in full their option to purchase additional shares of our common stock in this offering). As a result of ALPHAEON’s ownership of our common stock following this offering, we will be a “controlled company” under the listing requirements of Nasdaq, or the Nasdaq Marketplace Rules, and expect to take advantage of the “controlled company” exemptions under the Nasdaq Marketplace Rules. See “Management—Controlled Company.”
We are an “emerging growth company” under the federal securities laws and, as such, will be subject to reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”
Investing in our common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 13 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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PER SHARE
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TOTAL
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Public Offering Price
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$
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$
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Underwriting Discounts and Commissions
(1)
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Proceeds to Evolus, Inc. (before expenses)
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(1)
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See “Underwriting” beginning on page 145 of this prospectus for a description of compensation payable to the underwriters.
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Delivery of the shares of common stock is expected to be made on or about , 2018. We have granted the underwriters an option for a period of 30 days to purchase an additional shares of our common stock. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $ , and the total proceeds to us, before expenses, will be $ .
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Cantor
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Mizuho Securities
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SunTrust Robinson Humphrey
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JMP Securities
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Prospectus dated , 2018
TABLE OF CONTENTS
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We have not, and the underwriters have not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under the circumstances and in the jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
Through and including , 2018 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves, and observe any restrictions relating
to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.
EVOLUS™ is one of our trademarks that is used in this prospectus. This prospectus also includes trademarks, trade names and service marks that are the property of other organizations
, such as BOTOX
®
and BOTOX
®
Cosmetic, which we refer to throughout this prospectus as BOTOX
. Solely for convenience, trademarks and trade names referred to in this prospectus appear without the
®
and ™ symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before deciding to invest in shares of our common stock, you should read this summary with the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and the related notes, before making an investment decision regarding our common stock. Unless the context requires otherwise, references in this prospectus to “Evolus,” “our company,” “we,” “us” and “our” refer to Evolus, Inc.
Our Business
We are a medical aesthetics company focused on providing physicians and their patients with expanded choices in aesthetic procedures and treatments. We focus on the self-pay aesthetic market and our first product candidate, PrabotulinumtoxinA (DWP-450), is an injectable 900 kilodalton, or kDa, botulinum toxin type A complex designed to address the needs of the large and growing facial aesthetics market. We believe we will offer physicians and patients a compelling value proposition with DWP-450. Currently, onabotulinumtoxinA (BOTOX) is the neurotoxin market leader and the only known approved 900 kDa botulinum toxin type A complex in the United States. We believe aesthetic physicians generally prefer the performance characteristics of the complete 900 kDa neurotoxin complex and are accustomed to injecting this formulation. We have completed the clinical development program for DWP-450 for the treatment of moderate to severe glabellar lines, also known as “frown lines,” between the eyebrows, in the United States, European Union, or EU, and Canada. The U.S. Food and Drug Administration, or FDA, issued a Prescription Drug User Fee Act, or PDUFA, date of May 15, 2018 for completion of its review of our Biologics License Application, or BLA. We submitted a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, and it was accepted for review in July 2017 with a decision that we expect by the second half of 2018. We have also submitted a New Drug Submission, or NDS, to Health Canada and it was accepted for review in October 2017.
We successfully completed a comprehensive five-study DWP-450 clinical development program in the United States, EU and Canada to meet the regulatory requirements for a BLA in the United States, a MAA in the EU and a NDS in Canada, for the treatment of moderate to severe glabellar lines. The program, which was developed in consultation with the FDA and European regulatory bodies, included three multicenter, randomized, controlled, single dose Phase III studies and two open label, multiple dose, long-term Phase II studies. Over 2,100 adult male and female subjects with moderate to severe glabellar lines at maximum frown participated in the program. All three Phase III studies successfully met their respective primary endpoints.
If approved, we plan to launch DWP-450 in the United States by building a commercialization infrastructure, including a specialty sales force of approximately 65 sales representatives at commercial launch and growing to 150 sales representatives over time. We intend for our sales force to market the product to aesthetic practices, beginning with U.S. board certified dermatologists, plastic surgeons, facial plastic surgeons and oculoplastic surgeons at launch and expanding to the broader aesthetic injector market over time. We intend to establish brand awareness for DWP-450 through national public relations, social media and direct-to-consumer media campaigns, which are widely-used commercialization channels for aesthetic neurotoxin products. In the long-term, we plan to capitalize on our commercialization infrastructure and our relationships with key aesthetic physicians to provide a comprehensive medical aesthetics portfolio over time, thereby driving continued revenue growth without a proportional increase in our selling, general and administrative expenses. Outside of the United States, we plan to market and sell DWP-450 through distributors in the territories in which we have the right to sell it.
We have an exclusive distribution license to DWP-450 from Daewoong Pharmaceuticals Co., Ltd., or Daewoong, a South Korean pharmaceutical manufacturer, for aesthetic indications in the United States, EU, Canada, Australia, Russia, Commonwealth of Independent States, or C.I.S., and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan. We also have an option to exercise a similar license in these territories for therapeutic indications by the end of 2018, which we have assigned to and are currently holding in trust for ALPHAEON. DWP-450 will be manufactured by Daewoong in a recently constructed facility in South Korea that is designed with the intention of complying with FDA and EMA current Good Manufacturing Practice, or cGMP, requirements. We also have the option to negotiate first with Daewoong to secure a distribution license for
any product that Daewoong directly or indirectly develops or commercializes that is classified as an injectable botulinum toxin (other than DWP-450) in a territory covered by the license.
Our Competitive Strengths
We believe we will offer physicians and patients a compelling value proposition beginning with the launch of DWP-450, if approved, for the following reasons:
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DWP-450 will offer the U.S. market the first known 900 kDa neurotoxin alternative to BOTOX
. Both DWP-450 and BOTOX manufacturing start with a 900 kDa complex, include adding the excipients human serum albumin
and sodium chloride, and are finished by vacuum drying. If approved, DWP-450 is expected to be the only known neurotoxin product in the United States with a 900 kDa neurotoxin complex other than BOTOX. We believe an important component of competitiveness in the neurotoxin market relates to the characteristics associated with the 900 kDa complex and the potential of the accessory proteins to increase the effectiveness of the active toxin portion of the complex.
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DWP-450 may be easily integrated into existing aesthetic physician practices.
DWP-450 was clinically tested with one DWP-450 unit compared to one BOTOX unit. In the study, both products were stored, prepared and injected identically. We believe aesthetic physicians’ familiarity with the 900 kDa neurotoxin complex’s handling, preparation and dosing will more easily facilitate incorporation of DWP-450 into their practices.
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Enhanced level of physician-customer interaction through an aesthetic-only marketing strategy.
We have elected to specifically target the self-pay aesthetic market. With a reduced regulatory burden compared to third-party payor reimbursed markets, we believe we will achieve a number of benefits that market participants in reimbursed markets are unable to achieve, such as an enhanced level of interaction with our physician-customers. It is expected that upon U.S. approval, DWP-450 will be the only U.S. neurotoxin without a therapeutic indication. We believe pursuing an aesthetic-only non-reimbursed product strategy will allow for meaningful strategic advantages in the United States, including pricing and marketing flexibility. We intend to utilize this flexibility to drive market adoption through programs such as promotional events, sampling programs and pricing strategies.
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We have strong relationships with aesthetic key opinion leaders, or KOLs
. We have established relationships with aesthetic KOLs as a result of our management team’s industry experience and engagement of our clinical trial investigators. In addition, there are approximately 250 KOLs who have invested in our parent organizations, creating financial alignment with our success. KOLs are important information resources to the general physician-customer market due to their clinical expertise, academic reputations, active clinical practices and their status as medical innovators. The broader physician community often looks to KOLs for their experience with products and procedures as part of their new product and procedure adoption process.
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Our management team has significant experience and expertise in medical aesthetics
. Our management team has extensive experience in self-pay healthcare markets, in the development, market launch and commercialization of major medical products, execution and integration of business development transactions, identification of and partnerships with KOLs, and understanding of the regulatory environment of the healthcare markets. Key members of our leadership team have also served in relevant senior leadership positions with leading aesthetic companies.
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Our Strategy
Our near-term strategy is to enter the U.S. medical aesthetic neurotoxin market with DWP-450. We plan to expand our product offerings over time through in-licensing, partnerships and acquisitions. The key components of our strategy are:
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Achieve regulatory approval of DWP-450;
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Launch the first known 900 kDa neurotoxin in the United States since BOTOX was launched 15 years ago;
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Pursue an aesthetic-only marketing strategy;
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Leverage our strong KOL relationships in medical aesthetics for our commercial launch;
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Build a commercialization infrastructure with specialized sales and marketing functions; and
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Establish a leading medical aesthetics company by in-licensing technology, developing partnerships and potentially acquiring products.
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Risks Associated with Our Business
Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:
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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. We have only one product candidate and no commercial sales, which, together with our limited operating history, make it difficult to assess our future viability.
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We currently depend entirely on the successful and timely regulatory approval and commercialization of our only product candidate,
DWP
-450. DWP-450 may not receive regulatory approval or, if it does receive regulatory approval, we may not be able to successfully commercialize it.
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We may be unable to obtain regulatory approval for DWP-450 or any future product candidates under applicable regulatory requirements. The FDA, EMA and other similar regulatory authorities have substantial discretion in the approval process, including the ability to delay, limit or deny approval of product candidates. The delay, limitation or denial of any regulatory approval would delay commercialization and have a material adverse effect on our potential to generate revenue, our business and our operating results.
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We rely on the Daewoong Agreement, which is defined below, to provide us exclusive rights to distribute DWP-450 in certain territories. Any termination or loss of significant rights, including exclusivity, under the Daewoong Agreement, whether as a result of litigation or otherwise, would materially and adversely affect our development or commercialization of DWP-450, which in turn would have a material and adverse effect on our business, operating results and prospects. We could lose our exclusive rights to distribute DWP-450 if we fail to meet certain performance requirements, if Daewoong terminates the Daewoong Agreement as a result of our breach or if the Daewoong Agreement is otherwise terminated or not renewed.
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We currently rely solely on Daewoong to manufacture DWP-450, and as such, any production or other problems with Daewoong could
adversely
affect us. Any failure or refusal by Daewoong to supply DWP-450 or by any future manufacturer to supply any other product candidates or products that we may develop could delay, prevent or impair our clinical development or commercialization efforts.
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We may require additional financing to fund our future operations, and a failure to obtain additional capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our operations.
We have historically funded our operations through the support of our parent company, ALPHAEON Corporation, or ALPHAEON, from which funding may not be available after the completion of this offering.
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As of September 30, 2017, w
e have concluded that we do not have sufficient cash to fund our operations through November 2018, a year from the date our financial statements for the nine months ended September 30, 2017 were issued, without additional financing, and as a result, there is substantial doubt about our ability to continue as a going concern.
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Even if DWP-450 or future product candidates, if any, receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use necessary for commercial success.
The commercial success of DWP-450 and any of our future product candidates, if approved, will depend significantly on the broad adoption and use of the resulting product by physicians for approved
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indications, including, in the case of DWP-450, the treatment of glabellar lines.
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Even if DWP-450 is approved for commercialization, if there is not sufficient patient demand for DWP-450, our financial results and future prospects will be harmed.
In addition, we have not pursued regulatory approval of DWP-450 for indications other than for the treatment of glabellar lines, which may also limit adoption of DWP-450 and if we are unable to obtain approval for indications in addition to our anticipated approval for glabellar lines, our marketing efforts for DWP-450 will be limited.
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We will face significant competition in the aesthetic neurotoxin and broader self-pay healthcare market and our failure to effectively compete may prevent us from achieving significant market penetration and expansion.
Many of our potential competitors are large, experienced companies that enjoy significant competitive advantages, such as substantially greater financial, research and development, manufacturing, personnel and marketing resources, greater brand recognition and more experience and expertise in obtaining marketing approvals from the FDA and other regulatory authorities.
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If we are unable to
establish
sales and marketing capabilities on our own or through third parties, we will be unable to successfully commercialize DWP-450 or any other future product candidates, if approved, or generate product revenue.
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If we or any of our current or future licensors,
including
Daewoong, are unable to maintain, obtain or protect intellectual property rights related to DWP-450 or any of our future product candidates
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we may no
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be able to compete effectively in our market.
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ALPHAEON controls the direction of our business, and the concentrated ownership of our common stock and certain contractual rights of ALPHAEON may prevent you and other stockholders from influencing significant decisions.
In addition, we may take actions that stockholders other than ALPHAEON do not view as beneficial. This voting control may also discourage transactions involving a change-of-control of our company. Furthermore, ALPHAEON has granted a lien and security interest in its ownership of our capital stock as collateral under its outstanding notes. Upon certain events of default, these secured lenders may take possession, hold, collect, sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose of all or a portion of the collateral and, as a result, a change-of-control of our company may result.
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Our Market
Our primary market is self-pay healthcare, which includes medical products purchased by physicians that are then sold to patients or used in procedures for aesthetic indications that are not reimbursed by any third-party payor, such as Medicaid, Medicare or commercial insurance. By focusing on the self-pay medical aesthetics market, we believe we will not be exposed to reimbursement risk associated with a reliance on payments from such third-party payors and we will be subject to fewer regulations that place limits on the types of marketing and other interactions we can have with physicians. For example, the federal Anti-Kickback Statute, or the Anti-Kickback Statute, imposes significant restrictions on the ability of healthcare manufacturers who have products or services reimbursed by a federal healthcare program to interact with physicians in relation to the marketing of their products. We believe our clinical data and clinical testing of one DWP-450 unit to one BOTOX unit, together with the reduced regulatory burden and related flexibility in marketing and pricing, will improve our ability to generate product demand for DWP-450.
The global self-pay medical aesthetics neurotoxin market was estimated to generate approximately $1.8 billion of revenue in 2017 and is estimated to grow to approximately $2.3 billion in 2020. The global self-pay medical aesthetics market was estimated to generate approximately $9.3 billion of revenue in 2015 and is estimated to grow to approximately $15.1 billion in 2020, representing a 10% compound annual growth rate, or CAGR, of which the United States comprises the largest portion of the market at an estimated $3.9 billion of revenue in 2015, and is estimated to grow at an 11% CAGR during the same period. We believe the growth in both the self-pay medical aesthetics neurotoxin market and the overall self-pay medical aesthetics market is being driven by a number of factors, including:
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an aging population consisting of both Generation X, comprised of individuals between the ages of 35 and 50, and Baby Boomers, comprised of individuals between the ages of 51 and 64;
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individuals between the ages of 19 and 34, whom we refer to as Millennials, seeking to prophylactically delay the appearance of aging and utilizing neurotoxins as an entry point for aesthetic procedures due to its minimally invasive nature;
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an increasing life expectancy, which is resulting in patients with a desire for improved appearance and well-being;
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rising disposable income, with the U.S. Bureau of Economic Analysis reporting that real disposable income in the United States increased approximately 17% from March 2012 to March 2017;
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growing awareness, utilization and acceptance of elective or minimally invasive aesthetic procedures; and
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continued innovation and improved accessibility to these treatments due to an increase in the number of physicians who perform these procedu
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We believe the demand for aesthetic treatment for facial lines has stimulated growth in the use of botulinum toxin type A, given the neurotoxin’s minimally invasive nature of the treatment, effectiveness, ease of use, and safety profile. Additionally, a patient is able to have the procedure performed with minimal interruption to daily life primarily because most treatments require less than 30 minutes to be completed and have little to no recovery period. In general, the results of neurotoxin treatments may last up to four months but are not permanent. As a result, patients may seek repeat procedures to maintain the product’s effect, which translates into recurring revenue generation for manufacturers and physicians.
The large and established U.S. aesthetic neurotoxin market includes a wide range of age groups. In 2016, approximately 39% of total U.S. nonsurgical procedures were performed on Generation X patients and approximately 31% were performed on Baby Boomer patients. Millennial patients represent a growing segment of the aesthetic neurotoxin market with data from the American Society of Plastic Surgeons showing a 49% increase between 2009 and 2016 in the number of botulinum toxin type A procedures in patients aged 20 to 29, which is the younger subset of the age 19 to 34 Millennial generation. In 2016, this 20 to 29 age group made up approximately 16% of total U.S. nonsurgical procedures in 2016, and we believe provides a source of future growth.
Presently, BOTOX, Dysport and Xeomin represent a majority of the medical aesthetics botulinum toxin type A market. In 2016, BOTOX sales represented 84.5% of the U.S. market share and 73.1% of the worldwide market share, and generated approximately $729.2 million of revenue in the United States. In the same year, Dysport and Xeomin sales represented 13.5% and 2.0% of the U.S. market share, respectively, and 17.5% and 7.1% of the worldwide market share, respectively, and generated approximately $116.5 million and $17.3 million of revenue in the United States, respectively.
BOTOX prices have increased consistently in recent years. According to The Centers for Medicare and Medicaid Services, the average sales price, or ASP, for BOTOX was approximately $599 per 100 unit vial as of June 2017, up nearly 8% or over $40, from its July 2014 ASP of approximately $557 per 100 unit vial. Many physicians have expressed frustration with increasing neurotoxin prices. According to a physician survey conducted by Bernstein Research in the second quarter of 2017, approximately 41% of physicians surveyed stated that they would be willing to try a new neurotoxin with a material discount strategy.
DWP-450 Overview
We licensed DWP-450 from Daewoong in September 2013 and commenced clinical trials in 2014. DWP-450 is an injectable formulation of
prabotulinumtoxinA. PrabotulinumtoxinA is a 900 kDa purified botulinum toxin type A complex
designed to address the needs of the large and growing facial aesthetics market.
DWP-450 contains a 900 kDa botulinum toxin type A produced by the bacterium
Clostridium botulinum.
The neurotoxin complex in DWP-450 has the same molecular weight as the neurotoxin in BOTOX, 900 kDa. The active neurotoxin is the 150 kDa component, and the rest of the complex is made up of accessory proteins that we believe help with the function of the active portion of the toxin. DWP-450 has the same mechanism of action as other type A botulinum toxins. When injected intramuscularly at therapeutic doses, botulinum toxin produces chemical denervation of the muscle resulting in localized reduction of muscle activity. Botulinum toxin type A specifically blocks peripheral acetylcholine release at presynaptic cholinergic nerve terminals by cleaving
SNAP-25, a protein integral to the successful docking and release of acetylcholine from vesicles situated within the nerve endings leading to denervation and relaxation of the muscle.
We successfully completed a comprehensive five-study DWP-450 clinical development program in the United States, EU and Canada to meet the regulatory requirements for a BLA in the United States, a MAA in the EU, and a NDS in Canada, for the treatment of moderate to severe glabellar lines. Our program was developed in consultation with the FDA and European regulatory bodies
and included three multicenter, randomized, controlled, single dose Phase III studies and two open label, multiple dose, long-term Phase II studies. Over 2,100 adult male and female subjects with moderate to severe glabellar lines at maximum frown participated in the program
. These regulatory bodies provided the critical endpoints and statistical methodology required to develop the safety and efficacy endpoints that would support this indication’s approval. A BLA and MAA seeking approval for the treatment of adult patients with glabellar lines was accepted and validated by the FDA and EMA, respectively, in July 2017 and a NDS was accepted by Health Canada in October 2017. The FDA issued a PDUFA date of May 15, 2018 for completion of its review of our BLA. If approved, DWP-450 is expected to be the first known 900 kDa neurotoxin product in the United States since BOTOX was approved for the treatment of glabellar lines in 2002.
All five studies contributed data to the evaluation of efficacy and safety. In the three multicenter, randomized, double-blind, controlled, single dose Phase III studies (EV-001, EV-002 and EVB‑003), 1,194 subjects participated. The two identical placebo-controlled U.S. pivotal studies, EV-001 and EV-002, enrolled 654 subjects in total. The placebo and active controlled EU pivotal study, EVB-003, enrolled 540 subjects. 20 units of BOTOX served as the active control in EVB-003. In addition, 922 subjects participated in the two multicenter, open label, multiple dose, long-term U.S. Phase II safety studies, EV-004 and EV-006, in which up to a total of four treatments were allowed over the course of one year.
All three Phase III studies met their respective primary endpoints, EV-001 and EV-002 studies demonstrated superiority over placebo, and the EVB-003 study demonstrated non-inferiority to BOTOX and superiority over placebo. The EV-004 and EV-006 safety studies had no drug-related serious adverse events.
Relationship with ALPHAEON Corporation
We are a wholly-owned subsidiary of ALPHAEON.
ALPHAEON is majority-owned by SCH-AEON, LLC, formerly known as Strathspey Crown Holdings, LLC, or SCH. Upon completion of this offering (including the automatic conversion of all outstanding shares of our Series A preferred stock into shares of our common stock), ALPHAEON will own shares of our outstanding common stock, representing approximately % of the total voting power of our outstanding common stock (or approximately % of the total voting power of our outstanding common stock, if the underwriters exercise in full their option to purchase additional shares of our common stock in this offering).
Immediately prior to the completion of this offering, we and ALPHAEON intend to enter into, or will have entered into, certain agreements that will provide a framework for our ongoing relationship with ALPHAEON. For a description of these agreements, see “Certain Relationships and Related Party Transactions
—
Relationships with ALPHAEON Corporation.”
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies. These provisions include, but are not limited to:
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being permitted to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure;
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•
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an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended;
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•
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reduced disclosure about executive compensation arrangements in our periodic reports, registration statements and proxy statements; and
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exemptions from the requirements to seek non-binding advisory votes on executive compensation or golden parachute arrangements.
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In addition, the JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and to comply with new or revised accounting standards as required of publicly-traded companies generally. This decision to opt out of the extended transition period is irrevocable.
We will remain an emerging growth company until the earliest of (i) the end of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the first fiscal year after our annual gross revenues exceed $1.07 billion, (iii) the date on which we have, during the immediately preceding three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year.
Corporate Information
We were incorporated in the State of Delaware in November 2012. Our principal executive offices are located at
17901 Von Karman Avenue, Suite 150, Irvine, California 92614
and our telephone number is (949) 284-4555. Our website is www.evolus.com. The information contained on or that can be accessed through our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.
THE OFFERING
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Common stock offered by us
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shares
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Common stock to be outstanding after this offering
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shares
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Option to purchase additional shares
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The underwriters have the option to purchase from us up to a maximum of additional shares of common stock. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.
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Use of proceeds
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We estimate that the net proceeds to us from this offering will be approximately $ million (or approximately $ million if the underwriters exercise their option to purchase additional shares in full), based on an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds from this offering to satisfy requirements of the FDA and other regulatory agencies related to the approval of DWP-450, to fund commercialization activities for DWP-450, for payment of certain milestone payments owed upon marketing approval of DWP-450 in the United States and EU, to reimburse ALPHAEON for outstanding payables, and for other general corporate purposes.
See “Use of Proceeds” for more information.
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Proposed Nasdaq Global Market symbol
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“EOLS”
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Risk factors
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See “Risk Factors” for a discussion of certain factors to consider carefully before deciding to purchase any shares of our common stock.
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The number of shares of our common stock to be outstanding after this offering is based on 11,250,000 shares of common stock outstanding as of
September 30, 2017
,
after giving effect to the conversion of all of our outstanding Series A preferred stock,
and excludes:
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1,061,446 shares of our common stock issuable upon the exercise of outstanding stock options under
our 2017 Omnibus Incentive Plan, or the 2017 plan,
as of January 8, 2018;
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139,480 shares of our common stock issuable upon the vesting and settlement of restricted stock units outstanding under the 2017 plan, as of January 8, 2018; and
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1,437,963 shares of our common stock reserved for future issuance under the 2017 plan, as of January 8, 2018
.
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Unless otherwise indicated, all information contained in this prospectus assumes:
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•
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no exercise by the underwriters of their option to purchase up to an additional shares of our common stock;
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no exercise of the outstanding stock options described above;
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a one-for- reverse stock split of our common stock to be effected before the completion of this offering;
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•
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the automatic conversion of all outstanding shares of our Series A preferred stock into 1,250,000
shares of common stock upon the completion of this offering; and
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the filing of our amended and restated certificate of incorporation, or our certificate of incorporation, and the adoption of our amended and restated bylaws, or our bylaws, immediately prior to the completion of this offering.
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SUMMARY FINANCIAL DATA
The following tables contain a summary of our financial data as of, and for the periods ended on, the dates indicated. The summary statements of operations data for the
years ended December 31,
2015
and
2016
are derived from our audited financial statements and related notes appearing elsewhere in this prospectus. The summary statements of operations for the
nine months ended September 30, 2016
and
2017
and the summary balance sheet data as of
September 30, 2017
, are derived from our unaudited financial statements appearing elsewhere in this prospectus. We have prepared the unaudited interim financial information on the same basis as the audited financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our financial and operating results for such period. The summary financial data below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in conjunction with the financial statements, related notes and other information included elsewhere in this prospectus.
Our historical results are not necessarily indicative of the results that may be expected or may actually occur in the future, and our interim results are not necessarily indicative of the expected results for future interim periods or the full year.
Our historical financial statements have been prepared on a standalone basis and are derived from the financial statements and accounting records of ALPHAEON and prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The financial statements reflect amounts attributable to our business, including the costs ALPHAEON incurred for the development and commercialization of DWP-450
and costs and expenses under the Daewoong Agreement
. We have calculated our income tax amounts using a separate return methodology and have presented these amounts as if we were a separate taxpayer from ALPHAEON in each jurisdiction for each period pr
esented. Our management believes that the allocations and results are reasonable for all periods presented. However, allocations may not be indicative of the actual expense we would have incurred had we operated as an independent company for the periods presented and, accordingly, our historical financial statements may not reflect what our actual financial position, results of operations and cash flows would have been if we had been an independent company for the periods presented.
The following table is presented in thousands, except for share and per share data:
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Year Ended December 31,
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Nine Months Ended September 30,
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2015
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2016
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2016
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2017
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(unaudited)
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Statement of Operations Data:
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Operating expenses:
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Research and development
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$
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20,681
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$
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12,607
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$
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9,926
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$
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5,481
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General and administrative
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9,883
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7,033
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6,111
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3,169
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Depreciation and amortization
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416
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326
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224
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218
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Total operating expenses
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30,980
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19,966
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16,261
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8,868
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Loss from operations
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(30,980
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)
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(19,966
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)
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(16,261
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)
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(8,868
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)
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Other expense, net
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39
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6
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5
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4
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Loss before taxes
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(31,019
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)
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(19,972
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)
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(16,266
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)
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(8,872
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)
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Provision for income taxes
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93
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93
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56
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56
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Net loss and comprehensive loss
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$
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(31,112
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)
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$
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(20,065
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)
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$
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(16,322
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)
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$
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(8,928
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)
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Net loss per share, basic and diluted
(1)
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$
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(3.11
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)
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$
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(2.01
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)
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$
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(1.63
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)
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$
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(0.89
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)
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Weighted-average shares used to compute basic and diluted net loss per share
(1)
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10,000,000
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10,000,000
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10,000,000
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10,000,000
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Pro forma net loss per share, basic and diluted
(1)(2)
(unaudited)
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$
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(1.78
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)
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$
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(0.79
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)
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Pro forma weighted-average shares used to compute basic and diluted net loss per share
(1)(2)
(unaudited)
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11,250,000
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11,250,000
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_____________
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(1)
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See Note 2 to our financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate the net loss per share and the number of shares used in the computation of the per share amounts.
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(2)
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The pro forma net loss per share of common stock, basic and diluted, for the year ended December 31, 2016 and the
nine months ended September 30, 2017
reflects the automatic conversion of all outstanding shares of our Series A preferred stock into 1,250,000 shares of common stock upon the completion of this offering and the filing and effectiveness of our certificate of incorporation immediately prior to the completion of this offering.
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(3)
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The pro forma net loss per share of common stock, basic and diluted, does not give effect to the issuance of shares from the proposed initial public offering nor do they give effect to potential dilutive securities where the impact would be anti-dilutive.
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The following table is presented in thousands:
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As of September 30, 2017
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Actual
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Pro Forma
(1)
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Pro Forma as Adjusted
(2)(3)
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(unaudited)
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(unaudited)
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(unaudited)
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Balance Sheet Data:
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Cash and cash equivalents
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$
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—
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$
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—
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$
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Restricted cash
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—
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—
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Intangible asset
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56,076
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56,076
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Goodwill
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21,208
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21,208
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Related party receivable
(4)
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72,014
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—
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Related party borrowings
(5)
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72,014
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28,900
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Deferred tax liability
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21,301
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21,301
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Note obligation
(6)
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134,937
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—
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Contingent obligation
(7)
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—
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31,400
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Contingent promissory note obligation
(7)
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—
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11,714
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Series A preferred stock
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—
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—
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Common stock
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—
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—
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Additional paid-in capital
(8)
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—
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62,923
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Accumulated deficit
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(78,484
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)
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|
(78,484
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)
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Total stockholders’ deficit
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(78,484
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)
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(15,561
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)
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_____________
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(1)
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Gives effect to the automatic conversion of all outstanding shares of our Series A preferred stock into 1,250,000 shares of our common stock
upon the completion of this offering
,
the termination and release of
our obligations as a guarantor of ALPHAEON’s convertible promissory notes and convertible bridge note
upon the completion of this offering
,
the automatic assignment to us by ALPHAEON of the revised payment obligations under the amended purchase agreement, which is defined below,
upon the completion of this offering,
and the filing and effectiveness of our certificate of incorporation immediately prior to the completion of this offering.
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(2)
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Reflects, in addition to the pro forma adjustment set forth in footnote 1, the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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(3)
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A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) each of cash, total assets and total stockholders’ (deficit) equity by $ million, assuming the number of shares offered by us as stated on the cover page of this prospectus remains unchanged and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a 1,000,000 share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, total assets and total stockholders’ (deficit) equity by $ million, assuming the assumed initial public offering price of $ per share, the mid-point of the price range set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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(4)
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Reflects amounts to be paid to us by ALPHAEON in the event we are required to repay the full amount of ALPHAEON’s convertible promissory notes and convertible bridge notes as guarantor of those obligations. Concurrent with this offering, our guaranty of the convertible promissory notes and convertible bridge notes will be terminated in full in which case ALPHAEON would have no obligation to pay us those amounts. As a result, the pro forma column reflects the elimination of the related party receivable.
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(5)
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Reflects amounts owed by us to ALPHAEON for working capital borrowings. Upon completion of the offering, we have agreed to assume the fair value of ALPHAEON’s obligations under the amended purchase agreement to make certain contingent payments to the Evolus contributors. ALPHAEON has agreed to offset and reduce these obligations, on a dollar-for-dollar basis. As of September 30, 2017, the value of these obligations was $43.1 million and will be revalued upon completion of this offering. The aggregate $43.1 million decrease in related party borrowings in the pro forma column reflects the present value of a contingent promissory note obligation of $11.7 million, and the fair value of a contingent obligation of $31.4 million, which we valued based on an income approach using the discounted cash flow method
.
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(6)
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Reflects the value of the convertible promissory notes and convertible bridge notes of ALPHAEON, of which we are guarantor. Upon completion of the offering, our guaranty will be terminated in full after which we will not be required to reflect the convertible promissory notes and convertible bridge notes as our obligation.
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(7)
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Represents the estimated value of the payment obligations of ALPHAEON to the Evolus contributors assumed by us under the amended purchase agreement, which are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations
—
Payment Obligation Related to our Acquisition by ALPHAEON”.
See footnote 5 above for an explanation of the determination of the estimated value.
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(8)
|
The pro forma column reflects the increase of $62.9 million as a result of the termination of our guaranty obligations of ALPHAEON’s convertible promissory notes and convertible bridge note upon the completion of this offering. Such increase reflects the difference between the note obligation and related party receivable.
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this prospectus, including our financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our common stock. The occurrence of any of the following risks could have a material and adverse effect on our business, reputation, financial condition, results of operations and future growth prospects, as well as our ability to accomplish our strategic objectives. As a result, the trading price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and stock price.
Risks Related to our Business and Strategy
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. We have only one product candidate and no commercial sales, which, together with our limited operating history, make it difficult to assess our future viability.
We are a medical aesthetics company with a limited operating history. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. To date, we have invested substantially all of our efforts and financial resources in the clinical development and regulatory approval of, and commercial planning for, DWP-450, which is currently our only product candidate. We are not profitable and have incurred losses in each year since our inception in 2012. We have a limited operating history upon which you can evaluate our business and prospects.
Consequently, any predictions about our future success, performance or viability may not be as accurate as they could be if we had a longer operating history or an approved product on the market. 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 the medical aesthetics field. To date, we have not obtained any regulatory approvals for DWP-450 or generated any revenue from product sales relating to DWP-450. We continue to incur significant expenses
related
to reg
ulatory approval and commercialization operations of DWP-450. We have recorded net losses of $
31.1 million
, $
20.1 million
and $
8.9 million
for
the years ended
December 31, 2015
and
2016
and for the
nine months ended September 30, 2017
, respectively, and had an accumulated deficit during our development stage through
September 30, 2017
of $
78.5 million
. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue to seek regulatory approval for, and begin to commercialize, DWP-450, if approved.
Our ability to achieve revenue and profitability is dependent on our ability to obtain necessary regulatory approvals and successfully market and commercialize DWP-450. We have limited experience in successfully commercializing a product candidate once approved. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, may adversely affect the market price of our common stock and our ability to raise capital and continue operations.
We currently depend entirely on the successful and timely regulatory approval and commercialization of our only product candidate, DWP-450. DWP-450 may not receive regulatory approval or, if it does receive regulatory approval, we may not be able to successfully commercialize it.
We currently have only one product candidate, DWP-450, and our business presently depends entirely on our ability to obtain regulatory approval for DWP-450 and to successfully commercialize it in a timely manner. We have no products currently approved for sale and we may never be able to develop marketable products. We are not permitted to market DWP-450 in the United States until we receive approval of a BLA from the FDA, in the EU until we receive approval of a MAA from the EMA, in Canada until we receive approval of a NDS from Health Canada or in any other countries permitted under the Daewoong Agreement until we receive the requisite approval from the applicable regulatory authorities in such countries.
The FDA issued a PDUFA date of May 15, 2018 for completion of its review of our BLA. We submitted a MAA to the EMA and it was accepted for review in July 2017 with a decision that we expect by the second half of 2018. We also submitted a NDS to Health Canada in July 2017 and it was accepted for review in October 2017. We do not know if or when we will receive any such approvals, or whether we will need to make modifications or significant additional expenditures to obtain any such approvals. In addition, if we receive approval in one country, we may not receive a similar approval in any other jurisdiction.
Our near-term prospects, including our ability to finance our company and generate revenue, as well as our future growth, depend entirely on the successful and timely regulatory approval and commercialization of DWP-450. The regulatory and commercial success of DWP-450 will depend on a number of factors, including the following:
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whether we are required by the FDA, EMA or other similar regulatory authorities to conduct additional clinical trials to support the approval of DWP-450;
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•
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our success in educating physicians and patients about the benefits, administration and use of DWP-450, if approved;
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•
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the prevalence, duration and severity of potential side effects experienced with DWP-450;
|
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•
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the timely receipt of necessary marketing approvals from the FDA, EMA and other similar regulatory authorities;
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•
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achieving and maintaining compliance with all regulatory requirements applicable to DWP-450;
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•
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the ability to raise additional capital on acceptable terms, or at all, if needed, to support the commercial launch of DWP-450;
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•
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the acceptance by physicians and patients of the safety and efficacy of DWP-450, if approved;
|
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•
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our ability to successfully commercialize DWP-450, if approved, whether alone or in collaboration with others;
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•
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the ability of our current manufacturer and any third parties with whom we may contract to manufacture DWP-450 to remain in good standing with regulatory agencies and develop, validate and maintain commercially viable manufacturing processes that are compliant with cGMP requirements; and
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•
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the availability, perceived advantages, relative cost, relative safety and relative efficacy of competing products.
|
If we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we could experience significant delays or an inability to obtain regulatory approvals or commercialize DWP-450. Even if regulatory approvals are obtained, we may never be able to successfully commercialize DWP-450 or any future product candidates. In addition, we will need to transition at some point from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in such a transition. Accordingly, we may not be able to generate sufficient revenue through the sale of DWP-450 or any future product candidates to continue our business.
We may be unable to obtain regulatory approval for DWP-450 or any future product candidates under applicable regulatory requirements. The FDA, EMA and other similar regulatory authorities have substantial discretion in the approval process, including the ability to delay, limit or deny approval of product candidates. The delay, limitation or denial of any regulatory approval would delay commercialization and have a material and adverse effect on our potential to generate revenue, our business and our operating results.
We currently have no products approved for sale, and we may never obtain regulatory approval to commercialize DWP-450 or any future product candidates. The research, testing, manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, storage, approval, sale, marketing, distribution, import, export, and reporting of safety and other post-market information related to DWP-450 and any future product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the United States and in other countries, and such regulations differ from country to country.
To gain approval to market a biologic product such as DWP-450, we must provide the FDA, the EMA and other similar regulatory authorities with clinical data that adequately demonstrates the safety, efficacy, purity and potency of the product for the intended indication applied for in a BLA, a MAA or other respective regulatory filing. The development and approval of biologic products is a long, expensive and uncertain process, and delay or
failure can occur at any stage.
The approval process across jurisdictions is also not necessarily the same in time or scope.
The regulatory review and approval processes are expensive and lengthy, and their outcome is inherently uncertain. Although we have completed a comprehensive five-study clinical development program in the United States, EU and Canada to meet the regulatory requirements for a BLA in the United States, a MAA in the EU, and a NDS in Canada for DWP-450 for the treatment of moderate to severe glabellar lines, we may not receive marketing approval for DWP-450 in one or more of the countries in which marketing approval is sought.
In addition, any future product candidates will require extensive clinical testing and will be subject to the numerous risks inherent with the regulatory approval process, including development delay or failure after commencement of a clinical trial
.
A number of companies in the pharmaceutical and biopharmaceutical industry have suffered significant setbacks in clinical trials, including in Phase III clinical development, even after promising results in earlier preclinical studies or clinical trials. These setbacks have been caused by, among other things, findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we or our partners may conduct. We may experience these setbacks during the clinical trial process for any of our future product candidates.
Any such setbacks could also result in negative publicity which could damage our reputation in jurisdictions in which we have been approved.
The FDA, the EMA and other similar regulatory authorities have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of product candidates for many reasons, including, without limitation:
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the FDA, the EMA or other similar regulatory authorities may disagree with the design or implementation of one or more clinical trials;
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the FDA, the EMA or other similar regulatory authorities may not deem a product candidate safe and effective for its proposed indication, or may deem a product candidate’s safety or other perceived risks to outweigh its clinical or other benefits;
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the FDA, the EMA or other similar regulatory authorities may not find the data from preclinical studies and clinical trials sufficient to support approval, or the results of clinical trials may not meet the level of statistical or clinical significance required by the FDA, the EMA or any similar regulatory authorities for approval;
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the FDA, the EMA or other similar regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials performed by us or third parties;
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the data collected from clinical trials may not be sufficient to support the submission of a BLA, a MAA, a NDS, or other applicable regulatory filing;
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the FDA, the EMA or other similar regulatory authorities may require additional preclinical studies or clinical trials;
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the FDA, the EMA or other similar regulatory authorities may identify deficiencies in the formulation, quality control, labeling or specifications of DWP-450 or future product candidates;
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the FDA, the EMA or other similar regulatory authorities may grant approval contingent on the performance of costly additional post approval clinical trials;
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the FDA, the EMA or other similar regulatory authorities also may approve DWP-450 or any future product candidates for a more limited indication or a narrower patient population than we originally requested;
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the FDA’s, the EMA’s or other similar regulatory authority’s failure to approve the manufacturing processes or facilities of third-party manufacturers with which we contract;
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the FDA, the EMA or other similar regulatory authorities may change its approval policies or adopt new regulations in a manner rendering our clinical data or regulatory filings insufficient for approval; or
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the FDA, the EMA or other similar regulatory authorities may not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates.
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Therefore, even if we comply with all FDA, EMA or other similar regulatory requirements, the regulatory body may determine that DWP-450 or any of our future product candidates are not safe or effective, and we may never obtain regulatory approval for such product candidates. Any delay in obtaining, or inability to obtain, applicable regulatory approval for DWP-450 or any of our future product candidates would delay or prevent commercialization of our product candidates and would materially adversely impact our business, results of operations and prospects.
Additionally, any negative publicity or safety concerns related to our competitors’ products could cause further scrutiny and delay of our products.
We rely on the Daewoong Agreement to provide us exclusive rights to distribute DWP-450 in certain territories. Any termination or loss of significant rights, including exclusivity, under the Daewoong Agreement would materially and adversely affect our development or commercialization of DWP-450.
Pursuant to the Daewoong Agreement, we have secured an exclusive license from Daewoong, a South Korean pharmaceutical manufacturer, to import, distribute, promote, market, develop, offer for sale and otherwise commercialize and exploit DWP-450 for aesthetic indications in the United States, EU, Canada, Australia, Russia, C.I.S., and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan. The Daewoong Agreement imposes on us obligations relating to exclusivity, territorial rights, development, commercialization, funding, payment, diligence, sublicensing, intellectual property protection and other matters. We are obligated to conduct development activities, obtain regulatory approval of DWP-450, obtain from Daewoong all of our product supply requirements for DWP-450 and pay to Daewoong regulatory milestone payments and other cash payments in connection with the net sales of DWP-450.
In addition, under the Daewoong Agreement, we are required to submit our commercialization plan to a Joint Steering Committee, or JSC, comprised of an equal number of development and commercial representatives from Daewoong and us, for review and input. Although the Daewoong Agreement provides us with final decision-making power regarding the marketing, promotion, sale and/or distribution of DWP-450, any disagreement among the JSC would be referred to Daewoong’s and our respective senior management for resolution
if the JSC is unable to reach a decision within thirty days,
which may result in a delay in our ability to implement our commercialization plan or harm our working relationship with Daewoong.
After the commercial launch of DWP-450, if it occurs, Daewoong may, at its sole option, elect to convert the exclusive license to a non-exclusive license if we fail to achieve minimum annual purchase targets of DWP-450 upon commercialization of the product.
The initial term of the Daewoong Agreement will expire on the later of September 30, 2023 or the fifth anniversary of our receipt of marketing approval in any of the aforementioned territories. The Daewoong Agreement will renew for unlimited additional three year terms after the expiration of the initial term, only if we meet certain performance requirements during the initial term or preceding renewal term, as applicable. We or Daewoong may terminate the Daewoong Agreement if the other party breaches any of its duties or obligations and such breach continues without cure for ninety days, or thirty days in the case of a payment breach, or if we declare bankruptcy or assign our business for the benefit of creditors.
If we breach any material obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages to Daewoong and Daewoong may have the right to terminate our license. In addition, if any of the regulatory milestones or other cash payments become due under the terms of the Daewoong Agreement, we may not have sufficient funds available to meet our obligations, which would allow Daewoong to terminate the Daewoong Agreement. Any termination or loss of rights (including exclusivity) under the Daewoong Agreement would materially and adversely affect our ability to develop and commercialize DWP-450, which in turn would have a material adverse effect on our business, operating results and prospects. If we were to lose our rights under the Daewoong Agreement, we believe it would be difficult for us to find an alternative supplier of a botulinum toxin type A complex. In addition, to the extent the alternative supplier has not secured regulatory approvals in a jurisdiction, we would have to expend significant resources to obtain regulatory approvals which may never be obtained
or require several years to obtain, which could significantly delay commercialization. We may be unable to raise additional capital to fund our operations during this extended time on terms acceptable to us or at all. If we were to commercialize DWP-450 and later experienced delays as a result of a dispute with Daewoong, the demand for DWP-450 could be materially and adversely affected.
We currently rely solely on Daewoong to manufacture DWP-450, and as such, any production or other problems with Daewoong could adversely affect us.
We depend solely upon Daewoong for the manufacturing of DWP-450. Although alternative sources of supply may exist, the number of third-party suppliers with the necessary manufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers, which could have a material adverse effect on our business. New suppliers of any product candidate would be required to qualify under applicable regulatory requirements and would need to have sufficient rights under applicable intellectual property laws to the method of manufacturing the product candidate. Obtaining the necessary FDA approvals or other qualifications under applicable regulatory requirements and ensuring non-infringement of third-party intellectual property rights could result in a significant interruption of supply and could require the new manufacturer to bear significant additional costs which may be passed on to us.
In addition, our reliance on Daewoong entails additional risks, including reliance on Daewoong for regulatory compliance and quality assurance, the possible breach of the Daewoong Agreement by Daewoong, and the possible termination or nonrenewal of the Daewoong Agreement at a time that is costly or inconvenient for us. Our failure, or the failure of Daewoong, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of DWP-450.
Our dependence on Daewoong also subjects us to all of the risks related to Daewoong’s business, which are all generally beyond our control. Daewoong’s ability to perform its obligations under the Daewoong Agreement is dependent on Daewoong’s operational and financial health, which could be negatively impacted by several factors, including changes in the economic, political and legislative conditions in South Korea and the broader region in general and the ability of Daewoong to continue to successfully attract customers and compete in its market. Furthermore, upon completion of inspections, Daewoong’s recently constructed manufacturing facility will be Daewoong’s only facility meeting FDA and EMA cGMP requirements. Daewoong’s lack of familiarity with, or inability to effectively operate, the facility and produce products of consistent quality may harm our ability to compete in our market.
Any failure or refusal to supply DWP-450 or any other product candidates or products that we may develop could delay, prevent or impair our clinical development or commercialization efforts.
The FDA conducted a cGMP and pre-approval inspection of Daewoong’s manufacturing facility in South Korea related to our BLA for DWP-450 from November 8 to November 17, 2017. At the end of the inspection, the FDA issued an FDA Form 483 with ten inspectional observations to Daewoong. The Form 483 includes observations relating to the need for adherence to and improved procedures, processes and documentation relating to investigations of and corrective actions for non-compliance with specifications for batches and components, environmental monitoring, drug substance testing, computer system access, material handling and staff training. Daewoong timely responded to the FDA with a plan for implementing corrective actions related to these observations and is awaiting a response from the FDA.
Daewoong has informed us that it believes that its responses to the Form 483 will satisfy the requirements of the FDA and that no significant further actions will be necessary. However,
the FDA may not be satisfied with such response, and it may require Daewoong to take additional corrective actions or other measures, require re-inspection, or decline to approve the facility. If any of these scenarios were to occur, we and Daewoong may be required to expend significant time and resources, which could cause delays and adversely affect our results of operations. Furthermore, any failure to adequately resolve the FDA’s observations at the Daewoong facility would likely cause FDA approval of DWP-450 to be delayed or denied and therefore our ability to generate revenues from DWP-450 could be materially and adversely affected and our reputation and ability to continue as a going concern could be seriously harmed.
We may require additional financing to fund our future operations, and a failure to obtain additional capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our operations.
We presently are entirely dependent on cash from ALPHAEON, and as of
September 30, 2017
, we did not have any cash or cash equivalents. We have utilized substantial amounts of cash since our inception in order to conduct clinical development to support regulatory approval of DWP-450 initially in the United States, EU and Canada. We expect that we will continue to expend substantial resources for the foreseeable future in order to finalize regulatory approval for DWP-450, to commercialize DWP-450, for the development of any other
indications of DWP-450, and for the clinical development of any additional product candidates we may choose to pursue.
In the near term, these expenditures will include costs associated with the development and expansion of our sales force and commercialization infrastructure in connection with commercializing DWP-450, if approved. In the long term, these expenditures will include costs associated with the continued commercialization of DWP-450, if approved, and any of our future product candidates, such as research and development, conducting preclinical studies and clinical trials, and manufacturing and supplying as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the regulatory approval process and commercialization expenditures needed to meet our sales objectives is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of DWP-450 or any future product candidates. Upon the closing of this offering, we expect to incur additional costs associated with operating as a public company, hiring additional personnel and expanding our operations.
Based on our estimated use of proceeds, we anticipate that the net proceeds of this offering, together with resources from ALPHAEON (including the payment of certain expenses on our behalf that we will evidence as related party borrowings from ALPHAEON), will be sufficient to fund our operating plan through the launch and initial commercialization of DWP-450, if approved by the FDA.
We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available capital resources much faster than we currently expect or require more capital to fund our operations than we currently expect.
For example, we may require additional funds earlier than we currently expect in the event that we are required to conduct additional clinical trials, experience a delay in receiving marketing approval of DWP-450 or market acceptance of DWP-450 is slower than expected.
Our currently anticipated expenditures for the commercialization of DWP-450 may exceed the net proceeds from this offering and our
resources from ALPHAEON and we may need to seek additional financing
.
We have historically funded our operations through the support of ALPHAEON, from which funding may not be available after the completion of this offering. We may need to raise additional capital following the completion of this offering to fund our operations and continue to support both our near and long-term expenditures.
Our future capital requirements depend on many factors, including:
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the timing of, and the costs involved in, obtaining regulatory approvals for DWP-450 or any future product candidates;
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the cost of commercialization activities if DWP-450 or any future product candidates are approved for sale, including marketing, sales and distribution costs;
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the scope, progress, results and costs of researching and developing any future product candidates, and conducting preclinical and clinical trials;
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costs under our third-party manufacturing and supply arrangements for our current and any future product candidates and any products we commercialize;
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our ability to establish and maintain strategic collaborations, licensing or other arrangements and the terms of and timing of such arrangements;
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the degree and rate of market acceptance of DWP-450 or any future approved products;
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the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products;
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costs of operating as a public company; and
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costs associated with any acquisition or in-license of products and product candidates, technologies or businesses.
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If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our
product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings or offerings of securities convertible into our equity, the ownership interest of our existing stockholders will be diluted and the terms of any such securities may have a preference over our common stock. Debt financing, receivables financing and royalty financing may also be coupled with an equity component, such as warrants to purchase our capital stock, which could also result in dilution of our existing stockholders’ ownership, and such dilution may be material. Additionally, if we raise additional capital through debt financing, we will have increased fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures to meet specified financial ratios, and other operational restrictions, any of which could restrict our ability to commercialize our product candidates or operate as a business and may result in liens being placed on our assets. If we were to default on any of our indebtedness, we could lose such assets. If we do not raise capital, whether in this offering or otherwise, there will remain substantial doubt about our ability to continue as a going concern.
In the event we are unable to raise sufficient capital to fund our commercialization efforts to achieve specified minimum sales targets under the Daewoong Agreement, we will lose exclusivity of the license that we have been granted under the Daewoong Agreement. In addition, if we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly reduce operating expenses and delay, reduce the scope of or discontinue some of our development programs, commercialization efforts or other aspects of our business plan, out-license intellectual property rights to our product candidates and sell unsecured assets, or a combination of the above. As a result, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and may have a material adverse effect on our business, results of operations, financial condition and/or our ability to fund our scheduled obligations on a timely basis or at all.
As of September 30, 2017, w
e have concluded that we do not have sufficient cash to fund our operations through November 2018, a year from the date our financial statements for the nine months ended September 30, 2017 were issued, without additional financing, and as a result, there is substantial doubt about our ability to continue as a going concern.
Our ability to continue as a going concern is an issue raised as a result of ongoing operating losses and a lack of financing commitments to meet cash requirements. We have incurred recurring losses from operations in fiscal years
2016
and
2015
and the
nine months ended September 30, 2017
, respectively, and we had negative working capital as of
December 31, 2016
and
September 30, 2017
. Our ability to continue as a going concern is subject to our ability to generate a profit or obtain appropriate financing from outside sources, including obtaining additional funding from the sale of our securities, increasing sales of our products or obtaining loans from third parties where possible. If we cannot continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that our stockholders may lose some or all of their investment in us. After this offering, we may not raise the funding we require such that substantial doubt about our ability to continue as a going concern continues. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all.
Even if DWP-450 or future product candidates, if any, receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use necessary for commercial success.
Even if DWP-450 receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients and others in the medical aesthetics community. The commercial success of DWP-450 and any future product candidates, if approved, will depend significantly on the broad adoption and use of the resulting product by physicians for approved indications, including, in the case of DWP-450, the treatment of glabellar lines and other aesthetic indications that we may seek to pursue.
We are aware that other companies are seeking to develop alternative products and treatments, any of which could impact the demand for DWP-450.
The degree and rate of physician adoption of DWP-450 and any future product candidates, if approved, depend on a number of factors, including:
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the effectiveness, ease of use, and safety of DWP-450 and any future product candidates as compared to existing products or treatments;
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physician and patient willingness to adopt DWP-450 to treat glabellar lines or other aesthetic indications we may pursue over products and brands with which patients and physicians may have more familiarity or recognition
or additional approved uses
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overcoming any biases physicians or patients may have toward the use, safety and efficacy of existing products or treatments
and successful marketing of the benefits of a 900 kDa botulinum toxin type A complex
;
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the cost of DWP-450 and any future product candidates in relation to alternative products or treatments and willingness to pay for the product or treatment, if approved, on the part of patients;
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proper training and administration of DWP-450 and any future product candidates by physicians and medical staff;
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patient satisfaction with the results and administration of DWP-450 and any future product candidates and overall treatment experience;
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changes in pricing and
promotional
efforts by competitors;
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patient demand for the treatment of glabellar lines or other aesthetic indications that may be approved in the future;
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the willingness of patients to pay for DWP-450 and any future product candidates relative to other discretionary items, especially during economically challenging times;
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the revenue and profitability that DWP-450 and any future product candidates may offer a physician as compared to alternative products or treatments;
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the effectiveness of our sales, marketing and distribution efforts;
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any adverse impact on our brand resulting from KOL relationships with our parent organizations, whether or not related to us; and
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adverse
publicity
about our product candidates, competitive products, or the industry as a whole, or favorable publicity about competitive products.
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In addition, in its clinical trials, DWP-450 was clinically tested with one DWP-450 unit compared to one BOTOX unit. If approved, DWP-450 is expected to be the only known neurotoxin product in the United States with a 900 kDa complex other than BOTOX. We believe that aesthetic physicians’ familiarity with the 900 kDa complex’s handling, preparation and dosing will more easily facilitate incorporation of DWP-450 into their practices. However, the ease of integration of DWP-450 into a physician’s practice may not be as seamless as we anticipate.
If DWP-450 or any future product candidates are approved for use but fail to achieve the broad degree of physician adoption necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business.
Even if DWP-450 is approved for commercialization, if there is not sufficient patient demand for DWP-450, our financial results and future prospects will be harmed.
Treatment of glabellar lines with DWP-450 is an elective procedure, the cost of which must be borne by the patient, and we do not expect costs related to the treatment to be reimbursable through any third-party payor, such as Medicaid, Medicare or commercial insurance. The decision by a patient to elect to undergo treatment with
DWP-450 for the treatment of glabellar lines or other aesthetic indications that we may pursue may be influenced by a number of factors, including:
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the success of any sales and marketing programs that we, or any third parties we engage, undertake, and as to which we have limited experience and are still in the process of planning and developing;
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the extent to which physicians recommend DWP-450 to their patients;
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the extent to which DWP-450 satisfies patient expectations
and overcoming patient loyalty with existing products and brands
;
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our ability to properly train physicians in the use of DWP-450 such that their patients do not experience excessive discomfort during treatment or adverse side effects;
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the cost, safety and effectiveness of DWP-450 versus other aesthetic treatments;
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the development
and
availability of alternative products and treatments that seek to address similar goals;
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consumer sentiment about the benefits and risks of aesthetic procedures generally and DWP-450 in particular;
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the success of any direct-to-consumer marketing efforts that we may initiate;
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the ability and ease with which physicians are able to incorporate DWP-450 into their practices;
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changes in demographic and social trends; and
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general consumer
confidence
, which may be impacted by economic and political conditions.
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It is expected that upon U.S. approval, DWP-450 will be the only U.S. neurotoxin without a therapeutic indication, although other companies may seek to develop a similar product in the future. We believe pursuing an aesthetic-only non-reimbursed product strategy will allow for meaningful strategic advantages in the United States, including pricing and marketing flexibility. However, physicians may choose to not pass any cost benefits received by them due to such pricing flexibility to their patients. In addition, companies offering aesthetic products competitive to DWP-450, whether they pursue an aesthetic-only non-reimbursed product strategy or not, may nonetheless try to compete with DWP-450 on price both directly through rebates, promotional programs and coupons and indirectly through attractive product bundling and customer loyalty programs. Our business, financial results and future prospects will be materially harmed if we cannot generate sufficient patient demand for DWP-450, if approved.
In addition, we have not pursued regulatory approval of DWP-450 for indications other than for the treatment of glabellar lines, which may limit adoption of DWP-450. Many of our competitors have received approval of multiple aesthetic and therapeutic indications for their neurotoxin product and may be able to market such product for use in a way we cannot. For example, we are aware that one of our competitors,
Allergan plc, or Allergan
, has obtained and plans to obtain additional indications for their neurotoxin product within medical aesthetics and therefore is able to market their product across a greater number of indications than DWP-450. If we are unable to obtain approval for indications in addition to our anticipated approval for glabellar lines, our marketing efforts for DWP-450 will be severely limited. As a result, we may not generate physician and patient demand or approval of DWP-450.
DWP-450 and any future product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration and expansion.
In the near term, we expect to enter into the highly competitive aesthetic neurotoxin market through the commercial launch of DWP-450, if approved. In the long term, we expect to expand our focus to the broader self-pay healthcare market. While numerous companies are engaged in the development, patenting, manufacture and marketing of aesthetic neurotoxin products competitive with DWP-450, Allergan, through its product BOTOX, held approximately 73.1% of the global market share in the aesthetic neurotoxin market by revenue in 2016. Allergan and many of these potential competitors are large, experienced companies that enjoy significant competitive
advantages, such as substantially greater financial, research and development, manufacturing, personnel and marketing resources, greater brand recognition and more experience and expertise in obtaining marketing approvals from the FDA and other regulatory authorities.
These competitors may also try to compete with DWP-450 on price both directly, through rebates and promotional programs to high volume physicians and coupons to patients, and indirectly, through attractive product bundling with complimentary products such as dermal fillers that offer convenience and an effectively lower price compared to the total price of purchasing each product separately. These companies may also seek to compete based on their longer operating history. Larger competitors may also be able to offer greater customer loyalty benefits to encourage repeat use of their products and finance a sustained global advertising campaign to compete with our commercialization efforts at launch. A number of our larger competitors also have access to a significant amount of studies and research papers that they could use to compete with us. Competitors and other parties may also seek to impact regulatory approval of the BLA filed for DWP-450 or our future product applications through the filing of citizen petitions or other similar documents, which could require costly and time-consuming responses to the regulatory agencies. We could face competition from other sources as well, including academic institutions, governmental agencies and public and private research institutions. In addition, we are aware of other companies also developing and/or marketing products in one or more of our target markets, including competing injectable botulinum toxin type A formulations that are currently in Phase III clinical development in North America for the treatment of glabellar lines. We would face similar risks with respect to any future product candidates that we may seek to develop or commercialize in the broader self-pay healthcare market. Successful competitors in that market have the ability to effectively discover, obtain patents, develop, test and obtain regulatory approvals for products, as well as the ability to effectively commercialize, market and promote approved products, including communicating the effectiveness, safety and value of products to actual and prospective customers and medical staff.
Our planned strategy to compete in the aesthetic neurotoxin market is dependent on the marketing and pricing flexibility that we believe is afforded to a company with a portfolio limited to self-pay healthcare, comprised of products and procedures that are not reimbursed by third-party payors. In the event that regulations applicable to reimbursed products are changed to apply to self-pay healthcare products, we would no longer have this flexibility and we may not be able to compete as effectively with our competitors which may have a material affect on our business, financial condition and results of operations.
Upon marketing approval, the first expected use of DWP-450 will be in aesthetic medicine. The aesthetic product market, and the facial aesthetic market in particular, is highly competitive and dynamic and is characterized by rapid and substantial technological development and product innovations. We are seeking regulatory approval of DWP-450 for the treatment of glabellar lines. We anticipate that DWP-450, if approved, will face significant competition from other facial aesthetic products, such as other injectable and topical botulinum toxins and dermal fillers. If approved, DWP-450 may also compete with unapproved and off-label treatments. In addition, competitors may develop new technologies within the aesthetic market which may be superior in safety and efficacy to DWP-450
or offer alternatives to the use of toxins, including surgical and radio frequency techniques
. To compete successfully in the aesthetic market, we will have to demonstrate that DWP-450 is at least as safe and effective as current products sold by our competitors. Competition in the aesthetic market could result in price-cutting and reduced profit margins, any of which would harm our business, financial condition and results of operations.
Due to less stringent regulatory requirements, there are many more aesthetic products and procedures available for use in international markets than are approved for use in the United States. There are also fewer limitations on the claims that our competitors in international markets can make about the effectiveness of their products and the manner in which they can market them. As a result, we face more competition in these markets than in the United States.
Our commercial opportunity could also be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than DWP-450 or any other product that we may develop. Our competitors also may obtain FDA or other regulatory approval for these products more rapidly than we may obtain approval for our products
, which could result in our competitors establishing a strong market position before we are able to enter the market, which may create additional barriers to successfully commercializing our products and attracting physician and patient demand.
DWP-450 or any other product candidate for which we seek approval as a biologic may face competition sooner than anticipated.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCI Act, as part of the Patient Protection and Affordable Care Act, an abbreviated pathway for the approval of biosimilar or interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics. Under the BPCI Act, an application for a biosimilar product cannot be approved by the FDA until twelve years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. For example, one company has filed a Citizen Petition requesting that the FDA not apply the BPCI Act to pre-enactment BLAs. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement the BPCI Act may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that DWP-450 should qualify for the twelve-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider any of our product candidates to be a reference product for competing products, potentially creating the opportunity for competition sooner than anticipated. Moreover, the extent to which a biosimilar product, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
DWP-450 is manufactured exclusively in one facility located in South Korea, and we plan to utilize this facility in the future to support commercial production if DWP-450 is approved. If this facility were damaged or destroyed, or if there occurs a significant disruption in operations at this facility for any reason, our ability to continue to operate our business would be materially harmed.
Daewoong developed the manufacturing process for DWP-450 and manufactures DWP-450 in a recently constructed facility located in South Korea, which was completed in 2016 with the intention to comply with FDA and EMA regulations and is now fully validated by Daewoong under cGMP requirements. FDA and EMA approval of the facility is pending review and expected to occur in the first quarter of 2018. Any delay or failure to obtain these approvals may result in delays in the initiation of commercial production of DWP-450, which could have an adverse effect on our business and prospects.
We plan to utilize Daewoong’s facility in the future for commercial production if DWP-450 is approved. If this facility were to be damaged, destroyed or otherwise unable to operate or comply with regulatory requirements, whether due to earthquakes, fire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages or otherwise, or if operations at the facility is disrupted for any other reason, such an event could, if DWP-450 is approved, jeopardize Daewoong’s ability to manufacture DWP-450 as promptly as we or our customers expect or possibly at all. If we experience delays in achieving our development objectives, or if Daewoong is unable to manufacture DWP-450 within a timeframe that meets ours and our customers’ expectations, our business, prospects, financial results and reputation could be materially harmed.
If these disruptions exceed coverage provided by Daewoong’s insurance policies, Daewoong may be unable to satisfy its obligations to us.
We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters or political unrest and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster or political unrest.
Daewoong, the sole manufacturer of DWP-450, manufactures DWP-450 in a facility located in South Korea.
In addition, the underlying drug substance for DWP-450 is also manufactured in a separate facility on the same campus.
The risk of extreme weather and earthquakes in the Pacific Rim region is significant due to the proximity of major earthquake fault lines. There is also a level of political unrest or uncertainty in South Korea and the broader region. Natural disasters or political unrest could severely disrupt Daewoong’s operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.
If a natural disaster, political unrest, power outage or other event occurred that prevented Daewoong from using all or a significant portion of its manufacturing facility, or prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. In particular, because Daewoong manufactures DWP-450 in its facility, in the event of a natural disaster, political unrest, power outage or other event affecting this facility, we would be required to seek additional manufacturing facilities and capabilities that have obtained the necessary approvals required by state, federal or other applicable authorities in order to continue or resume manufacturing activities, which we may not be able to do on commercially reasonable terms if at all. Any disaster recovery and business continuity plans that we and Daewoong have in place or put in place may not be adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of our or Daewoong’s lack of disaster recovery and business continuity plans, or the adequacy thereof, which could have a material adverse effect on our business.
Our ability to market DWP-450, if approved, will be limited to use for the treatment of glabellar lines, and if we want to expand the indications for which we market DWP-450, we will need to obtain additional regulatory approvals, which will be expensive and may not be granted.
We are currently seeking regulatory approval for DWP-450 in the United States, EU and Canada for the treatment of moderate to severe glabellar lines. If DWP-450 is approved for this indication, the terms of that approval will restrict our ability to market or advertise DWP-450 for other indications, which could limit physician and patient adoption.
Under the U.S. Federal Food Drug and Cosmetic Act, we may generally only market DWP-450 for approved indications.
Many of our competitors have received approval of multiple aesthetic and therapeutic indications for their neurotoxin products and may be able to market such products for use in a way we cannot.
For example, we are aware that one of our competitors, Allergan, has obtained and plans to obtain additional indications for its neurotoxin product within medical aesthetics and therefore is able to market its product across a greater number of indications than DWP-450. If we are unable to obtain approval for indications in addition to our anticipated approval for glabellar lines, our marketing efforts for DWP-450 will be severely limited.
As a result, we may not generate physician and patient demand or approval of DWP-450.
We have entered into a therapeutic option letter agreement with ALPHAEON relating to certain rights to the therapeutic indications of DWP-450 under the Daewoong Agreement.
On December 18, 2017, we entered into a therapeutic option letter agreement with ALPHAEON, or the therapeutic agreement, relating to certain rights to the therapeutic indications of DWP-450 under the Daewoong Agreement. We previously paid an aggregate of $1.0 million to Daewoong pursuant to the Daewoong Agreement to receive an option to expand the permitted uses of DWP-450 to cover all therapeutic uses in the covered territories and Japan, or the therapeutic option. Pursuant to the Daewoong Agreement, we may exercise the therapeutic option for a confidential exercise price, or the therapeutic option fee, upon thirty days notice to Daewoong. The therapeutic option expires December 31, 2018.
However, pursuant to the therapeutic agreement, we have agreed not to sell, sub-license or otherwise dispose in whole or in part the therapeutic option or the rights underlying the therapeutic option and we will hold the therapeutic option and the underlying rights in trust for ALPHAEON. We further agreed not to develop or make plans to develop any therapeutic indications for DWP-450. In exchange for this, and as of the date of the therapeutic agreement, ALPHAEON reduced the intercompany payable owed by us by the amount of $2.5 million. If prior to December 31, 2018, ALPHAEON desires for us to exercise the therapeutic option in whole or in part on ALPHAEON’s behalf, ALPHAEON will wire funds to us equal to the therapeutic option fee and we will apply those funds solely to the exercise of the therapeutic option fee. The obligations stated above will terminate upon the prior written consent of ALPHAEON, which consent may be withheld for any or no reason.
In addition, under the therapeutic agreement, ALPHAEON has the right to negotiate the entry into an agreement with Daewoong for distribution rights for therapeutic indications of DWP-450 that are separate and distinct from the Daewoong Agreement, or the ALPHAEON-Daewoong agreement. We have agreed to ALPHAEON and Daewoong’s entry into the ALPHAEON-Daewoong agreement, so long as the terms do not diminish, interfere with or adversely affect our ability to distribute DWP-450 for aesthetic indications in the covered territories and Japan under the Daewoong Agreement. To the extent sales under the ALPHAEON-Daewoong agreement require royalty payments to be made to the Evolus contributors,
which is defined below,
ALPHAEON will either enter into a direct agreement with the Evolus contributors for such royalty payments or make quarterly payments to us equal to a
low single digit percentage of net sales of the therapeutic indications of DWP-450 to be paid solely to the Evolus contributors.
It is expected that upon U.S. approval, DWP-450 will be the only U.S. neurotoxin without a therapeutic indication. We believe pursuing an aesthetic-only non-reimbursed product strategy will allow for meaningful strategic advantages in the United States, including pricing and marketing flexibility. Additionally, our entry into the therapeutic agreement eliminates our ability to expand the permitted uses of DWP-450 for therapeutic indications without ALPHAEON’s consent, which consent may be withheld for any or no reason. Even though we presently intend to pursue an aesthetic-only non-reimbursed product strategy, we could in the future decide to pursue therapeutic indications for DWP-450 (subject to ALPHAEON’s consent) or any of our future product candidates. We may, however, be deterred from pursuing therapeutic indications for DWP-450 by the consent requirement of the therapeutic agreement and may be further deterred from pursuing therapeutic indications for any of our future product candidates. As a result, we may not pursue product candidates with therapeutic indications.
If DWP-450 or any of our future product candidates are approved for marketing, and we are found to have improperly promoted off-label uses, or if physicians misuse our products or use our products off-label, we may become subject to prohibitions on the sale or marketing of our products, significant fines, penalties, sanctions, or product liability claims, and our image and reputation within the industry and marketplace could be harmed.
The FDA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about pharmaceutical products, such as DWP-450, if approved. In particular, a product may not be promoted for uses or indications that are not approved by the FDA or
other similar regulatory authorities
as reflected in the product’s approved labeling. If we receive marketing approval for DWP-450 for the treatment of moderate to severe glabellar lines, which is the first indication that we are pursuing, physicians could use DWP-450 on their patients in a manner that is inconsistent with the approved label, potentially including for the treatment of other aesthetic or therapeutic indications. If we are found to have promoted such off-label uses, we may receive warning letters from the FDA, EMA and other regulatory agencies, and become subject to significant liability, which would materially harm our business. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management’s attention could be diverted from our business operations, significant legal expenses could be incurred, and our reputation could be damaged. The FDA has also required that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed in order to resolve FDA enforcement actions. If we are deemed by the FDA to have engaged in the promotion of our products for off-label use, we could be subject to FDA prohibitions or other restrictions on the sale or marketing of our products and other operations or significant fines and penalties, and the imposition of these sanctions could also affect our reputation and position within the industry.
Physicians may also misuse DWP-450 or any future product candidates, if approved, or use improper techniques, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If DWP-450 or any future product candidates, if approved, are misused or used with improper techniques
or are determined to cause or contribute to patient harm
, we may become subject to costly litigation by our customers or their patients. Product liability claims could divert management’s attention from our core business, be expensive to defend, result in sizable damage awards against us that may not be covered by insurance and subject us to negative publicity resulting in reduced sales of our products. Furthermore, the use of DWP-450 or any future product candidates, if approved, for indications other than those cleared by the FDA may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients. Any of these events could harm our business and results of operations and cause our stock price to decline.
DWP-450 or any of our future product candidates may cause serious or undesirable side effects or possess other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of approved labeling or result in post-approval regulatory action.
Unforeseen side effects from DWP-450 or our future product candidates could arise either during clinical development or, if approved, after marketing such product. Undesirable side effects caused by product candidates could cause us or regulatory authorities to interrupt, modify, delay or halt clinical trials and
could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA
or similar regulatory authorities
. Results of clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, trials could be suspended or terminated and the FDA, EMA
or similar regulatory authorities
could order us to cease further development of or deny approval of 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 product liability claims. Any of these occurrences may harm our business, financial condition, operating results and prospects.
Additionally, if we or others identify undesirable side effects, or other previously unknown problems, caused by DWP-450, or any of our future product candidates, after obtaining regulatory approval in the United States or other jurisdictions, a number of potentially negative consequences could result, including:
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regulatory authorities may withdraw their approval of the product;
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regulatory authorities may require a recall of the product or we may voluntarily recall a product;
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regulatory authorities may require the addition of warnings or contraindications in the product labeling, narrowing of the indication in the product label or issuance of field alerts to physicians and pharmacies;
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regulatory authorities may require us to create a medication guide outlining the risks of such side effects for distribution to patients or institute a
Risk Evaluation and Mitigation Strategies, or
REMS;
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we may be subject to limitations as to how we promote the product;
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we may be required to change the way the product is administered or modify the product in some other way;
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regulatory authorities may require additional clinical trials or costly post-marketing testing and surveillance to monitor the safety or efficacy of the product;
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sales of the product may decrease significantly;
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we could be sued and held liable for harm caused to patients; and
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our brand
and
reputation may suffer.
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Any of the above events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our products. The demand for DWP-450 could also be negatively impacted by any adverse effects of a competitor’s product or treatment.
Our failure to successfully in-license, acquire, develop and market additional product candidates or approved products would impair our ability to grow our business.
Although a substantial amount of our effort will focus on the potential regulatory approval and commercialization of DWP-450, a key element of our long-term strategy is to in-license, acquire, develop, market and commercialize a portfolio of products to serve the self-pay aesthetic market, which may include dermal fillers, aesthetic lasers and energy devices, and breast implants. Because our internal research and development capabilities are limited, we may be dependent upon pharmaceutical companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify and select promising pharmaceutical product candidates and products, negotiate licensing or acquisition agreements with their current owners and finance these arrangements.
The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing, sales and other resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-
party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.
Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including preclinical or clinical testing and approval by the FDA, the EMA and other similar regulatory authorities. All product candidates are prone to risks of failure during pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, any approved products that we acquire may not be manufactured or sold profitably or achieve market acceptance.
If we are unable to establish sales and marketing capabilities on our own or through third parties, we will be unable to successfully commercialize DWP-450 or any other future product candidates, if approved, or generate product revenue.
We currently have limited marketing capabilities and no sales organization. To commercialize DWP-450 or any other future product candidates, if approved, in the United States, EU, Canada and other jurisdictions we may seek to enter, we must build our marketing, sales, distribution, managerial and other capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If DWP-450 receives regulatory approval, we expect to market DWP-450 in the United States through an internal specialized sales force and outside the United States through distributors, which will be expensive and time consuming.
We have no prior experience in the marketing, sale and distribution of pharmaceutical products, and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, provide adequate training to sales and marketing personnel, generate sufficient sales leads, effectively manage a geographically dispersed sales and marketing team, adequately provide complementary products to be offered by sales personnel, which may otherwise put us at a competitive disadvantage relative to companies with more extensive product lines, and handle any unforeseen costs and expenses. 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 direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize DWP-450 or any future product candidates. To the extent we commercialize our product candidates by entering into agreements with third-party collaborators, we may have limited or no control over the sales, marketing and distribution activities of these third parties, in which case our future revenues would depend heavily on the success of the efforts of these third parties. If we are not successful in commercializing DWP-450 or any future product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we would incur significant additional losses.
We will need to increase the size of our organization, and we may experience difficulties in managing this growth.
As of September 30, 2017, we had 22 employees, all of whom constitute full-time employees of ALPHAEON, 11 of whom have been assigned to work full time at our company and 11 of whom have been assigned to work part-time at our company.
Upon the completion of this offering, we expect all part-time employees to transition to full-time employees of our company. We will need to continue to expand our managerial, operational, finance and other resources to manage our operations, commercialize DWP-450 or any other product candidates, if approved, and continue our development activities.
For example, we will hire a specialty sales force of approximately 65 sales representatives at commercial launch of DWP-450 and expect to grow our sales force to 150 sales representatives over time.
Our management and personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:
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manage any of our future clinical trials effectively;
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identify, recruit, retain, incentivize and integrate additional employees;
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manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and
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continue
to improve our operational, financial and management controls, reporting systems and procedures.
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Due to our limited financial resources and our limited experience in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our development and strategic objectives, or disrupt our operations.
Our employees, independent contractors, consultants, commercial collaborators, principal investigators, vendors and other agents may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, consultants, commercial collaborators, principal investigators, vendors and other agents may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates applicable regulations, including those laws requiring the reporting of true, complete and accurate information to regulatory agencies, manufacturing standards, and federal and state healthcare laws and regulations. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. Although our strategy to focus only on the self-pay market will reduce our risk under the Anti-Kickback Statute, we could face liability under similar state laws that are not limited to products reimbursed by the government or if we obtain regulatory approval for products reimbursed by federal healthcare programs in the future. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, referrals, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of individually identifiable information, including, without limitation, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. The precautions we take to detect and prevent misconduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, including, without limitation, damages, fines, disgorgement, imprisonment and the curtailment or restructuring of our operations.
In the future, we may rely on third parties and consultants to conduct all of our preclinical studies and clinical trials. If these third parties or consultants do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for any future product candidates.
In the future, we may rely on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as
clinical research organizations, or CROs,
to conduct clinical trials on our product candidates. The third parties with whom we may contract for execution of any of our future clinical trials may play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, any of these third parties may not be our employees, and except for contractual duties and obligations, we would have limited ability to control the amount or timing of resources that they devote to any of our future programs. Although we may rely on these third parties to conduct our preclinical studies and clinical trials, we would remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with the investigational plan and protocol. Moreover, the FDA and other similar regulatory authorities require us to comply with good clinical practices, or GCP, 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. We may also rely on consultants to assist in the execution, including data collection and analysis, of any of our future clinical trials.
In addition, the execution of preclinical studies and clinical trials, and the subsequent compilation and analysis of the data produced, requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties communicate and coordinate with one another. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. If the third parties or consultants conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to conduct additional clinical trials or enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, we may not be able to obtain, or may be delayed in obtaining, regulatory approval for and will not be able to, or may be delayed in our efforts to, successfully commercialize any future product candidates being tested in such trials.
We plan to rely on third-party distribution partners for the distribution of our products, product candidates and services, which could delay or limit our ability to generate revenue.
With respect to certain markets for our products, product candidates and services, we plan to retain third-party service providers to perform functions related to the marketing, distribution and sale of DWP-450 and any future product candidates. Key aspects of those functions may be out of our direct control, including regulatory compliance, warehousing and inventory management, distribution, contract administration, accounts receivable management and call center management. Any future distribution partners may hold significant control over important aspects of the commercialization of our products, including market identification, regulatory compliance, marketing methods, pricing, composition of sales force and promotional activities.
We may not be able to control the amount and timing of resources that any future third-party distribution partners may devote to our products, or prevent any third-party from pursuing the development of alternative technologies or products that compete with our products, except to the extent our contractual arrangements protect us against such activities. Also, we may not be able to prevent any other third-party from withdrawing its support of our products.
If third-party service providers fail to comply with applicable laws and regulations, fail to meet expected deadlines, encounter natural or other disasters at their facilities or otherwise fail to perform their services to us in a satisfactory or predicted manner, or at all, our ability to deliver product to meet commercial demand could be significantly impaired. In addition, we may use third parties to perform various other services for us relating to sample accountability and regulatory monitoring, including adverse event reporting, safety database management and other product maintenance services. If the quality or accuracy of the data maintained by these service providers is insufficient, our ability to continue to market our products could be jeopardized or we could be subject to regulatory sanctions
and any indemnity we may receive from such third-party service providers could be limited by such provider’s ability to pay and otherwise might not be sufficient to cover all losses we may experience
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We will forecast the demand for commercial quantities of our products, and if our forecasts are incorrect, we may experience delays in shipments or increased inventory costs.
If DWP-450 is approved, we will purchase the product from Daewoong. Pursuant to the Daewoong Agreement, we will submit forecasts of anticipated product orders to Daewoong and may from time to time submit purchase orders on the basis of these forecasting requirements. Our limited historical experience may not provide us with enough data to accurately predict future demand. In addition, we expect Daewoong to manufacture its own product, Nabota, a DWP-450 formulation, from this facility. If our business significantly expands, our demand for commercial products would increase and Daewoong may be unable to meet our increased demand. In addition, our product will have fixed future expiration dates. If we overestimate our component and material requirements, we will have excess inventory, which may have to be disposed of if such inventory exceeds approved expiration dates, which would result in lost revenues and increase our expenses. If we underestimate our component and material requirements, we may have inadequate inventory, which could interrupt, delay or prevent delivery of our products to our customers. Any of these occurrences would negatively affect our financial performance.
Our proposed international operations will expose us to risks and failure to manage these risks may adversely affect our operating results and financial condition.
We expect to have operations both inside and outside the United States. International operations are subject to a number of inherent risks, and our future results could be adversely affected by a number of factors, including:
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requirements or preferences for domestic products or solutions, which could reduce demand for our products;
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differing existing or future regulatory and certification requirements;
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management communication and integration problems resulting from cultural and geographic dispersion;
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greater difficulty in collecting accounts receivable and longer collection periods;
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difficulties in enforcing contracts;
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difficulties and costs of staffing and managing non-U.S. operations;
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the uncertainty of protection for intellectual property rights in some countries;
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tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our products;
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more stringent data protection standards in some countries;
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greater risk of a failure of foreign employees to comply with both U.S. and foreign laws, including export and antitrust regulations, the U.S. Foreign Corrupt Practices Act, or the FCPA, quality assurance and other healthcare regulatory requirements and any trade regulations ensuring fair trade practices;
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heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements;
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foreign currency exchange rates;
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potentially adverse tax consequences, including multiple and possibly overlapping tax structures and difficulties relating to repatriation of cash; and
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political and
economic
instability, political unrest and terrorism.
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These and other factors could harm our ability to gain future revenue and, consequently, materially impact our business, operations results and financial condition.
A perception of a conflict of interest of our indirect physician investors by other physicians or patients could negatively impact our future product sales or product approvals.
We have been indirectly funded through investments in our parent organizations, ALPHAEON, and its majority stockholder, SCH, in part, by leading physicians in the self-pay healthcare market, or the indirect physician investors. As a result, through ALPHAEON and SCH, these indirect physician investors may have an indirect financial interest in our success (as our successes, if any, will in part be imputed to ALPHAEON and ultimately SCH), and may be more inclined to use, promote or recommend DWP-450 to their patients and other physicians. Other physicians may become aware of the indirect and potential financial interest and investments of these leading physicians and realize their additional incentives in recommending DWP-450 and any of our future product candidates, if approved. If these other physicians perceive this to be a significant conflict, the other physicians may be unwilling to purchase DWP-450 or any of our future product candidates without obtaining additional third-party evidence of their benefits and efficacy. If patients perceive these
indirect physician investors
have a conflict of interest in recommending DWP-450 or any of our future product candidates, they may be unwilling to purchase DWP-450 or any of our future product candidates
and may have a negative view of our brand which could harm our reputation in the market
. If physicians do not recommend DWP-450 or any of our
future product candidates or patients choose not to purchase any of our products as a result of these conflicts of interest, it could adversely affect our business.
In addition, ALPHAEON is presently a technology company focused on providing healthcare products and services, including patient financing services, and SCH is presently a holding company with direct and/or indirect interests, as the case may be, in ALPHAEON and various other healthcare related and energy related companies. ALPHAEON and SCH may engage in, acquire or otherwise conduct their business in a manner that partners with or otherwise collaborates with the business of our company, DWP-450 and any of our future product candidates. For example, ALPHAEON offers a patient financing service whereby a qualified patient can receive a line of credit for certain approved medical procedures. An aesthetic medical procedure sought by a qualified patient for the treatment of moderate to severe glabellar lines whereby the physician uses DWP-450 may be an eligible procedure covered under ALPHAEON’s patient financing service. As a result, our indirect physician investors may receive an additional incremental benefit through a patient’s use of ALPHAEON’s patient financing service and the physician’s use of DWP-450. If other physicians or patients perceive this to be a significant conflict, the other physicians or patients may be unwilling to purchase DWP-450 or any of our future product candidates without obtaining additional third-party evidence of their benefits and efficacy, and it may result in a negative view of our brand which could harm our reputation in the market.
Further, for our two identical double blind, pivotal U.S. Phase III clinical trials of DWP-450 (EV-001 and EV-002), one of the twenty clinical investigators was at the time of the pivotal clinical trial an indirect investor in our company. For our pivotal double blind, European Phase III study of DWP-450 (EVB-003), one of the nineteen clinical investigators was at the time an indirect investor in our company. Additionally, in our unblinded, non-pivotal U.S. Phase II clinical trials of DWP-450 (EV-004 and EV-006), eight of the twenty-nine clinical investigators are or were at the time of the non-pivotal clinical trial indirect investors of our company. In the future, clinical investigators for any of our future pivotal or non-pivotal clinical trials may be indirect investors in our company. We believe it is likely that they will be required to report some of these relationships to the FDA to the extent not already disclosed. The FDA may conclude that a financial relationship, such as an indirect investment, between us and a clinical investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of marketing approval of one or more of our future product candidates.
In addition, should our products become eligible for government reimbursement in the future, such indirect investments or other financial relationships with clinical investigators may become subject to additional regulations and disclosure requirements.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any future products we develop.
We face an inherent risk of product liability as a result of the clinical testing of DWP-450 and any of our future product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for DWP-450 or any future product candidates or products we develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants or cancellation of clinical trials;
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significant costs to defend the related litigation;
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a diversion of management’s time and our resources;
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substantial monetary awards to trial participants or patients;
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regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions;
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the inability to commercialize any products we develop; and
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a decline in our share price.
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Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of DWP-450 or any future products that we develop. We currently carry product liability insurance covering our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing DWP-450, we intend to expand our insurance coverage to include the sale of DWP-450; however, we may be unable to obtain this liability insurance on commercially reasonable terms.
If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop DWP-450 or any future product candidates, conduct our clinical trials and commercialize DWP-450 or any future products we develop.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, including a chief financial officer, clinical and scientific personnel. We expect to appoint a chief financial officer subsequent to the offering. We believe that our future success is highly dependent upon the contributions of our senior management, particularly Murthy Simhambhatla, Ph.D., our Chief Executive Officer, as well as other members of our senior management team. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of DWP-450 or any future products we develop.
In addition, we could experience difficulties attracting and retaining qualified employees in the future. For example, competition for qualified personnel in the pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel, including experienced sales representatives, as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.
Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Furthermore, the market for aesthetic medical procedures may be particularly vulnerable to unfavorable economic conditions. We do not expect DWP-450 for the treatment of glabellar lines to be reimbursed by any government or third-party payor and, as a result, our product candidate will be wholly-paid for by the patient. Demand for this product will be tied to discretionary spending levels of our targeted patient population. A severe or prolonged economic downturn could result in a variety of risks to our business, including a decline in the discretionary spending of our target patient population, which could lead to a weakened demand for DWP-450 or any future product candidates, if approved. This is particularly true in Europe, which is undergoing a continued severe economic crisis. A severe or prolonged economic down turn may also affect our ability to raise
additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our business.
In addition, our business strategy was developed based on a number of important assumptions about the self-pay healthcare market. For example, we believe that the number of self-pay healthcare procedures will increase in the future. However, these trends are uncertain and limited sources exist to obtain reliable market data. Therefore, sales of DWP-450 or any of our future product candidates could differ materially from our projections if our assumptions are incorrect. In addition, our strategy of focusing exclusively on the self-pay healthcare market may limit our ability to increase sales or achieve profitability. For example, to maintain the marketing and pricing flexibility we believe results from offering products and procedures that are not reimbursed by third-party payors, we cannot offer products or services available in the broader healthcare market that are reimbursed by third-party payors. This eliminates our ability to offer a substantial number of products. In the event that
we
elect to seek regulatory approval for and market therapeutic indications of DWP-450 (if ALPHAEON consents under the therapeutic agreement, which consent may be withheld for any or no reason) or any other product candidates, we will be subject to regulations governing the marketing and pricing of products which are reimbursed by third-party payors which may have an adverse affect on our business.
Our strategy of focusing exclusively on the self-pay healthcare market may limit our ability to increase sales or achieve profitability.
Our near-term strategy of focusing exclusively on the self-pay healthcare market may limit our ability to increase sales or achieve profitability. For example, to maintain our business model, we cannot offer products or services available in the broader healthcare market that are reimbursed by third-party payors such as Medicare, Medicaid or commercial insurance. This eliminates our ability to offer a substantial number of products.
Pursuant to the Daewoong Agreement, we have an option to expand our license to include therapeutic indications. We have, however, entered into the therapeutic agreement with ALPHAEON pursuant to which
we have agreed not to sell, sub-license or otherwise dispose in whole or in part the therapeutic option or the rights underlying the therapeutic option and we will hold the therapeutic option and the underlying rights in trust for ALPHAEON
.
Even though we presently intend to pursue an aesthetic-only non-reimbursed product strategy, if, pursuant to the therapeutic agreement, ALPHAEON consents
to the expansion of our license to include therapeutic indications
,
which consent may be withheld for any or no reason
, we
may attempt to develop, promote and commercialize new treatment indications and protocols for DWP-450 in the future, but we may not receive the regulatory approvals required to do so in a timely manner, if at all. In addition, if we were to pursue regulatory approvals for additional indications, we would be required to conduct additional clinical trials or studies to support such indications, which would be time consuming and expensive, and may produce results that do not support such regulatory approvals. If we do not obtain additional regulatory approvals or obtain ALPHAEON’s consent under the therapeutic agreement, our ability to expand our business into therapeutic indications will be limited. Further, we would not be able to benefit from the pricing and marketing flexibility we currently enjoy due to our exclusive focus on the aesthetic self-pay healthcare market. We will be required to calculate DWP-450’s ASP, inclusive of both aesthetic and therapeutic sales, for purposes of therapeutic reimbursement. As a result, we may limit our aesthetic neurotoxin discounting to protect our therapeutic neurotoxin reimbursement rate, which many of our competitors currently do. Additional regulations would also impose limits on the permitted interaction with our physician-customers. This would require us to compete without using pricing and marketing flexibility, which we may not be successful at, if at all.
We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, which could result in sanctions or other penalties that would harm our business.
We will incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and regulations regarding corporate governance practices. The listing requirements of the Nasdaq Global Market, or Nasdaq, and the rules of the Securities and Exchange Commission, or SEC, require that we satisfy certain corporate governance requirements. Our management and other personnel will need to devote a
substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.
After this offering, we will be subject to Section 404 of the Sarbanes-Oxley Act, or Section 404, and the related rules of the SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting.
In order to maintain effective internal controls, we will need to assume certain functions that have historically been provided by ALPHAEON and we will need additional financial personnel, systems and resources.
Beginning with the second annual report on Form 10-K that we will be required to file with the SEC, Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (i) following the fifth anniversary of the completion of this offering, (ii) in which we have total annual gross revenue of at least $1.07 billion, or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
To date, we have never conducted a review of our internal controls for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we will be required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from Nasdaq or other adverse consequences that would materially harm our business and reputation.
Our business involves the use of hazardous materials, and we and our third-party manufacturer and supplier must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our research and development and manufacturing activities in the future may, and Daewoong’s manufacturing and supplying activities presently involve the controlled storage, use and disposal of hazardous materials, including botulinum toxin type A, a key component of DWP-450, and other hazardous compounds. We and Daewoong 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 Daewoong’s facilities pending their use and disposal. We and Daewoong cannot eliminate the risk of contamination, which could cause an interruption of Daewoong’s manufacturing processes, our commercialization efforts, business operations and 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 Daewoong for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, this may not 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 certain materials and interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent.
We may use third-party collaborators to help us develop, validate or commercialize any new products, and our ability to commercialize such products could be impaired or delayed if these collaborations are unsuccessful.
We may license or selectively pursue strategic collaborations for the development, validation and commercialization of DWP-450 and any future product candidates. In any third-party collaboration, we would be dependent upon the success of the collaborators in performing their responsibilities and their continued cooperation. Our collaborators may not cooperate with us or perform their obligations under our agreements with them. Our collaborators may choose to pursue alternative technologies in preference to those being developed in collaboration with us. The development, validation and commercialization of our product candidates will be delayed if collaborators fail to conduct their responsibilities in a timely manner or in accordance with applicable regulatory requirements or if they breach or terminate their collaboration agreements with us. Disputes with our collaborators could also impair our reputation or result in development delays, decreased revenues and litigation expenses.
In addition, we may face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. Collaborations are complex and time-consuming to negotiate and document.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such product
candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or 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 obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product
candidates or bring them to market and generate revenue.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. As of
December 31, 2016
, we had $
44.1 million
and $
63.7 million
of federal and state NOLs, respectively, available to offset our future taxable income, if any. These federal NOLs and research and development tax credit carryforwards expire at various dates beginning in 2025. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
U.S. federal income tax reform could adversely affect us.
On December 22, 2017, the Tax Cuts and Jobs Act, or TCJA, was signed into law, significantly reforming the Code. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional
limitations on the deductibility of interest, allows for the expensing of capital expenditures, puts into effect the migration from a “worldwide” system of taxation to a territorial system and modifies or repeals many business deductions and credits. We continue to examine the impact the TCJA may have on our business.
We will evaluate the effect of the
TCJA on our projection of minimal cash taxes or to our net operating losses.
The estimated impact of the TCJA is based on our management’s current knowledge and assumptions and recognized impacts could be materially different from current estimates based on our actual results and our further analysis of the new law.
Our net deferred tax assets and liabilities will be revalued at the newly enacted U.S. corporate rate, and the impact will be recognized in our tax expense in the year of enactment. The impact of the TCJA on holders of our common stock is uncertain and could be adverse. This prospectus does not discuss any such tax legislation or the manner in which it might affect purchasers of our common stock. We urge our stockholders, including purchasers of common stock in this offering, to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our common stock.
Our business and operations would suffer in the event of computer system failures.
Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our current or future product development programs. For example, the loss of clinical trial data from completed or any future ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and liability, damage to our reputation, and the further development of our product candidates could be delayed.
Risks Related to Intellectual Property
If we or any of our current
or
future licensors
, including Daewoong, are unable to maintain, obtain or protect intellectual property rights related to DWP-450 or any of our future product candidates, we may not be able to compete effectively in our market.
We and our current licensor Daewoong currently rely upon a combination of trademarks, trade secret protection, confidentiality agreements and proprietary know-how. Botulinum toxin cannot be patented, as it is produced by
Clostridium
botulinum
, a gram-positive, rod-shaped, anaerobic, spore-forming, motile bacterium with the ability to produce the neurotoxin botulinum. Only the manufacturing process for botulinum toxin can be patented and for which Daewoong obtained a U.S. patent. Under the Daewoong Agreement, we license the trademark associated with DWP-450. Our trade secrets and other confidential proprietary information and those of our licensors could be disclosed or competitors could otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we or any of our current or future licensors may encounter significant problems in protecting and defending our or their intellectual property both in the United States and internationally. If we or any of our current or future licensors are unable to prevent material disclosure of the non-patented intellectual property related to DWP-450 to third parties, we may not be able to establish or maintain a competitive advantage in our market, which could adversely affect our business.
In addition to the protection afforded by trademarks, confidentiality agreements and proprietary know-how, we may in the future rely upon in-licensed patents for any future product offerings. The strength of patents we may in-license in the technology and healthcare fields involves complex legal and scientific questions and can be uncertain. The patent applications that we may in-license may fail to result in issued patents with claims that cover any of our future product candidates in the United States or in other foreign countries, and the issued patents that we may in-license may be declared invalid or unenforceable.
We are reliant on the ability of Daewoong, as the licensor of our only product candidate, and will be reliant on future licensors of any future product candidates, to maintain their intellectual property and protect their intellectual property against misappropriation, infringement or other violation. We may not have primary control over Daewoong’s or our future licensors’ patent prosecution activities. Furthermore, we may not be allowed to comment on prosecution strategies, and patent applications currently being prosecuted may be abandoned by the patent owner without our knowledge or consent. With respect to patents that are issued to our licensors, or patents that may issue on patent applications, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. As a licensee, we are reliant on Daewoong and our future licensors to defend any third-party claims, including Daewoong’s defense in connection with the Medytox Litigation, which is defined below. Our licensors may not defend or prosecute such actions as vigorously or in the manner that we would have if entitled to do so, and we will be subject to any judgement or settlement resulting from such actions. Also, a third-party may challenge the validity of our in-licensing transactions. Furthermore, even if they are unchallenged, any of our future in-licensed patents and patent applications may not adequately protect the licensors or our intellectual property or prevent others from designing around their or our claims.
Third-party claims of intellectual property infringement
, including the Medytox Litigation,
may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the proprietary rights of third parties. Competitors in the field of dermatology, aesthetic medicine and neurotoxins have developed large portfolios of patents and patent applications in fields relating to our business. In particular, there are patents held by third parties that relate to the treatment with neurotoxin-based products for the indication we are currently developing. There may also be patent applications that have been filed but not published that, when issued as patents, could be asserted against us. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the technology, medical device and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter-party reexamination proceedings before the U.S. Patent and Trademark Office, or USPTO. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing DWP-450. As the technology, medical device 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.
Third parties may assert that we or any of our current or future licensors, including Daewoong, are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, methods of manufacture or methods for treatment related to the use or manufacture of DWP-450 or any future product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that DWP-450 or any future product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of DWP-450 or any future product candidates, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtain a license under the applicable patents, or until such patents expire. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our methods of use, the holders of any such patent may be able to block our ability to develop and commercialize the applicable product candidate unless we obtain a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.
In addition to claims of patent infringement, third parties may bring claims against us asserting misappropriation of proprietary technology or other information in the development, manufacture and commercialization of our product candidates. Defense of such a claim would require dedicated time and resources, which time and resources could otherwise be used by us toward the maintenance of our own intellectual property and the development and commercialization of our product candidates or by any of our current or future licensors for operational upkeep and manufacturing of our products. Presently, we, ALPHAEON, SCH and Daewoong are defendants to a lawsuit brought by Medytox, Inc., or Medytox, on June 7, 2017 in the
Superior Court of the State of California,
alleging, among other things,
that Daewoong stole Medytox’s botulinum toxin bacterial strain, or the BTX strain, that Daewoong misappropriated certain trade secrets of Medytox, including the process used to manufacture
DWP-450 (which Medytox claims is similar to its biopharmaceutical drug, Meditoxin) using the BTX strain, and that Daewoong thereby interfered with Medytox’s plan to license Meditoxin to us. Medytox claims that as a result of Daewoong’s conduct, we entered into the Daewoong Agreement instead of an agreement with Medytox to license Meditoxin.
With specific regard to us, Medytox alleges that (i) we have violated California Uniform Trade Secrets Act, Cal. Civ. Code § 3426 because Daewoong’s alleged knowledge of the misappropriation of certain trade secrets of Medytox is imputed to us as a result of our relationship with Daewoong, (ii) we have stolen the BTX strain through our possession of and refusal to return the BTX strain, (iii) we have engaged in unlawful, unfair and fraudulent business acts and practices in violation of California Bus. & Prof. Code § 17200, including conversion of the BTX strain and misrepresentations to the public regarding the source of the botulinum toxin bacterial strain used to manufacture DWP-450, and (iv) the Daewoong Agreement is invalid and in violation of Medytox’s rights.
Medytox seeks, among other things, (i) actual, consequential and punitive damages, (ii) a reasonable royalty, as appropriate, (iii) a declaration that the Daewoong Agreement is void and unenforceable and that Medytox is entitled to disgorgement of all property wrongfully and unjustly retained or acquired by the defendants, including unlawfully gained profits, (iv) injunctive relief prohibiting us from using the license under the Daewoong Agreement and distributing DWP-450, and (v) attorneys’ fees and costs.
Daewoong filed a motion to dismiss or stay for forum non conveniens, claiming that the
place where the complaint has been filed, in the
Superior Court of the State of California
, is not the proper place for the trial of the claims in the complaint because, among other reasons, the underlying facts that gave rise to the complaint occurred in South Korea.
Daewoong’s motion to dismiss was granted by the Superior Court of the State of California on October 12, 2017. As a result, the action filed with the Superior Court of the State of California is stayed pending resolution of the proceedings in South Korea. In October 2017, Medytox initiated a civil lawsuit against Daewoong and its parent company Daewoong Co. Ltd in the Seoul Central District Court in Seoul, South Korea related to the same subject matter in the Medytox litigation. None of us, ALPHAEON or SCH are parties to the litigation in the Seoul Central District Court.
Given the early stage in the Medytox Litigation, we are unable to predict the likelihood of success of Medytox’s claims against us, ALPHAEON, SCH or Daewoong or to quantify any risk of loss.
The Medytox Litigation and any other similar claims, suits, government investigations, and proceedings are inherently uncertain and their results may not be favorable for us.
For example, if the Medytox Litigation has a negative outcome for us, ALPHAEON or Daewoong, it could result in us losing access to DWP-450 and the manufacturing process and require us to negotiate a new license with Medytox for continued access to DWP-450. We may not be able to successfully negotiate such license on terms acceptable to us or at all. If we are unable to license DWP-450, we may not be able to find a replacement product, if at all, without expending significant resources and being required to seek additional regulatory approvals, which would be uncertain, time consuming and costly.
Regardless of the outcome, such proceedings can have an adverse impact on us because of legal costs, diversion of management resources, and other factors.
An adverse ruling against either us or one of the other defendants
of any such proceedings could adversely affect our business, financial position, results of operations, or cash flows and could also result in reputational harm. Any of these consequences could adversely affect our business and results of operations.
In December 2017, Medytox filed a Citizen Petition, or the Citizen Petition, with the FDA. The Citizen Petition seeks to delay approval of the BLA submitted by us in May 2017 for DWP-450 until the FDA determines the identity and source of the botulinum strain for DWP-450 and validates the integrity of the data and information in the BLA. Medytox further requests that the FDA require the source and identity information in the BLA to include a s
ingle nucleotide polymorphism
analysis of the whole genome sequence of the botulinum strain for DWP-450.
The Citizen Petition alleges, among other things, that we made false statements in the BLA about the source and identity of the botulinum strain for DWP-450.
If successful, the Citizen Petition could significantly delay, or even prevent, the FDA’s approval of the BLA. Even if the FDA ultimately denies the Citizen Petition, the FDA may substantially delay approval of or deny the BLA in connection with its response to the Citizen Petition or issues raised therein.
Parties making claims against us or any of our current or future licensors may request and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation
expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement, we or any of our current or future licensors may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties
which may not be commercially or more available
, pay royalties or redesign our infringing products or manufacturing processes, which may be impossible or require substantial time and monetary expenditure. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research, manufacture clinical trial supplies or allow commercialization of DWP-450 or any future product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly. Similarly, third-party patents could exist which might be enforced against our products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.
We may become involved in lawsuits to protect or enforce our intellectual property or the patents and other intellectual property of our licensors, which could be expensive and time-consuming.
Competitors may infringe our intellectual property, including any future patents we may acquire, or the patents and other intellectual property of our licensors, including Daewoong. As a result, we or any of our current or future licensors may be required to file infringement claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or any of our current or future licensors 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 patent claims do not cover its technology or that the factors necessary to grant an injunction against an infringer are not satisfied.
An adverse determination of any litigation or other proceedings could put one or more of such patents at risk of being invalidated or interpreted narrowly. Interference, derivation or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to any of our future patent applications or those of our licensors or collaborators. Litigation or USPTO proceedings brought by us or any of our current or future licensors may fail or may be invoked against us or our licensors by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management or the management of any of our current or future licensors, including Daewoong. We may not be able, alone or with any of our current or future licensors or collaborators, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.
Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex patent litigation longer than we could. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. In addition, the uncertainties associated with litigation could compromise our ability to raise the funds necessary to continue our clinical trials, continue our internal research programs, or in-license needed technology or other product candidates. There could also be public announcements of the results of the hearing, motions, or other interim proceedings or developments. If securities analysts or investors perceive those results to be negative, it could cause the price of shares of our common stock to decline.
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 and in some cases
may even force us to grant a compulsory license to competitors or other third parties. Consequently, we may not be able to prevent third parties from using 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 is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights 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.
In addition, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in domestic and foreign intellectual property laws.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for our
product
candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position.
We seek to protect our trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, collaborators, consultants, advisors and other third parties. We expect to enter into confidentiality and invention assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We employ individuals who were previously employed at other pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. We may not be successful in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees. Any litigation or the threat thereof may adversely affect our ability to hire employees. A loss of key personnel or their work product could diminish or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, results of operations and financial condition.
We may need to license 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 of our future 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 on commercially reasonable terms, or our business could be harmed, possibly materially.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners or customers in our markets of interest. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.
Third parties may assert that we are using trademarks or trade names that are confusingly similar to their marks. If any third-party were able to establish that our trademarks or trade names were infringing their marks, that third-party may be able to block our ability to use the infringing trademark or trade name. In addition, if a third-party were to bring such a claim, we would be required to dedicate time and resources to fight the claim, which time and resources could otherwise be used toward the maintenance of our own intellectual property.
Parties making claims against us may request and obtain injunctive or other equitable relief, which could prevent our ability to use the subject trademarks or trade names. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our 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. We may be required to re-brand one or more of our products, product candidates, or services offered under the infringing trademark or trade name, which may require substantial time and monetary expenditure. Third parties could claim senior rights in marks which might be enforced against our use of trademarks or trade names, resulting in either an injunction prohibiting our sales under those trademarks or trade names.
Risks Related to Government Regulation
Our business and products are subject to extensive government regulation.
We are subject to extensive, complex, costly and evolving regulation by federal and state governmental authorities in the United States, the EU, Canada and other countries, principally by the FDA, the U.S. Drug Enforcement Administration, the Centers for Disease Control and Prevention, the EMA and other similar regulatory authorities. Daewoong is also subject to extensive regulation by the FDA and the South Korean regulatory authorities as well as other regulatory authorities. Our failure to comply with all applicable regulatory requirements, or Daewoong’s failure to comply with applicable regulatory requirements, including those promulgated under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and the Controlled Substances Act, may subject us to operating restrictions and criminal prosecution, monetary penalties and other enforcement or administrative actions, including, sanctions, warning letters, product seizures, recalls, fines, injunctions, suspension, revocation of approvals, or exclusion from future participation in the Medicare and Medicaid programs.
In the event our products receive regulatory approval, we, and our direct and indirect suppliers, including Daewoong, will remain subject to the periodic inspection of our plants and facilities, review of production processes, and testing of our products to confirm that we are in compliance with all applicable regulations. Adverse findings during regulatory inspections may result in requirements that we implement REMS programs, requirements that we complete government mandated clinical trials, and government enforcement actions including those relating to labeling, advertising, marketing and promotion, as well as regulations governing manufacturing controls.
If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenue will be materially impaired.
We may not obtain regulatory approval for the commercialization of DWP-450 or any future product candidates.
The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug and biologic products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, with regulations differing from country to country. Neither we nor any collaboration partner is permitted to market DWP-450 or any future product candidates in the United States until we receive approval of a BLA from the FDA. We submitted a BLA to the FDA in May 2017, a MAA to the EMA in June 2017, and a NDS to Health Canada in July 2017 for DWP-450 for the treatment of glabellar lines. Our BLA and MAA were accepted for review by the FDA and EMA, respectively, in July 2017 and our NDS was accepted for review by Health Canada in October 2017. If we, our products or the manufacturing facilities for our products fail to comply with applicable regulatory requirements, a regulatory agency may:
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impose restrictions on the marketing or manufacturing of the product, suspend or withdraw product approvals or revoke necessary licenses;
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issue warning letters, show cause notices or untitled letters describing alleged violations, which may be publicly available;
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mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
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commence criminal investigations and prosecutions;
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impose other civil or criminal penalties;
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suspend any ongoing clinical trials;
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delay or refuse to approve pending applications or supplements to approved applications filed by us;
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refuse to permit drugs or active ingredients to be imported or exported to or from the United States;
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suspend or impose restrictions on operations, including costly new manufacturing requirements; or
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seize or detain products or require us to initiate a product recall.
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Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA, EMA or other similar foreign regulatory authorities, that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we and our collaborator believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA, the EMA and other similar regulatory authorities. Administering product candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials and result in the FDA, the EMA or other similar regulatory authorities delaying or denying approval of a product candidate for any or all targeted indications.
Regulatory approval of a BLA or BLA supplement, MAA, NDS or other product approval is not guaranteed, and the approval process is expensive and may take several years. The FDA, EMA and other regulatory authorities have substantial discretion in the approval process. Despite the time and expense expended, failure can occur at any stage, and we could encounter problems that cause us to abandon, modify or repeat clinical trials, or perform additional preclinical studies and clinical trials. The number of preclinical studies and clinical trials that will be required for FDA, EMA or other regulatory approval varies depending on the product candidate, the disease or condition that the product candidate is designed to address and the regulations applicable to any particular product candidate. The FDA, EMA and other regulatory authorities can delay, limit or deny approval of a product candidate for many reasons, including the following:
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a product candidate may not be deemed safe, effective, pure or potent;
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the data from preclinical studies and clinical trials may not be deemed sufficient;
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the FDA or other regulatory authorities might not approve our third-party manufacturers’ processes or facilities;
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deficiencies in the formulation, quality control, labeling, or specifications of a product candidate
or in response to citizen petitions or similar documents filed in connection with the product candidate
;
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a general requirement intended to address risks associated with a class of drugs, such as a new REMS requirement for neurotoxins;
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the enactment of new laws or promulgation of new regulations that change the approval requirements; or
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the
FDA
or other regulatory authorities may change their approval policies or adopt new regulations.
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If DWP-450 or any future product candidates fail to demonstrate safety and efficacy in clinical trials or do not gain approval, our business and results of operations will be materially and adversely harmed.
In addition, w
e have entered into an exclusive distribution and supply agreement, or the distribution agreement, with Clarion Medical Technologies Inc., or Clarion. The distribution agreement provides terms pursuant to which we will exclusively supply DWP-450 to Clarion in Canada, if approved. Under the distribution agreement, if we do not receive approval from Health Canada to promote and sell DWP-450 in Canada prior to October 31, 2018, we are obligated to pay liquidated damages to Clarion in the amount of $1.0 million within 30 days of December 31, 2018.
If DWP-450 is not approved by Health Canada prior to October 31, 2018, our business and results of operations could be materially and adversely harmed.
Even if we receive regulatory approval for DWP-450 or any future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, limit or delay regulatory approval and subject us to penalties if we fail to comply with applicable regulatory requirements.
Once regulatory approval has been granted, DWP-450 or any other approved product will be subject to continual regulatory review by the FDA, the EMA and other similar regulatory authorities.
Any regulatory approvals that we or our collaborators receive for DWP-450 or any future product candidates may also be subject to limitations on the approved indications for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product. In addition, if the applicable regulatory agency approves DWP-450 or any future 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 requirements and GCPs, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with DWP-450 or any future product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;
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fines, warning letters or holds on clinical trials;
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refusal by the FDA, EMA or other similar regulatory authorities to approve pending applications or supplements to approved applications filed by us or our strategic collaborators, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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injunctions or the
imposition
of civil or criminal penalties.
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Our ongoing regulatory requirements may also change from time to time, potentially harming or making costlier our commercialization efforts. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business.
If we fail to obtain regulatory approvals in foreign jurisdictions for DWP-450 or any future product candidates, we will be unable to market our products outside of the United States.
In addition to regulations in the United States, we are and will be subject to a variety of foreign regulations governing manufacturing, clinical trials, commercial sales and distribution of our future products. Whether or not we obtain FDA approval for a product candidate, we must obtain approval of the product by the comparable regulatory authorities of foreign countries before commencing clinical trials or marketing in those countries. The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not be able to file for regulatory approvals or to do so on a timely basis, and even if we do file, we may not receive necessary approvals to commercialize our products in markets outside of the United States.
If approved, DWP-450 or any future products may cause or contribute to adverse medical events that we are required to report to regulatory agencies and if we fail to do so, we could be subject to sanctions that would materially harm our business.
Some participants in our clinical trials have reported adverse events after being treated with DWP-450. If we are successful in commercializing DWP-450 or any other products, FDA and foreign regulatory agency regulations require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events that we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA, the EMA or other similar regulatory authority could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products.
We may in the future be subject to various U.S. federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties.
While we do not expect that DWP-450, if approved for the treatment of moderate to severe glabellar lines, will subject us to the various U.S. federal and most state laws intended to prevent health care fraud and abuse, we may in the future become subject to such laws. The Anti-Kickback Statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that would
be paid for in whole or part by Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. Many states have similar laws that apply to their state health care programs as well as private payors. Violations of anti-kickback and other applicable laws can result in exclusion from federal health care programs and substantial civil and criminal penalties.
The federal False Claims Act, or FCA, imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The FCA includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. Some state law equivalents of the above federal laws, such as the Anti-Kickback Statute and FCA, apply to items or services regardless of whether the good or service was reimbursed by a government program, so called all-payor laws. These all-payor laws could apply to our sales and marketing activities even if the Anti-Kickback Statute and FCA laws are inapplicable.
If our marketing or other arrangements were determined to violate anti-kickback or related laws, including the FCA or an all-payor law, then we could be subject to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, individual imprisonment or the curtailment or restructuring of our operations, any of which could materially and adversely affect our ability to operate our business and our financial results.
State and federal authorities have aggressively targeted pharmaceutical companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements with pharmacies and other healthcare providers that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines, have been ordered to implement extensive corrective action plans, and have in many cases become subject to consent decrees severely restricting the manner in which they conduct their business, among other consequences. Additionally, federal and state regulators have brought criminal actions against individual employees responsible for alleged violations. If we become the target of such an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business.
Also, the FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our internal control policies and procedures may not protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations and reputation.
Legislative or regulatory healthcare reforms in the United States and other countries may make it more difficult and costly for us to obtain regulatory clearance or approval of DWP-450 or any future product candidates and to produce, market, and distribute our products after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in the U.S. Congress or other countries that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, regulations and guidance are often revised or reinterpreted by the FDA and other regulatory authorities in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of DWP-450 or any future product candidates. Such changes could, among other things, require:
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changes to manufacturing or marketing methods;
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changes to product labeling or promotional materials;
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recall, replacement, or discontinuance of one or more of our products; and
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additional recordkeeping.
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Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition, and results of operations.
Risks Related to Our Relationship with Alphaeon
ALPHAEON controls the direction of our business, and the concentrated ownership of our common stock and certain contractual rights of ALPHAEON may prevent you and other stockholders from influencing significant decisions.
Assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, immediately following the completion of this offering, ALPHAEON, which is majority-owned by SCH, will own % of our outstanding shares of common stock (or % if the underwriters exercise their option to purchase additional shares in full). As long as ALPHAEON beneficially owns a majority of the voting power of our outstanding common stock, it will generally be able to determine the outcome of all corporate actions requiring stockholder approval, including the election and removal of directors. Even if ALPHAEON were to beneficially own less than a majority of the voting power of our outstanding common stock, it may have the ability to influence the outcome of such corporate actions if it owns a significant portion of our common stock.
In addition, if SCH chooses to sell some or all of its controlling interest in ALPHAEON, it could result in a change-of-control of ALPHAEON which could result in us being indirectly controlled by an unknown third-party.
As a result, ALPHAEON has the ability to control the direction of our business and the concentrated ownership of our common stock, and the contractual rights described above will prevent you and other stockholders from influencing significant decisions. In addition, we may take actions that stockholders other than ALPHAEON do not view as beneficial. This voting control may also discourage transactions involving a change-of-control of our company, including transactions in which you as a holder of our common stock might otherwise receive a premium for your shares.
If ALPHAEON sells a controlling interest in our company to a third-party in a private transaction, you may not realize any change-of-control premium on shares of our common stock and we may become subject to the control of a presently unknown third-party.
Upon completion of this offering, ALPHAEON will continue to control a majority of the voting power of our outstanding common stock. ALPHAEON will have the ability after the lock-up period of 180 days, should it choose to do so, to sell some or all of its shares of our common stock in a privately negotiated transaction, which, if sufficient in size, could result in a change-of-control of our company without your approval and without providing for a purchase of your shares.
In addition, ALPHAEON entered into two substantially similar pledge and security agreements whereby ALPHAEON pledged and granted a continuing first priority lien and security interest in and to all of ALPHAEON’s right, title and interest in, among other items, securities and all other investment property held by ALPHAEON, including ALPHAEON’s entire ownership of our capital stock, or the collateral. The collateral secures the payment and performance of the obligations of ALPHAEON under certain convertible notes issued by ALPHAEON and other related agreements. Upon certain events of default, these secured lenders may take possession, hold, collect, sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose of all or any portion of the collateral, and as such, a change-of-control of our company may result.
In addition, upon such events of default, the registration rights granted to ALPHAEON under the stockholder agreement we entered into with ALPHAEON will immediately and automatically be assigned in full to the secured lenders with respect to any registrable securities held by such secured lenders.
We have no obligation to maintain ALPHAEON’s financial viability and ALPHAEON may not remain current on such obligations.
The ability of ALPHAEON to privately sell its shares of our common stock, with no requirement for a concurrent offer to be made to acquire your shares of our common stock could prevent you from realizing any change-of-control premium on your shares of our common stock that may otherwise accrue to ALPHAEON on its private sale of our common stock. Additionally, if ALPHAEON privately sells its significant equity interest in our company, we may become subject to the control of a presently unknown third-party. Such third-party may have conflicts of
interest with those of other stockholders. In addition, if ALPHAEON sells a controlling interest in our company to a third-party, any future indebtedness we have may be subject to acceleration, and our other commercial agreements and relationships could be impacted, all of which may adversely affect our ability to run our business as described herein and may have a material adverse effect on our operating results and financial condition.
We will be a “controlled company” within the meaning of the Nasdaq Marketplace Rules, and, as a result, will qualify for, and may rely on, exemptions from certain corporate governance requirements.
Upon completion of this offering, ALPHAEON will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the Nasdaq Marketplace Rules. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:
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the requirement that a majority of our board of directors consist of independent directors;
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the requirement that our nominating and corporate governance committee be comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;
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the requirement that our compensation committee be comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
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the
requirement
for an annual performance evaluation of our corporate governance and compensation committees.
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Presently, we intend to utilize these “controlled company” exemptions to the corporate governance requirements of Nasdaq, and as a result, we will elect to not have a majority of independent directors or our nominating and corporate governance and compensation committees consisting entirely of independent directors and we will not be required to have written charters addressing these committees’ purposes and responsibilities or have annual performance evaluations of these committees. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.
Certain of our directors may have actual or potential conflicts of interest because of their ownership of debt and equity securities in ALPHAEON.
Following this offering, Murthy Simhambhatla, Ph.D., Vikram Malik, Simone Blank, Bosun Hau, Kristine Romine, M.D., and Robert Hayman will serve on our board of directors. Such directors or entities they are affiliated with currently own and may in the future own shares of common stock or preferred stock of ALPHAEON, debt instruments convertible into equity interests of ALPHAEON, options to purchase shares of common stock or other equity awards of ALPHAEON. These individuals’ or entities’ holdings of ALPHAEON debt or equity securities, options to purchase shares of ALPHAEON or other equity awards may be significant for some of these persons or entities compared to these persons’ or entities’ total assets. Their positions at ALPHAEON and the ownership of any ALPHAEON equity or equity awards may create, or may create the appearance of, conflicts of interest when these directors are faced with decisions that could have different implications for ALPHAEON than the decisions have for us. These decisions include:
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corporate opportunities;
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the impact that operating decisions for our business may have on ALPHAEON’s consolidated financial statements;
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the impact that operating or capital decisions (including the incurrence of indebtedness) for our business may have on ALPHAEON’s current or future indebtedness or the covenants under that indebtedness;
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business combinations involving us;
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management stock ownership; and
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the intercompany services
and
agreements between ALPHAEON and us.
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Potential conflicts of interest could also arise if we decide to enter into any new commercial arrangements with ALPHAEON or SCH in the future or in connection with ALPHAEON’s desire to enter into new commercial arrangements with third parties.
Furthermore, disputes may arise between ALPHAEON and us relating to our past and ongoing relationship, and these potential conflicts of interest may make it more difficult for us to favorably resolve such disputes, including those related to:
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indemnification and other matters arising from this offering;
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the nature, quality and pricing of services ALPHAEON agrees to provide to us;
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sales or other disposal by ALPHAEON of all or a portion of its ownership interest in us; and
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business
combinations involving us.
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We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party. While we are controlled by ALPHAEON, we may not have the leverage to negotiate amendments to these agreements, if required, on terms as favorable to us as those we would negotiate with an unaffiliated third-party.
ALPHAEON and its directors and officers will have limited liability to us or you for breach of fiduciary duty.
Our certificate of incorporation will provide that, subject to any contractual provision to the contrary, ALPHAEON will have no obligation to refrain from:
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engaging in the same or similar business activities or lines of business as we do;
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doing business with any of our clients or consumers; or
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employing or
otherwise
engaging any of our officers or employees.
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Our certificate of incorporation will provide for the allocation of certain corporate opportunities between us and ALPHAEON. Under these provisions, neither ALPHAEON or its other affiliates, nor any of their officers, directors, agents or stockholders, will have any obligation to present to us certain corporate opportunities. ALPHAEON is presently a
technology company focused on
providing healthcare products and services, including patient financing services
. ALPHAEON may engage in other lines of business in the future.
For example, a director of our company who also serves as a director, officer or employee of ALPHAEON or any of its other affiliates may present to ALPHAEON certain acquisitions, in-licenses, potential development programs or other opportunities that may be complementary to our business and, as a result, such opportunities may not be available to us. To the extent attractive corporate opportunities are allocated to ALPHAEON or its other affiliates instead of to us, we may not be able to benefit from these opportunities.
In addition, under our certificate of incorporation, neither ALPHAEON nor any officer or director of ALPHAEON, except as will be provided in our certificate of incorporation, will be liable to us or to our stockholders for breach of any fiduciary duty by reason of any of these activities.
SCH is presently a holding company with direct and/or indirect interests, as the case may be, in ALPHAEON and various other healthcare related and energy related companies. SCH may engage in other lines of business in the future, including engaging, acquiring or otherwise conducting their business in a manner that partners with or otherwise collaborates with the business of our company, DWP-450 and any of our future product candidates. While our certificate of incorporation will not provide the same provision with respect to SCH, SCH may be able to exercise voting and investment control over ALPHAEON and effect the allocation of certain corporate opportunities between us and ALPHAEON.
ALPHAEON currently performs or supports many of our important corporate functions and if we are unable to replicate or replace these functions, our operations could be adversely affected.
We will need to replicate or replace certain functions, systems and infrastructure to which we will no longer have the same access after this offering. We may also need to make investments or hire additional employees to operate without the same access to ALPHAEON’s existing operational and administrative infrastructure. These initiatives may be costly to implement. Due to the scope and complexity of the underlying projects relative to these efforts, the amount of total costs could be materially higher than our estimate, and the timing of the incurrence of these costs is subject to change.
ALPHAEON currently performs or supports many important corporate functions for our company. Our financial statements reflect charges for these services on an allocation basis. Following this offering, many of these services will be governed by our services agreement with ALPHAEON.
We may not be able to replace these services or enter into appropriate third-party agreements on terms and conditions, including cost, comparable to those that we will receive from ALPHAEON under our services agreement. Additionally, after the agreement terminates, we may be unable to sustain the services at the same levels or obtain the same benefits as when we were receiving such services and benefits from ALPHAEON. When we begin to operate these functions separately, if we do not have our own adequate systems and business functions in place, or are unable to obtain them from other providers, we may not be able to operate our business effectively or at comparable costs, and our profitability may decline. In addition, we have historically received informal support from ALPHAEON, which may not be addressed in our services agreement. The level of this informal support will diminish or be eliminated following this offering.
We are currently indebted to ALPHAEON and have no written agreement governing the terms of such indebtedness.
As of
December 31, 2016
and
September 30, 2017
, we owed ALPHAEON
$59.8 million
and
$72.0 million
, respectively, representing related party borrowings from ALPHAEON as consideration for certain expenses incurred on our behalf, including research and development expenses, general and administrative support services and development support services. ALPHAEON may continue to fund our development of DWP-450 or any of our future product candidates, and as a result, our indebtedness to ALPHAEON may increase. There is currently no written agreement in place governing the terms of our related party borrowings to ALPHAEON, and as such, we may elect to remunerate ALPHAEON, with ALPHAEON’s consent, through a variety of methods,
such as through the payment of cash, re-characterizing the payables as capital contributions of ALPHAEON, the issuance of our equity securities, or as a set off against liabilities that ALPHAEON may transfer to us.
For example, ALPHAEON agreed to reduce such liabilities by offsetting the payment obligations under the amended purchase agreement and the promissory note
, each of which is defined below.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations
—
Payment Obligation Related to our Acquisition by ALPHAEON” and “
Certain Relationships and Related Party Transactions
—
Relationships with ALPHAEON Corporation”.
Risks Related to This Offering and Our Common Stock
An active trading market for our common stock may not develop.
Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock was determined through negotiations between us and the underwriters and may bear no relationship to the price at which the common stock will trade upon the closing of this offering. An active trading market for our shares may never develop or be sustained following this offering. In addition, since ALPHAEON will remain a majority stockholder after we complete this offering, an active trading market may never develop or be sustained. If an active trading market for our common stock does not develop, it may be difficult for you to sell the shares that you purchase in this offering without depressing the market price for the common stock or to sell your shares at all.
The trading price of our common stock is likely to be volatile, and purchasers of our common stock could incur substantial losses.
Our stock price is likely to be volatile. The stock market in general and the market for pharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, some of which are beyond our control, including:
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announcements of regulatory approval or disapproval of DWP-450 or any future product candidates;
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adverse results from or delays in clinical trials of any of our future product candidates;
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unanticipated safety concerns related to the use of DWP-450 or any of our future products;
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any termination or loss of rights under the Daewoong Agreement;
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FDA or other U.S. or foreign regulatory or legal actions or changes affecting us or our industry;
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adverse developments concerning our manufacturer or any future strategic partnerships;
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introductions and announcements of new technologies and products by us, any commercialization partners or our competitors, and the timing of these introductions and announcements;
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variations in our financial results or those of companies that are perceived to be similar to us;
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success or failure of competitive products or medical aesthetic products generally;
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changes in the structure of healthcare payment systems;
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announcements by us or our competitors of significant acquisitions, licenses, strategic partnerships, joint ventures or capital commitments;
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market conditions in the pharmaceutical and biopharmaceutical sectors and issuance of securities analysts’ reports or recommendations;
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quarterly variations in our results of operations or those of our future competitors;
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changes in financial estimates or guidance, including our ability to meet our future revenue and operating profit or loss estimates or guidance;
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the public’s reaction to our earnings releases, other public announcements and filings with the SEC;
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rumors and market speculation involving us or other companies in our industry;
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sales of substantial amounts of our stock by ALPHAEON or other significant stockholders or our insiders, or the expectation that such sales might occur;
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general economic, industry and market conditions, including the size and growth, if any, of the medical aesthetics market;
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news reports relating to trends, concerns and other issues in medical aesthetics market or the pharmaceutical or biopharmaceutical industry;
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operating and stock performance of other companies that investors deem comparable to us and overall performance of the equity markets;
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additions or departures of key personnel;
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intellectual property, product liability or other litigation against us, our manufacturer or other parties on which we rely or litigation against our general industry;
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announcements or actions taken by ALPHAEON as our principal stockholder, including sales of substantial amounts of our common stock by ALPHAEON;
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changes in our capital structure, such as future issuances of securities and the incurrence of additional debt;
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changes in accounting standards, policies, guidelines, interpretations or principles; and
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other factors
described
in this “Risk Factors” section.
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In addition, in the past, stockholders have initiated class action lawsuits against pharmaceutical companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources.
If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do not currently have and may never obtain research coverage by equity research analysts. Equity research analysts may elect not to provide research coverage of our common stock after the closing of this offering, and such lack of research coverage may adversely affect the market price of our common stock. In the event we obtain equity research analyst coverage, we will not have any control of the analysts or the content and opinions included in their reports. The price of our common stock could decline if one or more equity research analysts downgrade our common stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause the trading price or trading volume of our common stock to decline.
Our historical financial data is not necessarily representative of the results that we would have achieved as a stand-alone company and may not be a reliable indicator of our future results.
Our historical financial data included in this prospectus does not reflect the financial condition, results of operations or cash flows that we would have achieved as a stand-alone company during the periods presented or those we will achieve in the future. This is primarily the result of the following factors:
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our historical financial data reflects expense allocations for certain support functions that are provided on a centralized basis within ALPHAEON, such as expenses for business technology, facilities, legal, finance, human resources and business development that may be higher or lower than the comparable expenses that we would have actually incurred, or will incur in the future, as a stand-alone company; and
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significant
increases will occur in our cost structure as a result of this offering, including costs related to public company reporting, investor relations and compliance with the Sarbanes-Oxley Act.
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As a result of the separation from ALPHAEON, it may be difficult for investors to compare our future results to historical results or to evaluate our relative performance or trends in our business.
Future sales of common stock by ALPHAEON or others of our common stock, or the perception that such sales may occur, could depress the market price of our common stock.
Assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, immediately following the completion of this offering, ALPHAEON will own % of our outstanding shares of common stock (or % if the underwriters exercise their option to purchase additional shares in full). Subject to the restrictions described in the paragraph below, future sales of these shares in the public market will be subject to the volume and other restrictions of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, for so long as ALPHAEON is deemed to be our affiliate, unless the shares to be sold are registered with the SEC. The sale by ALPHAEON of a substantial number of shares after this offering, or a perception that such sales could occur, could significantly reduce the market price of our common stock. Upon completion of this offering, except as otherwise described herein, all shares that are being offered hereby will be freely tradable without restriction, assuming they are not held by our affiliates.
We, our officers and directors, and ALPHAEON have agreed with the underwriters that, without the prior written consent of the representative of the underwriters, we and they will not, subject to certain exceptions and extensions, during the period ending 180 days after the date of this prospectus, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock. The representative of the underwriters may, in its sole discretion and at any time without notice, release all or any portion of the shares of our common stock subject to the lock-up.
Following this offering, we intend to file one or more registration statements with the SEC covering shares of our common stock available for future issuance under the 2017 plan or any future plans. Upon effectiveness of such registration statements, any shares subsequently issued under such plans will be eligible for sale in the public market, except to the extent that they are restricted by the lock-up agreements referred to above and subject to compliance with Rule 144 in the case of our affiliates. Sales of a large number of the shares issued under these plans in the public market could have an adverse effect on the market price of our common stock.
Because the initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock following this offering, new investors will experience immediate and substantial dilution.
The initial public offering price will be substantially higher than the pro forma net tangible book value per share of our common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our common stock in this offering, you will experience immediate dilution of $ per share, based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, and our pro forma as adjusted net tangible book value per share as of
September 30, 2017
.
Anti-takeover provisions in our certificate of incorporation and bylaws, as well as Delaware law, could discourage a takeover.
Our certificate of incorporation, bylaws, and Delaware law, contain provisions or will contain provisions that might enable our management to resist a takeover, and might make it more difficult for an investor to acquire a substantial block of our common stock. These include the following provisions:
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permit our board of directors to issue shares of preferred stock, with any rights, preferences and privileges as they may designate, without stockholder approval, which could be used to dilute the ownership of a hostile bidder significantly;
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provide that the authorized number of directors may be changed only by resolution of our board of directors
and that a director may only be removed for cause by the affirmative vote of the holders of at least 66 2/3% of our voting stock
;
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provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;
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divide our board of directors into three classes, with each class serving staggered three-year terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;
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require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;
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provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company;
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prohibit cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; and
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provide that special meetings of our stockholders may be called only by the chairman of the board, our Chief Executive Officer or by
our
board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors, which may delay the ability of our stockholders to force consideration by our company of a take-over proposal or to take certain corporate actions, including the removal of directors.
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These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Further, other provisions of Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us.
In addition, our certificate of incorporation will specify that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders. We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers.
Our management will have broad discretion over the actual amounts and timing of the expenditure of the proceeds of this offering and might not apply the proceeds in ways that enhance our operating results or increase the value of your investment.
We intend to allocate a significant amount of the net proceeds of this offering to the commercial launch of DWP-450, and also for general corporate purposes, including working capital. Our management will have broad discretion over the actual amounts and timing of the expenditure of the net proceeds of this offering within those categories, and accordingly investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds, with only limited information concerning management’s specific intentions. Our management might not apply the proceeds in ways that enhance our operating results or increase the value of your investment.
Pending our use of the net proceeds from this offering, we plan to invest the net proceeds in a variety of capital preservation investments, including short and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our certificate of incorporation and bylaws will provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the DGCL, our bylaws and our indemnification agreements that we have entered into, or will enter into, with our directors and officers may, among other things provide that:
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We will indemnify our directors and officers for serving us in those capacities, or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.
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We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.
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We will be required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
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The rights conferred in our bylaws will not be exclusive. W
e may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.
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As a result, claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, which may adversely affect our operating results.
As a public company listed in the United States, we will incur significant additional legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and Nasdaq, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar 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, on committees of our board of directors or as members of senior management.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Nasdaq Marketplace Rules and other applicable securities rules and regulations. Complying with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company,” as defined in the JOBS Act. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants
to assist us in complying with these requirements, which will increase our costs and expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of our management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.
We also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
We are an “emerging growth company,” and the reduced reporting requirements available to emerging growth companies could make our common stock less attractive to investors.
We qualify as an “emerging growth company,” as defined in the JOBS Act. For as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies. These provisions include, but are not limited to:
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being permitted to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure;
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an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;
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reduced disclosure about executive compensation arrangements in our periodic reports, registration statements and proxy statements; and
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exemptions from the requirements to seek non-binding advisory votes on executive compensation or golden parachute arrangements.
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To the extent we take advantage of any of these exemptions, the information that we provide stockholders may be different than what is available with respect to other public companies.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Investors could find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our trading price may be more volatile.
FORWARD-LOOKING STATEMENTS AND STATISTICAL DATA
Special Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements that involve risks and uncertainties, including statements based on our current expectations, assumptions, estimates and projections about future events, our business, financial condition, results of operations and prospects, our industry and the regulatory environment in which we operate. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, or other comparable terms intended to identify statements about the future. Forward-looking statements include, but are not limited to, statements about:
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our ability to obtain and maintain regulatory approval of DWP-450, and any related restrictions, limitations and/or warnings in the label of DWP-450;
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our ability to successfully commercialize DWP-450, if approved;
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the potential market size, opportunity and growth potential for DWP-450, if approved;
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the attractiveness of DWP-450’s characteristics (including the benefits of a 900 kDa botulinum toxin type A complex) and the rate and degree of physician and patient acceptance of DWP-450, if approved;
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our ability to build our own sales and marketing capabilities, or seek collaborative partners, to commercialize DWP-450, if approved;
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the pricing of DWP-450, if approved, and the flexibility of our pricing and marketing strategy compared to our competitors;
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the performance of our third-party licensors, suppliers, manufacturers and distributors;
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our expectations regarding our future development of DWP-450 for other indications;
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the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
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the timing or likelihood of regulatory filings and approvals or clearances for DWP-450;
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regulatory and legislative developments in the United States, EU, Canada and other countries;
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developments and projections relating to our competitors and our industry, including competing products and procedures;
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the loss of key management personnel;
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our future financial performance;
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the results of the Medytox Litigation, the Citizen Petition and any future legal proceedings; and
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•
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our use of the net proceeds from this offering.
|
These forward-looking statements are subject to a number of risks, uncertainties and assumptions described under the section entitled “Risk Factors” and elsewhere in this prospectus. We also operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances described in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements contained in this prospectus.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the future results, levels of activity, performance, events, circumstances or achievements reflected in the forward-looking statements may never be achieved or occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement on Form S-1, of which this prospectus is a part, with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Statistical Data
We obtained the industry, statistical and market data in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. All of the market data used in this prospectus involves a number of assumptions and limitations. While we believe that the information from these industry publications, surveys and studies is reliable, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section entitled "Risk Factors." These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $ million (or approximately $ million if the underwriters’ option to purchase additional shares is exercised in full) from the sale of the shares of common stock offered by us in this offering, based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us by $ million, assuming the assumed initial public offering price of $ per share remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to increase our financial flexibility to support our operations, to create a public market for our common stock and to facilitate our future access to the public equity markets. We intend to use the net proceeds from this offering as follows:
|
|
•
|
up to $ million
to obtain marketing approval for DWP-450 in the United States and other territories, including to satisfy various regulatory requirements related to the approval of DWP-450 in these territories
;
|
|
|
•
|
upon U.S. and EU regulatory approval of DWP-450, an aggregate of $13,787,500
to
pay certain milestone payments to Daewoong and the Evolus contributors pursuant to the Daewoong Agreement and amended purchase agreement, respectively;
|
|
|
•
|
approximately $ million
to conduct pre-commercial launch activities, including building our commercialization infrastructure to support our specialty sales force and developing physician education, brand awareness campaigns and other marketing efforts
;
|
|
|
•
|
approximately $ million
to hire, train and deploy our specialty sales force and to launch marketing efforts if DWP-450 is approved
; and
|
|
|
•
|
the remainder for working capital and general corporate purposes.
|
Further, we intend to use approximately
$
of the net proceeds from this offering to reimburse ALPHAEON for outstanding payables. However, there is currently no written agreement in place governing the terms of our related party borrowings to ALPHAEON, and as such, we may elect to remunerate ALPHAEON, with ALPHAEON’s consent, through a variety of methods, such as through the payment of cash, re-characterizing the payables as capital contributions of ALPHAEON, the issuance of our equity securities, or as a set off against liabilities that ALPHAEON may transfer to us.
For example, ALPHAEON agreed to reduce such liabilities by offsetting the payment obligations under the amended purchase agreement and the promissory note
.
The costs and timing of biological product development, marketing approval and product launch are highly uncertain, are subject to substantial risks and can often change. The amounts and timing of our actual expenditures will depend upon numerous factors, including the FDA's review of our BLA, the EMA’s review of our MAA and Health Canada’s review of our NDS, the scale of our initial commercial launch, whether or not we enter into distribution arrangements for DWP-450 with third parties outside of the United States, our operating costs and expenditures and the other factors described under the section entitled "Risk Factors" in this prospectus. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering
and investors will be relying on our judgment regarding the application of the aggregate net proceeds
.
Based on our estimated use of proceeds, we anticipate that the net proceeds of this offering and resources from ALPHAEON (including the payment of certain expenses on our behalf that we will evidence as related party borrowings from ALPHAEON) will be sufficient to fund our launch and initial commercialization of DWP-450, if approved. However, we may require additional funds earlier than we currently expect if, in the event that we are
required to conduct additional clinical trials, we experience a delay in receiving marketing approval of DWP-450 or market acceptance of DWP-450 is slower than expected. We may seek any necessary funds through a combination of private and public equity offerings, debt financings and collaborations, strategic partnerships and licensing arrangements. Additional financing may not be available when we need it or may not be available on terms that are favorable to us. Because of the risks and uncertainties associated with the development and commercialization of DWP-450, we may not have or be able to obtain all of the funds required to commercialize DWP-450.
Pending our use of the net proceeds from this offering, we plan to invest the net proceeds in a variety of capital preservation investments, including short and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
DIVIDEND POLICY
Since inception, we have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our capital stock for the foreseeable future. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, tax considerations, legal or contractual restrictions, business prospects, the requirements of current or then-existing debt instruments, general economic conditions and other factors our board of directors may deem relevant.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of
September 30, 2017
:
|
|
•
|
on a pro forma basis to reflect (i) the automatic conversion of all outstanding shares of our Series A preferred stock into
1,250,000
shares of our common stock, which will occur upon completion of this offering, (ii)
the termination and release of our obligations as a guarantor of ALPHAEON’s convertible promissory notes and convertible bridge note upon the completion of this offering, (iii)
the automatic assignment to us by ALPHAEON of the revised payment obligations under the amended purchase agreement
upon the completion of this offering
,
and (iv) the filing and effectiveness of our certificate of incorporation, which will occur immediately prior to the completion of this offering; and
|
|
|
•
|
on a pro forma as adjusted basis to give further effect to our issuance and sale of
shares of common stock in this offering at an assumed initial public offering price of $
per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
|
The pro forma and pro forma as adjusted information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the initial public offering price of our common stock and other terms of this offering determined at pricing. You should read the following table in conjunction with “Use of Proceeds,” “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained in this prospectus, including the financial statements and related notes appearing elsewhere in this prospectus.
The following table is presented in thousands, except for share data:
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
Actual
|
|
Pro Forma
|
|
Pro Forma As Adjusted
(1)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
Related party receivable
(2)
|
72,014
|
|
|
—
|
|
|
|
Related party borrowings
(3)
|
72,014
|
|
|
28,900
|
|
|
|
Note obligation
(4)
|
134,937
|
|
|
—
|
|
|
|
Contingent obligation
(5)
|
—
|
|
|
31,400
|
|
|
|
Contingent promissory note obligation
(5)
|
—
|
|
|
11,714
|
|
|
|
Convertible Preferred Stock and Stockholders’ deficit:
|
|
|
|
|
|
Convertible series A preferred stock, $0.00001 par value; 2,500,000 shares authorized and 1,250,000 shares issued and outstanding, actual; no shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted
|
—
|
|
|
|
|
|
Preferred stock, $0.00001 par value; no shares authorized, issued and outstanding, actual; shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted
|
—
|
|
|
|
|
|
Common stock, $0.00001 par value; 20,000,000 shares authorized and 10,000,000 shares issued and outstanding, actual; shares authorized and shares issued and outstanding, pro forma; shares authorized and shares issued and outstanding, pro forma as adjusted
|
—
|
|
|
|
|
|
Additional paid-in capital
(6)
|
—
|
|
|
62,923
|
|
|
|
Accumulated deficit
|
(78,484
|
)
|
|
(78,484
|
)
|
|
|
Total stockholders’ deficit
|
(78,484
|
)
|
|
(15,561
|
)
|
|
|
Total capitalization
|
$
|
56,453
|
|
|
$
|
(1,347
|
)
|
|
$
|
_____________
|
|
(1)
|
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $ million, assuming the number of shares offered by us as stated on the cover page of this prospectus remains unchanged and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $ million, assuming the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
|
|
|
(2)
|
Reflects amounts to be paid to us by ALPHAEON in the event we are required to repay the full amount of ALPHAEON’s convertible promissory notes and convertible bridge notes as guarantor of those obligations. Concurrent with this offering, our guaranty of the convertible promissory notes and convertible bridge notes will be terminated in full in which case ALPHAEON would have no obligation to pay us those amounts. As a result, the pro forma column reflects the elimination of the related party receivable.
|
|
|
(3)
|
Reflects amounts owed by us to ALPHAEON for working capital borrowings. Upon completion of the offering, we have agreed to assume the fair value of ALPHAEON’s obligations under the amended purchase agreement to make certain contingent payments to the Evolus contributors. ALPHAEON has agreed to offset
|
and reduce these obligations, on a dollar-for-dollar basis. As of September 30, 2017, the value of these obligations was $43.1 million and will be revalued upon completion of this offering. The aggregate $43.1 million decrease in related party borrowings in the pro forma column reflects the present value of a contingent promissory note obligation of $11.7 million, and the fair value of a contingent obligation of $31.4 million, which we valued based on an income approach using the discounted cash flow method
.
|
|
(4)
|
Reflects the value of the convertible promissory notes and convertible bridge notes of ALPHAEON, of which we are guarantor. Upon completion of the offering, our guaranty will be terminated in full after which we will not be required to reflect the convertible promissory notes and convertible bridge notes as our obligation.
|
|
|
(5)
|
Represents the estimated value of the payment obligations of ALPHAEON to the Evolus contributors assumed by us under the amended purchase agreement, which are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations
—
Payment Obligation Related to our Acquisition by ALPHAEON”.
See footnote 3 above for an explanation of the determination of the estimated value.
|
|
|
(6)
|
The pro forma column reflects the increase of $62.9 million as a result of the termination of our guaranty obligations of ALPHAEON’s convertible promissory notes and convertible bridge note upon the completion of this offering. Such increase reflects the difference between the note obligation and related party receivable.
|
The number of shares of common stock shown as issued and outstanding in the table excludes:
|
|
•
|
1,061,446 shares of our common stock issuable upon the exercise of outstanding stock options under
the 2017 plan,
as of January 8, 2018;
|
|
|
•
|
139,480 shares of our common stock issuable upon the vesting and settlement of restricted stock units outstanding under the 2017 plan, as of January 8, 2018; and
|
|
|
•
|
1,437,963 shares of our common stock reserved for future issuance under the 2017 plan, as of January 8, 2018
.
|
DILUTION
If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.
Our historical net tangible book value (deficit) is the amount of our total tangible assets less our liabilities and preferred stock. Our historical net tangible book value (deficit) per share is our historical net tangible book value (deficit) divided by the number of shares of common stock outstanding as of
September 30, 2017
. Our historical net tangible book value (deficit) as of
September 30, 2017
was approximately $ or $( ) per share of common stock. Our pro forma net tangible book value (deficit) as of
September 30, 2017
was $( ) million, or $( ) per share of common stock, after giving effect to the automatic conversion of all our outstanding shares of Series A preferred stock into 1,250,000 shares of common stock upon the completion of this offering
, the termination and release of our obligations as a guarantor of ALPHAEON’s convertible promissory notes and convertible bridge note upon the completion of this offering, and
the automatic assignment to us by ALPHAEON of the revised payment obligations under the amended purchase agreement
upon the completion of this offering
.
Pro forma as adjusted net tangible book value (deficit) is our pro forma net tangible book value, after giving further effect to the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. This amount represents an immediate increase in pro forma net tangible book value (deficit) of $ per share to our existing stockholder, and an immediate dilution of $ per share to investors purchasing in this offering.
The following table illustrates this dilution on a per share basis to new investors:
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
$
|
Historical net tangible book value (deficit) per share as of September 30, 2017
|
|
|
|
Increase in pro forma net tangible book value (deficit) attributable to conversion of our Series A preferred stock
|
|
|
|
Pro forma net tangible book value (deficit) per share as of September 30, 2017, before giving effect to this offering
|
|
|
|
Increase in pro forma net tangible book value (deficit) per share attributable to new investors participating in this offering
|
|
|
|
Pro forma as adjusted net tangible book value (deficit) per share after this offering
|
|
|
|
Dilution in pro forma net tangible book value (deficit) per share to investors purchasing in this offering
|
|
|
$
|
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value (deficit) per share after this offering by approximately $ per share and the dilution in pro forma net tangible book value (deficit) per share to investors purchasing in this offering by approximately $ per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a 1,000,000 share increase in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value (deficit) per share after this offering by approximately $ and decrease the dilution in pro forma net tangible book value (deficit) per share to investors purchasing in this offering by approximately $ , assuming the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A 1,000,000 share decrease in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value (deficit) per share after this offering by $ and increase the dilution in pro forma net tangible book value (deficit) per share to investors purchasing in this offering by approximately $ per share, assuming the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this
prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price, number of shares and other terms of this offering determined at pricing.
If the underwriters exercise in full their option to purchase additional shares of our common stock in this offering, the pro forma as adjusted net tangible book value will increase to $ per share, representing an immediate increase in pro forma net tangible book value to our existing stockholder of $ per share and an immediate dilution of $ per share to new investors purchasing in this offering.
The following table summarizes, as of
September 30, 2017
, on the pro forma as adjusted basis described above, the difference between our existing stockholder and the investors purchasing in this offering with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share paid to us, based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
Total Consideration
|
|
Average
Price
Per Share
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Existing stockholder
|
|
|
|
|
|
|
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
100
|
%
|
|
|
If the underwriters exercise in full their option to purchase additional shares of our common stock in this offering, the number of shares held by our existing stockholder will be reduced to % of the total number of shares of common stock outstanding upon completion of this offering, and the number of shares of common stock held by new investors participating in this offering will be further increased to % of the total number of shares of common stock to be outstanding upon completion of the offering.
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by $ million, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) total consideration paid by new investors by $ million, assuming that the assumed initial price to the public remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The foregoing tables and calculations exclude:
|
|
•
|
1,061,446 shares of our common stock issuable upon the exercise of outstanding stock options under
the 2017 plan,
as of January 8, 2018;
|
|
|
•
|
139,480 shares of our common stock issuable upon the vesting and settlement of restricted stock units outstanding under the 2017 plan, as of January 8, 2018; and
|
|
|
•
|
1,437,963 shares of our common stock reserved for future issuance under the 2017 plan, as of January 8, 2018
.
|
Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that any outstanding stock options are exercised, new stock options are issued under the 2017 plan or we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to investors purchasing in this offering.
SELECTED FINANCIAL DATA
The following tables contain selected portions of our financial data. We derived the selected statements of operations data for the
years ended December 31,
2015
and
2016
, and the selected balance sheets data as of
December 31, 2015
and 2016, from our audited financial statements and related notes appearing elsewhere in this prospectus. We derived the selected statements of operations data for the
nine months ended September 30,
2016
and
2017
and selected balance sheet data as of
September 30, 2017
from our unaudited interim financial statements that are included elsewhere in this prospectus. We have prepared this unaudited information on the same basis as the audited financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for such period. Our historical results are not necessarily indicative of the results that may be expected or may actually occur in the future, and our interim results are not necessarily indicative of the expected results for future interim periods or the full year. The selected financial data should be read together with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.
Our historical financial statements have been prepared on a standalone basis and are derived from the financial statements and accounting records of ALPHAEON and prepared in accordance with GAAP. The financial statements reflect amounts attributable to our business, including the costs ALPHAEON incurred for the development and commercialization of DWP-450 and costs and expenses under the Daewoong Agreement. We have calculated our income tax amounts using a separate return methodology and have presented these amounts as if we were a separate taxpayer from ALPHAEON in each jurisdiction for each period presented. Our management believes that the allocations and results are reasonable for all periods presented. However, allocations may not be indicative of the actual expense we would have incurred had we operated as an independent company for the periods presented and, accordingly, our historical financial statements may not reflect what our actual financial position, results of operations and cash flows would have been if we had been an independent company for the periods presented.
The following table is presented in thousands, except for share and per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
2015
|
|
2016
|
|
2016
|
|
2017
|
|
|
|
|
|
(unaudited)
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
$
|
20,681
|
|
|
$
|
12,607
|
|
|
$
|
9,926
|
|
|
$
|
5,481
|
|
General and administrative
|
9,883
|
|
|
7,033
|
|
|
6,111
|
|
|
3,169
|
|
Depreciation and amortization
|
416
|
|
|
326
|
|
|
224
|
|
|
218
|
|
Total operating expenses
|
30,980
|
|
|
19,966
|
|
|
16,261
|
|
|
8,868
|
|
Loss from operations
|
(30,980
|
)
|
|
(19,966
|
)
|
|
(16,261
|
)
|
|
(8,868
|
)
|
Other expense, net
|
39
|
|
|
6
|
|
|
5
|
|
|
4
|
|
Loss before taxes
|
(31,019
|
)
|
|
(19,972
|
)
|
|
(16,266
|
)
|
|
(8,872
|
)
|
Provision for income taxes
|
93
|
|
|
93
|
|
|
56
|
|
|
56
|
|
Net loss and comprehensive loss
|
$
|
(31,112
|
)
|
|
$
|
(20,065
|
)
|
|
$
|
(16,322
|
)
|
|
$
|
(8,928
|
)
|
Net loss per share, basic and diluted
(1)
|
$
|
(3.11
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(1.63
|
)
|
|
$
|
(0.89
|
)
|
Weighted-average shares used to compute basic and diluted net loss per share
(1)
|
10,000,000
|
|
|
10,000,000
|
|
|
10,000,000
|
|
|
10,000,000
|
|
Pro forma net loss per share, basic and diluted
(1)(2)
(unaudited)
|
|
|
$
|
(1.78
|
)
|
|
|
|
$
|
(0.79
|
)
|
Pro forma weighted-average shares used to compute basic and diluted net loss per share
(1)(2)
(unaudited)
|
|
|
11,250,000
|
|
|
|
|
11,250,000
|
|
_____________
|
|
(1)
|
See Note 2 to our financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate the basic and diluted net loss per common share and the shares used in the computation of the per share amounts.
|
|
|
(2)
|
The pro forma net loss per share of common stock, basic and diluted, for the year ended December 31, 2016 and the
nine months ended September 30, 2017
reflects the automatic conversion of all outstanding shares of our Series A preferred stock into 1,250,000 shares of common stock upon the completion of this offering and the filing and effectiveness of our certificate of incorporation immediately prior to the completion of this offering. The pro forma net loss per share of common stock, basic and diluted, does not give effect to the issuance of shares from the proposed initial public offering nor do they give effect to potential dilutive securities where the impact would be anti-dilutive.
|
The following table is presented in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of September 30, 2017
|
|
2015
|
|
2016
|
|
|
|
|
|
|
(unaudited)
|
Balance Sheet Data:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
4,000
|
|
|
187
|
|
|
—
|
|
Intangible asset
|
56,076
|
|
|
56,076
|
|
|
56,076
|
|
Goodwill
|
21,208
|
|
|
21,208
|
|
|
21,208
|
|
Related party receivable
|
—
|
|
|
—
|
|
|
72,014
|
|
Related party borrowings
|
46,167
|
|
|
59,760
|
|
|
72,014
|
|
Deferred tax liability
|
21,152
|
|
|
21,245
|
|
|
21,301
|
|
Note obligation
(1)
|
—
|
|
|
—
|
|
|
134,937
|
|
Series A preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
Common stock
|
—
|
|
|
—
|
|
|
—
|
|
Additional paid-in capital
|
58,743
|
|
|
59,700
|
|
|
—
|
|
Accumulated deficit
|
(46,741
|
)
|
|
(66,806
|
)
|
|
(78,484
|
)
|
Total stockholder’s equity (deficit)
|
12,002
|
|
|
(7,106
|
)
|
|
(78,484
|
)
|
_____________
|
|
(1)
|
Reflects the value of the convertible promissory notes and convertible bridge notes of ALPHAEON, of which we are guarantor. Upon completion of the offering, our guaranty will be terminated in full after which we will not be required to reflect the convertible promissory notes and convertible bridge notes as our obligation.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with “Selected Financial Data” and our financial statements and related notes included elsewhere in this prospectus. This discussion and analysis and other parts of this prospectus contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” section of this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Forward-Looking Statements and Statistical Data” in this prospectus.
Overview
We are a medical aesthetics company focused on providing physicians and their patients with expanded choices in aesthetic procedures and treatments. We focus on the self-pay aesthetic market and our first product candidate, PrabotulinumtoxinA (DWP-450), is an injectable 900 kDa botulinum toxin type A complex designed to address the needs of the large and growing facial aesthetics market. We believe we will offer physicians and patients a compelling value proposition with DWP-450. Currently, onabotulinumtoxinA (BOTOX) is the neurotoxin market leader and the only known approved 900 kDa botulinum toxin type A complex in the United States. We believe aesthetic physicians generally prefer the performance characteristics of the complete 900 kDa neurotoxin complex and are accustomed to injecting this formulation. We have completed the clinical development program for DWP-450 for the treatment of moderate to severe glabellar lines, also known as “frown lines,” between the eyebrows in the United States, EU and Canada. The FDA issued a PDUFA date of May 15, 2018 for completion of its review of our BLA. We submitted a MAA to the EMA and it was accepted for review in July 2017 with a decision that we expect by the second half of 2018.
We have also submitted a NDS in Canada and it was accepted for review in October 2017.
Since our inception in 2012, we have devoted substantially all our efforts to identify and recruit personnel, conduct clinical trials, and seek regulatory approval for our DWP-450 product candidate. Our resources have largely been devoted to the clinical development of DWP-450.
On September 30, 2013, we entered into the Daewoong Agreement pursuant to which Daewoong agreed to manufacture and supply us with DWP-450 and granted us an exclusive license to develop, distribute, market and sell the product in the United States, EU, Canada, Australia, Russia, C.I.S., and South Africa, or the covered territories. Daewoong also granted us a non-exclusive license to do the same in Japan.
In a series of related transactions in 2013, SCH acquired all of our outstanding equity in exchange for
membership interests in SCH
. In 2014, SCH contributed our equity that it had acquired in 2013 to ALPHAEON
.
As a result of these transactions, we became a wholly-owned subsidiary of ALPHAEON.
We have never been profitable and, as of
September 30, 2017
, we had an accumulated deficit of
$78.5 million
. We have never generated revenue from DWP-450 and we incurred net losses of approximately
$31.1 million
and
$20.1 million
in the
years ended December 31,
2015
and
2016
, respectively, and
$16.3 million
and
$8.9 million
for the
nine months ended September 30,
2016
and
2017
, respectively. In addition, a
s of September 30, 2017, w
e have concluded that we do not have sufficient cash to fund our operations through November 2018, a year from the date our financial statements for the nine months ended September 30, 2017 were issued, without additional financing, and as a result, there is substantial doubt about our ability to continue as a going concern.
We do not expect to receive any revenue from DWP-450 or any future product candidates that we develop unless and until we obtain regulatory approval and commercialize DWP-450 or any future product candidates, or enter into collaborative arrangements with third parties. We expect to continue to incur
significant expenses and increasing
net operating losses for the foreseeable future as we seek regulatory approval, prepare for and, if approved, proceed to commercialization of DWP-450. We utilized CROs to carry out our clinical development and we do not yet have a sales organization.
We expect to incur significant expenses related to building our commercialization infrastructure, including marketing, sales and distribution functions, inventory build prior to
commercial launch and training and deploying a specialty sales force and implementing a targeted marketing campaign. We plan to launch DWP-450, if approved, in the United States by building a commercialization infrastructure with a specialty sales force of approximately 65 sales representatives at commercial launch and growing to 150 sales representatives over time. We also expect to incur additional costs associated with operating as a public company and in building our internal resources to become less reliant on ALPHAEON. Based on our estimated use of proceeds, we anticipate that the net proceeds of this offering, together with resources from ALPHAEON (including the payment of certain expenses on our behalf that we will evidence as related party borrowings from ALPHAEON), will be sufficient to fund our operating plan through the launch and initial commercialization of DWP-450, if approved by the FDA. However, we may require additional funds earlier than we currently expect if, in the event that we are required to conduct additional clinical trials, we experience a delay in receiving marketing approval of DWP-450 or market acceptance of DWP-450 is slower than expected.
Adequate funding may not be available to us on acceptable terms, or at all, which could have a material adverse effect on our business, results of operations, and financial condition.
Daewoong License and Supply Agreement
On September 30, 2013, we entered into the Daewoong Agreement pursuant to which Daewoong agreed to manufacture and supply us with DWP-450 and granted us an exclusive license to develop, distribute, market and sell the product in the covered territories. Daewoong also granted us a non-exclusive license to do the same in Japan. We have the option, subject to certain payment conditions, to expand the permitted use of the product beyond aesthetic indications and into therapeutic indications. Under the Daewoong Agreement, we are required to make certain minimum annual purchases upon commercialization in order to maintain the exclusivity of the license.
These potential minimum purchase obligations are contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share in various jurisdictions.
In connection with our entry into the Daewoong Agreement, we made an upfront payment to Daewoong of $2.5 million. We further agreed to make milestone payments upon certain confidential development and commercial milestones
, including a confidential payment to Daewoong upon each of FDA and EMA approval of DWP-450
.
Under the Daewoong Agreement, the maximum aggregate amount of future milestone payments that could be owed to Daewoong upon the satisfaction of all milestones is $13.5 million.
Under the Daewoong Agreement, Daewoong is responsible for all costs related to the manufacturing of DWP-450, including costs related to the operation and upkeep of its manufacturing facility, and we are responsible for all costs related to obtaining regulatory approval, including clinical expenses, and commercialization of DWP-450.
During the term of the Daewoong Agreement, we will not purchase, sell or distribute any competing products in any covered territory or Japan or sell the product subject to the Daewoong Agreement outside the covered territory or Japan. The initial term of the Daewoong Agreement is from September 30, 2013 to the later of (i) the fifth anniversary of approval from the relevant governmental authority necessary to market and sell the product or by (ii) September 30, 2023, and automatically renews for additional three-year terms if we meet certain performance requirements. Either party may terminate the Daewoong Agreement with written notice upon a continuing uncured default by the other party. The Daewoong Agreement terminates without notice upon our bankruptcy or insolvency.
For additional information about the Daewoong Agreement, see “Business
—
Third Party Licenses and Arrangements-Daewoong License and Supply Agreement.”
Payment Obligation Related to our Acquisition by ALPHAEON
As part of our acquisition by SCH
pursuant to a stock purchase agreement, or the stock purchase agreement
, certain of our former stockholders, or the Evolus contributors, were issued Class D units of SCH which contained certain rights and privileges that provide the Evolus contributors with a 10% economic interest in our company, and a right to compel SCH to sell to ALPHAEON this 10% interest in our company in exchange for certain payment obligations, or the payment obligations, by ALPHAEON to SCH, which were ultimately allocable solely to the Evolus contributors. The payment obligations include (i) a $10.0 million up-front payment upon obtaining FDA approval for DWP-450 for the treatment of glabellar lines, (ii)
perpetual quarterly royalties of a mid-teen percentage of net sales of DWP-450 within the United States and (iii) a high-single digit percentages of net sales of DWP-450 outside of the United States. As these future royalty streams are perpetual, ALPHAEON has the right under the current agreement to terminate any future payments for a one-time lump sum payment to SCH of $145.0 million.
On December 14, 2017, SCH and ALPHAEON entered into an amendment to the stock purchase agreement, or the amended purchase agreement, whereby we have also joined as a contractual party. Pursuant to the amended purchase agreement, ALPHAEON’s existing payment obligations were replaced with revised payment obligations, payable directly to the Evolus contributors, to be distributed to them ratably in accordance with their previous respective percentage ownership in our Series A preferred stock, and in exchange for the cancellation of the Class D units of SCH. The amended purchase agreement provides that, upon the closing of this offering, ALPHAEON will immediately and automatically assign to us and we will immediately and automatically accept and assume all of ALPHAEON’s payment obligations under the stock purchase agreement, as amended by the amended purchase agreement.
Under the amended purchase agreement, the revised payment obligations consist of (i) an approximately $9.2 million up-front payment upon obtaining FDA approval for DWP-450 for the treatment of glabellar lines, (ii) an aggregate of approximately $1.5 million to pay a one-time bonus to certain of our employees pursuant to the respective terms of their offer letters, including a one-time bonus of $700,000 payable to Rui Avelar, M.D., our Chief Medical Officer, (iii) quarterly royalty payments of a low single digit percentage of net sales of DWP-450 within the United States, (iv) quarterly royalty payments of a low single digit percentage of net sales of DWP-450 outside of the United States, and (v) a $20.0 million promissory note that will mature on the 2.5 year anniversary of the first commercial sale of DWP-450 in the United States, or the promissory note. The payment obligations set forth in (iii) and (iv) above will terminate on the 10 year anniversary of the first commercial sale of DWP-450 in the United States. As these payment obligations are not perpetual, neither we nor ALPHAEON will have the right to terminate any future payments for a one-time lump sum payment. Under the amended purchase agreement, the estimated value of all revised payment obligations and the promissory note owed to the Evolus contributors was $43.1 million as of September 30, 2017.
Under the terms of the promissory note, ALPHAEON, as the borrower prior to the closing of this offering, or our company, as the borrower subsequent to the closing of this offering, will pay to J. Christopher Marmo, as the representative of the Evolus contributors, or the holder, $20.0 million representing the aggregate principal amount upon maturity of the promissory note. No interest will accrue on the promissory note. The borrower will have the right to prepay the promissory note, in whole or in part, at any time and from time to time without penalty. Upon an event of default under the promissory note, all unpaid principal will become immediately due and payable at the option of the holder. An event of default will occur under the terms of the promissory note upon any of the following events: (i) the borrower fails to meet the obligations to make the required payments thereunder, (ii) the borrower makes an assignment for the benefit of creditors, (iii) the borrower commences any bankruptcy proceeding, (iv) the borrower materially breaches the stock purchase agreement or tax indemnity agreement, which is defined below, and such breach is not cured within 30 days, or (v) if ALPHAEON is the borrower, there occurs an event of default under the Notes, which is defined below, that is not cured during the applicable cure period or waived by the noteholders, and such noteholders have exercised their rights to foreclose on the collateral securing the Notes under ALPHAEON’s pledge of its assets, as discussed further below.
In addition, upon a change of control of the borrower, all unpaid principal will become immediately due and payable. Under the terms of the promissory note, a change of control is defined as (i) the sale of all or substantially all of the assets of the borrower, (ii) the exclusive license of DWP-450 or the business related to DWP-450 to a third party (other than a sublicense under the Daewoong Agreement), or (iii) any merger, consolidation, or acquisition of the borrower, except a merger, consolidation, or acquisition of the borrower in which the holders of capital stock of the borrower immediately prior to such merger, consolidation, or acquisition hold at least 50% of the voting power of the capital stock of the borrower or the surviving entity. Notwithstanding the foregoing, the promissory note expressly provides that a change of control shall not include this offering or any merger with or acquisition by ALPHAEON or any of its subsidiaries or affiliates.
Further, under the amended purchase agreement, we, ALPHAEON and SCH agreed to terminate the non-competition provision set forth in the contribution agreement, pursuant to which the Evolus contributors were prohibited, subject to limited exceptions, for a period of 5 years, from engaging in any business relating to the development, license, commercialization of, or performing any services or supervisory functions for persons or entities engaged in any business related to, a neurotoxin or neuromodulator.
If and as we assume and pay the payment obligations under the amended purchase agreement, the outstanding related party borrowings from ALPHAEON will be set-off and reduced, on a dollar-for-dollar basis, taking into
account the then-fair value of all payment obligations we assume from ALPHAEON, the estimated value of which, as of September 30, 2017, was $43.1 million.
In connection with the amended purchase agreement, we have entered into a tax indemnity agreement with the Evolus contributors, or the tax indemnity agreement, pursuant to which, upon our assumption of the payment obligations under the amended purchase agreement, we will indemnify the Evolus contributors for any tax liability resulting from such assignment of the payment obligations from ALPHAEON to us. Under the stock purchase agreement, the payment obligations are contingent and are thus eligible for installment sale reporting under Section 453 of the Internal Revenue Code. The entry into the amended purchase agreement would cause the Evolus contributors to be treated for U.S. federal income tax purposes as receiving a distribution from SCH of the right to receive the contingent payments in a transaction in which no gain or loss is recognized such that the Evolus contributors may continue installment sale reporting with respect to the payment obligations to the same extent that installment sale reporting was available to SCH with respect to the original payment obligations prior to the execution of the amended purchase agreement. Under the tax indemnity agreement, we will indemnify the Evolus contributors for any taxes or penalties required to be paid by the Evolus contributors in the event the IRS, which is defined below, or other taxing authority were to determine that our assumption of the payment obligations under the amended purchase agreement rendered continued installment sale reporting unavailable to the Evolus contributors. Any taxes or penalties paid by us on behalf of the Evolus contributors under the tax indemnity agreement will be offset dollar for dollar against the promissory note and future royalties that will be payable to the Evolus contributors under the amended purchase agreement.
Our
Relationship with ALPHAEON Corporation
Since our acquisition in 2014 by ALPHAEON, we have funded our operations primarily through contributions and related party borrowings from ALPHAEON.
We have derived the financial statements we present in this registration statement by allocating expenses associated with DWP-450 from
ALPHAEON’s
consolidated financial statements in accordance with applicable accounting standards and SEC regulations.
Our management believes that the allocations and results are reasonable for all periods presented in our financial statements. However, allocations may not be indicative of the actual expense we would have incurred had we operated as an independent company for the periods presented and do not include additional expenses we expect to incur in connection with the commercialization of DWP-450, including the creation of a commercialization infrastructure and hiring of our sales force.
We intend to enter
into a services agreement with ALPHAEON, or the services agreement, which will become effective upon completion of this offering. The services agreement will set forth certain agreements between ALPHAEON and us that will govern the relationship between ALPHAEON and us following this offering
.
We currently incur obligations to ALPHAEON for the research and development expenses it incurs on our behalf, which include both external and internal expenses. External research and development expenses include costs for CROs to conduct nonclinical and clinical studies on our product candidate, costs to acquire and evaluate clinical study data such as investigator grants, patient screening fees and laboratory work, and fees paid to consultants. Internal development expenses include costs for the work that ALPHAEON's development employees perform for us. All ALPHAEON-provided research and development expenses shown in our financial statements for
2015
and
2016
and the
nine months ended September 30, 2017
and all internal research and development expenses for the same periods were recorded as related party borrowings
from ALPHAEON in the amounts of
$20.7 million
,
$12.6 million
and
$5.5 million
, respectively.
ALPHAEON also provides us certain services, including, without limitation, general and administrative support services and development support services. We currently pay ALPHAEON for our share of the internal and external expenses for each of these functions based on our relative use of each function, plus an allocation of facility-related expenses, including depreciation and amortization and rent expense. All ALPHAEON-provided general and administrative expenses shown in our financial statements for
2015
and
2016
and the
nine months ended September 30, 2017
were recorded as related party borrowings from ALPHAEON
in the amounts of
$10.3 million
,
$7.4 million
and
$3.4 million
, respectively
. As our business grows and we assume increasing responsibility from ALPHAEON, we will assume direct responsibility for procuring and financing the services we currently receive from ALPHAEON and ALPHAEON's responsibility to provide us with these services will decrease.
We do not pay a mark-up or profit on the external or internal expenses ALPHAEON bills to us. In addition, we do not have to pay for a full time person if we only need the person's skills for 50% of the time. In this way, we can increase our headcount as our requirements grow and as we assume increasing responsibility for our product candidate from ALPHAEON, rather than building capabilities and capacity in advance of full utilization. We believe that our expenses reasonably reflect the expenses we would have incurred if we had the capabilities and capacity in place to perform this work ourselves. Further, we do not believe that our expenses representing functions historically reimbursed by ALPHAEON will increase significantly as we assume development, regulatory, manufacturing and administrative responsibilities from ALPHAEON because we will only assume these functions when we believe we can do so in a cost-efficient manner.
However, we do expect that our future expenses will increase from our historical expenses as we move towards commercialization of DWP-450 and transition to a public company.
Financial Overview
We derived the full year
2015
and
2016
, and
nine months ended September 30, 2016
and
2017
financial results on a standalone basis from ALPHAEON’s financial statements and accounting records and
prepared them in accordance with generally accepted accounting principles, or GAAP
. The full year
2015
and
2016
, and
nine months ended September 30, 2016
and 2017 financial results reflect amounts attributable to our business, including the costs that ALPHAEON incurred for the development and commercialization of DWP-450 and costs and expenses under the Daewoong Agreement. M
anagement believes that the allocations and results are reasonable for all periods presented. However, allocations may not be indicative of the actual expense we would have incurred had the business operated as an independent company for the periods presented.
The following is a description of the components of our results of operations:
General and Administrative
Our general and administrative expenses consist of salaries and personnel-related costs (other than research personnel), including stock-based compensation of ALPHAEON’s stock, for our employees in executive and administrative functions. Our general and administrative expenses also include professional fees for accounting, auditing and consulting services, legal services, investor relations, travel and facilities. As described above, ALPHAEON charges us for many of the expenses associated with these functions, including, among others, accounting, human resources, legal and investor relations. We expect to assume responsibility from ALPHAEON for these general and administrative functions as our business grows and we build our internal development and commercialization capabilities. ALPHAEON has historically charged us market rates for the portion of the resources that we use. Accordingly, we do not expect the overall general and administrative expenses
representing functions historically reimbursed by ALPHAEON
to change significantly as we transition functions from ALPHAEON to us,
however we do expect such expenses to increase as described below
.
We anticipate our general and administrative expenses to increase in the future to support our continued development and potential commercialization of DWP-450.
In addition, if DWP-450 obtains regulatory approval, we expect that we will incur expenses associated with building a sales and marketing team.
Increases over and above the level of work that ALPHAEON is currently performing on our behalf will result in an increase in general and administrative expenses and could include costs related to hiring additional personnel, increased office space, implementing new information technology systems and other costs associated with expanding our general and administrative functions. Our general and administrative expenses will also increase due to the costs of operating as a public company
and may further increase when we are no longer able to rely on certain “emerging growth company” exemptions we are afforded under the JOBS Act.
Research and Development Expenses
Since our inception, we have focused on developing DWP-450. Our research and development expenses primarily consist of:
|
|
•
|
personnel costs, which include salaries and related expenses for research and development personnel, including expenses related to stock-based compensation granted to personnel in development functions;
|
|
|
•
|
fees paid to clinical study sites and vendors, including CROs, in connection with our clinical studies, costs of acquiring and evaluating clinical study data such as investigator grants, patient screening fees, laboratory work and statistical compilation and analysis, and fees paid to clinical consultants related to the execution of clinical trials;
|
|
|
•
|
expenses to acquire clinical study materials;
|
|
|
•
|
other consulting fees paid to third parties;
|
|
|
•
|
expenses related to compliance with drug development regulatory requirements; and
|
|
|
•
|
travel, facilities, which includes cost associated with rent, maintenance and related facilities costs as well as depreciation and amortization, insurance and other expenses.
|
As described above, ALPHAEON charges us for many of the expenses associated with these functions, including, among others, costs for CROs to conduct nonclinical and clinical studies on our product candidate, costs to acquire and evaluate clinical study data such as investigator grants, patient screening fees and laboratory work, and fees paid to consultants. We expect to assume responsibility from ALPHAEON for these research and development functions as our business grows and we build our internal research and development capabilities. ALPHAEON has historically charged us market rates for the portion of the resources that we use. Accordingly, we do not expect our overall research and development expenses representing functions historically reimbursed by ALPHAEON to change significantly as we transition functions from ALPHAEON to us, however we expect our overall research and development expenses to increase as we seek to develop future product candidates.
Following this offering, we will expense our research and development costs as we incur them. Our expenses related to clinical studies are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with CROs that we may use to conduct and manage our clinical studies on our behalf. We generally accrue expenses related to clinical studies based on contracted amounts applied to the level of patient enrollment and activity. If we modify timelines or contracts based upon changes in the clinical study protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.
Results of Operations
Comparison of the
Nine Months Ended September 30,
2016
and
2017
The following table summarizes our results of operations for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
2017
|
|
Change
|
|
(Unaudited)
|
|
(dollars)
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
$
|
9,926
|
|
|
$
|
5,481
|
|
|
$
|
(4,445
|
)
|
General and administrative
|
6,111
|
|
|
3,169
|
|
|
(2,942
|
)
|
Depreciation and amortization
|
224
|
|
|
218
|
|
|
(6
|
)
|
Total operating expenses
|
16,261
|
|
|
8,868
|
|
|
(7,393
|
)
|
Loss from operations
|
(16,261
|
)
|
|
(8,868
|
)
|
|
7,393
|
|
Other expense, net
|
5
|
|
|
4
|
|
|
(1
|
)
|
Loss before taxes
|
(16,266
|
)
|
|
(8,872
|
)
|
|
7,394
|
|
Provision for income taxes
|
56
|
|
|
56
|
|
|
—
|
|
Net loss and comprehensive loss
|
$
|
(16,322
|
)
|
|
$
|
(8,928
|
)
|
|
$
|
7,394
|
|
Research and Development
Research and development expenses
decreased
by
$4.4 million
from
$9.9 million
for the
nine months ended September 30, 2016
to
$5.5 million
for the
nine months ended September 30, 2017
. The decrease was primarily attributable to a reduction in our clinical trial costs associated with the completion of our Phase III clinical trials in 2016.
Amounts incurred in 2017 were primarily attributable to costs related to the preparation of our regulatory filings with the FDA and EMA.
General and Administrative
General and administrative expenses
decreased
by
$2.9 million
from
$6.1 million
for the
nine months ended September 30, 2016
to
$3.2 million
for the
nine months ended September 30, 2017
. The decrease was attributable to a reduction in ALPHAEON
expenses allocated to us, reflecting an overall decrease in ALPHAEON operations and personnel in 2017 compared with 2016, for services provided to us by its employees, including a decrease in salaries and benefits of
$0.9 million
, third-party service costs of
$3.1 million
, and partially offset by an increase in office expense of
$0.7 million
.
Depreciation and Amortization
Depreciation and amortization expense
decreased
by
$6,000
, from
$224,000
for the
nine months ended September 30, 2016
to
$218,000
for the
nine months ended September 30, 2017
. The decrease was attributable to
fewer assets at ALPHAEON to be allocated to Evolus.
Provision for Income Taxes
Income tax expense was
$56,000
for the
nine months ended September 30, 2017
compared with
$56,000
for the
nine months ended September 30, 2016
. The expense for both periods is primarily attributable to the book to tax difference for intangible amortization of the in-process research and development, or IPR&D, asset representing research and development relating to DWP-450.
Comparison of the Years Ended
December 31, 2015
and
2016
The following table summarizes our results of operations for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
2016
|
|
Change
|
|
|
|
|
|
(dollars)
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
$
|
20,681
|
|
|
$
|
12,607
|
|
|
$
|
(8,074
|
)
|
General and administrative
|
9,883
|
|
|
7,033
|
|
|
(2,850
|
)
|
Depreciation and amortization
|
416
|
|
|
326
|
|
|
(90
|
)
|
Total operating expenses
|
30,980
|
|
|
19,966
|
|
|
(11,014
|
)
|
Loss from operations
|
(30,980
|
)
|
|
(19,966
|
)
|
|
11,014
|
|
Other expense, net
|
39
|
|
|
6
|
|
|
(33
|
)
|
Loss before taxes
|
(31,019
|
)
|
|
(19,972
|
)
|
|
11,047
|
|
Provision for income taxes
|
93
|
|
|
93
|
|
|
—
|
|
Net loss and comprehensive loss
|
$
|
(31,112
|
)
|
|
$
|
(20,065
|
)
|
|
$
|
11,047
|
|
Research and Development
Research and development expenses
decreased
by
$8.1 million
, from
$20.7 million
for the
year ended December 31,
2015
to
$12.6 million
for the
year ended December 31,
2016
. The decrease was primarily attributable to a reduction in our clinical trial costs associated with completion of our Phase III clinical trials.
General and Administrative
General and administrative expenses
decreased
by
$2.9 million
, from
$9.9 million
for the
year ended December 31,
2015
to
$7.0 million
for the
year ended December 31,
2016
. The decrease was attributable to a reduction in ALPHAEON
expenses allocated to us, reflecting an overall decrease in ALPHAEON operations and personnel in 2016, compared to 2015, for services provided to us by its employees, including third-party service costs of
$1.8 million
, stock-based compensation expense of
$479,000
, and office related expenses of
$342,000
.
Depreciation and Amortization
Depreciation and amortization expense
decreased
by
$90,000
, from
$416,000
for the
year ended December 31,
2015
to
$326,000
for the
year ended December 31,
2016
. The decrease was attributable to a reduction in related
expenses allocated to us from ALPHAEON.
Provision for Income Taxes
Income tax expense was
$93,000
for the
year ended December 31,
2016
compared with
$93,000
for the
year ended December 31,
2015
. The expense for both years is primarily attributable to the book to tax difference for intangible amortization of the IPR&D asset.
Liquidity and Capital Resources
As of September 30, 2017
, we had no cash or cash equivalents and a stockholder’s deficit of
$78.5 million
.
As of December 31, 2016
and
2015
, we had
$0.2 million
and
$4.0 million
, respectively, in restricted cash, representing an escrow account with funds set aside for research and development.
Since our acquisition in 2014 by ALPHAEON, we have funded our operations primarily through contributions and related party borrowings from ALPHAEON.
We have no revenue, incurred operating losses and have an accumulated deficit as a result of ongoing efforts to develop our product DWP-450, including conducting nonclinical and clinical trials and providing general and administrative support for these operations. We had an accumulated deficit of
$66.8 million
as of
December 31, 2016
, and
$78.5 million
as of
September 30, 2017
and negative working capital as of
September 30, 2017
of
$72.9 million
. We had net losses of
$20.1 million
and
$31.1 million
for the
years ended December 31,
2016
and
2015
, respectively, and
$8.9 million
and
$16.3 million
for the
nine months ended September 30, 2017
and
2016
, respectively. We used net cash in operating activities of
$13.3 million
and
$36.4 million
for the
years ended December 31,
2016
and
2015
, respectively, and
$12.0 million
and
$11.8 million
for the
nine months ended September 30, 2017
and
2016
, respectively. We anticipate that operating losses and net cash used in operating activities will increase over the next several years as we commercialize DWP-450, if approved.
Based on our estimated use of proceeds, we anticipate that the net proceeds of this offering, together with resources from ALPHAEON (including the payment of certain expenses on our behalf that we will evidence as related party borrowings from ALPHAEON), will be sufficient to fund our operating plan through the launch and initial commercialization of DWP-450, if approved by the FDA. However, we may require additional funds earlier than we currently expect if, in the event that we are required to conduct additional clinical trials, we experience a delay in receiving marketing approval of DWP-450 or market acceptance of DWP-450 is slower than expected. In addition, we expect to incur significant expenses related to building our commercialization infrastructure, including marketing, sales and distribution functions, inventory build prior to commercial launch and training and deploying a specialty sales force and implementing a targeted marketing campaign. We also expect to incur additional costs associated with operating as a public company and in building our internal resources to become less reliant on ALPHAEON. If such financing is not available at adequate levels or on acceptable terms, we could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of our development programs or commercialization efforts or other aspects of our business plan, out-license intellectual property rights to its product candidates and sell unsecured assets, or a combination of the above, any of which could significantly limit our ability to achieve profitability or to respond to competitive pressures and may have a material adverse effect on our business, results of operations, financial condition and/or our ability to fund our scheduled obligations on a timely basis or at all.
As a result of these conditions, management has concluded that substantial doubt about our ability to continue as a going concern exists as conditions and events, considered in the aggregate, indicate that it is probable that we will be unable to meet our obligations as they become due within one year after the date that the financial statements are issued. The financial information throughout this prospectus and the financial statements included elsewhere in this prospectus have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and these financial statements do not include any adjustments that may result from an unfavorable outcome of this uncertainty. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish our business plans and secure sources of financing and ultimately attain profitable operations.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
2015
|
|
2016
|
|
2016
|
|
2017
|
|
|
|
|
|
(unaudited)
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
Operating activities
|
$
|
(36,384
|
)
|
|
$
|
(13,267
|
)
|
|
$
|
(11,849
|
)
|
|
$
|
(12,035
|
)
|
Investing activities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Financing activities
|
36,384
|
|
|
13,267
|
|
|
11,849
|
|
|
12,035
|
|
Net change in cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating Activities
Our cash used in operating activities is primarily driven by our net loss and related party borrowings from ALPHAEON for expenses paid on our behalf.
Operating activities used
$12.0 million
of cash in the
nine months ended September 30, 2017
, primarily resulting from our net loss of
$8.9 million
and a net cash outflow of
$3.9 million
in our net operating assets and liabilities, partially offset by non-cash charges of
$0.7 million
.
Non-cash charges included depreciation and amortization of
$0.2 million
and non-cash stock-based compensation allocated from ALPHAEON of
$0.5 million
. The change in our net operating assets and liabilities was primarily driven by a decrease in accounts payable and accrued expenses of
$2.4 million
, partially offset by a change in prepaid expenses of
$0.3 million
and a release of our restricted cash of
$0.2 million
.
Operating activities used
$13.3 million
of cash in
2016
, primarily resulting from our net loss of
$20.1 million
, which was partially offset by non-cash charges of
$1.4 million
and an increase in our net operating assets and liabilities of
$5.4 million
. Non-cash charges included depreciation and amortization of
$0.3 million
and non-cash stock-based compensation of
$1.0 million
. The increase in our net operating assets and liabilities was primarily driven by the release of our restricted cash of
$3.8 million
and an increase in accounts payable of
$2.6 million
, partially offset by a decrease in accrued expenses of
$1.0 million
.
Operating activities used
$36.4 million
of cash in
2015
, primarily resulting from our net loss of
$31.1 million
and a decrease of
$7.3 million
in our net operating assets and liabilities, partially offset by non-cash charges of
$2.0 million
. Non-cash charges included depreciation and amortization of
$0.4 million
and non-cash stock-based compensation of
$1.5 million
. The decrease in our net operating assets and liabilities was primarily driven by the replenishment of our restricted cash of
$4.0 million
and a decrease in accrued expenses and accounts payable of
$2.0 million
and
$1.4 million
, respectively.
Investing Activities
We had no investing activity during the
nine months ended September 30, 2017
and
years ended December 31,
2015
and
2016
.
Financing Activities
Our cash provided from financing activities is primarily driven by changes in our related party borrowings from ALPHAEON for expenses paid on our behalf.
Financing activities provided
$12.0 million
of cash in the
nine months ended September 30, 2017
, primarily resulting from the change in our related party borrowings from ALPHAEON.
Financing activities provided
$13.3 million
of cash in
2016
, primarily resulting from the change in our related party borrowings from ALPHAEON.
Financing activities provided
$36.4 million
of cash in
2015
, primarily resulting from the change in our related party borrowings from ALPHAEON.
Indebtedness
ALPHAEON provides us certain services, including, without limitation, general and administrative support services and research and development support services. ALPHAEON has allocated a certain percentage of personnel to perform the services that it provides to us based on its good faith estimate of the required services. We intend to pay ALPHAEON for these allocated costs, which reflect the ALPHAEON full-time equivalent, or FTE, rate for the applicable personnel, plus out-of-pocket expenses such as occupancy costs associated with the FTEs allocated to providing us these services. We do not pay a mark-up or profit on the external or internal expenses ALPHAEON allocates to it. All ALPHAEON-provided operating expenses shown in our financial statements for
2015
and
2016
and the
nine months ended September 30, 2016
and
2017
were treated as related party borrowings from ALPHAEON to us.
As of December 31, 2015
and
2016
and
September 30, 2017
, we owed ALPHAEON
$46.2 million
,
$59.8 million
and
$72.0 million
, respectively.
There is currently no written agreement in place governing the terms of our related party borrowings to ALPHAEON, and as such, we may elect to remunerate ALPHAEON, with ALPHAEON’S consent, through a variety of methods,
such as through the payment of cash, re-characterizing the payables as capital contributions of ALPHAEON, the issuance of our equity securities, or as a set off against liabilities that ALPHAEON may transfer to us.
For example, ALPHAEON agreed to reduce such liabilities by offsetting the payment obligations under the amended purchase agreement and the promissory note
.
Guaranty of ALPHAEON’s Convertible Notes and Intercreditor Agreement
ALPHAEON is, as of
September 30, 2017
, the borrower under (i) certain convertible promissory notes issued by ALPHAEON for an aggregate principal amount of approximately
$51.5 million
, or the convertible promissory notes, and (ii) a certain convertible bridge note issued by ALPHAEON to Longitude Venture Partners II, L.P., or Longitude, for a principal amount of $2.5 million, or the convertible bridge note, collectively, the Notes. Kristine Romine, M.D., a member of our board of directors, DI, as defined below, and Alpha International Investment Ltd., or Alpha, each hold one or more convertible promissory notes. Simone Blank, a member of our board of directors, is the co-owner of DI. Bosun Hau, a member of our board of directors, is employed by an entity affiliated with Alpha. On December 14, 2017, ALPHAEON entered into an amendment to the amended and restated secured convertible note purchase agreement, or the amendment, pursuant to which it issued the convertible promissory notes, in order to permit ALPHAEON to issue an additional $3.3 million of convertible promissory notes. Since December 14, 2017, ALPHAEON has issued an additional $1.5 million of convertible promissory notes, including a convertible promissory note to Murthy Simhambhatla, Ph.D., our Chief Executive Officer and director, in the principal amount of $45,455. Under the amendment, Mr. Simhambhatla, DI, Longitude, and Alpha are each required to lend ALPHAEON funds in exchange for convertible promissory notes up to an aggregate of $1.8 million upon ALPHAEON’s request. Mr. Simhambhatla is required to fund up to an additional of $54,545 upon such request. ALPHAEON’s obligations under the Notes are secured by a first priority lien and security interest in substantially all of ALPHAEON’s assets, including all of the shares of our capital stock, granted by ALPHAEON to Dental Innovations BVBA, or DI, as collateral agent for the holders of the convertible promissory notes, and Longitude, as the holder of the convertible bridge note, pursuant to separate pledge and security agreements, or the ALPHAEON security agreements. In April 2017, we agreed to unconditionally guaranty ALPHAEON’s obligations under the Notes and we granted to Longitude, as the holder of the convertible bridge note, and DI, as collateral agent for the holders of the convertible promissory notes, a first priority lien and security interest in
substantially all of our assets pursuant to separate guaranty and security agreements, or the Evolus security agreements. We refer to the ALPHAEON security agreements and the Evolus security agreements collectively as the convertible notes security agreements. In April 2017, we, as guarantor, also entered into an amended and restated intercreditor agreement with ALPHAEON, as borrower, Longitude, as the holder of the convertible bridge note, and DI, as collateral agent for the holders of the convertible promissory notes, or the intercreditor agreement. The intercreditor agreement sets forth certain rights of Longitude and DI in connection with the convertible bridge note, the convertible promissory notes and the collateral pledged pursuant to the convertible notes security agreements.
On December 14, 2017, we and ALPHAEON entered into amendments with each of Longitude, as the holder of the convertible bridge note, and DI, as collateral agent for the holders of the convertible promissory notes, releasing our guaranty of the Notes and the security interest in our assets and terminating the Evolus security agreements effective immediately upon the completion of this offering. ALPHAEON's obligations under the ALPHAEON security agreements will remain outstanding following completion of this offering.
We recorded this joint and several liability historically as Note obligations and recorded a corresponding deemed distribution to ALPHAEON as a reduction to additional paid-in-capital in equity as of April 2017 to reflect the joint and several liability. As we and ALPHAEON had not agreed to what portion of this joint and several liability each would pay, we developed a range of amounts that we expect to pay under the c
onvertible notes security agreements
and selected the amount from within that range that we determined to be the best estimate, which equaled
$134.9 million
as of
September 30, 2017
(2.5 times the outstanding principal amount of the Notes as of that date), representing the total principal amount due to the Note holders upon redemption of the Notes at maturity. As provided for within the intercreditor agreement and
convertible notes security agreements
, in conjunction with our recognition of the joint and several liability, we also recorded a receivable from ALPHAEON, which equals the current balance of the amounts we owe to ALPHAEON under our intercompany borrowing arrangements. No amounts have been paid under this joint and several liability by us in the
nine months ended September 30, 2017
. As of
September 30, 2017
, the liability recorded by us to the Note holders pursuant to the above joint and several liability was
$134.9 million
(2.5 times the outstanding principal amount of the Notes as of that date) and the related party receivable was
$72.0 million
, representing the amount by which related party borrowings could be reduced pursuant to the terms of the
convertible notes security agreements
.
The difference between the amount of the joint and several liability and the related party receivable of
$62.9 million
was recorded as a deemed distribution to ALPHAEON, in stockholder’s deficit as a charge to additional paid-in capital in the period the transaction with the related party was made. Amounts in excess of additional paid-in capital were recorded into accumulated deficit.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for any other contractually narrow or limited purpose.
Contractual Obligations and Commitments
The following table summarizes our principal contractual obligations as of
December 31, 2016
, which consist of our operating lease for our Santa Barbara, California office facility
encompassing approximately 4,450 square feet of space, and expiring on May 31, 2020
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
Contractual Obligations
|
|
Total
|
|
Less than 1 year
|
|
1 – 3
Years
|
Operating lease obligation
|
|
$
|
584
|
|
|
$
|
165
|
|
|
$
|
419
|
|
|
|
$
|
584
|
|
|
$
|
165
|
|
|
$
|
419
|
|
From time to time we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims, including the Daewoong Agreement and certain real estate leases, supply purchase
agreements, and agreements with directors and officers. The terms of such obligations vary by contract and in most instances a maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted thus no liabilities have been recorded for these obligations on our balance sheets for any of the periods presented.
The table above does not reflect our outstanding related party borrowings from ALPHAEON of
$59.8 million
as of
December 31, 2016
.
As of September 30, 2017
, we owed ALPHAEON
$72.0 million
.
The table above also does not include potential milestone payments that we may be required to pay Daewoong, any milestone that we may be required to pay to the Evolus contributors under the amended purchase agreement upon marketing approval of DWP-450 in the United States and the EU and certain amounts that may be payable to Daewoong upon certain commercialization milestones. We have not included these potential obligations in the table above because they are contingent upon the occurrence of future events, and we do not know the timing of such potential obligations with certainty. We describe our contingent milestone payment in more detail in
Note 5
,
Commitments and Contingencies
,
to our financial statements.
The table above also does not reflect
certain minimum annual purchases we are required to make under the Daewoong Agreement in order to maintain the exclusivity of the license.
We may, however, meet these minimum purchase obligations by achieving certain market share in our covered territories.
We have not included these potential minimum purchase obligations in the table above because they are contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share in various jurisdictions, and we do not know the timing of such potential obligations with certainty.
The table above
also
does not reflect our contractual obligations under the
convertible note security agreements.
In July 2017, ALPHAEON issued an additional $5.0 million of convertible promissory notes
. As a result of this additional issuance, the total note obligations under all of the Notes increased to $134.9 million (2.5 times the total outstanding principal amount of the Notes). In addition, i
n December 2017, ALPHAEON issued an additional $1.5 million of Notes
. As a result of this additional issuance, the total note obligations under all of the Notes increased to $138.7 million (2.5 times the total outstanding principal amount of the Notes).
On December 14, 2017, we and ALPHAEON entered into amendments with each of Longitude, as the holder of the convertible bridge note, and DI, as collateral agent for the holders of the convertible promissory notes, releasing our guaranty of the Notes and the security interest in our assets and terminating the Evolus security agreements effective immediately upon the completion of this offering. ALPHAEON's obligations under the ALPHAEON security agreements will remain outstanding following completion of this offering.
The table above
also
does not reflect our contractual obligations under the amended purchase agreement.
Pursuant to the amended purchase agreement, ALPHAEON’s existing payment obligations were replaced with revised payment obligations, payable directly to the Evolus contributors, to be distributed to them ratably in accordance with their previous respective percentage ownership in our Series A preferred stock, and in exchange for the cancellation of the Class D units of SCH. The amended purchase agreement provides that, upon the closing of this offering, ALPHAEON will immediately and automatically assign to us and we will immediately and automatically accept and assume all of ALPHAEON’s payment obligations under the stock purchase agreement, as amended by the amended purchase agreement. In addition, p
ursuant to the amended purchase agreement, upon the completion of this offering, we will become the borrower under a $20.0 million promissory note payable to J. Christopher Marmo, as the representative of the Evolus contributors, that will mature 2.5 years after the anniversary
of the first commercial sale of DWP-450 in the United States.
The table above
also
does not reflect our contractual obligations under the
distribution agreement we entered into on November 30, 2017 with Clarion
.
The distribution agreement provides terms pursuant to which we will exclusively supply DWP-450 to Clarion in Canada, if approved. Clarion was previously a wholly-owned subsidiary of ALPHAEON. However, pursuant to previous agreements among ALPHAEON, Clarion, and previous equity holders of Clarion, the previous equity holders of Clarion have the option, and have exercised such option, to unwind ALPHAEON’s acquisition of Clarion. As a result, ALPHAEON owes the equity holders of Clarion an unwinding fee of $9.55 million, or the unwinding fee. We have agreed to pay the unwinding fee, on behalf of ALPHAEON, through our entry into the distribution agreement. The distribution agreement sets forth that a portion of the proceeds received from each unit of DWP-450 purchased by Clarion shall be paid directly to the previous equity holders of Clarion, and will reduce, on a dollar for dollar basis, the amount of the unwinding fee ALPHAEON owes, until the unwinding fee is paid in full.
Under the distribution agreement, if we do not receive
approval from Health Canada to promote and sell DWP-450 in Canada prior to October 31, 2018, we are obligated to pay liquidated damages to Clarion in the amount of $1.0 million within 30 days of December 31, 2018, which damages will not reduce the unwinding fee.
In addition, ALPHAEON has guaranteed the payment of the unwinding fee. As a result, ALPHAEON has an indirect material interest in the distribution agreement with Clarion.
Critical Accounting Policies
Management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements as well as the expenses incurred during the reporting period. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions and such differences could be material to the financial position and results of operations.
While our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this prospectus, we believe the following accounting policies to be most critical for fully understanding and evaluating our financial condition and results of operations, as these policies relate to the more significant areas involving management’s judgments and estimates.
Joint and Several Liability Assessment
We measure obligations resulting from joint and several liability arrangements as the sum of the amount that we have (i) agreed to pay on the basis of our arrangement among our co-obligors, and (ii) any additional amounts that we expect to pay on behalf of our co-obligors. The
determination of the “best estimate” from within the range of amounts that might be paid involves substantial judgment by our management. These estimates are subject to periodic revisions at each period as the joint and several liability is re-measured.
Research and Development Expenses
Research and development expenses are expensed as incurred. Non-refundable advance payments for goods and services that will be used or rendered for future research and development activities are recorded as a prepaid expense and recognized as an expense as the related goods are delivered or the related services are performed.
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by CROs in connection with research and development activities for which we have not yet been invoiced.
We base our expenses related to CROs on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our CROs will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us
reporting expense amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred. However, due to the nature of these estimates, we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies or other research activity.
Impairment Evaluations of Goodwill and Acquired Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but we perform an annual qualitative assessment of our goodwill during the fourth quarter of each calendar year to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If further testing is required, we perform a two-step process. The first step involves comparing the fair value of our reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. For the purpose of impairment testing, we have determined that we have one reporting unit. There has been no impairment of goodwill for any periods presented.
Intangible assets represent IPR&D projects acquired in an acquisition that have not yet been completed. IPR&D
assets with indefinite useful lives that are not amortized, but instead tested for impairment until the successful completion and commercialization or abandonment of the associated research and development efforts, at which point the
IPR&D
assets are either amortized over their estimated useful lives or written-off immediately.
Stock-Based Compensation Expense Allocated by ALPHAEON
We
have
not granted stock-based compensation for the periods presented. However, we
recognize t
he fair value of the expense allocated to us
for all ALPHAEON stock-based grant arrangements with our employees, including members of ALPHAEON’s board of directors.
Quantitative and Qualitative Disclosure About Market Risk
We did not have any cash or other financial instruments as of
September 30, 2017
.
Recently Issued and Adopted Accounting Pronouncements
In January 2017,
the Financial Accounting Standards Board, or the FASB,
issued
Accounting Standards Update, or ASU,
No. 2017-04,
Intangibles—Goodwill and Other (Topic 350
):
Simplifying the Test for Goodwill Impairment
. This standard simplifies the accounting for goodwill impairment by removing step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will be the amount by which a reporting unit's carrying amount, including goodwill, exceeds its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for us beginning January 1, 2022. The standard requires prospective application. Early adoption is permitted. We are evaluating the effect of this standard on our
financial statements and related disclosures as well as whether to early adopt the new guidance.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805)
:
Clarifying the Definition of a Business
, which clarifies when transactions should be accounted for as acquisitions (or disposals) of assets or business. ASU 2017-01 is effective for us beginning January 1, 2019. Early adoption is permitted for transactions not previously reported in issued financial statements. We are evaluating the effect of this standard on our financial statements and related disclosures.
In August 2016, the FASB issued new guidance that clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle
should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance is effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those years. We do not believe the adoption of the standard will have a material impact on the Company’s statement of cash flow.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718)
, or ASU No. 2016-09, which is intended to simplify several areas of accounting for share-based payment arrangements. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. We adopted this standard in the first quarter of 2017. We had no excess tax benefits for which a benefit could not previously be recognized as of December 31, 2016. Upon adoption, the balance of the unrecognized excess tax benefits is reversed with the impact recorded to (accumulated deficit) retained earnings, including any change to the valuation allowance as a result of the adoption. Due to the full valuation allowance on the U.S. deferred tax assets as of December 31, 2016, there was no impact to the financial statements as a result of this adoption in the first half of 2017.
In February 2016, the FASB issued final guidance for lease accounting. The new guidance requires lessees to put most leases on their balance sheet but to recognize expenses on their income statement in a manner similar to current accounting principles. The new guidance also eliminates the current real estate-specific provisions for all entities. The standard is effective for public companies for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. We are in the process of assessing the impact of the adoption of the standard on our financial statements.
In April 2015, the FASB issued ASU No. 2015-03,
Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the corresponding debt liability rather than as an asset. Management adopted this accounting pronouncement as of December 31, 2016. The adoption of the standard did not have a material effect on our financial statements.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on our present or future financial position, results of operations or cash flows.
JOBS Act
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC, we intend to rely on certain of these exemptions, including exemptions from the requirement to provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earlier of: the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or the SEC.
BUSINESS
Overview
We are a medical aesthetics company focused on providing physicians and their patients with expanded choices in aesthetic procedures and treatments. We focus on the self-pay aesthetic market and our first product candidate, PrabotulinumtoxinA (DWP-450), is an injectable 900 kilodalton, or kDa, botulinum toxin type A complex designed to address the needs of the large and growing facial aesthetics market. We believe we will offer physicians and patients a compelling value proposition with DWP-450. Currently, onabotulinumtoxinA (BOTOX) is the neurotoxin market leader and the only known approved 900 kDa botulinum toxin type A complex in the United States. We believe aesthetic physicians generally prefer the performance characteristics of the complete 900 kDa neurotoxin complex and are accustomed to injecting this formulation. We have completed the clinical development program for DWP-450 for the treatment of moderate to severe glabellar lines, also known as “frown lines,” between the eyebrows, in the United States, European Union, or EU, and Canada. The U.S. Food and Drug Administration, or FDA, issued a Prescription Drug User Fee Act, or PDUFA, date of May 15, 2018 for completion of its review of our Biologics License Application, or BLA. We submitted a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, and it was accepted for review in July 2017 with a decision that we expect by the second half of 2018. We have also submitted a New Drug Submission, or NDS, to Health Canada and it was accepted for review in October 2017.
We successfully completed a comprehensive five-study DWP-450 clinical development program in the United States, EU and Canada to meet the regulatory requirements for a BLA in the United States, a MAA in the EU and a NDS in Canada, for the treatment of moderate to severe glabellar lines. The program, which was developed in consultation with the FDA and European regulatory bodies, included three multicenter, randomized, controlled, single dose Phase III studies and two open label, multiple dose, long-term Phase II studies. Over 2,100 adult male and female subjects with moderate to severe glabellar lines at maximum frown participated in the program. All three Phase III studies successfully met their respective primary endpoints.
Our primary market is the self-pay aesthetic market, which includes medical products purchased by physicians that are then sold to patients or used in procedures for aesthetic indications that are not reimbursed by any third-party payor, such as Medicaid, Medicare or commercial insurance. Within the self-pay aesthetic market, the global aesthetic neurotoxin market was estimated to generate approximately $1.8 billion of revenue in 2017 and is estimated to grow to approximately $2.3 billion in 2020. The United States is the largest portion of this market and was estimated to generate approximately $941 million of revenue in 2017 and is expected to grow to approximately $1.2 billion in 2020. We believe the continued growth of the aesthetic neurotoxin market will be driven by an aging population, increased use by individuals between the ages of 19 and 34, whom we refer to as Millennials, rising disposable income, improved accessibility to these products and treatments due to an increase in the number of physicians who perform these procedures, continued innovation, and an increasing acceptance and utilization of elective or minimally invasive aesthetic procedures.
If approved, we plan to launch DWP-450 in the United States by building a commercialization infrastructure, including a specialty sales force of approximately 65 sales representatives at commercial launch and growing to 150 sales representatives over time. We intend for our sales force to market the product to aesthetic practices, beginning with U.S. board certified dermatologists, plastic surgeons, facial plastic surgeons and oculoplastic surgeons at launch and expanding to the broader aesthetic injector market over time. We intend to establish brand awareness for DWP-450 through national public relations, social media and direct-to-consumer media campaigns, which are widely-used commercialization channels for aesthetic neurotoxin products. In the long-term, we plan to capitalize on our commercialization infrastructure and our relationships with key aesthetic physicians to provide a comprehensive medical aesthetics portfolio over time, thereby driving continued revenue growth without a proportional increase in our selling, general and administrative expenses. Outside of the United States, we plan to market and sell DWP-450 through distributors in the territories in which we have the right to sell it.
We have an exclusive distribution license to DWP-450 from Daewoong Pharmaceuticals Co., Ltd., or Daewoong, a South Korean pharmaceutical manufacturer, for aesthetic indications in the United States, EU, Canada, Australia, Russia, Commonwealth of Independent States, or C.I.S., and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan. We also have an option to exercise a similar license in these territories for therapeutic indications by the end of 2018, which we have assigned to and are currently holding in
trust for ALPHAEON. DWP-450 will be manufactured by Daewoong in a recently constructed facility in South Korea that is designed with the intention of complying with FDA and EMA current Good Manufacturing Practice, or cGMP, requirements. We also have the option to negotiate first with Daewoong to secure a distribution license for any product that Daewoong directly or indirectly develops or commercializes that is classified as an injectable botulinum toxin (other than DWP-450) in a territory covered by the license.
Our Competitive Strengths
We believe we will offer physicians and patients a compelling value proposition beginning with the launch of DWP-450, if approved, for the following reasons:
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DWP-450 will offer the U.S. market the first known 900 kDa neurotoxin alternative to BOTOX
. Both DWP-450 and BOTOX manufacturing start with a 900 kDa complex, include adding the excipients human serum albumin
, or HSA,
and sodium chloride, and are finished by vacuum drying. If approved, DWP-450 is expected to be the only known neurotoxin product in the United States with a 900 kDa neurotoxin complex other than BOTOX. We believe an important component of competitiveness in the neurotoxin market relates to the characteristics associated with the 900 kDa complex and the potential of the accessory proteins to increase the effectiveness of the active toxin portion of the complex.
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DWP-450 may be easily integrated into existing aesthetic physician practices.
DWP-450 was clinically tested with one DWP-450 unit compared to one BOTOX unit. In the study, both products were stored, prepared and injected identically. We believe aesthetic physicians’ familiarity with the 900 kDa neurotoxin complex’s handling, preparation and dosing will more easily facilitate incorporation of DWP-450 into their practices.
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Enhanced level of physician-customer interaction through an aesthetic-only marketing strategy.
We have elected to specifically target the self-pay aesthetic market. With a reduced regulatory burden compared to third-party payor reimbursed markets, we believe we will achieve a number of benefits that market participants in reimbursed markets are unable to achieve, such as an enhanced level of interaction with our physician-customers. It is expected that upon U.S. approval, DWP-450 will be the only U.S. neurotoxin without a therapeutic indication. We believe pursuing an aesthetic-only non-reimbursed product strategy will allow for meaningful strategic advantages in the United States, including pricing and marketing flexibility. We intend to utilize this flexibility to drive market adoption through programs such as promotional events, sampling programs and pricing strategies.
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We have strong relationships with aesthetic key opinion leaders, or KOLs
. We have established relationships with aesthetic KOLs as a result of our management team’s industry experience and engagement of our clinical trial investigators. In addition, there are approximately 250 KOLs who have invested in our parent organizations, creating financial alignment with our success. KOLs are important information resources to the general physician-customer market due to their clinical expertise, academic reputations, active clinical practices and their status as medical innovators. The broader physician community often looks to KOLs for their experience with products and procedures as part of their new product and procedure adoption process.
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Our management team has significant experience and expertise in medical aesthetics
. Our management team has extensive experience in self-pay healthcare markets, in the development, market launch and commercialization of major medical products, execution and integration of business development transactions, identification of and partnerships with KOLs, and understanding of the regulatory environment of the healthcare markets. Key members of our leadership team have also served in relevant senior leadership positions with leading aesthetic companies.
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Our Strategy
Our near-term strategy is to enter the U.S. medical aesthetic neurotoxin market with DWP-450. We plan to expand our product offerings over time through in-licensing, partnerships and acquisitions. The key components of our strategy are:
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Achieve regulatory approval of DWP-450.
We believe the experience of our management team improves our ability to advance DWP-450 through the development phase and increases the likelihood of successfully obtaining approval for our product candidate. We also believe the completion of our clinical development program for the glabellar line indication and the acceptance of our BLA within three years of enrollment of the first patient demonstrates our ability to execute an effective development plan. In addition, we have worked with Daewoong to build a custom facility designed for neurotoxin manufacturing under FDA and EMA cGMP requirements during this pre-commercialization period.
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Launch the first known 900 kDa neurotoxin in the United States since BOTOX was launched 15 years ago.
The U.S. aesthetic neurotoxin market has been dominated by BOTOX since it received FDA approval for the treatment of glabellar lines in 2002. As the only known commercially approved 900 kDa neurotoxin for the last 15 years, BOTOX has flourished in an economic market structure with only one 900 kDa product option and significant barriers to entry, including a strenuous regulatory approval process. DWP-450, if approved, is expected to be the only known BOTOX alternative in the United States with a 900 kDa complex and Phase III clinical testing of one DWP-450 unit to one BOTOX unit. We believe these product characteristics will enable aesthetic physicians who use BOTOX to more easily incorporate DWP-450 in their practices.
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Pursue an aesthetic-only marketing strategy
. It is expected that upon U.S. approval, DWP-450 will be the only U.S. neurotoxin without a therapeutic indication. An aesthetic-only indication is an important strategic advantage because it provides greater flexibility around pricing and marketing strategies compared to neurotoxin manufacturers with aesthetic and therapeutic sales. Current U.S. neurotoxin manufacturers are required to calculate their neurotoxin’s average sales price, or ASP, inclusive of both aesthetic and therapeutic sales, for purposes of therapeutic reimbursement. As a result, we believe that U.S. neurotoxin manufacturers limit aesthetic neurotoxin discounting to protect their therapeutic neurotoxin reimbursement rate, with therapeutic sales representing approximately 60% of all U.S. neurotoxin sales in 2016. By contrast, we will not have a therapeutic indication for DWP-450 upon commercialization and therefore will have greater flexibility in our pricing strategies. We will utilize this flexibility to create a compelling value proposition for aesthetic physicians. Additionally, our aesthetic-only focus will allow us marketing flexibility and the ability to pursue our neurotoxin commercial strategy.
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Leverage our strong KOL relationships in medical aesthetics for our commercial launch.
We will utilize our strong KOL relationships to facilitate the awareness of the DWP-450 clinical evidence to the broader aesthetic physician community. Since KOLs opinions are valued due to their clinical expertise, academic reputations, active clinical practices and status as medical innovators, we believe the aesthetic KOLs, including our indirect investors, will be important in influencing aesthetic physician buying decisions. We plan to utilize our KOLs to assist in scientific presentations, publications and other methods by which we will drive awareness.
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Build a commercialization infrastructure with specialized sales and marketing functions.
We intend to establish a commercial infrastructure targeting board certified dermatologists, plastic surgeons, facial plastic surgeons and oculoplastic surgeons at launch and expanding to the broader aesthetic injector market over time. We will hire experienced sales professionals who will reflect our commitment to serving physicians and their patients with a high level of service and engagement. We will partner with established distributors outside the United States to reach and serve physicians and patients in those territories.
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Establish a leading medical aesthetics company by in-licensing technology, developing partnerships and potentially acquiring products.
Our long-term strategy is to build our company into a leading medical aesthetics company. We believe that an aesthetic neurotoxin is an attractive entry point for building a medical aesthetic portfolio as the aesthetic neurotoxin segment is one of the largest product segments in the self-pay medical aesthetics market. We intend to add additional self-pay medical aesthetics products
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that yield high patient satisfaction. We will use the insights of our management team to develop partnerships, in-license technology and potentially acquire products to expand our medical aesthetics product offerings over time. These products may include dermal fillers, aesthetic lasers, energy devices, and breast implants. We believe that we will create a commercial infrastructure and maintain relationships with key aesthetic physicians that can be leveraged over time to offer a medical aesthetics portfolio to our customers to drive growth without a significant increase in our selling, general and administrative expenses.
Our Market
Our primary market is self-pay healthcare, which includes medical products purchased by physicians that are then sold to patients or used in procedures for aesthetic indications that are not reimbursed by any third-party payor, such as Medicaid, Medicare or commercial insurance. By focusing on the self-pay medical aesthetics market, we believe we will not be exposed to reimbursement risk associated with a reliance on payments from such third-party payors and we will be subject to fewer regulations that place limits on the types of marketing and other interactions we can have with physicians. For example, the federal Anti-Kickback Statute, or the Anti-Kickback Statute, imposes significant restrictions on the ability of healthcare manufacturers who have products or services reimbursed by a federal healthcare program to interact with physicians in relation to the marketing of their products. We believe our clinical data and clinical testing of one DWP-450 unit to one BOTOX unit, together with the reduced regulatory burden and related flexibility in marketing and pricing, will improve our ability to generate product demand for DWP-450.
The global self-pay medical aesthetics neurotoxin market was estimated to generate approximately $1.8 billion of revenue in 2017 and is estimated to grow to approximately $2.3 billion in 2020. The global self-pay medical aesthetics market was estimated to generate approximately $9.3 billion of revenue in 2015 and is estimated to grow to approximately $15.1 billion in 2020, representing a 10% compound annual growth rate, or CAGR, of which the United States comprises the largest portion of the market at an estimated $3.9 billion of revenue in 2015, and is estimated to grow at an 11% CAGR during the same period. We believe the growth in both the self-pay medical aesthetics neurotoxin market and the overall self-pay medical aesthetics market is being driven by a number of factors, including:
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an aging population consisting of both Generation X, comprised of individuals between the ages of 35 and 50, and Baby Boomers, comprised of individuals between the ages of 51 and 64;
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individuals between the ages of 19 and 34, whom we refer to as Millennials, seeking to prophylactically delay the appearance of aging and utilizing neurotoxins as an entry point for aesthetic procedures due to its minimally invasive nature;
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an increasing life expectancy, which is resulting in patients with a desire for improved appearance and well-being;
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rising disposable income, with the U.S. Bureau of Economic Analysis reporting that real disposable income in the United States increased approximately 17% from March 2012 to March 2017;
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growing awareness, utilization and acceptance of elective or minimally invasive aesthetic procedures; and
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continued innovation and improved accessibility to these treatments due to an increase in the number of physicians who perform these procedu
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We believe the demand for aesthetic treatment for facial lines has stimulated growth in the use of botulinum toxin type A, given the neurotoxin’s minimally invasive nature of the treatment, effectiveness, ease of use, and safety profile. Additionally, a patient is able to have the procedure performed with minimal interruption to daily life primarily because most treatments require less than 30 minutes to be completed and have little to no recovery period. In general, the results of neurotoxin treatments may last up to four months but are not permanent. As a result, patients may seek repeat procedures to maintain the product’s effect, which translates into recurring revenue generation for manufacturers and physicians.
The large and established U.S. aesthetic neurotoxin market includes a wide range of age groups. In 2016, approximately 39% of total U.S. nonsurgical procedures were performed on Generation X patients and
approximately 31% were performed on Baby Boomer patients. Millennial patients represent a growing segment of the aesthetic neurotoxin market with data from the American Society of Plastic Surgeons showing a 49% increase between 2009 and 2016 in the number of botulinum toxin type A procedures in patients aged 20 to 29, which is the younger subset of the age 19 to 34 Millennial generation. In 2016, this 20 to 29 age group made up approximately 16% of total U.S. nonsurgical procedures in 2016, and we believe provides a source of future growth.
The current medical aesthetics botulinum toxin type A market is set forth in the following table:
BOTOX prices have increased consistently in recent years. According to The Centers for Medicare and Medicaid Services, or CMS, the ASP of BOTOX was approximately $599 per 100 unit vial as of June 2017, up nearly 8% or over $40, from its July 2014 ASP of approximately $557 per 100 unit vial. Many physicians have expressed frustration with increasing neurotoxin prices. According to a physician survey conducted by Bernstein Research in the second quarter of 2017, approximately 41% of physicians surveyed stated that they would be willing to try a new neurotoxin with a material discount strategy.
DWP-450 Overview
We licensed DWP-450 from Daewoong in September 2013 and commenced clinical trials in 2014. DWP-450 is an injectable formulation of a 900 kDa botulinum toxin type A complex designed to address the needs of the large and growing facial aesthetics market. We completed a comprehensive five-study DWP-450 clinical development program in the United States, EU and Canada to meet the regulatory requirements for a BLA in the United States, a MAA in the EU, and a NDS in Canada, for the treatment of moderate to severe glabellar lines. Our program was developed in consultation with the FDA and European regulatory bodies. These regulatory bodies provided guidance and feedback on the critical endpoints and statistical methodology required to develop the safety and efficacy endpoints that would support this indication’s approval.
The clinical program included three randomized, controlled, single dose Phase III studies, and two open label, multiple dose, long-term Phase II safety studies. Over 2,100 adult male and female subjects with moderate to severe glabellar lines at maximum frown participated in the program. All three Phase III studies successfully met their respective primary endpoints. A BLA and MAA seeking approval for the treatment of adult patients with glabellar lines was accepted and validated by the FDA and EMA, respectively, in July 2017 and a NDS was accepted by Health Canada in October 2017 on the basis of these studies. The FDA issued a PDUFA date of May 15, 2018 for completion of its review of our BLA. If approved, DWP-450 is expected to be the first known 900 kDa neurotoxin product in the United States since BOTOX was approved for the treatment of glabellar lines in 2002. Our MAA
was accepted for review in July 2017 with a decision that we expect by the second half of 2018.
As demonstrated in the figure below,
DWP-450 contains a 900 kDa botulinum toxin type A complex produced by the bacterium
Clostridium botulinum.
The active part of the neurotoxin is the 150 kDa component, and the remaining 750 kDA of the complex is made up of accessory proteins that we believe help with the function of the active portion of the toxin. DWP-450 has the same mechanism of action as other type A botulinum toxins. When injected intramuscularly at therapeutic doses, botulinum toxin causes a chemical denervation of the muscle
resulting in localized reduction of muscle activity. Botulinum toxin type A specifically blocks peripheral acetylcholine release at presynaptic cholinergic nerve terminals by cleaving SNAP-25, a protein integral to the successful docking and release of acetylcholine from vesicles situated within the nerve endings leading to denervation and relaxation of the muscle.
Diagram of Botulinum Toxin Type A
The following table provides a summary of the botulinum toxin type A complex composition for DWP-450 and available toxins in the United States.
Daewoong South Korean Clinical Development for Glabellar Lines
In South Korea, two DWP-450 clinical studies were used to support Daewoong’s BLA to the Korean Ministry of Food and Drug Safety, or MFDS, including one Phase I study and one Phase III study. Both studies were double blind, randomized trials with an active control. Both compared 20 units of Nabota, a DWP-450 formulation, with 20 units of BOTOX (onabotulinumtoxinA), injected as 4 units per 0.1 milliliters, or mL, into each of five target sites in the glabellar region of adult subjects with moderate to severe glabellar lines. Both the Phase I and Phase III study used the investigator’s assessment of the improvement of glabellar lines at maximum frown on a four-point Glabellar Line Severity scale to evaluate efficacy, where 0 = none, 1 = mild, 2 = moderate and 3 = severe glabellar lines at maximum frown.
Phase I Clinical Trial.
The Phase I study included 20 randomized subjects, with 10 subjects receiving Nabota and 10 subjects receiving BOTOX. The average ages, ratios of males to females, and the rating of glabellar lines
at maximum frown and at rest at 4 weeks were similar between the two groups. Two adverse events, or AEs, were reported: a mild case of dizziness in a Nabota subject and a mild case of headache in a BOTOX subject.
Phase III Clinical Trial.
The Phase III study included 268 randomized subjects, with 135 subjects receiving Nabota and 133 subjects receiving BOTOX. The primary efficacy endpoint was the responder rate at maximum frown at 4 weeks. A responder was defined as a subject with a Glabellar Line Severity scale score of none (0) or mild (1), based on the investigator’s assessment of glabellar lines. In a per protocol analysis , the responder rate was 93.9% in the Nabota group and 88.6% in the BOTOX group. The difference between these groups was 5.3% and the lower limit of the 97.5% one-sided confidence interval was -1.53%.
A confidence interval, or CI, is a range of values in which, statistically, there is a specified level of confidence where the result lies. In this Phase III study, the results indicate that there is a 97.5% level of confidence that the difference between the Nabota and BOTOX responder rates was between -1.53% and 5.26%, which we express as: 97.5% CI (-1.53, 5.26).
Based on the lower limit of the confidence interval surpassing a pre-determined -15.0% threshold for non-inferiority, the Nabota treatment group was determined to be non-inferior to BOTOX.
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Korean Phase III Primary Endpoint - Responder Rates at Week 4, Glabellar Line Severity at Maximum Frown by Investigator Assessment
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Korean Phase III Primary Endpoint - Non-Inferiority, Glabellar Line Severity at Maximum Frown by Investigator Assessment
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A secondary efficacy endpoint was the responder rate at maximum frown at 4 weeks, 8 weeks, 12 weeks and 16 weeks, with a responder defined as a subject with a
Glabellar Line Severity scale
score of none (0) or mild (1), based on the investigator’s assessment of glabellar lines. The responder rates for the Nabota group were 93.6%, 83.9%, 75.6% and 62.1% at 4 weeks, 8 weeks, 12 weeks and 16 weeks, respectively. For the BOTOX group, the responder rates were 89.3%, 82.6%, 70.0% and 54.6% at 4 weeks, 8 weeks, 12 weeks and 16 weeks, respectively. The overall AE rate was 20.0% and 18.1% in the Nabota and BOTOX groups respectively, and the drug related AE rate was 5.9% and 4.5% in the Nabota and BOTOX groups respectively. There was one serious adverse event, or SAE, in the trial and it was assessed as not study drug related.
Korean Phase III Secondary Endpoint - Improvement in Rates for Glabellar Lines Severity at Maximum Frown by Investigator Assessment
South Korean Approval.
Nabota was approved by the MFDS for marketing on November 29, 2013 for the treatment of glabellar lines. The Nabota DWP-450 formulation in the South Korean study and that is currently being commercialized by Daewoong is slightly different than the formulation used in our sponsored studies. The HSA used in our formulation is licensed and approved by the FDA and is certified by the EMA, whereas the HSA currently used in the Nabota formulation is not. In addition, the Nabota formulation is lyophilized, or freeze dried, whereas the product we intend to commercialize, if approved, is vacuum dried. See the section entitled “Additional Safety Evaluations” below for additional information.
Evolus Clinical Development for Glabellar Lines
In 2014, we initiated a comprehensive five-study DWP-450 clinical development program in the United States, EU and Canada to meet the regulatory requirements for a BLA in the United States, a MAA in the EU, and a NDS in Canada, for the treatment of moderate to severe glabellar lines. The program, which was developed in consultation with the FDA and European regulatory bodies, included three multicenter, randomized, double-blinded, controlled, single dose Phase III studies titled EV-001, EV-002 and EVB-003. Each Phase III study lasted 150 days. We also completed two open label, multiple dose, long-term Phase II studies titled EV-004 and EV-006, each lasting one year. Between September 2014 and August 2016, over 2,100 adult male and female subjects with moderate to severe glabellar lines at maximum frown participated in this program.
In our clinical trials, subjects received intramuscular injections in five target sites in muscles that contribute to the formation of glabelllar lines: the midline of the procerus, the inferomedial aspect of each corrugator, and the superior middle aspect of each corrugator. Each of the five target sites was injected with 0.1mL for a total of 0.5mL. Subjects assigned (in the open label studies) or randomized (in the controlled studies) to DWP-450 received a total of 20 units per treatment, administered as 4 units per 0.1 mL and those subjects who were randomized to the placebo group received 0.5 mL saline. In our EVB-003 Phase III trial, the only study of the five with both a placebo and active control arm, subjects randomized to the active control received a total of 20 units of BOTOX administered as 4 units per 0.1 mL. As in the Korean studies, 20 units of BOTOX served as the active control in EVB-003. In the multiple dose studies, eligible subjects could receive up to four treatments of 20 units of DWP-450 each.
All five studies contributed data to the evaluation of efficacy and safety. The table below summarizes our five-study DWP-450 clinical development program.
Listing of the Five U.S./EU DWP-450 Clinical Studies - Design Features and Efficacy Assessments
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EV-001
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EV-002
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EVB-003
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EV-004
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EV-006
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Study
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U.S. Pivotal Phase III Safety and Efficacy
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U.S. Pivotal Phase III Safety and Efficacy
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EU Pivotal Phase III Safety and Efficacy
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U.S. Phase II Long-term Safety
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U.S. Phase II Long-term Safety
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Population
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Healthy adults (≥18 years) who had moderate to severe glabellar lines (Glabellar Line Scale, or GLS, score ≥2) at maximum frown, as independently assessed by
both
Investigator Assessment (IA) and Subject Assessment(SA)
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Healthy adults (≥18 years) who had moderate to severe glabellar lines (GLS score ≥2) at maximum frown, as independently assessed by
both
IA and SA
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Healthy adults (≥18 years) who had moderate to severe glabellar lines (GLS score ≥2) at maximum frown assessed by IA
only
and who felt that their glabellar lines had an important psychological impact
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Healthy adults (≥18 years) who had moderate to severe glabellar lines (GLS score ≥2) at maximum frown assessed by IA
only
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Healthy adults (≥18 years) who had moderate to severe glabellar lines (GLS score ≥2) at maximum frown, as independently agreed by
both
IA and SA
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Design, including Duration
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Multicenter
Randomized (3:1)
Double blind
Placebo controlled
Single dose
150 days duration
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Multicenter
Randomized (3:1)
Double blind
Placebo controlled
Single dose
150 days duration
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Multicenter
Randomized (5:5:1)
Double blind
Placebo and active controlled
Single dose
150 days duration
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Multicenter
Non-randomized
Open label
Multiple dose (initial treatment plus up to three repeat treatments)
365 days duration
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Multicenter
Non-randomized
Open label
Multiple dose (initial treatment plus up to three repeat treatments)
365 days duration
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Treatments
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Single treatment of:
20 units of DWP-450 or
0.5mL saline (Placebo)
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Single treatment of:
20 units of DWP-450 or
0.5mL saline (Placebo)
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Single treatment of:
20 units of DWP-450 or
20 units of BOTOX or
0.5mL saline (Placebo)
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20 units of DWP-450/treatment, up to a maximum of 4 treatments
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20 units of DWP-450/treatment, up to a maximum of 4 treatments
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Number of Subjects
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330 randomized (3:1)
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324 randomized (3:1)
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540 randomized (5:5:1)
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352 treated with DWP-450
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570 treated with DWP-450
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Location of Sites
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United States
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United States
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Canada;
France; Germany; Sweden; United Kingdom
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United States
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United States
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Primary Endpoint
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Proportion of subjects classified as responders on Day 30;
A composite endpoint
A responder was a subject with a ≥2 point improvement on the GLS from Day 0 to Day 30 at maximum frown
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Proportion of subjects classified as responders on Day 30
A composite endpoint
A responder was a subject with a ≥2 point improvement on the GLS from Day 0 to Day 30 at maximum frown
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Proportion of subjects classified as responders on Day 30
Not
a composite endpoint
A responder was a subject with a GLS score of 0 or 1
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None, all efficacy endpoints were exploratory
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None, all efficacy endpoints were exploratory
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Phase III U.S. Based Clinical Trials.
The two identical U.S. Phase III studies, EV-001 and EV-002, enrolled subjects who were selected from a population of healthy adults, at least 18 years of age, who had moderate to severe glabellar lines at maximum frown, as independently assessed by the investigator and subject using the 4-point photonumeric Glabellar Line Scale, or GLS, where 0=no lines, 1=mild lines, 2=moderate lines and 3=severe lines. On Day 0, eligible subjects were randomly assigned in a 3:1 ratio to receive a single treatment of either DWP-450 or placebo. Subjects were followed for 150 days.
The primary efficacy endpoint was defined as the proportion of subjects classified as responders on Day 30. This was a composite endpoint in which a responder was a subject with a 2 point improvement or greater on the GLS from Day 0 to Day 30 at maximum frown, only if independently agreed by both investigator and subject assessment. In keeping with the FDA guidance, this was deemed to be a clinically meaningful composite primary efficacy endpoint.
Both studies met the primary endpoint of superiority over placebo. The percentages of responders in the intent to treat population for the composite primary endpoint, a two point or greater score composite improvement, in each of the two controlled single dose studies were:
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•
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EV-001: 1.2% placebo, 67.5% DWP-450, with an absolute difference between the groups of 66.3%, 95% CI (59.0, 72.4)
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•
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EV-002: 1.3% placebo, 70.4% DWP-450, with an absolute difference between the groups of 69.1%, 95% CI (61.5, 75.1)
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U.S. Phase III Primary Endpoint - Composite Score ≥ 2 Point GLS Improvement at Maximum Frown on Day 30
Since a two point or greater composite score requires both the investigator and subject to agree simultaneously, studies using this definition generally have a lower responder rates than non-composite studies. Xeomin and Dysport represent two botulinum toxin type A products who also conducted trials using a two point or greater composite responder rate. The Xeomin two point or greater responder rates in their Phase III studies, per FDA labels, were 48% and 60%, and the Dysport rates were 52%, 55% and 60%. Importantly, no comparison across any of the studies can be made.
U.S. Phase III Primary Endpoint - Components of Composite Score, ≥ 2 Point GLS Improvement at Maximum Frown on Day 30 by Investigator and Subject Assessment
In the EV-001 study, analysis of the secondary endpoints investigated the response at maximum frown beyond Day 30 using a two point composite score. A subject was considered a responder only if a ≥2 point improvement had occurred on the GLS at maximum frown from Day 0, by both Investigator and subject assessment:
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•
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At Day 90 (post hoc), the percentage of responders was 1.3% in the placebo group and 26.5% in the DWP-450 group with an absolute difference of 25.2%, p<0.001.
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•
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At Day 120, the percentage of responders was 1.3% in the placebo group and 8.3% in the DWP-450 group with an absolute difference of 7.0%, p=0.023.
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•
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At Day 150 or early termination, the percentage of responders was 0.0% in the placebo group and 4.6% in the DWP-450 group. The absolute difference of 4.6% between the groups remained statistically significant for the composite endpoint, p=0.041.
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A p value, as expressed in the data above, is the probability that the difference between two data sets was due to chance. The smaller the p value, the more likely the differences are not due to chance alone. In general, if the p value is less than or equal to 0.05, the outcome is statistically significant.
The 2 point composite score results were similar in the EV-002 study to the EV-001 study for the secondary endpoints:
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•
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At Day 90 (post hoc), the percentage of responders was 0.0% in the placebo group and 25.8% in the DWP-450 group with an absolute difference of 25.8%, p<0.001.
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•
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At Day 120, the percentage of responders was 0.0% in the placebo group and 12.4% in the DWP-450 group, with an absolute difference of 12.4%, p<0.001.
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•
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At Day 150 or early termination, the percentage of responders was 0.0% in the placebo group and 4.6% in the DWP-450 group. The absolute difference of 4.6% between the groups remained statistically significant for the composite endpoint, p=0.047.
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Additional exploratory efficacy analyses
in the EV-001 and EV-002 studies
were conducted where DWP-450 was investigated for a one point or greater improvement as assessed by either the subject or investigator at various days at maximum frown based on the GLS. DWP-450 was compared against a placebo at 2 days, 7 days, 14 days, 30 days, 90 days, 120 days and 150 days or early termination.
U.S. Phase III Exploratory Endpoints - ≥ 1 Point Improvement GLS at Maximum Frown
In each of the EV-001 and EV-002 studies, we also assessed as an exploratory endpoint investigator and patient assessments on the Global Aesthetic Improvement Scale, or the GAIS. The GAIS is a five-point scale on which an evaluator, the subject or investigator, can determine the aesthetic outcome for the subject from: much improved, improved, no change, worse or much worse. The rate of positive responders, those who were assessed by either the subject or the investigator as much improved or improved, over the course of the study is provided below.
U.S. Phase III studies Exploratory Endpoint - Global Aesthetic Improvement Responders (Much Improved/Improved)
EV-002 Subject - Glabellar Lines at Maximum Frown
In the EV-001 study, the AE rate was 32.1% in the placebo group and 38.2% in the DWP-450 group. Placebo and DWP-450 groups were similar in the overall incidence of subjects who experienced one or more AEs. Three DWP-450 subjects (3/246, 1.2%) experienced SAEs, none were assessed as study drug related. Placebo and DWP-450 groups were also similar in the percentages of subjects who experienced AEs assessed by the investigator as study drug related: 13.1% of placebo subjects and 15.4% of DWP-450 subjects. The eyelid and eyebrow ptosis rates, the drooping of an upper eyelid or eyebrow, respectively, in the DWP-450 group was 0.4% for each.
In the EV-002 study, the AE rate was 26.9% in the placebo group and 28.5% in the DWP-450 group. Placebo and DWP-450 groups were similar in the overall incidence of subjects who experienced one or more AEs. Four DWP-450 subjects (4/246, 1.6%) experienced a SAE, none were assessed as study drug related. Placebo and DWP-450 groups were also similar in the percentages of subjects who experienced an AE assessed by the investigator as study drug related: 7.7% of placebo subjects and 9.8% of DWP-450 subjects. The eyelid and eyebrow ptosis rates in the DWP-450 arm were 1.2% and 0.4% respectively.
Overall, AEs with an incidence of 1% or greater were headache at 9.3% in the DWP-450 groups and 7.6% in the placebo groups and eyelid ptosis at 1% in the DWP-450 groups and 0% in the placebo groups.
U.S. Phase III Trials - Adverse Event Rate Summary
Phase III European Clinical Trial for Glabellar Lines
The EVB-003 study was the third Phase III safety and efficacy study in the DWP-450 clinical development program, and was conducted in Europe and Canada. 540 subjects with moderate to severe glabellar lines, or a GLS score of 2 or 3, as assessed by the investigator, were eligible to be enrolled provided that subjects also felt their glabellar lines had an important psychological impact, such as on their mood, anxiety or depressive symptoms. On Day 0, eligible subjects were randomly assigned in a 5:5:1 ratio to receive a single treatment of 20 units of DWP-450, 20 units of BOTOX or placebo.
The primary efficacy endpoint was defined as the proportion of subjects classified as responders on Day 30. A responder was a subject with a GLS score of 0 or 1, as assessed by the investigator at maximum frown. The
primary analysis of the primary efficacy endpoint in the EVB-003 study showed DWP-450’s superiority over placebo, and established DWP-450’s non-inferiority to BOTOX. The percentages of responders for the primary efficacy endpoint were:
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4.2% in the placebo group, 95% CI (0.0, 9.8);
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•
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82.8% in the BOTOX group, 95% CI (78.1, 87.5); and
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•
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87.2% in the DWP-450 group, 95% CI (83.0, 91.5).
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The absolute differences between the treatment groups were:
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83.1% between DWP-450 and placebo groups, 95% CI (70.3, 89.4), (p<0.001), indicating DWP-450 was superior to placebo; and
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•
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4.4% between DWP-450 and BOTOX groups, 95% CI (-1.9, 10.8), with non‑inferiority of DWP-450 versus BOTOX concluded based on the lower bound of the 95% CI for the absolute difference exceeding -10.0%.
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EU Phase III Primary Endpoint - Responder Rates at Maximum Frown on Day 30 (GLS = 0 or 1) by Investigator Assessment
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EU Phase III Primary Endpoint - Non-Inferiority, at Maximum Frown on Day 30 by Investigator Assessment
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As presented in the table below, within each group, 32.7% of placebo subjects, 41.9% of BOTOX subjects and 37.6% of DWP-450 subjects experienced AEs. One placebo subject (1/49, 2.0%), one BOTOX subject (1/246, 0.4%) and three DWP-450 subjects (3/245, 1.2%) experienced a total of 11 SAEs and none were assessed as study drug related. The eyelid ptosis rate were 1.6% in the DWP-450 arm, 0% in the BOTOX arm and the eyebrow ptosis rates were 0% in the DWP-450 arm and 0.4% in the BOTOX arm.
EU Phase III Trial - Adverse Event Rate Summary
Phase II Repeat Dose Clinical Trial for Glabellar Lines
The primary objective of the Phase II EV-004 study was to demonstrate the safety of DWP-450 in adult subjects receiving repeat doses of DWP-450 for the treatment of moderate to severe glabellar lines. This multi-dose study lasted one year. Subjects were selected from a population of healthy adults at least 18 years of age who had moderate to severe glabellar lines at maximum frown, as assessed by the investigator. On Day 0, eligible subjects were administered a single treatment, 20 units of DWP-450. On and after Day 90, subjects were eligible for a repeat treatment if their GLS score was 2 or greater at maximum frown, as assessed by the investigator. If a
subject did not have a GLS score of 2 or greater, they were followed monthly until eligible for a repeat treatment or until the study ended on Day 365. The test product in this study was different from all the other Evolus sponsored studies because each vial contained lyophilized, instead of vacuum dried, DWP-450. See the section entitled “Additional Safety Evaluations” below for additional information. All other studies in the Evolus sponsored program used vials containing vacuum dried DWP-450.
Over the course of the one year study, the 352 subjects in the study received a median total dose of 60 units, or 3 treatments.
Total AEs
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•
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148 subjects (148/352, 42.0%) experienced a total of 265 AEs.
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7 subjects (7/352, 2.0%) experienced a total of 9 SAEs, none assessed as study drug related.
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Study Drug Related AEs
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51 subjects (51/352, 14.5%) experienced a total of 59 AEs (59/265 events, 22.3%) assessed by the investigator as study drug related.
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39 subjects (39/352, 11.1%) experienced a study drug related AE following the initial treatment visit, representing 76.5% of all subjects who experienced study drug related AEs (39/51). Progressively lower percentages of subjects experienced study drug related AEs following each repeat treatment: 3.4% (11/319) after the first repeat treatment, 1.5% (4/262) after the second repeat treatment, and none after the third repeat treatment.
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The Phase II, EV-006 study’s primary objective was also to demonstrate the safety of DWP-450 in adult subjects receiving repeat doses of DWP-450 for the treatment of moderate to severe glabellar lines. Like EV-004, the EV-006 was a multi-dose study that lasted one year. Subjects were selected from a population of healthy adults at least 18 years of age who had moderate to severe glabellar lines at maximum frown, agreed by both the investigator and the subject, as opposed to the sole assessment of the investigator in the EV-004 study. On Day 0, eligible subjects were administered a single treatment of 20 units of DWP-450. On and after Day 90, subjects were eligible for repeat treatment if their GLS score was a 2 or greater at maximum frown, as assessed by the investigator. If a subject did not have a GLS score ≥2, they were followed monthly until eligible for repeat treatment or until the study ended on Day 365.
Over the course of the one-year study, the 570 subjects in the study received a median total dose of 60 units, or 3 treatments.
Total AEs
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235 subjects (235/570, 41.2%) experienced a total of 475 AEs.
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Seven subjects (7/570, 1.2%) experienced eight SAEs, none of the SAEs were assessed as study drug related. One death (1/570, 0.2%) was reported during the study, a SAE, this event was not related to study drug
.
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Study Drug Related AEs
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61 subjects (61/570, 10.7%) experienced a total of 91 AEs (91/473 events, 19.2%) assessed by the investigator as study drug related.
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37 subjects (37/570, 6.5%) experienced 46 study drug related AEs following the initial treatment visit, representing 60.7% of all subjects who experienced study drug related AEs (37/61). Progressively lower percentages of subjects experienced study drug related AEs following each repeat treatment: 3.6% (19/524) after the first repeat treatment, 3.2% (14/431) after the second repeat treatment, and 1.9% (4/214) after the third repeat treatment
.
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The combined eyelid ptosis rate for the EV-004 and EV-006 studies was 0.9%.
Additional Safety Evaluations
The
five Evolus sponsored studies, EV-001, EV-002, EVB-003, EV-004 and EV-006, assessed the vital signs of subjects, and there were no notable differences found between the DWP-450 group and placebo. In the U.S.-based studies, EV-001, EV-002, EV-004 and EV-006, additional testing was conducted such as chemistry, hematology, urinalysis, and electrocardiograms, and these additional tests did not reveal any notable differences between the DWP-450 and placebo groups.
During the course of the U.S.-based studies, testing was also conducted looking for subjects who developed antibotulinum toxin antibodies after exposure to the drug, referred to as cases of seroconversion.
There were two cases of seroconversion in the EV-004 repeat dose study. The DWP-450 formulation in the EV-004 study was not the same as the formulation used in all the other Evolus studies.
Specifically, the DWP-450 formulation for the EV-004 study used a lyophilizing, or freeze drying, method for removing water. The pivotal studies EV-001 and EV-002, and the repeat dose study EV-006, used a DWP-450 formulation that was vacuum dried, and there were no cases of seroconversion in any subjects. This vacuum dried formulation was tested for antibotulinum antibody formations in 1,739 DWP-450 treatments in the 570 subjects in the repeat treatment EV-006 trial, and 492 DWP-450 treatments in the two U.S. single treatment Phase III trials, EV-001 and EV-002. If approved, we plan to commercialize the vacuum dried formulation of DWP-450.
Testing for neutralizing antibody formation was also conducted in the Daewoong Nabota DWP-450 studies and there were no cases of seroconversion. The Nabota DWP-450 formulation in the South Korean studies is slightly different than the formulation used in the Evolus sponsored studies. The HSA used in the Evolus formulation is licensed and approved by the FDA and certified by the EMA. Additionally, the Nabota product is lyophilized, whereas the Evolus product intended for commercialization is vacuum dried.
Additional Daewoong Clinical Trials
Phase III Post Stroke Upper Limb Spasticity Clinical Trial.
Daewoong has also conducted a post-stroke upper limb spasticity Phase III comparator study. It was a randomized, double blind, multi-center, active drug controlled, Phase III clinical trial to compare the safety and efficacy of Nabota versus BOTOX conducted in South Korea. This study was the basis for registration and approval of Nabota with the MFPS for the post-stroke upper limb spasticity indication in South Korea.
Patients diagnosed with a stroke at least six weeks prior to the start date of the study and found to be eligible based on the screening test result, were randomized to either Nabota or BOTOX. Treatment consisted of intramuscular injections of up to 360 units to the wrist flexor, elbow flexor, finger flexor or thumb-in-palm; the total dose depended on the existent and severity of spasticity. In order to assess efficacy and safety after the treatment, follow-up visits were performed at 4, 8, and 12 weeks.
The primary endpoint compared the evaluations of the changes in muscle tension values as measured by the Modified Ashworth Scale, or MAS, scores of wrist flexors at 4 weeks after the injection compared to the scores before treatment. The changes in the wrist flexor MAS assessed by the investigator at 4 weeks after treatment compared to the baseline in the per protocol analysis group for the primary efficacy assessment were -1.44±0.72 points and -1.46±0.77 points in the Nabota and BOTOX group, respectively. Both groups demonstrated statistically significant decreases (p<0.0001) in muscle tension as measured on the MAS. The difference between the Nabota and BOTOX groups was 0.0129, with a 95% CI (-0.2062, 0.2319). Since the upper limit of the 97.5% one-sided confidence interval of the difference in changes was 0.2319, Nabota was found to be non-inferior to BOTOX. As a secondary endpoint, the average change in in muscle tension as measured on the MAS of both groups as compared to baseline, when measured at Week 8 and Week 12, remained statistically significant at all points in time.
After administration of the treatment, AEs occurred in 19.6% of the subjects in the Nabota group and 19.4% of the subjects in the BOTOX group. Adverse drug reactions occurred in 3.1% of the subjects in the Nabota group and in 4.1% of the subjects of the BOTOX group. There was one SAE
,
a radius fracture that occurred in the Nabota group, and was assessed as not study drug related. Botulinum neutralizing antibody testing was conducted using mouse bio-assay, and there were no “positive” subjects found in either group. Nabota is now approved for this indication in South Korea.
Manufacturing
Daewoong has agreed to manufacture and supply us with DWP-450. Daewoong has over 70 years of experience manufacturing pharmaceutical products and is one of the largest pharmaceutical drug companies in South Korea. Daewoong has recently constructed a facility for the purposes of producing DWP-450 drug product. The facility is located in Gyeonggi-do, South Korea. This facility was completed in 2016 with the intention to comply with FDA and EMA regulations and is now fully validated by Daewoong under cGMP requirements. We believe this facility will be sufficient to meet demand for DWP-450 for the foreseeable future. The FDA conducted a cGMP and pre-approval inspection of the facility from November 8 to November 17, 2017. The EMA inspection of the manufacturing sites is expected to occur in the first quarter of 2018.
Daewoong manufactures the DWP-450 drug substance in a separate facility on the same campus. The manufacture of DWP-450 drug substance is based on the fermentation of Daewoong’s
C.botulinum
cell line, followed by isolation and purification of the drug substance. Daewoong has received a U.S. patent for the production process. The DWP-450 drug substance production facility was renovated to comply with FDA and EMA cGMP requirements.
The FDA conducted a cGMP and pre-approval inspection of Daewoong’s manufacturing facility in South Korea related to our BLA for DWP-450 from November 8 to November 17, 2017. At the end of the inspection, the FDA issued an FDA Form 483 with ten inspectional observations to Daewoong. The Form 483 includes observations relating to the need for adherence to and improved procedures, processes and documentation relating to investigations of non-compliance with specifications for batches and components, environmental monitoring, drug substance testing, computer system access, material handling and staff training. Daewoong timely responded to the FDA with a plan for implementing corrective actions related to these observations and is awaiting a response from the FDA.
Daewoong has informed us that it believes that its responses to the Form 483 will satisfy the requirements of the FDA and that no significant further actions will be necessary. However,
the FDA may not be satisfied with such response, and it may require Daewoong to take additional corrective actions or other measures, require re-inspection, or decline to approve the facility.
Commercialization
We plan to use the proceeds of this offering, in part, to build the sales and marketing infrastructure required to successfully commercialize DWP-450 in anticipation of FDA approval. We plan to launch with our own sales force in the United States, which will initially focus on core aesthetic physicians (dermatologists, plastic surgeons, facial plastic surgeons and oculoplastic surgeons), as these physicians perform a significant proportion of the aesthetic procedure volume in the United States.
We believe a scientifically oriented, customer-focused specialty sales force initially consisting of approximately 65 sales representatives and growing to 150 sales representatives over time would allow us to establish the necessary relationships and achieve market presence. We intend to seek distribution partners for commercialization of DWP-450 in markets outside the United States.
It is expected that upon U.S. approval, DWP-450 will be the only neurotoxin approved for marketing in the United States without a therapeutic indication. We believe pursuing an aesthetic-only strategy will allow for meaningful strategic advantages in the United States. The CMS establishes the reimbursement rates for Medicare Part B drugs based on the drugs’ ASP of both the aesthetic and therapeutic sales. Current U.S. neurotoxins manufacturers’ products are used for both aesthetic and therapeutic treatments. As a result, these U.S. manufacturers are required to calculate their neurotoxin’s ASP inclusive of both aesthetic and therapeutic sales, which we believe will cause these manufacturers to limit their aesthetic neurotoxin discounting to protect their therapeutic neurotoxin reimbursement rate. This is due to therapeutic neurotoxins representing approximately 60% of all U.S. neurotoxin sales in 2016. By contrast, we will not have a therapeutic indication for DWP-450 upon commercialization and therefore will have greater flexibility in our discounting strategies relative to other U.S. neurotoxin manufacturers. We will utilize this flexibility to appropriately incentivize aesthetic physicians to incorporate DWP-450 into their practices. We expect our pricing flexibility will continue until and unless we have approval for a U.S. therapeutic indication, which we believe would require at least five years from the start of the clinical program to complete, if we were able to pursue it. P
ursuant to the therapeutic agreement we entered into with ALPHAEON, we have agreed not to sell, sub-license or otherwise dispose in whole or in part the therapeutic option or the rights underlying the therapeutic option under the Daewoong Agreement. We further agreed not to develop or make plans to develop any therapeutic indications for DWP-450. These obligations will terminate upon the prior written consent of ALPHAEON
, which consent may be withheld for any or no reason
. If ALPHAEON
consents to the expansion of our license of DWP-450 for therapeutic indications, we could pursue approval for a U.S. therapeutic indication for DWP-450.
We intend to establish brand awareness for DWP-450 through national public relations, social media and direct-to-consumer media campaigns. We will launch a comprehensive, multi-year communication campaign to drive brand awareness for DWP-450 upon FDA approval.
We will increase brand awareness through patient marketing initiatives including consumer electronic applications that will help connect aesthetic patients with board-certified aesthetic physicians, high quality content and other self-pay patients.
The campaign will also leverage targeted communication channels to reach Baby Boomers, the Generation X and the fastest growing segment of the market, the Millennials. We expect our communications strategy will help facilitate patient transitions from other neurotoxin products to DWP-450 and motivate non-neurotoxin patients to experience the benefits of the aesthetic neurotoxin procedure.
Our History
We were incorporated in November 2012 and are headquartered in Irvine, California. In a series of related transactions in 2013, SCH-AEON, LLC (formerly known as Strathspey Crown Holdings, LLC), or SCH, acquired all of our outstanding equity in exchange for
membership interests in SCH
. In 2014, SCH contributed our equity that it had acquired in 2013 to ALPHAEON in exchange for the payments described in the section entitled
“
Management’s Discussion and Analysis of Financial Condition and Results of Operations
—Payment Obligation Related to our Acquisition by ALPHAEON.”
As a result of these transactions, we became a wholly-owned subsidiary of ALPHAEON.
Daewoong License and Supply Agreement
On September 30, 2013, we entered into a license and supply agreement, or the Daewoong Agreement, with Daewoong, pursuant to which Daewoong agreed to manufacture and supply DWP-450 and grant us an exclusive license to import, distribute, promote, market, develop, offer for sale and otherwise commercialize and exploit DWP-450 in the United States, EU, Canada, Australia, Russia, C.I.S., and South Africa, each, a covered territory. Daewoong also granted us a non-exclusive license to do the same in Japan. In connection with our entry into the Daewoong Agreement, we made an upfront payment to Daewoong of $2.5 million. We further agreed to make milestone payments upon certain confidential development and commercial milestones
, including a confidential payment to Daewoong upon each of FDA and EMA approval of DWP-450
.
Under the Daewoong Agreement, the maximum aggregate amount of future milestone payments that could be owed to Daewoong upon the satisfaction of all milestones is $13.5 million.
Under the Daewoong Agreement, Daewoong is responsible for all costs related to the manufacturing of DWP-450, including costs related to the operation and upkeep of its manufacturing facility, and we are responsible for all costs related to obtaining regulatory approval, including clinical expenses, and commercialization of DWP-450.
Under the Daewoong Agreement, Daewoong has agreed to supply us with DWP-450 at an agreed-upon, transfer price, and we have agreed to make milestone payments upon completion of certain confidential development and commercial milestones. Our exclusivity is subject to certain minimum annual purchases upon commercialization, irrespective of aesthetic or therapeutic indications, and if we fail to meet these targets, Daewoong may, at its option, convert the exclusive license to a non-exclusive license.
These potential minimum purchase obligations are contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share in various jurisdictions.
During the term of the Daewoong Agreement, we cannot purchase, sell or distribute any competing products in a covered territory or Japan or sell DWP-450 outside a covered territory or Japan.
The initial term of the Daewoong Agreement is from September 30, 2013 to the later of (i) the fifth anniversary of approval from the relevant governmental authority necessary to market and sell DWP-450 or by (ii) September 30, 2023, and automatically renews for unlimited additional three-year terms if we meet certain performance requirements. The Daewoong Agreement will terminate (A) upon written notice by either us or Daewoong upon a continuing default
that remains uncured within 90 days (or 30 days for a payment default)
by the other party, or (B) without notice upon the bankruptcy or insolvency of our company.
In addition to the aesthetic use of DWP-450, Daewoong has granted us an option to expand our exclusive license to include therapeutic indications, for which we paid a total of $1.0 million. This option expires on December 31,
2018 and is exercisable by us
on behalf of ALPHAEON, pursuant to the therapeutic agreement,
upon payment of a confidential option exercise price,
which ALPHAEON has agreed to provide to us upon its decision to exercise the therapeutic option
. We also have the option to negotiate first with Daewoong to secure a distribution license for any product that Daewoong directly or indirectly develops or commercializes that is classified as an injectable botulinum toxin (other than DWP-450) in a covered territory or Japan.
We will be the sole owner of any marketing authorization and clinical trial results we pursue in a covered territory. This will include ownership of the BLA we submitted to the FDA in May 2017, the MAA that was accepted for review by the EMA in July 2017,
the NDS that was accepted for review by Health Canada in October 2017,
and any other approvals we receive in a covered territory. However, if we do not renew the Daewoong Agreement or upon termination of the Daewoong Agreement due to a breach by us, we are obligated to transfer our rights to Daewoong.
Pursuant to the Daewoong Agreement, a Joint Steering Committee, or the JSC, comprised of an equal number of development and commercial representatives from Daewoong and us, shall review and provide input on our commercialization plan for DWP-450, although we have final decision-making power regarding the marketing, promotion, sale and/or distribution of DWP-450. A disagreement among the JSC will be referred to senior management of Daewoong and us for resolution if the JSC is unable to reach a decision within 30 days.
We plan to market DWP-450 under a name approved by relevant regulatory agencies. Daewoong currently markets DWP-450 in South Korea under its own brand name, Nabota.
The Daewoong Agreement also provides that Daewoong will indemnify us for any losses arising out of (i) Daewoong’s willful misconduct or gross negligence in performing its obligations under the agreement, (ii) Daewoong’s breach of the agreement, or (iii) any allegation that DWP-450 or Daewoong’s trademark infringes or misappropriates the rights of a third party, except, in each case, as a result of our willful misconduct or gross negligence. We have agreed to indemnify Daewoong for any losses arising out of (A) our willful misconduct or gross negligence in performing our obligations under the agreement, or (B) our breach of the agreement, except, in each case, as a result of Daewoong’s willful misconduct or gross negligence.
Competition
Our primary competitors in the pharmaceutical market are companies offering injectable dose forms of botulinum toxin. There are only three approved injectable botulinum toxin type A neurotoxins in the United States. There are also other injectable botulinum toxin type A products being developed in the United States, however, we believe our product, DWP-450, is further along in its clinical development than other products and the only product with an accepted BLA in the United States. We believe the primary products in this market include BOTOX, Dysport and Xeomin:
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BOTOX, marketed by Allergan, received FDA approval in 2002 for glabellar lines. Allergan was the first company to market neurotoxins for aesthetic purposes.
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Dysport, marketed by Galderma S.A., or Galderma, received FDA approval in 2009 for glabellar lines.
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Xeomin, marketed by Merz Pharma GmbH & Co., or Merz, received FDA approval in 20
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In addition to the companies commercializing neurotoxins, there are other products and treatments that may indirectly compete with DWP-450, such as dermal fillers, laser treatments, brow lifts, chemical peels, fat injections and cold therapy. We compete with various companies that have products in these medical aesthetic categories. Among these companies are Allergan, Sanofi, Sun Pharma, Valeant Pharmaceuticals International, Inc., or Valeant, Mentor Worldwide LLC, a division of Johnson & Johnson, Merz, Galderma, and Skinceuticals, a division of L’Oreal SA. In addition, we are aware of other companies also developing and/or marketing products in one or more of our target markets, including competing injectable botulinum toxin type A formulations that are currently in Phase III clinical development in North America for the treatment of glabellar lines.
Many of our competitors have substantially greater technological, financial, research and development, manufacturing, personnel and marketing resources than we do. We believe that we have competitive strengths that position us favorably in our markets. However, our industry is evolving rapidly and is becoming increasingly
competitive. Larger and more established companies may acquire or in-license aesthetic products and could directly compete with us. These competitors may also try to compete with DWP-450 on price both directly, through rebates and promotional programs to high volume physicians and coupons to patients, and indirectly, through attractive product bundling with complimentary products such as dermal fillers that offer convenience and an effectively lower price compared to the total price of purchasing each product separately. Larger competitors may also be able to offer greater customer loyalty benefits to encourage repeat use of their products and finance a sustained global advertising campaign to compete with our commercialization efforts at launch. Our competitors may seek to discredit our product by challenging our short operating history or relatively limited number of scientific studies and publications.
Competitors and other parties may also seek to impact regulatory approval of the BLA filed for DWP-450 or our future product applications through the filing of citizen petitions or other similar documents, which could require costly and time-consuming responses to the regulatory agencies.
Smaller companies could also launch new products and services that we do not offer and that could gain market acceptance quickly. Additionally, certain of our competitors may be able to develop competing or superior technologies and processes and compete more aggressively and sustain that competition over a longer period of time than we could. Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors, including competing botulinum toxin type A formulations that may be administered in higher doses and may result in higher response rates and longer durations of effect than our product such as advances in surgical or radio frequency techniques. As more companies develop new intellectual property in our markets, there is the possibility of a competitor acquiring patents or other rights that may limit demand for DWP-450 or our future products.
Government Regulation Applicable to Us
We operate in a highly regulated industry that is subject to significant federal, state, local and foreign regulation. Our present and future business has been, and will continue to be, subject to a variety of laws including the Federal Food Drug and Cosmetic Act, or FFDCA, and the Public Health Service Act, or PHS Act, among others. Biologics and medical devices are subject to regulation under the FFDCA and PHS Act.
In the United States, cosmetics, dietary supplements, biopharmaceutical products and medical devices are subject to extensive regulation by the FDA. The FFDCA, PHS Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, regulatory approval, license or clearance, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of these products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending license or marketing applications, warning letters and other enforcement actions, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
U.S. Biological Products Development Process
The process required by the FDA before a biological product may be marketed in the United States generally involves the following:
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completion of nonclinical laboratory tests and animal studies according to good laboratory practices, or GLPs, and applicable requirements for the humane use of laboratory animals or other applicable regulations;
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submission to the FDA of an investigative new drug application, or IND, which must become effective before human clinical trials may begin;
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performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed biological product for its intended use, according to the FDA’s regulations, commonly referred to as good clinical practices, or GCPs, and any additional requirements including those for the protection of human research subjects and their health and other personal information;
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submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety;
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purity and potency from results of nonclinical testing and clinical trials;
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP, to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity and, if applicable, the FDA’s current good tissue practices for the use of human cellular and tissue products;
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potential FDA audits of the nonclinical study and clinical trial sites that generated the data in support of the BLA; and
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FDA review and approval of the BLA
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Preclinical Studies
Biological product development in the United States typically involves preclinical laboratory and animal tests. Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements including GLPs, among other requirements. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted. A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not objected to the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical Studies
Our clinical trials for our DWP-450 product candidate involved the administration of the investigational biologic to subjects under the supervision of one or more qualified investigators. Clinical trials must be conducted pursuant to an IND and in compliance with federal regulations and GCPs, an international standard meant to protect the rights and health of subjects and to define the roles of clinical trial sponsors, administrators, and monitors, as well as under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. subjects and subsequent protocol amendments must be submitted to the FDA as part of the IND. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time or impose other requirements or sanctions if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial subjects. The clinical trial protocol, any protocol amendments, and informed consent information for subjects in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions. The IRB also approves the form and content of the informed consent form that must be signed by each clinical trial subject or his or her legal representative, and the IRB must monitor the clinical trial until completed. Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase I. The product candidate is initially introduced into a limited population of healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for some diseases, or when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients with the disease or condition for which the product candidate is intended to gain an early indication of its effectiveness.
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Phase II. The product candidate is evaluated in a limited patient population, but larger than in Phase I, to identify possible adverse events and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to assess dosage tolerance, optimal dosage and dosing schedule.
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Phase III. Clinical trials are undertaken to further evaluate dosage, and provide substantial evidence of clinical efficacy and safety in an expanded patient population, such as several hundred to several thousand subjects, at geographically dispersed clinical trial sites. Phase III clinical trials are typically conducted when Phase II clinical trials demonstrate that a dose range of the product candidate is effective and has an acceptable safety profile. These trials typically have at least 2 groups of patients who, in a blinded fashion, receive either the product or a placebo. Phase III clinical trials are intended to establish
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the overall risk-benefit ratio of the product and provide an adequate basis for product labeling. Generally, two adequate and well-controlled Phase III clinical trials are required by the FDA for approval of a BLA.
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Phase IV. In some cases, the FDA may condition approval of a BLA for a product candidate on the sponsor’s agreement to conduct additional clinical studies after approval. In other cases, a sponsor may voluntarily conduct additional clinical studies after approval to gain more information about the product. Such post-approval studies are typically referred to as Phase IV clinical trials.
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Marketing Approval
Clinical trials to support BLAs which are applications for marketing approval, are typically conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the investigational biologic candidate into patients, the investigational biologic is tested to assess side effects and, if possible, early evidence on effectiveness. Phase II usually involves trials in a limited subject population, to determine the effectiveness of the investigational biologic for a particular indication or indications, and identify common adverse effects and safety risks.
If an investigational biologic demonstrates evidence of effectiveness and an acceptable safety profile in Phase II evaluations, Phase III clinical trials are undertaken to obtain additional information about clinical efficacy and safety in a larger number of subjects, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the investigational product and to provide adequate information for its labeling. In most cases, the FDA requires two adequate and well-controlled Phase III clinical trials to demonstrate the efficacy and safety of the biologic for use in a specific indication or population. A single Phase III clinical trial with other confirmatory evidence may be sufficient in rare instances where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity, or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible. After completion of the required clinical testing, a BLA is prepared and submitted to the FDA. FDA approval of the BLA is required before marketing of the product may begin in the United States. The BLA must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product’s manufacture and controls. The cost of preparing and submitting a BLA is substantial. The submission of most BLAs is additionally subject to a substantial application fee, and the manufacturer or sponsor under an approved BLA are also subject to annual FDA product and establishment user fees.
The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of BLAs. Most such applications for standard review biologics products are reviewed within twelve months of submission; most applications for priority review biologics are reviewed within eight months of submission. Priority review for biologics is limited to those products intended to treat a serious or life-threatening disease with unmet medical need relative to the currently approved products. The review process may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. The FDA may also refer applications for novel biologics products or biologics products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs.
Additionally, the FDA will inspect the facility or the facilities at which the biologic product is manufactured. The FDA will not approve the BLA unless it determines that compliance with cGMP is satisfactory. Manufacturers of biologics also must comply with the FDA’s general biological product standards. After the FDA evaluates the BLA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter outlines the deficiencies in the submission and may require substantial additional testing, including additional large-scale clinical testing or information in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial marketing of the biologic with specific
prescribing information for specific indications. As a condition of BLA approval, the FDA may require substantial post-approval testing and surveillance to monitor the product’s safety or efficacy and may impose other conditions, including labeling restrictions, which can materially affect the product’s potential market and profitability. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems or safety issues are identified following initial marketing. Changes to some of the conditions established in an approved application, including changes in indications, labeling, ingredients or manufacturing processes or facilities, require submission and FDA approval of a new BLA or BLA supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing BLA supplements as it does in reviewing BLAs.
Post-Approval Requirements
Once a BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of biologics, including standards and regulations, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Biologics may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Adverse event reporting and submission of periodic reports is required following FDA approval of a BLA. The FDA also may require post-marketing testing, known as Phase IV testing, Risk Evaluation and Mitigation Strategies, or REMS, and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control as well as product manufacturing, packaging and labeling procedures must continue to conform to cGMP after approval. Manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA during which the agency inspects manufacturing facilities to assess compliance with applicable regulations such as cGMP and the Quality System Regulation. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMP. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
Biosimilar Approval Process
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, established an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on their similarity to existing brand product.
Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until twelve years after the original branded product was approved under a BLA. However, an application may be submitted after four years. The BPCIA is complex and is still in the process of being interpreted and implemented by the FDA. As a result, its ultimate impact and implementation are subject to uncertainty.
Government Regulation in Europe
In the European Economic Area, or EEA (which is composed of the 28 Member States of the EU plus Norway, Iceland and Liechtenstein), medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA.
There are two types of MAs:
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The Community MA, which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use (CHMP) of the EMA and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, and medicinal products indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. Under the
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Centralized Procedure the maximum timeframe for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when the authorization of a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. Under the accelerated procedure the standard 210 days review period is reduced to 150 days.
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National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in other Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure.
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Because we are a biotechnology medicinal products company, we are eligible for a Community MA under the Centralized Procedure.
Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Product Approval Process Outside the United States and Europe
In addition to regulations in the United States and EU, we will be subject to a variety of regulations in other jurisdictions governing manufacturing, clinical trials, commercial sales and distribution of our future products.
Whether or not we obtain FDA approval or MA approval for a product candidate, we must obtain approval of the product by the comparable regulatory authorities of foreign countries before commencing clinical trials or marketing in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval or MA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
Federal and State Fraud and Abuse
While we do not currently have plans for our neurotoxin product candidate to be covered by insurance or government reimbursement programs, if we were to offer reimbursable products, we could be subject to federal laws and regulations covering reimbursable products, such as the Anti-Kickback Statute, Stark Law and Physician Payment Sunshine Act. These laws that may affect our ability to operate include, but are not limited to:
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the Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving any remuneration (including any ownership, kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return, for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, service or item for which payment is made, in whole or in part, under a federal health care program. The Anti-Kickback Statute has been interpreted to apply, among others, to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing, or recommending may be subject to scrutiny if they do not qualify for a statutory exception or a regulatory safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. Violations of the Anti-Kickback Statute may result in substantial civil or criminal penalties, including criminal fines of up to $25,000 for each violation and imprisonment of up to five years for each violation. Violations are also subject to sanctions under the Civil Monetary Penalties Law, including penalties of up to $50,000 for each violation, plus up to three times the remuneration involved. Civil penalties for such conduct can further be assessed under the federal False Claims Act of
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up to $11,000 for each claim submitted, plus up to three times the amounts paid for such claims, and exclusion from participation in the Medicare and Medicaid programs;
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the federal False Claims Act, which prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other federal healthcare programs that are false or fraudulent. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the False Claims Act, the government may impose penalties of not less than $5,500 and not more than $11,000 per claim, plus up to three times the amount of damages which the government sustains because of the submission of a false claim, and may exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs. Recently, the civil False Claims Act has been used to assert liability on the basis of kickbacks and improper referrals, improperly reported government pricing metrics such as Medicaid Best Price or Average Manufacturer Price, improper use of supplier or provider Medicare numbers when detailing a provider of services, improper promotion of drugs or off-label uses not expressly approved by the FDA in a drug’s label, and misrepresentations with respect to the services rendered or items provided, among other issues;
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the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier;
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to 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, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services relating to healthcare matters. Similar to the Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. Significantly, the HIPAA provisions apply not only to federal programs, but also to private health benefit programs. HIPAA also broadened the authority of the Office of Inspector General to exclude participants from federal healthcare programs;
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analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers or self-pay patients; state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require pharmaceutical manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance fraud in the case of claims involving private insurers;
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the federal Physician Payments Sunshine Act, and its implementing regulations, which require that certain manufacturers of drugs, medical devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report to the CMS information related to certain payments or other transfers of value made or distributed to physicians, which is defined broadly to include other healthcare providers, teaching hospitals, and ownership and investment interests held by physicians and their immediate family members. Manufacturers are required to submit reports to CMS by the 90th day of each calendar year. Failure to submit the required information may result in civil monetary penalties up to an aggregate of $150,000 per year (and up to an aggregate of $1 million per year for “knowing failures”) for all payments, transfers of
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value or ownership or investment interests not reported in an annual submission, and may result in liability under other federal laws or regulations. Some state laws require biopharmaceutical companies to adopt or disclose specific compliance policies to regulate a company’s interactions with healthcare professionals. Moreover, some states, such as Minnesota and Vermont, also impose an outright ban on certain gifts to physicians
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In addition, we may be subject to, or our marketing activities may be limited by, data privacy and security regulation by both the federal government and the states in which we conduct our business. The risk that we would be found to be in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Moreover, recent healthcare reform legislation has strengthened many of these laws.
Due to the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors, it is possible that some of our business activities would not satisfy the statutory exceptions or regulatory safe harbors and we could be subject to challenge under one or more of such laws. State law equivalents to these federal laws may also apply to our current arrangements. Such a challenge could have a material adverse effect on our business, financial condition and results of operations. Violations of these laws may result in substantial fines and other consequences. To the extent that such laws are applicable, they would affect our promotional or other activities by limiting the kinds of interactions we may have with hospitals, physicians or other potential purchasers or users of our products. Certain disclosure laws and gift bans could impose additional administrative and compliance burdens on us. Although we seek to structure our interactions in compliance with all applicable requirements, many of these laws are broadly written, and it is often difficult to determine precisely how a law will be applied in specific circumstances. If an employee were to offer an inappropriate gift to a customer, we could be subject to a claim under an applicable federal or state law. Similarly if we fail to comply with reporting or other requirements, we could be subject to penalties under applicable federal or state laws including, without limitation, civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in government healthcare programs (to the extent that this is applicable to our business in the future), contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations. In addition to the federal and state disclosure and gift ban laws, certain countries outside of the United States have similarly enacted disclosure laws for which the company in its activities may be subjected to from time to time.
Data Privacy and Security Laws and Regulations
We are also subject to data privacy and security regulation by both the federal government, states and non-U.S. jurisdictions in which we conduct our business. For example, HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” those independent contractors or agents of covered entities that create, receive, maintain, transmit or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state and non-U.S. laws govern the privacy and security of health and other personal information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities now and in the future could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion of products from reimbursement under government programs and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and
implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Environmental Regulation
We are subject to numerous foreign, federal, state, and local environmental, health and safety laws and regulations relating to, among other matters, safe working conditions, manufacturing practices, fire hazard control, product stewardship and end-of-life handling or disposition of products, and environmental protection, including those governing the generation, storage, handling, use, transportation and disposal of hazardous or potentially hazardous substances and biological materials. Some of these laws and regulations require us to obtain licenses or permits to conduct our operations. Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. Although the costs to comply with applicable laws and regulations, including requirements in Canada relating to the restriction of use of hazardous substances in products, have not been material, we cannot predict the impact on our business of new or amended laws or regulations or any changes in the way existing and future laws and regulations are interpreted or enforced, nor can we ensure we will be able to obtain or maintain any required licenses or permits.
Employees
As of September 30, 2017, we had 22 employees, all of whom constitute full-time employees of ALPHAEON, 11 of whom have been assigned to work full time at our company and 11 of whom have been assigned to work part time at our company. In connection with this offering ALPHAEON intends to transfer certain employees to us. None of our employees are represented by a collective bargaining agreement, and we have never experienced any work stoppage. We believe we have good relations with our employees.
Facilities
Our corporate headquarters is located at 17901 Von Karman Avenue, Suite 150, Irvine, California 92614, in a facility ALPHAEON leases, encompassing approximately 3,639 square feet of space. The lease for this facility expires on November 1, 2018.
We intend to enter into a services agreement with ALPHAEON, or the services agreement, which will become effective upon completion of this offering. The services agreement will set forth, among other things, services related to the sublease arrangement for this facility.
We also maintain a corporate office located at 1027 Garden Street, Santa Barbara, California, 93101, in a facility we lease encompassing approximately 4,450 square feet of space. The lease for this facility expires on May 31, 2020. We believe our facilities are sufficient for our current needs. When our lease expires, we may exercise our renewal option or look for additional or alternate space for our operations, and we believe that suitable additional or alternative space will be available in the future on commercially reasonable terms.
Legal Proceedings
On June 7, 2017, Medytox Inc., or Medytox, filed an initial complaint in the Superior Court of the State of California, or the Medytox Litigation, against, us, ALPHAEON, SCH, Daewoong, Byung Kook Lee, Jae Chun Yoon, Jae Seung Yoon and Chang Woo Suh, among others, or collectively, the defendants. On August 14, 2017, Medytox filed an amended complaint against the defendants, or the amended complaint. The amended complaint alleges, among other things, that Daewoong stole Medytox’s botulinum toxin bacterial strain, or the BTX strain, that Daewoong misappropriated certain trade secrets of Medytox, including the process used to manufacture DWP-450 (which Medytox claims is similar to its biopharmaceutical drug, Meditoxin) using the BTX strain, and that Daewoong thereby interfered with Medytox’s plan to license Meditoxin to us. Medytox claims that as a result of Daewoong’s conduct, we entered into the Daewoong Agreement instead of an agreement with Medytox to license Meditoxin.
With specific regard to us, Medytox alleges that (i) we have violated California Uniform Trade Secrets Act, Cal. Civ. Code § 3426 because Daewoong’s alleged knowledge of the misappropriation of certain trade secrets of Medytox is imputed to us as a result of our relationship with Daewoong, (ii) we have stolen the BTX strain through our possession of and refusal to return the BTX strain, (iii) we have engaged in unlawful, unfair and fraudulent business acts and practices in violation of California Bus. & Prof. Code § 17200, including conversion of the BTX strain and misrepresentations to the public regarding the source of the botulinum toxin bacterial strain used to manufacture DWP-450, and (iv) the Daewoong Agreement is invalid and in violation of Medytox’s rights.
Medytox seeks, among other things, (i) actual, consequential and punitive damages, (ii) a reasonable royalty, as appropriate, (iii) a declaration that the Daewoong Agreement is void and unenforceable and that Medytox is entitled to disgorgement of all property wrongfully and unjustly retained or acquired by the defendants, including unlawfully gained profits, (iv) injunctive relief prohibiting us from using the license under the Daewoong Agreement and distributing DWP-450, and (v) attorneys’ fees and costs.
Daewoong filed a motion to dismiss or stay for forum non conveniens, claiming that the
place where the complaint has been filed, in the
Superior Court of the State of California
, is not the proper place for the trial of the claims in the complaint because, among other reasons, the underlying facts that gave rise to the complaint occurred in South Korea.
Daewoong’s motion to dismiss was granted by the Superior Court of the State of California on October 12, 2017. As a result, the action filed with the Superior Court of the State of California is stayed pending resolution of the proceedings in South Korea.
We are vigorously defending Medytox’s claims against us. Given the early stage in the Medytox Litigation, we are unable to predict the likelihood of success of Medytox’s claims against us, ALPHAEON, SCH or Daewoong or to quantify any risk of loss. The litigation could go on for an extended period of time and require us to dedicate significant financial and management resources to those efforts. While we are entitled to indemnity under the Daewoong Agreement, the indemnity may not be sufficient. An adverse ruling against either us or one of the other defendants could materially and adversely affect our business, consolidated financial position, results of operations, or cash flows and could also result in reputational harm. Even if we are successful, the litigation may result in delays in our product development, reputational damage or other collateral consequences.
In January 2017, Medytox initiated a criminal investigation into the foregoing matter in South Korea, which appears to target one or more of the above defendants, but does not appear to target us, ALPHAEON, or SCH.
In October 2017, Medytox initiated a civil lawsuit against Daewoong and its parent company Daewoong Co. Ltd in the Seoul Central District Court in Seoul, South Korea related to the same subject matter in the Medytox litigation. None of us, ALPHAEON or SCH are parties to this litigation.
In addition to the Medytox Litigation, from time to time, we may be subject to other legal proceedings and claims in the ordinary course of business.
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding our current executive officers, directors and director nominee
including their ages
as of
January 8
, 2018:
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Name
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|
Age
|
|
Position(s)
|
Executive Officers and Directors
|
|
|
|
|
Murthy Simhambhatla, Ph.D.
|
|
52
|
|
Chief Executive Officer, Director
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J. Christopher Marmo, Ph.D.
|
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49
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Chief Operating Officer
|
Rui Avelar, M.D.
|
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55
|
|
Chief Medical Officer
|
Non-Employee Directors
|
|
|
|
|
Vikram Malik
|
|
55
|
|
Chairman of the Board of Directors
|
Simone Blank
|
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54
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|
Director
|
Bosun Hau
|
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39
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Director
|
Kristine Romine, M.D.
|
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53
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Director
|
Robert Hayman
|
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58
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Director
|
David Gill
|
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62
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|
Director Nominee
|
Executive Officers and Directors
Murthy Simhambhatla, Ph.D.
,
has served as our Chief Executive Officer, and as a member of our board of directors, since November 2016. He has also served as President and Chief Executive Officer of ALPHAEON since August 2016 and will resign from ALPHAEON upon the consummation of this offering. From January 2016 to August 2016, he was a Senior Partner with SCH, a growth equity firm focused on self-pay healthcare companies and a majority owner of ALPHAEON. From July 2015 to December 2015, Mr. Simhambhatla served as an advisor to various healthcare related firms. From January 2013 to June 2015, he was the President, Abbott Medical Optics and Senior Vice President, Abbott Laboratories, or Abbott, and from April 2006 to January 2013, he held a variety of leadership roles in Abbott's diagnostics and stent businesses. Mr. Simhambhatla joined Abbott in 2006 through the acquisition of Guidant Corporation’s vascular business. He holds a B.Tech. degree in chemical engineering from Anna University in India and an M.S. and Ph.D. in polymer engineering from the University of Akron.
J. Christopher Marmo,
Ph.D.
, has served as our Chief Operating Officer since November 2016. He has also served as the President, Beauty of ALPHAEON, a position he has held since April 2014. From November 2012 to August 2016, Mr. Marmo was our Chief Executive Officer. From December 2007 to November 2012, Mr. Marmo was the Senior Vice President of Research and Development at Allergan. Mr. Marmo holds a B.S. in chemistry from Union College and a Ph.D. in chemistry from the University of Florida.
Rui Avelar, M.D.
, has served as our Chief Medical Officer
, and as the Chief Medical Officer of ALPHAEON, since January 2014. From March 2011 to December 2013, he served as Chief Medical Officer of Allergan Medical, where he was responsible for clinical development, clinical operations, safety, medical writing, biostatistics and regulatory matters. Dr. Avelar holds a M.D. from the University of Toronto and has received training accreditation in Sports Medicine from the Canadian Academy of Sports Medicine.
Prior to the completion of this offering, we will
enter into employment agreements with
each of Messrs.
Simhambhatla
, Marmo and Avelar. Messrs. Marmo and Avelar are full-time employees of our company and will not continue to be employees of ALPHAEON after completion of this offering. Upon the consummation of this offering, Mr.
Simhambhatla intends
to step down as a director of ALPHAEON, end his employment relationship with ALPHAEON and become our full-time employee
. Subsequent to
the completion of this offering,
we will appoint a principal financial officer.
Non-Employee Directors
Vikram Malik
, has served as a member and the Chairman of our board of directors since January 2018. Mr. Malik has served as a member of ALPHAEON’s board of directors since April 2014. Since May 2013, Mr. Malik has served as the Managing Partner of SCH. From August 2011 to May 2013, Mr. Malik served as Vice Chairman Investment Banking for Deutsche Bank Securities, Inc. From November 2010 to August 2011, Mr. Malik served as
a Managing Director in the Healthcare Corporate and Investment Banking Group of Merrill Lynch
, Pierce, Fenner & Smith Incorporated. From June 2000 to November 2010, Mr. Malik served as the Managing Director of Banc of America Securities, LLC. Mr. Malik received a B.A. in Economics from Delhi University and an M.B.A. from Boston University Graduate School of Management. We believe Mr. Malik’s extensive experience in the investment banking and financial services industry, as well as his role at SCH, qualifies him to serve on our board of directors.
Simone Blank
, has served as a member of our board of directors since January 2018.
Ms. Blank has served as the chairman of the board of directors of ALPHAEON since August 2015.
Ms. Blank is also the co-owner of Dental Innovations BVBA, the collateral agent for the holders of the convertible promissory notes issued by ALPHAEON. Since 2013, Ms. Blank has served as a member of the board of directors of several private healthcare companies.
From May 2006 to October 2013, Ms. Blank served as a member of the board of directors of Sirona Dental Systems Inc., or Sirona, a dental technology manufacturer previously listed on Nasdaq. From July 1999 to October 2013, Ms. Blank served as Executive Vice President and Chief Financial Officer of Sirona.
Prior to July 1999, Ms. Blank was an engagement manager in the merger and acquisition transaction group of PricewaterhouseCoopers after having gained global financial experience as a certified public accountant and tax advisor.
Ms. Blank received a M.Sc. in Economics from the University of Duisburg, Germany. We believe Ms. Blank’s extensive business and leadership experience qualifies her to serve on our board of directors.
Bosun Hau
, has served as a member of our board of directors since January 2018.
Mr. Hau has served as a member of ALPHAEON’s board of directors since May 2016. Since October 2015, Mr. Hau has served as a Managing Director and Partner of Sailing Capital. From August 2009 to October 2015, Mr. Hau served as a Partner of MVM Life Science Partners LLP. From July 2004 to August 2007, Mr. Hau served as an equity research analyst covering the medical device and pharmaceutical industries for JP Morgan Securities, Inc. and Prudential Securities, Inc. Since 2009, Mr. Hau has served as a member of the board of directors of several private biotechnology, specialty pharmaceutical and medical device companies. Mr. Hau received a B.S. in Molecular and Cellular Biology, a B.S.H.S. in Physiological Sciences and a B.A. in Psychology from the University of Arizona, an M.Sc. in Biotechnology from Johns Hopkins University and an M.B.A in Finance and Health Management from the Wharton School at the University of Pennsylvania. We believe Mr. Hau’s extensive experience in the venture capital, private equity and financial services industries qualifies him to serve on our board of directors.
Kristine Romine, M.D.
, has served as a member of our board of directors since January 2018. Dr. Romine has served as a member of ALPHAEON’s board of directors since April 2017
and will resign from ALPHAEON upon the consummation of this offering. In July 2003, Dr. Romine founded and has since served as the Chief Executive Officer of Camelback Dermatology & Skin Surgery in Phoenix, Arizona. Dr. Romine holds a B.S. degree in Biology from the University of Arizona and a M.D. from the Medical College of Wisconsin. We believe Dr. Romine’s extensive experience in the dermatology industry qualifies her to serve on our board of directors.
Robert Hayman
, has served as a member of our board of directors since January 2018. Mr. Hayman served as a member of ALPHAEON’s board of directors since April 2014. Since 2011, Mr. Hayman has served as the owner and Chief Executive Officer of Hayman Properties, a real estate investment and development business. Since 2015, Mr. Hayman has served as Principal and Chief Executive Officer of Perimetrics, LLC, a dental diagnostic service company. Since April 2008, Mr. Hayman served as Principal at Common Sense Concepts, LLC, a dental device development company. From 1993 to February 2008, Mr. Hayman served as the co-founder, Chief Executive Officer and Chairman of Discus Dental, Inc. Mr. Hayman attended the masters degree program in Psychology at Pepperdine University, and received a B.S. in Business Administration from Boston University. We believe Mr. Hayman’s extensive business and leadership experience qualifies him to serve on our board of directors.
David Gill
, will serve as a member of our board of directors upon completion of this offering. Mr. Gill has served as a member of the board of directors and audit committee chairman of
Y-mAbs Therapeutics, Inc. since December 2017. Mr. Gill has served as a member of the board of directors and audit committee chairman of
Histogenics Corporation since 2015. Since 2012, Mr. Gill has also served as a member of the board of directors and audit committee chairman of Melinta Therapeutics (formerly known as Cempra, Inc.). From May to November 2015, Mr. Gill served as the President and Chief Financial Officer of EndoChoice, Inc., a medical device company focused on gastrointestinal disease. Mr. Gill joined EndoChoice, Inc. as Chief Financial Officer in August 2013 and was subsequently appointed President in 2015. From February 2011 to August 2013, he served as the Chief Financial Officer of INC Research, a clinical research organization. Mr. Gill holds a B.S. degree in Accounting from Wake Forest University and an M.B.A. degree from Emory University, and was formerly a certified public accountant. We believe that Mr. Gill’s extensive experience as an executive in the biotechnology industry and his prior service as a senior-level executive in mature biotechnology companies qualifies him to serve on our board of directors.
Board Composition
Our business and affairs are organized under the direction of our board of directors, which currently consists of six members and is expected to be increased to seven members upon completion of this offering. The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis.
In connection with the closing of this offering, we will file our certificate of incorporation. Our certificate of incorporation will divide our board of directors into three classes, with staggered three-year terms, as follows:
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•
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Class I, which will consist of , , and , whose terms will expire at our annual meeting of stockholders to be held in 2018;
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•
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Class II, which will consist of , and , and whose terms will expire at our annual meeting of stockholders to be held in 2019; and
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•
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Class III, which will consist of , and , and whose terms will expire at our annual meeting of stockholders to be held in 20
20.
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At each annual meeting of stockholders to be held after the initial classification, the successors to directors whose terms then expire will serve until the third annual meeting following their election and until their successors are duly elected and qualified. The authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed between the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in our control or management. Our directors may only be removed for cause by the affirmative vote of the holders of at least 66 2/3% of our voting stock.
Director Independence
Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our board of directors determined that
are “independent directors” as defined under the listing requirements of Nasdaq, or the Nasdaq Marketplace Rules. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management, including the beneficial ownership of our capital stock by each non-employee director and the transactions involving them described in the section entitled “Certain Relationships and Related Party Transactions.” In addition to determining whether each director satisfies the director independence requirements set forth in the Nasdaq Marketplace Rules, in the case of members of the audit committee and compensation committee, our board of directors will also make an affirmative determination that such members also satisfy separate independence requirements and current standards imposed by the SEC and Nasdaq Marketplace Rules for audit committee members and by the SEC, the Nasdaq Marketplace Rules and the Internal Revenue Service for compensation committee members.
There are no family relationships among any of our directors or executive officers.
Controlled Company
Upon completion of this offering, ALPHAEON will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” for purposes of the
Nasdaq Marketplace Rules
. As a controlled company, the
Nasdaq Marketplace Rules provide an exemption
from the obligation to comply with certain corporate governance requirements, including the requirements:
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•
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that a majority of the board of directors consists of independent directors;
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•
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that we have a nominating and corporate governance committee that is comprised entirely of independent directors
with a written charter addressing the committee’s purpose and responsibilities
; and
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•
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that we have a compensation committee that is comprised entirely of independent directors
with a written charter addressing the committee’s purpose and responsibilities
.
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We currently intend to utilize these exemptions, and as a result, we will not have a majority of independent directors on our board of directors, or fully independent directors on certain of our committees. As a result, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the
Nasdaq Marketplace Rules
. In any case, these exemptions do not modify the independence requirements for our audit committee, and we intend to comply with the requirements of Rule 10A-3 of the Exchange Act, and Nasdaq Marketplace Rules within the applicable time frame.
Board Leadership Structure
As a general policy, we believe that separation of the positions of Chairman of our board of directors and our Chief Executive Officer reinforces the independence of our board of directors from management, creates an environment that encourages objective oversight of management’s performance and enhances the effectiveness of our board of directors as a whole. As such, Mr. Simhambhatla, our Chief Executive Officer, will not serve as our Chairman of the board of directors following this offering. However, we will reevaluate this policy from time to time and may in the future elect to combine the roles of Chief Executive Officer and Chairman of the board if our board of directors believes it is in the best interest of our stockholders.
Role of the Board in Risk Oversight
One of the key functions of our board of directors is overseeing our risk management process. The board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our audit committee, nominating and corporate governance committee and compensation committee support our board of directors in discharging its oversight duties and address risks inherent in their respective areas. We believe this division of responsibilities is an effective approach for addressing the risks we face and that our board leadership structure supports this approach.
Board Committees
Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee.
Each committee operates under a charter that has been approved by our board of directors. Prior to the completion of this offering, copies of each committee’s charter will be posted on the Investor Relations section of our website, which is located at www.evolus.com. Each committee has the composition and responsibilities described below. Our board of directors may from time to time establish other committees.
Audit Committee
Our audit committee consists of , who is the chair of the committee, and . Our board of directors has determined that each of the members of our audit committee satisfies the Nasdaq Marketplace Rules and SEC independence requirements. The functions of this committee include, among other things:
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•
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evaluating the performance, independence and qualifications of our independent registered public accounting firm and determining whether to retain our existing independent registered public accounting firm or engage new independent registered public accounting firm;
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•
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reviewing and approving the engagement of our independent registered public accounting firm to perform audit services and any permissible non-audit services;
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•
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reviewing our annual and quarterly financial statements and reports, including the disclosures contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and discussing the statements and reports with our independent registered public accounting firm and management;
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•
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reviewing with our independent registered public accounting firm and management significant issues that arise regarding accounting principles and financial statement presentation and matters concerning the scope, adequacy and effectiveness of our financial controls;
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•
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reviewing and approving related party transactions;
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•
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reviewing our major financial risk exposures, including the guidelines and policies to govern the process by which risk assessment and risk management is implemented; and
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•
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reviewing and evaluating on an annual basis the performance of the audit committee, including compliance of the audit committee with its charter.
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Our board of directors has determined that qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the Nasdaq Marketplace Rules. In making this determination, our board has considered extensive financial experience and business background. Both our independent registered public accounting firm and management periodically meet privately with our audit committee.
Compensation Committee
Our compensation committee consists of , who is the chair of the committee and . Our board of directors has determined that each of the members of our compensation committee is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and satisfies the Nasdaq Marketplace Rules independence requirements applicable to “controlled companies” and is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act. The functions of this committee include, among other things:
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•
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reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full board of directors regarding) our overall compensation strategy and policies;
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•
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reviewing and approving the compensation, the performance goals and objectives relevant to the compensation, and other terms of employment of our executive officers;
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•
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reviewing and approving (or if it deems appropriate, making recommendations to the full board of directors regarding) the equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs;
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•
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reviewing and approving the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers; and
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•
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preparing the report that the SEC requires in our annual proxy statement.
|
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of and . Our board of directors has determined that each of the members of the nominating and corporate governance committee satisfies the Nasdaq Marketplace Rules independence requirements applicable to “controlled companies”. serves as the chair of our nominating and corporate governance committee. The functions of this committee include, among other things:
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•
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identifying, reviewing and evaluating candidates to serve on our board of directors consistent with criteria approved by our board of directors;
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•
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evaluating director performance on the board and applicable committees of the board and determining whether continued service on our board is appropriate;
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•
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evaluating, nominating and recommending individuals for membership on our board of directors; and
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•
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evaluating nominations by stockholders of candidates for election to our board of directors.
|
Compensation Committee Interlocks and Insider Participation
We have established a compensation committee which has and will make decisions relating to compensation of our executive officers, consisting of , and , and none of such members of the compensation committee is, or ever has been, an officer or employee of ours nor had any relationship requiring disclosure by us under any paragraph of Item 404 of Regulation S-K of the SEC. None of our executive officers currently serves on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
Code of Business Conduct and Ethics
Prior to the completion of this offering, we will adopt a code of business conduct and ethics that will apply to all of our employees, officers and directors, including those officers responsible for financial reporting, which will be available on our website, which is located at www.evolus.com. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.
EXECUTIVE AND DIRECTOR COMPENSATION
Our named executive officers, which consist of our principal executive officer and our two other most highly compensated officers for the year ended December 31, 2017, are:
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•
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Murthy Simhambhatla, Ph.D., our Chief Executive Officer;
|
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•
|
J. Christopher Marmo, Ph.D., our Chief Operating Officer; and
|
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•
|
Rui Avelar, M.D., our Chief Medical Officer.
|
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of this offering may differ materially from the currently planned programs summarized in this discussion.
As noted above, we are an “emerging growth company,” as that term is used in
the JOBS Act
, and have elected to comply with the reduced compensation disclosure requirements available to emerging growth companies under the JOBS Act.
Summary Compensation Table
The following table sets forth total compensation paid to our named executive officers for the fiscal years ended December 31, 2017 and 2016.
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Name and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock Awards
|
|
Option Awards
|
|
Total
|
Murthy Simhambhatla, Ph.D.
|
|
2017
|
|
$
|
500,000
|
|
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(2)
|
$
|
500,000
|
|
Chief Executive Officer
|
|
2016
|
|
$
|
169,231
|
|
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
169,231
|
|
J. Christopher Marmo, Ph.D.
|
|
2017
|
|
$
|
407,550
|
|
(3)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(2)
|
$
|
407,550
|
|
Chief Operating Officer
(4)
|
|
2016
|
|
$
|
407,550
|
|
(3)
|
$
|
152,831
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
560,381
|
|
Rui Avelar, M.D.
|
|
2017
|
|
$
|
325,000
|
|
(3)
|
$
|
—
|
|
|
$
|
40,000
|
|
(5)
|
$
|
—
|
|
(2)
|
$
|
365,000
|
|
Chief Medical Officer
|
|
2016
|
|
$
|
325,000
|
|
(3)
|
$
|
81,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
406,250
|
|
_____________
|
|
(1)
|
The amounts reported represent the full amounts paid to Mr. Simhambhatla by ALPHAEON. During 2016 and 2017, Mr. Simhambhatla split his time between ALPHAEON and our company. Upon the consummation of the offering, Mr. Simhambhatla intends to step down as a director of ALPHAEON, end his employment relationship with ALPHAEON and become our full-time employee.
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(2)
|
Messrs. Simhambhatla, Marmo and Avelar were granted 5,166,269, 156,192, and 402,716, respectively, options to purchase common stock of ALPHAEON in 2017, in each case for an exercise price of $1.00 per share. All of these options had an aggregate grant date fair value of less than $1.00 computed in accordance with FASB ASC Topic 718, so we have not reflected any amounts in the table.
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(3)
|
The amounts reported represent the amounts paid to Messrs. Marmo and Avelar by ALPHAEON. In 2016 and 2017, each of Messrs. Marmo and Avelar spent near 100% of their working time at our company
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(4)
|
Mr. Marmo served as our Chief Executive Officer until November 2016. Mr. Simhambhatla was appointed our Chief Executive Officer in November 2016.
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(5)
|
Mr. Avelar was granted 1,000,000 restricted shares of common stock of ALPHAEON on June 21, 2017, in connection with his services to our company and ALPHAEON. The aggregate grant date fair value of those restricted shares, computed in accordance with FASB ASC Topic 718, was $40,000, and we have chosen to reflect that full amount in the table. The restricted shares are scheduled to vest in full on October 2, 2018. All of these restricted shares remained outstanding as of December 31, 2017.
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Annual Base Salary
The annual base salaries of our named executive officers will generally be determined and approved at the beginning of each year, or, if later, in connection with the commencement of employment of the executive, by our board of directors or our compensation committee.
As reflected in the table below, the annual base salaries of our named executive officers have not changed as of the date of this prospectus. Mr. Simhambhalta receives his base salary for his services as our Chief Executive Officer and also for his services as Chief Executive Officer of ALPHAEON
.
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|
|
|
|
Name
|
2018 Base Salary
|
Murthy Simhambhatla, Ph.D.
|
$
|
500,000
|
|
J. Christopher Marmo, Ph.D.
|
$
|
407,550
|
|
Rui Avelar, M.D.
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$
|
325,000
|
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Bonus Compensation
We do not currently have an established plan or policy with regard to bonuses for our executive officers.
From time to time, our board of directors or compensation committee may approve bonuses for our named executive officers based on individual performance, company performance or as otherwise determined appropriate in their sole discretion. In 2016, ALPHAEON’s
board of directors determined that Messrs. Marmo and Avelar should receive discretionary retention bonuses of $152,831 and $81,250 (representing 37.5% and 25% of their base salaries, respectively) based on the board’s qualitative assessment of our and our officers’ performance, which bonuses were paid to Messrs. Marmo and Avelar in 2016.
No bonuses were paid to our named executive officers in 2017.
In addition, pursuant to the terms of his offer letter, Dr. Avelar is entitled to receive a one-time bonus of $700,000 upon obtaining FDA approval for DWP-450 for the treatment of glabellar lines
.
Equity-Based Incentive Awards
Our equity-based incentive awards are designed to align our interests and the interests of our current and future stockholders with those of our employees and consultants, including our named executive officers. Our board of directors is responsible for approving equity grants.
Initially, we intend to use stock options as the primary incentive for long-term compensation to our named executive officers because the officers are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price, which exercise price will be set at the fair market value of our common stock at the date of grant. We may grant equity awards at such times as our board of directors determines appropriate.
We will grant all equity compensation awards pursuant to the 2017 plan. The terms of the 2017 plan are described below under “—Equity Compensation Plans.”
Agreements with Our Named Executive Officers
We do not currently have employment agreements with our named executive officers. Mr. Simhambhatla has an employment agreement with ALPHAEON, which agreement governs the terms and conditions of his employment with ALPHAEON (and pursuant to which he will be entitled to receive restricted stock units of ALPHAEON upon consummation of this offering). Mr. Marmo has an employment agreement with SCH that governs the terms and conditions of his employment with SCH and has since been assigned to ALPHAEON.
We plan to enter into employment agreements with certain of our executive officers (including all of our named executive officers) prior to completion of this offering, which agreements will supersede the terms of
any existing employment agreements
, where applicable.
Potential Payments upon Termination or Change in Control
We currently do not have any agreements with our named executive officers that provide for payment at, following or in connection with, their resignation, retirement or other termination of employment, or a change in control of us. As noted above, we plan to enter into employment agreements with each of our named executive
officers prior to completion of this offering, which agreements may contain employment termination and change in control provisions.
Outstanding Equity Awards at 2017 Fiscal Year-End
None of our named executive officers held outstanding equity awards related to our stock as of December 31, 2017.
Perquisites and Health and Welfare Benefits
Our named executive officers are eligible to
receive employee benefits
, including medical, dental, vision, group life, disability and accidental death and dismemberment insurance, in each case on the same basis as all of our other employees.
We do not provide perquisites or personal benefits to our named executive officers. Our board of directors may elect to adopt qualified or non-qualified benefit plans in the future if it determines that doing so is in our best interests.
Equity Compensation Plans
In connection with this offering, we
have adopted and our sole stockholder has approved, the 2017 plan, under which we may grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which we compete. The material terms of the 2017 plan are summarized below. Our board of directors and our sole stockholder approved and adopted the 2017 plan effective November 21, 2017. The plan is scheduled to terminate November 21, 2027, but may be terminated earlier by our board of directors, as described below.
Stock Awards.
The 2017 plan provides for the grant of incentive stock options, or ISOs, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. ISOs may be granted only to employees. All other awards may be granted to our and our affiliates’ employees, non-employee directors, consultants and other service providers.
Administration, Amendment and Termination.
The 2017 plan is administered by our board of directors or a committee of our board of directors designated by our board of directors to administer the 2017 plan. Our board of directors has retained the right to exercise the authority of any committee that it appoints to administer the 2017 plan to the extent consistent with applicable law and the applicable requirements of any stock exchange.
Subject to the terms of the 2017 plan, the plan administrator has the authority (i) to grant and amend awards, which includes determining the type, form, terms and conditions and number of shares subject to any award, (ii) to interpret any provision of the 2017 plan, any award or any award agreement and (iii) to make all determinations and decisions necessary for the administration of the 2017 plan. All determinations and decisions by the plan administrator under the 2017 plan are in its sole discretion and are final and binding.
Securities to be Offered.
The 2017 plan provides for awards based on shares of our common stock. Subject to adjustment as described below, the total number of shares authorized to be awarded under the 2017 plan may not exceed 2,638,889 (all of which will be available for grant as ISOs), plus an annual increase on each anniversary of November 21, 2017 equal to 4% of the total issued and outstanding shares of our common stock as of such anniversary (or such lesser number of shares as may be determined by our board of directors). Shares issued under the 2017 plan may consist in whole or in part of authorized but unissued shares, treasury shares or shares purchased on the open market or otherwise, all as determined by our company from time to time.
Any award settled in cash will not be counted as issued shares for any purpose under the 2017 plan. If any award expires, or is terminated, surrendered or forfeited, the unissued shares covered by the award will again be available for the grant of awards. If shares issued pursuant to the 2017 plan are repurchased by, or are surrendered or forfeited to our company, at no more than cost, those shares will again be available for the grant of awards. If shares issuable upon exercise, vesting or settlement of an award or shares owned by a grantee are surrendered or tendered to our company in payment of the purchase price of an award or any taxes required to be withheld for an award, those surrendered or tendered shares will again be available for the grant of awards.
Substitute awards will not be counted against the number of shares available for the grant of awards under the 2017 plan.
Eligibility.
Eligibility to participate in the 2017 plan is limited to such of our and our affiliates’ employees, officers, non-employee directors, consultants and advisors as determined from time to time by the plan administrator.
Stock Options.
The 2017 plan provides for the grant of options to purchase shares of common stock at exercise prices, and subject to terms, conditions and limitations, determined by the plan administrator and set forth in an option agreement delivered to the optionee.
An option that the 2017 plan administrator intends to be an “incentive stock option” as defined in Section 422 of the Code, or an ISO, will be granted only to our employees and will be subject to and be construed consistently with the requirements of Section 422 of the Code. An option that does not qualify as an ISO is referred to as a “non-qualified stock option.”
Stock Appreciation Rights.
The 2017 plan provides for the grant of stock appreciation rights, or SARs, which may be awarded either alone or in tandem with, or as a component of, other awards. The applicable award agreement will include information about the terms and conditions under which a SAR will be exercisable, including any performance requirements. A SAR confers on the participant a right to receive, upon exercise, a payment of the excess of (i) the fair market value of one share of our stock on the date of exercise over (ii) the grant price of the SAR as determined by the plan administrator (which will be equal to at least the fair market value on the grant date).
Restricted Stock Awards.
The 2017 plan provides for the grant of restricted stock awards. In general, a restricted stock award is an award of actual shares of common stock issued in the participant’s name that are subject to certain vesting requirements and that we may hold until the applicable vesting date, at which time the shares are released to the participant. Alternatively, at the discretion of the plan administrator, we may issue a restricted stock certificate bearing the legends required by applicable securities laws.
The plan administrator will determine the terms and conditions of any restricted stock award, which will be set forth in the restricted stock agreement delivered to the participant. A restricted stock award holder will have all the rights of a stockholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in the restricted stock agreement.
Restricted Stock Units.
The 2017 plan provides for the grant of restricted stock units, or RSUs. An RSU represents the right to receive one share of common stock upon the applicable vesting date, but no share is actually issued until vesting. An RSU may be settled in cash rather than stock to the extent provided in the applicable award agreement.
The plan administrator will determine the terms and conditions of any RSUs granted under the 2017 plan. In general, a holder of RSUs will not have any rights of a stockholder but the plan administrator may provide that the holder is entitled to receive dividend equivalent rights.
Stock-Based Performance Awards.
The 2017 plan provides for the grant of awards based on various performance conditions as may be specified by the plan administrator.
Settlement of performance awards may be in cash, shares, other awards or other property, in the discretion of the plan administrator. The plan administrator may reduce the amount of a settlement otherwise to be made in connection with performance awards.
Other Stock-Based Awards.
The plan administrator may grant other stock-based awards, either alone or in addition to or in conjunction with other awards under the 2017 plan, based upon the common stock, having terms and conditions as the plan administrator may determine.
Transferability of Awards.
A participant may not assign or transfer an award under the 2017 plan, except by will or as permitted under the laws of descent and distribution. During a participant’s lifetime, only the participant personally (or his or her personal representative) may exercise rights under the 2017 plan. However, if authorized by the applicable award agreement, a participant may transfer, not for value, all or part of an award (other than an ISO) to certain family members, in accordance with the terms of the 2017 plan. After a permitted
transfer, the award will continue to be subject to the same terms and conditions as it was before the transfer. Subsequent transfers of the award are only permitted if made to another family member as described above.
Rights as Stockholder.
Unless an applicable award agreement states otherwise, a 2017 plan participant will have no rights as a stockholder with respect to any shares covered by an award until he or she becomes the record holder of the shares.
Withholding for Payment of Taxes.
We may deduct from payments of any kind otherwise due to a 2017 plan participant any federal, state or local taxes of any kind required by law to be withheld in connection with the vesting of or other lapse of restrictions applicable to an award or upon the issuance of any shares of stock upon the exercise of an option or pursuant to an award.
Effect of Certain Transactions.
If (i) the number of outstanding shares of our common stock is increased or decreased or the shares are changed into or exchanged for a different number or kind of shares or other securities of our company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in shares effected without receipt of consideration by our company or (ii) there occurs any spin-off, split-up, extraordinary cash dividend or other distribution of assets by our company, then (a) the number and kind of shares for which grants of 2017 plan awards may be made, (b) the number and kind of shares for which outstanding awards may be exercised or settled and (c) the performance goals relating to outstanding awards, will all be equitably adjusted by our company. In addition, in the event of any increase or decease in the number of outstanding shares or other transaction described in clause (ii) above, the number and kind of shares for which 2017 plan awards are outstanding and the option price per share of outstanding options will be equitably adjusted.
Unless otherwise provided in an award agreement, in the event of a corporate transaction (i.e., a reorganization, merger, statutory share exchange, consolidation, sale of all or substantially all of our company’s assets, acquisition of assets or stock of another entity by our company, or other corporate transaction involving our company or any of our affiliates), the 2017 plan and awards under it will continue in effect in accordance with their terms, except that after a corporate transaction either (i) each outstanding award will be treated as provided for in the corporate transaction agreement or (ii) if not covered in the corporate transaction agreement, each grantee will be entitled to receive for each share of common stock under the grantee’s awards (upon exercise or payment or transfer in respect of those awards), the same consideration that each of our common stockholders was entitled to receive in the corporate transaction for one share, except that such consideration will remain subject to all of the terms and conditions (including performance criteria) that were applicable to the awards before the corporate transaction. Treatment of 2017 plan awards upon a corporate transaction may include cancellation and liquidation of stock options and SARs (including for $0 if the options or SARs are underwater at the time of the corporate transaction).
Change in Control.
In the event of a “change in control” (as defined in the 2017 plan), either of the following provisions will apply to 2017 plan awards outstanding at the time, depending on whether, and the extent to which, awards are assumed, converted or replaced by the resulting entity in the change in control (and unless otherwise provided in the applicable award agreement):
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(1)
|
If awards are not assumed, converted or replaced by the resulting entity in the change in control, then those awards will become fully exercisable and all restrictions on the awards will lapse, except for performance awards, for which the target payout opportunities attainable will be deemed to have been fully earned as of the change in control based upon the greater of (a) an assumed achievement of all relevant performance goals at the “target” level or (b) the actual level of achievement of all relevant performance goals against target as of our fiscal quarter end preceding the change in control.
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(2)
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If awards are assumed, converted or replaced by the resulting entity in the change in control, if, within 24 months after the change in control, the grantee is involuntarily terminated, then the grantee’s awards will become fully exercisable and all restrictions on the awards will lapse, except for performance awards, for which the target payout opportunities attainable will be deemed to have been fully earned as of the involuntary termination based upon the greater of (a) an assumed achievement of all relevant performance goals at the “target” level, or (b) the actual level of achievement of all relevant performance goals against target as of our fiscal quarter end preceding the change in control.
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Amendment and Termination.
The plan administrator may amend, suspend or terminate the 2017 plan as to any awards that have not been made. No amendment, suspension or termination of the 2017 plan may, without participant consent, materially impair rights or obligations under any outstanding award. The plan administrator may amend, modify or supplement the terms of any outstanding award, including modification of awards to foreign nationals or individuals who are employed outside the United States to recognize differences in local law, tax policy or custom.
401(k) Plan
ALPHAEON maintains a defined contribution employee retirement plan, or 401(k) plan, for our employees. Our named executive officers are eligible to participate in the 401(k) plan on the same basis as our other employees. The 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Code. The 401(k) plan provides that each participant may contribute up to the lesser of 100% of his or her compensation or the statutory limit, which was $18,000 for calendar year 2017
(and $18,500 for 2018)
. Participants who are 50 years or older can also make “catch-up” contributions, which in calendar year 2017 was up to an additional $6,000 above the statutory limit
(and stayed the same for 2018)
. We currently do not make matching contributions into the 401(k) plan on behalf of participants. Participant contributions are held and invested, pursuant to the participant’s instructions, by the plan’s trustee.
Nonqualified Deferred Compensation
We do not maintain nonqualified defined contribution plans or other nonqualified deferred compensation plans. Our board of directors may elect to provide our officers and other employees with non-qualified defined contribution or other nonqualified deferred compensation benefits in the future if it determines that doing so is in our best interests.
Director Compensation
We did not pay any compensation to any member of our board of directors for their service on our board during the year ended December 31, 2017.
We do not currently have an established plan or policy with regard to compensation of members of our board of directors.
Limitations on Liability and Indemnification Matters
Our certificate of incorporation will contain provisions that limit the personal liability of our directors for monetary damages to the fullest extent permitted by the DGCL. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for any of the following: (i)
breach of the director’s duty of loyalty to us or our stockholders, (ii) an
act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, (iii) unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL, or (iv) a transaction from which the director derives an improper personal benefit.
Our bylaws will provide that we must indemnify our directors and other officers, and may indemnify our employees or agents, to the maximum extent permitted by Section 145 of the DGCL.
We have entered into or intend to enter into separate indemnification agreements with our directors and executive officers
, in addition to the indemnification that will be provided for in our
certificate of incorporation and
bylaws, as they will be in effect upon completion of this offering.
These indemnification agreements may require us, among other things, to indemnify our directors and officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.
We believe that these provisions in our certificate of incorporation, bylaws and indemnification agreements will be necessary to attract and retain qualified persons as directors and officers.
The limitation of liability and indemnification provisions that will be set forth in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. To the extent we pay the costs of settlement or a damage
award against any director or officer pursuant to these indemnification provisions, our stockholders’ investment may be harmed.
Except as otherwise disclosed under the heading “Legal Proceedings” in the “Business” section of this prospectus, there is at present no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Recent Developments
On January 6, 2018,
we issued to
certain of our directors, officers and employees
an aggregate of 139,480 restricted stock units to be settled in shares of our common stock under the
2017
plan.
In addition, on January 6, 2018, pursuant to the 2017 plan, we granted to each of the non-employee members of our board of directors options to purchase 6,065 shares of our common stock with a per share exercise price of $16.49. On the same date, we further granted to certain of our officers and employees options to purchase an aggregate of 1,031,121 shares of our common stock with a per share exercise price of $16.49.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following includes a summary of transactions since January 1, 2015
and each currently proposed transaction
to which we have been or are a party, in which the amount involved in the transaction exceeded or will exceed $120,000, and in which any of our directors, director nominees, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than compensation arrangements for our directors and executive officers, which are described in “Executive and Director Compensation.”
Relationships with ALPHAEON Corporation
Prior to the completion of this offering, we were a wholly-owned subsidiary of ALPHAEON and an indirectly owned subsidiary, through ALPHAEON, of SCH. Immediately following the completion of this offering, ALPHAEON will own
% of our outstanding shares of common stock (or approximately % of our common stock, if the underwriters exercise in full their option to purchase additional shares of our common stock in this offering), and as a result, ALPHAEON will continue to have significant control of our business, including pursuant to the agreements described below.
In connection with this offering, we and ALPHAEON intend to enter into, or have entered into, certain agreements that relate to our relationship with ALPHAEON prior to this offering or will provide a framework for our ongoing relationship with ALPHAEON following the completion of the offering. Of the agreements summarized below, the material agreements are filed as exhibits to the registration statement of which this prospectus is a part, and the summaries of these agreements set forth the terms of the agreements that we believe are material. These summaries are qualified in their entirety by reference to the full text of such agreements.
Contribution Agreement and Related Agreements
On October 3, 2013, we entered into a contribution agreement with SCH, the Evolus contributors, and J. Christopher Marmo, as the Evolus contributors’ representative, or the contribution agreement,
which was amended in 2014, 2015 and 2016
. Pursuant to the contribution agreement, the Evolus contributors contributed to SCH 10,000,000 shares of our common stock, and 1,250,000 shares of our Series A preferred stock, constituting all of our then outstanding capital stock. As consideration, the Evolus contributors received membership interests in SCH. In addition, under the contribution agreement, the Evolus contributors had the option to require SCH to sell to ALPHAEON 1,000,000 shares of our common stock and 125,000 shares of our Series A preferred stock, which option was exercised in full in 2014. We refer to this option as the Evolus contributors’ put option.
Prior to the exercise of the Evolus contributors’ put option, SCH and ALPHAEON entered into a contribution agreement on March 28, 2014 whereby SCH contributed 9,000,000 shares of our common stock and 1,125,000 shares of our Series A preferred stock to ALPHAEON, representing 90% of our then outstanding capital stock. In exchange, ALPHAEON issued shares of its equity to SCH.
As a result of the exercise of the contributors’ put option, SCH and ALPHAEON entered into a stock purchase agreement. Under the stock purchase agreement, SCH sold and ALPHAEON purchased 1,000,000 shares of our common stock and 125,000 shares of our Series A preferred stock, representing 10% of our then outstanding capital stock. As consideration, ALPHAEON agreed to make certain lump sum and royalty payments to SCH, or the payment obligations, which are ultimately allocable to the Evolus contributors.
The payment obligations include (i) a $10.0 million up-front payment upon obtaining FDA approval for DWP-450 for the treatment of glabellar lines, (ii)
perpetual quarterly royalties of a mid-teen percentage of net sales of DWP-450 within the United States and (iii) a high-single digit percentages of net sales of DWP-450 outside of the United States. As these future royalty streams are perpetual, ALPHAEON has the right under the current agreement to terminate any future payments for a one-time lump sum payment to SCH of $145.0 million.
As a result of the transactions contemplated by the foregoing agreements, ALPHAEON held 10,000,000 shares of our common stock and 1,250,000 shares of our Series A preferred stock, representing all of our outstanding shares of our capital stock. In connection with this offering, all of our issued and outstanding shares of Series A preferred stock will convert into 1,250,000 shares of our common stock.
On December 14, 2017, SCH and ALPHAEON entered into an amendment to the stock purchase agreement, or the amended purchase agreement, whereby we have also joined as a contractual party. Pursuant to the amended purchase agreement, ALPHAEON’s existing payment obligations were replaced with revised payment obligations, payable directly to the Evolus contributors, to be distributed to them ratably in accordance with their previous respective percentage ownership in our Series A preferred stock, and in exchange for the cancellation of the Class D units of SCH. The amended purchase agreement provides that, upon the closing of this offering, ALPHAEON will immediately and automatically assign to us and we will immediately and automatically accept and assume all of ALPHAEON’s payment obligations under the stock purchase agreement, as amended by the amended purchase agreement.
Under the amended purchase agreement, the revised payment obligations consist of (i) an approximately $9.2 million up-front payment upon obtaining FDA approval for DWP-450 for the treatment of glabellar lines, (ii) an aggregate of approximately $1.5 million to pay a one-time bonus to certain of our employees pursuant to the respective terms of their offer letters, including a one-time bonus of $700,000 payable to Rui Avelar, M.D., our Chief Medical Officer, (iii) quarterly royalty payments of a low single digit percentage of net sales of DWP-450 within the United States, (iv) quarterly royalty payments of a low single digit percentage of net sales of DWP-450 outside of the United States, and (v) a $20.0 million promissory note that will mature on the 2.5 year anniversary of the first commercial sale of DWP-450 in the United States, or the promissory note. The payment obligations set forth in (iii) and (iv) above will terminate on the 10 year anniversary of the first commercial sale of DWP-450 in the United States. As these payment obligations are not perpetual, neither we nor ALPHAEON will have the right to terminate any future payments for a one-time lump sum payment. Under the amended purchase agreement, the estimated value of all revised payment obligations and the promissory note owed to the Evolus contributors was $43.1 million as of September 30, 2017.
Under the terms of the promissory note, ALPHAEON, as the borrower prior to the closing of this offering, or our company, as the borrower subsequent to the closing of this offering, will pay to J. Christopher Marmo, as the representative of the Evolus contributors, or the holder, $20.0 million representing the aggregate principal amount upon maturity of the promissory note. No interest will accrue on the promissory note. The borrower will have the right to prepay the promissory note, in whole or in part, at any time and from time to time without penalty. Upon an event of default under the promissory note, all unpaid principal will become immediately due and payable at the option of the holder. An event of default will occur under the terms of the promissory note upon any of the following events: (i) the borrower fails to meet the obligations to make the required payments thereunder, (ii) the borrower makes an assignment for the benefit of creditors, (iii) the borrower commences any bankruptcy proceeding, (iv) the borrower materially breaches the stock purchase agreement or tax indemnity agreement, which is defined below, and such breach is not cured within 30 days, or (v) if ALPHAEON is the borrower, there occurs an event of default under the Notes, which is defined below, that is not cured during the applicable cure period or waived by the noteholders, and such noteholders have exercised their rights to foreclose on the collateral securing the Notes under ALPHAEON’s pledge of its assets, as discussed further below.
In addition, upon a change of control of the borrower, all unpaid principal will become immediately due and payable. Under the terms of the promissory note, a change of control is defined as (i) the sale of all or substantially all of the assets of the borrower, (ii) the exclusive license of DWP-450 or the business related to DWP-450 to a third party (other than a sublicense under the Daewoong Agreement), or (iii) any merger, consolidation, or acquisition of the borrower, except a merger, consolidation, or acquisition of the borrower in which the holders of capital stock of the borrower immediately prior to such merger, consolidation, or acquisition hold at least 50% of the voting power of the capital stock of the borrower or the surviving entity. Notwithstanding the foregoing, the promissory note expressly provides that a change of control shall not include this offering or any merger with or acquisition by ALPHAEON or any of its subsidiaries or affiliates.
Further, under the amended purchase agreement, we, ALPHAEON and SCH agreed to terminate the non-competition provision set forth in the contribution agreement, pursuant to which the Evolus contributors were prohibited, subject to limited exceptions, for a period of 5 years, from engaging in any business relating to the development, license, commercialization of, or performing any services or supervisory functions for persons or entities engaged in any business related to, a neurotoxin or neuromodulator.
If and as we assume and pay the payment obligations under the amended purchase agreement, the outstanding related party borrowings from ALPHAEON will be set-off and reduced, on a dollar-for-dollar basis, taking into
account the then-fair value of all payment obligations we assume from ALPHAEON, the estimated value of which, as of September 30, 2017, was $43.1 million.
In connection with the amended purchase agreement, we have entered into a tax indemnity agreement with the Evolus contributors, or the tax indemnity agreement, pursuant to which, upon our assumption of the payment obligations under the amended purchase agreement, we will indemnify the Evolus contributors for any tax liability resulting from such assignment of the payment obligations from ALPHAEON to us. Under the stock purchase agreement, the payment obligations are contingent and are thus eligible for installment sale reporting under Section 453 of the Internal Revenue Code. The entry into the amended purchase agreement would cause the Evolus contributors to be treated for U.S. federal income tax purposes as receiving a distribution from SCH of the right to receive the contingent payments in a transaction in which no gain or loss is recognized such that the Evolus contributors may continue installment sale reporting with respect to the payment obligations to the same extent that installment sale reporting was available to SCH with respect to the original payment obligations prior to the execution of the amended purchase agreement. Under the tax indemnity agreement, we will indemnify the Evolus contributors for any taxes or penalties required to be paid by the Evolus contributors in the event the IRS, which is defined below, or other taxing authority were to determine that our assumption of the payment obligations under the amended purchase agreement rendered continued installment sale reporting unavailable to the Evolus contributors. Any taxes or penalties paid by us on behalf of the Evolus contributors under the tax indemnity agreement will be offset dollar for dollar against the promissory note and future royalties that will be payable to the Evolus contributors under the amended purchase agreement.
Guaranty
of ALPHAEON’s Convertible Notes and
Intercreditor Agreement
ALPHAEON is, as of
September 30, 2017
, the borrower under (i) certain convertible promissory notes issued by ALPHAEON for an aggregate principal amount of approximately
$51.5 million
, or the convertible promissory notes, and (ii) a certain convertible bridge note issued by ALPHAEON to Longitude Venture Partners II, L.P., or Longitude, for a principal amount of $2.5 million, or the convertible bridge note, collectively, the Notes. Kristine Romine, M.D., a member of our board of directors, DI, as defined below, and Alpha International Investment Ltd., or Alpha, each hold one or more convertible promissory notes. Simone Blank, a member of our board of directors, is the co-owner of DI. Bosun Hau, a member of our board of directors, is employed by an entity affiliated with Alpha. On December 14, 2017, ALPHAEON entered into an amendment to the amended and restated secured convertible note purchase agreement, or the amendment, pursuant to which it issued the convertible promissory notes, in order to permit ALPHAEON to issue an additional $3.3 million of convertible promissory notes. Since December 14, 2017, ALPHAEON has issued an additional $1.5 million of convertible promissory notes, including a convertible promissory note to Murthy Simhambhatla, Ph.D., our Chief Executive Officer and director, in the principal amount of $45,455. Under the amendment, Mr. Simhambhatla, DI, Longitude, and Alpha are each required to lend ALPHAEON funds in exchange for convertible promissory notes up to an aggregate of $1.8 million upon ALPHAEON’s request. Mr. Simhambhatla is required to fund up to an additional of $54,545 upon such request. ALPHAEON’s obligations under the Notes are secured by a first priority lien and security interest in substantially all of ALPHAEON’s assets, including all of the shares of our capital stock, granted by ALPHAEON to Dental Innovations BVBA, or DI, as collateral agent for the holders of the convertible promissory notes, and Longitude, as the holder of the convertible bridge note, pursuant to separate pledge and security agreements, or the ALPHAEON security agreements. In April 2017, we agreed to unconditionally guaranty ALPHAEON’s obligations under the Notes and we granted to Longitude, as the holder of the convertible bridge note, and DI, as collateral agent for the holders of the convertible promissory notes, a first priority lien and security interest in substantially all of our assets pursuant to separate guaranty and security agreements, or the Evolus security agreements. We refer to the ALPHAEON security agreements and the Evolus security agreements collectively as the convertible notes security agreements. In April 2017, we, as guarantor, also entered into an amended and restated intercreditor agreement with ALPHAEON, as borrower, Longitude, as the holder of the convertible bridge note, and DI, as collateral agent for the holders of the convertible promissory notes, or the intercreditor agreement. The intercreditor agreement sets forth certain rights of Longitude and DI in connection with the convertible bridge note, the convertible promissory notes and the collateral pledged pursuant to the convertible notes security agreements.
On December 14, 2017, we and ALPHAEON entered into amendments with each of Longitude, as the holder of the convertible bridge note, and DI, as collateral agent for the holders of the convertible promissory notes, releasing our guaranty of the Notes and the security interest in our assets and terminating the Evolus security
agreements effective immediately upon the completion of this offering. ALPHAEON's obligations under the ALPHAEON security agreements will remain outstanding following completion of this offering.
We recorded this joint and several liability as Note obligations and recorded a corresponding deemed distribution to ALPHAEON as a reduction to additional paid-in-capital and in equity as of April 2017 to reflect the joint and several liability. These amounts are
subsequently adjusted each reporting period to reflect changes in the Note obligation.
As we and ALPHAEON had not agreed to what portion of this joint and several liability each would pay, we developed a range of amounts that we expect to pay under the c
onvertible notes security agreements
and selected the amount from within that range that we determined to be the best estimate, which equaled
$134.9 million
as of
September 30, 2017
(2.5 times the outstanding principal amount of the Notes as of that date), representing the total principal amount due to the Note holders upon redemption of the Notes at maturity. As provided for within the intercreditor agreement and
convertible notes security agreements
, in conjunction with our recognition of the joint and several liability, we also recorded a receivable from ALPHAEON, which equals the current balance of the amounts we owe to ALPHAEON under our intercompany borrowing arrangements. No amounts have been paid under this joint and several liability by us in the
nine months ended September 30, 2017
. As of
September 30, 2017
, the liability recorded by us to the Note holders pursuant to the above joint and several liability was
$134.9 million
(2.5 times the outstanding principal amount of the Notes as of that date) and the related party receivable was
$72.0 million
, representing the amount by which related party borrowings could be reduced pursuant to the terms of the
convertible notes security agreements
.
The difference between the amount of the joint and several liability and the related party receivable of
$62.9 million
was recorded as a deemed distribution to ALPHAEON, in stockholder’s deficit as a charge to additional paid-in capital in the period the transaction with the related party was made. Amounts in excess of additional paid-in capital were recorded into accumulated deficit.
Stockholder Agreement
On
December 14, 2017, we entered
into a stockholder agreement with ALPHAEON, DI, as collateral agent, and Longitude. The stockholder agreement provides ALPHAEON with certain registration rights, and
upon an event of default by ALPHAEON under the Notes, the registration rights granted to ALPHAEON under the stockholder agreement will immediately and automatically be assigned in full to DI and Longitude with respect to any registrable securities held by DI and Longitude.
At any time beginning 180 days after the effective date of the registration statement of which this prospectus forms a part, ALPHAEON may request that we register for resale all or a portion of its shares of common stock. ALPHAEON may also request that we file an automatic shelf registration statement on Form S-3 that covers the registrable securities requested to be registered, to the extent we are eligible to do so. Depending on certain conditions,
and in addition to other exclusions,
we may defer a demand registration for up to 90 days in any twelve-month period. ALPHAEON will agree pursuant to a contractual lock-up not to exercise any of its rights under the stockholder agreement during the 180-day restricted period described under the section entitled “Underwriting.”
In the event that we propose to register any of our securities under the Securities Act, either for our account or for the account of our other security holders, ALPHAEON is entitled to certain piggyback registration rights allowing it to include its shares in the registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, ALPHAEON is entitled to notice of the registration.
The stockholder agreement provides that we must pay all registration expenses (other than the underwriting discounts and commissions) in connection with effecting any demand registration or shelf registration. The stockholder agreement contains customary indemnification and contribution provisions
by us for the benefit of ALPHAEON and its affiliates and, in limited situations, by ALPHAEON for the benefit of us and any underwriters with respect to written information furnished to us by ALPHAEON and stated by ALPHAEON to be specifically included in any registration statement, prospectus or related document.
The registration rights remain in effect with respect to any shares covered by the stockholder agreement until (i) all such shares have been sold pursuant to an effective registration statement under the Securities Act, or (ii)
such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of the shares without limitation during a three-month period without registration.
Services Agreement
We intend to enter into a services agreement with ALPHAEON, or the services agreement, which will become effective upon completion of this offering. The services agreement will set forth certain agreements between ALPHAEON and us that will govern the
respective rights, responsibilities and obligations
between ALPHAEON and us
that will govern the relationship between ALPHAEON and us following this offering.
Pursuant to the services agreement, ALPHAEON will agree to provide us with certain administrative and support services on a transitional basis after completion of this offering. We expect that the fees to be charged to us for transition services furnished pursuant to the services agreement will remain consistent with our current practice and will approximate the actual cost incurred by ALPHAEON in providing the transition services to us for the relevant period. In addition, pursuant to the services agreement,
we may sublease from ALPHAEON all or part of its lease for its headquarters encompassing approximately 3,639 square feet of space, as certain of our executive, legal and financial personnel will be located at ALPHAEON’s headquarters.
Therapeutic Option Letter Agreement
On December 18, 2017, we entered into a therapeutic option letter agreement with ALPHAEON, or the therapeutic agreement,
relating to certain rights to the therapeutic indications of DWP-450 under the Daewoong Agreement.
We previously paid an aggregate of $1.0 million to Daewoong pursuant to the Daewoong Agreement to receive an option to expand the permitted uses of DWP-450 to cover all therapeutic uses in the covered territories and Japan, or the therapeutic option. Pursuant to the Daewoong Agreement, we
may exercise the therapeutic option for a confidential exercise price
, or the therapeutic option fee,
upon thirty days notice to Daewoong. The therapeutic option expires December 31, 2018.
However, pursuant to the therapeutic agreement, we have agreed not to sell, sub-license or otherwise dispose in whole or in part the therapeutic option or the rights underlying the therapeutic option and we will hold the therapeutic option and the underlying rights in trust for ALPHAEON. We further agreed not to develop or make plans to develop any therapeutic indications for DWP-450. In exchange for and as of the date of the therapeutic agreement, ALPHAEON reduced the intercompany payable owed by us by the amount of $2.5 million. If prior to December 31, 2018, ALPHAEON desires for us to exercise the therapeutic option in whole or in part on ALPHAEON’s behalf, ALPHAEON will wire funds to us equal to the therapeutic option fee and we will apply those funds solely to the exercise of the therapeutic option fee. The obligations stated above will terminate upon the prior written consent of ALPHAEON, which consent may be withheld for any or no reason.
In addition, under the therapeutic agreement, ALPHAEON has the right to negotiate the entry into an agreement with Daewoong for distribution rights for therapeutic indications of DWP-450 that are separate and distinct from the Daewoong Agreement, or the ALPHAEON-Daewoong agreement. We have agreed to ALPHAEON and Daewoong’s entry into the ALPHAEON-Daewoong agreement, so long as the terms do not diminish, interfere with or adversely affect our ability to distribute DWP-450 for aesthetic indications in the covered territories and Japan under the Daewoong Agreement. To the extent sales under the ALPHAEON-Daewoong agreement require royalty payments to be made to the Evolus contributors,
ALPHAEON will either enter into a direct agreement with the Evolus contributors for such royalty payments or make quarterly payments to us equal to a low single digit percentage of net sales of the therapeutic indications of DWP-450 to be paid solely to the Evolus contributors.
We expect these payments to be sufficient to cover all required payments to the Evolus contributors.
Outstanding Payable - Related Party Borrowings
As of
December 31, 2016
and
September 30, 2017
, we owed ALPHAEON
$59.8 million
and
$72.0 million
, respectively, representing related party borrowings from ALPHAEON as consideration for certain expenses incurred on our behalf, including research and development expenses, general and administrative support services and development support services. There is currently no written agreement in place governing the terms of our related party borrowings to ALPHAEON, and as such, we may elect to remunerate ALPHAEON, with ALPHAEON’S consent,
through a variety of methods, such as through the payment of cash, re-characterizing the payables as capital contributions of ALPHAEON, the issuance of our equity securities, or as a set off against liabilities that ALPHAEON may transfer to us.
For example, ALPHAEON agreed to reduce such liabilities by offsetting the payment obligations under the amended purchase agreement and the promissory note
.
Exclusive Distribution and Supply Agreement with Clarion Medical Technologies Inc.
On November 30, 2017, we entered into an exclusive distribution and supply agreement, or the distribution agreement, with Clarion Medical Technologies Inc., or Clarion.
The distribution agreement provides terms pursuant to which we will exclusively supply DWP-450 to Clarion in Canada, if approved. Clarion was previously a wholly-owned subsidiary of ALPHAEON. However, pursuant to previous agreements among ALPHAEON, Clarion, and previous equity holders of Clarion, the previous equity holders of Clarion have the option, and have exercised such option, to unwind ALPHAEON’s acquisition of Clarion. As a result, ALPHAEON owes the equity holders of Clarion an unwinding fee of $9.55 million, or the unwinding fee. We have agreed to pay the unwinding fee, on behalf of ALPHAEON, through our entry into the distribution agreement. The distribution agreement sets forth that a portion of the proceeds received from each unit of DWP-450 purchased by Clarion shall be paid directly to the previous equity holders of Clarion, and will reduce, on a dollar for dollar basis, the amount of the unwinding fee ALPHAEON owes, until the unwinding fee is paid in full.
We and ALPHAEON have not determined
whether our assumption of the unwinding fee will reduce the liabilities owed to ALPHAEON by offsetting the payment obligations under the amended purchase agreement and the promissory note.
Under the distribution agreement, if we do not receive approval from Health Canada to promote and sell DWP-450 in Canada prior to October 31, 2018, we are obligated to pay liquidated damages to Clarion in the amount of $1.0 million within 30 days of December 31, 2018, which damages will not reduce the unwinding fee.
In addition, ALPHAEON has guaranteed the payment of the unwinding fee. As a result, ALPHAEON has an indirect material interest in the distribution agreement with Clarion.
Indemnification Agreements
We have entered into or intend to enter into separate indemnification agreements with our directors and officers.
These indemnification agreements may require us, among other things, to indemnify our directors and officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.
For more information regarding these agreements, see the section entitled “Executive and Director Compensation
—
Limitations on Liability and Indemnification Matters.”
Policies and Procedures for Transactions with Related Persons
Prior to the completion of this offering, we plan to adopt a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration, ratification and oversight of “related-person transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $120,000.
Transactions involving compensation for services provided to us as an employee, consultant or director are not considered related-person transactions under this policy. A related person is any executive officer, director or a holder of more than 5% of any class of our equity, including any of their immediate family members and any entity owned or controlled by such persons.
Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to our audit committee (or, where review by our audit committee would be inappropriate, to another independent body of our board of directors) for review, consideration and approval. The presentation must include a description of, among other things, the material facts, the direct and indirect interests of the related persons, the benefits of the transaction to us and whether any alternative transactions are available. To identify related-person transactions in advance, we will rely on information supplied by our executive officers, directors and certain significant stockholders. In considering related-person transactions, our audit committee or other independent body of our board of directors shall take into account the relevant available facts and circumstances including, but not limited to:
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the risks, costs and benefits to us;
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the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated;
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the terms of the transaction;
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the availability of other sources for comparable services or products; and
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the terms available to or from, as the case may be, unrelated third parties or to or from our employees generally.
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In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of our capital stock by:
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each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of common stock;
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each of our directors and director nominee;
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each of our named executive officers; and
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all of our executive officers and directors as a group.
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The ownership information under the column entitled “Shares Beneficially Owned Prior to this Offering” is based on 11,250,000 shares of common stock. The number of shares of common stock includes 1,250,000 shares of common stock issuable upon the automatic conversion of all outstanding shares of Series A preferred stock upon the closing of this offering, as if the conversion had occurred as of January 8, 2018.
Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options that are either immediately exercisable or exercisable on or before March 9, 2018 which is 60 days after January 8, 2018. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.
Except as otherwise noted below, the address for each person or entity listed in the table is c/o Evolus, Inc., 17901 Von Karman Avenue, Suite 150, Irvine, California 92614.
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Name and address of
beneficial owner
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Common Stock Beneficially Owned Prior to this Offering
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Common Stock Beneficially Owned After this Offering
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Number of Shares
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%
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Number of Shares
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%
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Named Executive Officers and Directors
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Murthy Simhambhatla, Ph.D.
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J. Christopher Marmo, Ph.D.
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Rui Avelar, M.D.
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Vikram Malik
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Simone Blank
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—
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Bosun Hau
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Kristine Romine
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Robert Hayman
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David Gill
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All directors and executive officers as a group (8 persons)
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Greater than 5% Holders
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ALPHAEON Corporation
(1)
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11,250,000
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100.0
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(1)
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Consists of 10,000,000 shares of our common stock and 1,250,000 shares of our Series A preferred stock, which will be automatically converted into 1,250,000 shares of our common stock prior to the completion of this offering. The address of ALPHAEON is 17901 Von Karman Avenue, Suite 150, Irvine, California 92614. ALPHAEON’s voting and investment decisions are made by its board of directors which, as of the date of this submission, consists of Mr. Simhambhatla, Simone Blank, Jost Fischer, Juliet Tammenoms Bakker, Bosun Hau, Robert Grant, Vikram Malik, Robert Hayman and Kristine Romine. These members of ALPHAEON’s board of directors may be deemed to share voting, investment or dispositive power over the shares held by ALPHAEON.
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Changes in Control
In 2016, ALPHAEON entered into two substantially similar pledge and security agreements with DI and Longitude, respectively. Pursuant to the pledge and security agreements, ALPHAEON pledged and granted to DI, as collateral agent for several debt holders, and Longitude a continuing first priority lien and security interest in and to all of ALPHAEON’s right, title and interest in, among other items, securities and all other investment property held by ALPHAEON, including ALPHAEON’s entire ownership of our capital stock, or the collateral. The collateral secures the payment and performance of the obligations of ALPHAEON under certain convertible notes issued by ALPHAEON and other related agreements. Upon certain events of default, DI and Longitude may take possession, hold, collect, sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose of all or any portion of the collateral. In the event DI or Longitude exercises such rights, upon an event of default, a change-of-control of our company may result.
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the rights of our common stock and preferred stock, certain provisions of our amended and restated certificate of incorporation, or certification of incorporation, and our amended and restated bylaws, or bylaws, as they will be in effect upon completion of this offering, and applicable law. This summary does not purport to be complete and is qualified in its entirety by the provisions of our certificate of incorporation and bylaws, copies of which will be filed as exhibits to the registration statement of which this prospectus forms a part.
General
Upon the completion of this offering, our authorized capital stock will consist of:
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shares of common stock, par value $0.00001 per share; and
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shares of preferred stock, par value $0.00001 per share.
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As of September 30, 2017, and after giving effect to the automatic conversion of all of our outstanding Series A preferred stock into common stock in connection with this offering, there were outstanding 11,250,000 shares of our common stock, all of which were owned by our sole record holder, ALPHAEON. As of that date, there were no outstanding stock options.
Immediately after the completion of this offering, shares of common stock will be outstanding, assuming the underwriters’ option to purchase additional shares is not exercised, and no shares of preferred stock will be outstanding.
Common Stock
The following summarizes the rights of holders of our common stock:
Voting
The holders of our common stock are entitled to one vote per share. The number of authorized shares of common stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of our capital stock entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL.
Dividends
Subject to preferences that may be applicable to the holders of outstanding shares of preferred stock, the holders of common stock are entitled to share equally, on a per share basis, in any dividends when, as and if declared by our board of directors out of assets legally available for dividends (except that in the event a dividend or distribution is paid in the form of common stock (or rights to acquire such stock), then holders of common stock shall receive common stock (or rights to acquire such stock, as the case may be).
As a Delaware corporation, we will be subject to certain restrictions on dividends under the DGCL. Generally, a Delaware corporation may only pay dividends either out of "surplus" or out of the current or the immediately preceding year's net profits. Surplus is defined as the excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation’s assets can be measured in a number of ways and may not necessarily equal their book value.
Liquidation Rights
Upon our liquidation, dissolution or winding up, after satisfaction of all our liabilities and the payment of any liquidation preference of any outstanding preferred stock, the holders of shares of common stock will be entitled to share equally, on a per share basis, in all of our assets legally remaining for distribution after payment of all debt and other liabilities.
Redemption Rights
There are no redemption or sinking fund provisions applicable to our common stock.
Preemptive Rights and Conversion Rights
There are no preemptive or conversion rights applicable to our common stock.
Preferred Stock
Upon the completion of this offering, we will have no shares of our preferred stock outstanding, but our board of directors will be authorized, without further action by our stockholders, to create and issue one or more series of preferred stock and to fix the rights, preferences and privileges thereof. Among other rights, our board of directors may determine, without further vote or action by our stockholders:
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the number of shares constituting the series and the distinctive designation of the series;
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the dividend rate on the shares of the series, whether dividends will be cumulative, and if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of the series;
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whether the series will have voting rights in addition to the voting rights provided by law and, if so, the terms of the voting rights;
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whether the series will have conversion privileges and, if so, the terms and conditions of conversion;
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whether or not the shares of the series will be redeemable or exchangeable, and, if so, the dates, terms and conditions of redemption or exchange, as the case may be;
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whether the series will have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of the sinking fund; and
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the rights of the shares of the series in the event of our voluntary or involuntary liquidation, dissolution or winding up and the relative rights or priority, if any, of payment of shares of the series.
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Any future issuance of shares of preferred stock, or the issuance of rights to purchase shares of preferred stock, could, among other things, decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of the common stock.
Equity Awards
As of January 8, 2018, there were 1,061,446 shares of common stock subject to outstanding stock options under the 2017 plan. In addition, as of January 8, 2018, there were 139,480 shares of common stock issuable upon the vesting and settlement of restricted stock units outstanding under the 2017 plan.
Registration Rights
On December 14, 2017, we entered into the stockholder agreement with ALPHAEON, DI, as collateral agent, and Longitude, that provides ALPHAEON (and upon an event of default by ALPHAEON under the Notes, DI and Longitude) with registration rights relating to shares of our common stock held by ALPHAEON (and pledge to DI and Longitude) after this offering. See “Certain Relationships and Related Party Transactions—Relationships with ALPHAEON Corporation—Stockholder Agreement.”
Anti-Takeover Effects of Provisions of our Certificate of Incorporation, Bylaws and Delaware Law
Delaware Anti-Takeover Law
We are subject to Section 203 of the DGCL, or Section 203. Section 203 generally prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time that such stockholder became an interested stockholder, unless:
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prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
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upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
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at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
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In general, Section 203 defines a business combination to include:
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any merger or consolidation involving the corporation and the interested stockholder;
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any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
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subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
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subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and
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the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
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In general, Section 203 defines an interested stockholder as any entity (other than the corporation and any direct or indirect majority-owned subsidiary of the corporation) or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with, associated with or controlling or controlled by such entity or person.
Certificate of Incorporation and Bylaws
The following provisions of our certificate of incorporation and bylaws may make a change in control of our business more difficult and could delay, defer or prevent a tender offer or other takeover attempt that a stockholder might consider to be in its best interest, including takeover attempts that might result in the payment of a premium to stockholders over the market price for their shares. These provisions also may promote the continuity of our management by making it more difficult for a person to remove or change the incumbent members of our board of directors.
Authorized but Unissued Shares; Undesignated Preferred Stock
. The authorized but unissued shares of our common stock will be available for future issuance without stockholder approval. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital, acquisitions and employee benefit plans. In addition, our board of directors may authorize, without stockholder approval, the issuance of undesignated preferred stock with voting rights or other rights or preferences designated from time to
time by our board of directors (including the right to approve an acquisition or other change in our control). The existence of authorized but unissued shares of common stock or preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise.
Election and Removal of Directors
. Our board of directors will consist of not less than nor more than directors. The exact number of directors will be fixed from time to time only by resolution of our board of directors. Our board of directors will initially have seven members
immediately following completion of this offering
.
Our certificate of incorporation will provide that directors may be removed only for cause and only by the affirmative vote of holders of at least 66 2/3% of our then outstanding voting stock.
Classified Board of Directors
. Our certificate of incorporation will provide that our board of directors will be classified with approximately one-third of the directors elected each year.
The authorized number of directors may be changed only by resolution of the board of directors
. The directors will be divided into three classes, designated class I, class II and class III. Each class will consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire board of directors. At each annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term and until their successors are duly elected and qualified. In addition, if the number of directors is changed, any increase or decrease will be apportioned by our board of directors among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class or from the removal from office, death, disability, resignation or disqualification of a director or other cause will hold office for a term that will coincide with the remaining term of that class, but in no case will a decrease in the number of directors have the effect of removing or shortening the term of any incumbent director.
Director Vacancies
. Our certificate of incorporation will authorize only our board of directors to fill vacant directorships.
No Cumulative Voting
. Our certificate of incorporation will provide that stockholders do not have the right to cumulate votes in the election of directors (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose).
Special Meetings of Stockholders
. Our certificate of incorporation and bylaws will provide that special meetings of our stockholders may only be called by the chairman of the board, our Chief Executive Officer or by our board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors.
Advance Notice Procedures for Director Nominations
. Our bylaws will establish advance notice procedures for stockholders seeking to nominate candidates for election as directors at an annual or special meeting of stockholders. Although our bylaws will not give the board of directors the power to approve or disapprove stockholder nominations of candidates to be elected at an annual meeting, our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us.
Action by Written Consent
. Our certificate of incorporation will provide that any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders, subject to the rights of the holders of any series of preferred stock.
Amending Our Certificate of Incorporation and Bylaws
. At any time after ALPHAEON beneficially owns less than 50% of our then-outstanding common stock, our certificate of incorporation and bylaws may be amended by the affirmative vote of the holders of at least 66 2/3% of our then-outstanding common stock. Prior to such time, our certificate of incorporation and bylaws may be amended by the affirmative vote of the holders of a majority of the voting power of our common stock.
Exclusive Jurisdiction
. Our certificate of incorporation and bylaws will provide that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, or other employees to us or to our stockholders, any action asserting a claim arising pursuant to the DGCL, or any action asserting a claim governed by the internal affairs doctrine.
Conflicts of Interest
Delaware law permits corporations to adopt provisions renouncing any interest or expectancy in certain opportunities that are presented to the corporation or its officers, directors or stockholders. Our certificate of incorporation will, to the maximum extent permitted from time to time by Delaware law, renounce any interest or expectancy that we have in, or right to be offered an opportunity to participate in, specified business opportunities that are from time to time presented to our officers, directors or stockholders or their respective affiliates, other than those officers, directors, stockholders or affiliates who are our employees. Our certificate of incorporation will provide that, to the fullest extent permitted by law, none of ALPHAEON or any of its affiliates or any director who is not employed by us or his or her affiliates will have any duty to refrain from (i) engaging in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage or (ii) otherwise competing with us or our affiliates. In addition, to the fullest extent permitted by law, in the event that ALPHAEON or any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself or its or his affiliates or for us or our affiliates, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and they may take any such opportunity for themselves or offer it to another person or entity. Our certificate of incorporation will not renounce our interest in any business opportunity that is expressly offered to a non-employee director solely in his or her capacity as a director of our company. To the fullest extent permitted by law, no business opportunity will be deemed to be a potential corporate opportunity for us unless we would be permitted to undertake the opportunity under our certificate of incorporation, we have sufficient financial resources to undertake the opportunity and the opportunity would be in line with our business.
Nasdaq Global Market Listing
We have applied to list our common stock on the
Nasdaq Global Market
under the symbol “EOLS.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
Computershare Trust Company, N.A
. The transfer agent and registrar’s address
is 250 Royall Street, Canton, Massachusetts 02021.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price for our common stock as well as our ability to raise equity capital in the future.
Based on the number of shares outstanding as of September 30, 2017, upon completion of this offering, we will have outstanding an aggregate shares of common stock (or shares if the underwriters exercise in full their option to purchase additional shares of our common stock). This includes shares of common stock that we are selling in this offering, which shares may be resold in the public market immediately following this offering, and assumes (i) the automatic conversion of all outstanding shares of Series A preferred stock into common stock and (ii) no exercise of outstanding stock options prior to completion of this offering.
The remaining shares of common stock that were not offered and sold in this offering, all of which are beneficially owned by ALPHAEON, and shares subject to outstanding stock options and restricted stock units will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act. All of these restricted securities will be subject to the 180-day lock-up period described below. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which are summarized below, or any other exemption and, if subject to lock-up agreements, may only be sold after the expiration of the 180-day lock-up period.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, any person who is not an affiliate of ours and has held their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction, provided current public information about us is available. In addition, under Rule 144, any person who is not an affiliate of ours and has held their shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the completion of this offering without regard to whether current public information about us is available. Beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is an affiliate of ours and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell a number of restricted shares within any three-month period that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or
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the average weekly trading volume of our common stock on Nasdaq during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
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Sales of restricted shares under Rule 144 held by our affiliates are also subject to requirements regarding the manner of sale, notice and the availability of current public information about us. Rule 144 also provides that affiliates relying on Rule 144 to sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.
Notwithstanding the availability of Rule 144, the holders of substantially all of our shares have entered into lock-up agreements as described below and their restricted shares will become eligible for sale at the expiration of the restrictions set forth in those agreements.
Rule 701
Under Rule 701, shares of our common stock acquired upon the exercise of currently outstanding stock options or pursuant to other rights granted under the 2017 plan may be resold by:
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persons other than affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject only to the manner-of-sale provisions of Rule 144; and
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our affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject to the manner-of-sale and volume limitations, current public information and filing requirements of Rule 144, in each case, without compliance with the six-month holding period requirement of Rule 144.
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As of January 8, 2018, options to purchase a total of 1,061,446 shares of common stock were outstanding, none of which were vested. In addition, as of January 8, 2018, 139,480 shares of common stock were issuable upon the vesting and settlement of outstanding restricted stock units. Of the total number of shares of our common stock issuable under these awards, substantially all are subject to contractual lock-up agreements with us or the underwriters described below and will become eligible for sale at the expiration of those agreements unless held by an affiliate of ours.
Lock-Up Agreements
We, along with our directors, executive officers and ALPHAEON have agreed that for a period of 180 days after the date of this prospectus, subject to specified exceptions, we or they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock without prior consent. Upon expiration of the “lock-up” period, ALPHAEON will have the right to require us to register its shares under the Securities Act. See “Registration Rights” below.
See “Underwriting” for a more complete description of the lock-up agreements that we, our directors, executive officers, ALPHAEON and all of our optionholders will enter into in connection with this offering.
Equity Incentive Plans
We intend to file with the SEC a registration statement on Form S-8 under the Securities Act covering the shares of common stock reserved for issuance under the 2017 plan. The registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. Accordingly, shares registered under the registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the lock-up agreements described above, if applicable.
Registration Rights
ALPHAEON is entitled to various rights with respect to the registration of its shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradeable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See “Certain Relationships and Related Party Transactions—Relationship with ALPHAEON Corporation—Stockholder Agreement.”
Pursuant to the lock-up agreements described above, ALPHAEON will agree not to exercise these rights during the lock-up period.
Potential Future Sale or Distribution of Common Stock Held by ALPHAEON
After the completion of this offering, ALPHAEON will beneficially own % of our outstanding common stock, assuming the underwriters’ option to purchase additional shares of common stock from us is exercised. ALPHAEON has indicated that after this offering it intends, over time, to sell or distribute its equity ownership in the Company. After the expiration of the “lock-up period” ALPHAEON intends to explore options in order to repay its obligations under the Notes and to provide their stockholders liquidity including open market sales or underwritten offerings of the common stock it holds in us, a tax-free merger, or tax-free or tax-advantaged distributions of the shares it holds in us to its stockholders. These transaction are subject to various conditions, including receipt of any necessary regulatory and other approvals, the existence of satisfactory market conditions,
and, in the case of a tax-free transaction, a private letter ruling from the U.S. International Revenue Service, or the IRS, as to certain issues relating to, and an opinion of counsel confirming, the tax-free treatment of the transaction to us and our stockholders. The conditions to any transaction ALPHAEON may contemplate may not be satisfied and ALPHAEON may decide for any reason not to consummate any of the transactions.
We are unable to predict whether significant numbers of shares will be sold in the open market or otherwise in anticipation of or following any exchange, distribution or sales of our shares by ALPHAEON.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF OUR COMMON STOCK
The following discussion describes the material U.S. federal income tax considerations for Non-U.S. Holders (as defined below) with respect to the acquisition, ownership and disposition of our common stock acquired in this offering. This discussion does not address all aspects of U.S. federal income tax law that may be relevant to Non-U.S. Holders in light of their particular circumstances, nor does it address any U.S. federal estate or gift tax, or any state, local or non-U.S. tax consequences or U.S. federal tax consequences other than income taxes. Non-U.S. Holders should consult their tax advisors as to these matters. Rules different from those described below may apply to certain Non-U.S. Holders that are subject to special treatment under the Code such as:
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banks, financial institutions, or insurance companies;
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tax-exempt organizations;
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tax-qualified retirement plans;
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broker-dealers and traders in securities, commodities or currencies;
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certain former citizens or long-term residents of the U.S.;
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persons that own, or are deemed to own, more than five percent of our common stock (except to the extent specifically set forth below);
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regulated investment companies or real estate investment trusts;
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“controlled foreign corporations,” “passive foreign investment companies,” or corporations that accumulate earnings to avoid U.S. federal income tax;
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persons that hold our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment or risk reduction strategy;
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holders deemed to sell our common stock under the constructive sale provisions of the Code;
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holders who hold or receive our common stock pursuant to the exercise of employee stock options or otherwise as compensation;
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holders who are subject to the alternative minimum tax or Medicare contribution tax; or
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partnerships and other pass-through entities, and investors in such pass-through entities or entities that are treated as disregarded entities for U.S. federal income tax purposes (regardless of their places of organization or formation).
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Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them. Furthermore, the discussion below is based upon the provisions of the Code, and Treasury regulations, published administrative pronouncements, rulings and judicial decisions thereunder as of the date hereof. Such authorities may be repealed, revoked or modified, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those discussed below. We have not requested a ruling from the IRS with respect to the statements made and the conclusions reached in the following summary. In addition, the IRS could challenge one or more of the tax consequences described herein. This discussion assumes that the Non-U.S. Holder holds our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment).
The following discussion is for general information only and is not tax advice for any Non-U.S. Holders under their particular circumstances. Persons considering the purchase of our common stock pursuant to this offering should consult their own tax advisors concerning the U.S. federal income tax consequences of acquiring, owning and disposing of our common stock in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction or under any applicable tax treaty, including any state, local and non-U.S. tax consequences and any U.S. federal non-income tax consequences.
For the purposes of this discussion, a “Non-U.S. Holder” is, for U.S. federal income tax purposes, a beneficial owner of our common stock that is not a U.S. Holder. A “U.S. Holder” means a beneficial owner of our common stock that is, for U.S. federal income tax purposes, (a) an individual who is a citizen or resident of the United States, (b) a corporation or other entity treated as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (d) a trust if it (1) is subject to the primary supervision of a court within the United States and one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. Also, partnerships, or other entities that are treated as partnerships for U.S. federal income tax purposes (regardless of their place of organization or formation) and entities that are treated as disregarded entities for U.S. federal income tax purposes (regardless of their place of organization or formation), are not addressed by this discussion and are, therefore, not considered to be Non-U.S. Holders for the purposes of this discussion. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
Distributions on Our Common Stock
As described in the section entitled “Dividend Policy,” we do not anticipate declaring or paying dividends to holders of our common stock in the foreseeable future. However, distributions of cash or property, if any, made on our common stock to a Non-U.S. Holder of our common stock generally will constitute dividends for U.S. federal income tax purposes to the extent made out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles) and will be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to provide us with a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E, or other appropriate form, certifying the Non-U.S. Holder’s entitlement to benefits under that treaty. In the case of a Non-U.S. Holder that is an entity, Treasury regulations and the relevant tax treaty provide rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends will be treated as paid to the entity or to those holding an interest in that entity. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to such agent. The holder’s agent will then be required to provide certification to the applicable withholding agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you should consult with your tax advisor to determine if you are able to obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS.
We generally are not required to withhold tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that such holder maintains in the United States) if a properly executed IRS Form W-8ECI, stating that the dividends are so connected, is furnished to us (or, if stock is held through a financial institution or other agent, to such agent). In general, such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular graduated U.S. federal income tax rates, unless a specific treaty exemption applies. A corporate Non-U.S. Holder receiving effectively connected dividends may also be subject to an additional “branch profits tax,” which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) on the corporate Non-U.S. Holder’s effectively connected earnings and profits, subject to certain adjustments.
To the extent distributions on our common stock, if any, exceed our current and accumulated earnings and profits, they will first reduce your adjusted basis in our common stock as a non-taxable return of capital, but not below zero, and then any excess will be treated as gain and taxed in the same manner as gain realized from a sale or other disposition of common stock as described in the next section.
Gain on Disposition of Our Common Stock
Subject to the discussion below regarding backup withholding and foreign accounts, a Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to gain realized on a sale or other disposition of our common stock unless (a) the gain is effectively connected with a trade or business of such holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that such
holder maintains in the United States), (b) the Non-U.S. Holder is a nonresident alien individual and is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (c) we are or have been a United States real property holding corporation, or a USRPHC, within the meaning of Code Section 897(c)(2) at any time within the shorter of the five-year period preceding such disposition or such holder’s holding period for the relevant shares of our common stock.
In the case of gain described in (a) above, a Non-U.S. Holder generally will be required to pay tax on the net gain derived from the sale at regular graduated U.S. federal income tax rates, unless a specific treaty exemption applies, and a corporate Non-U.S. Holder may be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. An individual Non-U.S. Holder described in (b) above generally will be subject to U.S. federal income tax at a rate of 30% on the gain derived from the sale (or such lower rate as may be specified by an applicable income tax treaty), which gain may be offset by certain of the Non-U.S. Holder’s U.S. source capital losses (even though the Non-U.S. Holder is not considered a resident of the United States), provided the Non-U.S. Holder timely files U.S. federal income tax returns with respect to such losses. With respect to (c) above, in general, we would be a USRPHC if our interests in U.S. real property interests constituted (by fair market value) at least half of our assets. We believe that we are not, and do not anticipate becoming, a USRPHC; however, there can be no assurance that we will not become a USRPHC in the future. Even if we are treated as a USRPHC, gain realized by a Non-U.S. Holder on a disposition of our common stock will not be subject to U.S. federal income tax so long as (1) the Non-U.S. Holder owned, directly, indirectly and constructively, no more than 5% of our common stock at all times within the shorter of (a) the five-year period preceding the disposition or (b) the holder’s holding period for the relevant shares of our common stock and (2) our common stock is “regularly traded,” as defined by applicable Treasury regulations, on an established securities market. There can be no assurance that our common stock will qualify as regularly traded on an established securities market.
Information Reporting Requirements and Backup Withholding
Generally, we or certain financial middlemen must report information to the IRS with respect to any dividends we pay on our common stock, including the amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder to whom any such dividends are paid. Pursuant to tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipient’s country of residence.
Dividends paid by us (or our paying agents) to a Non-U.S. Holder may also be subject to U.S. backup withholding. U.S. backup withholding generally will not apply to a Non-U.S. Holder that provides a properly executed IRS Form W-8BEN, IRS Form W-8BEN-E, or other appropriate form, or otherwise establishes an exemption.
Under current U.S. federal income tax law, U.S. information reporting and backup withholding requirements generally will apply to the proceeds of a disposition of our common stock effected by or through a U.S. office of any broker, U.S. or non-U.S., unless the holder provides a properly executed IRS Form W-8BEN, IRS Form W-8BEN-E, IRS Form W-8ECI or other appropriate form, or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding requirements will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. Non-U.S. Holders you should consult with their tax advisors to determine if they are eligible to obtain a tax refund or credit with respect to amounts withheld under the backup withholding rules.
Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a U.S. federal withholding tax of 30%
may apply to dividends on, and the gross proceeds of, a disposition of our common stock paid to a foreign financial institution (as specifically defined by applicable rules), including when the foreign financial institution holds our common stock on behalf of a Non-U.S. Holder, unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which may include certain equity holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these withholding and reporting requirements may be subject to different rules. FATCA withholding tax will also apply to dividends on, and the gross proceeds of, a disposition of our common stock paid to a non-financial foreign entity (as specifically defined by applicable rules) unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. Withholding under FATCA will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules. Under certain circumstances, a Non-U.S. Holder might be eligible for refunds or credits of such taxes. Holders are encouraged to consult with their own tax advisors regarding the possible implications of FATCA on their investment in our common stock.
The withholding provisions described in the preceding paragraph will generally apply to payments of dividends and will begin to apply to payments of gross proceeds from a sale or other disposition of our common stock on or after January 1, 2019.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, NON-U.S. OR U.S. FEDERAL NON- INCOME TAX LAWS.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement, dated , 2018, among us and Cantor Fitzgerald & Co. and Mizuho Securities USA LLC, as the representatives of the underwriters named below and the joint book-running managers of this offering, or the underwriting agreement, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the respective number of shares of common stock shown opposite its name below:
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Underwriter
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Number of
Shares
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Cantor Fitzgerald & Co.
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Mizuho Securities USA LLC
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SunTrust Robinson Humphrey, Inc.
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JMP Securities LLC
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Total
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The underwriting agreement provides that the obligations of the several underwriters are subject to certain conditions precedent such as the receipt by the underwriters of officers’ certificates and legal opinions and approval of certain legal matters by their counsel. The underwriting agreement provides that the underwriters will purchase all of the shares of common stock if any of them are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated. We have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.
The underwriters have advised us that, following the completion of this offering, they currently intend to make a market in the common stock as permitted by applicable laws and regulations. However, the underwriters are not obligated to do so, and the underwriters may discontinue any market-making activities at any time without notice in their sole discretion. Accordingly, no assurance can be given as to the liquidity of the trading market for the common stock, that you will be able to sell any of the common stock held by you at a particular time or that the prices that you receive when you sell will be favorable.
The underwriters are offering the shares of common stock subject to their acceptance of the shares of common stock from us and subject to prior sale. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. In addition, the underwriters have advised us that they do not intend to confirm sales to any account over which they exercise discretionary authority.
Commission and Expenses
The underwriters have advised us that they propose to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers, which may include the underwriters, at that price less a concession not in excess of $ per share of common stock. After the offering, the initial public offering price and concession to dealers may be reduced by the representatives. No such reduction will change the amount of proceeds to be received by us as set forth on the cover page of this prospectus.
The following table shows the public offering price, the underwriting discounts and commissions that we are to pay the underwriters and the proceeds, before expenses, to us in connection with this offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.
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Per Share
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Total
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Without Option to Purchase Additional Shares
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With Option to Purchase Additional Shares
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Without Option to Purchase Additional Shares
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With Option to Purchase Additional Shares
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Public offering price
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$
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$
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$
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$
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Underwriting discounts and commissions paid by us
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$
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$
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$
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$
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Proceeds to us, before expenses
|
$
|
|
$
|
|
$
|
|
$
|
We estimate expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $ . We have also agreed to reimburse the underwriters for certain of their expenses in an amount up to $25,000, incurred in connection with review by the Financial Industry Regulatory Authority, Inc. of the terms of this offering, as set forth in the underwriting agreement.
Determination of Offering Price
Prior to this offering, there has not been a public market for our common stock. Consequently, the initial public offering price for our common stock will be determined by negotiations between us and the representatives. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.
We offer no assurances that the initial public offering price will correspond to the price at which the common stock will trade in the public market subsequent to the offering or that an active trading market for the common stock will develop and continue after the offering.
Listing
We have applied to list our common stock on the Nasdaq Global Market under the symbol “EOLS.”
Stamp Taxes
If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.
Option to Purchase Additional Shares
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of shares from us at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. If the underwriters exercise this option, each underwriter will be obligated, subject to specified conditions, to purchase a number of additional shares proportionate to that underwriter’s initial purchase commitment as indicated in the table above. This option may be exercised only if the underwriters sell more shares than the total number set forth on the cover page of this prospectus.
No Sales of Similar Securities
We, our officers, directors and holders of all of our outstanding capital stock and other securities have agreed, subject to specified exceptions, not to directly or indirectly:
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•
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sell, offer, contract or grant any option to sell (including any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning of Rule 16a-l(h) under the Exchange Act, or
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|
•
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otherwise dispose of any shares of common stock, options or warrants to acquire shares of common stock, or securities exchangeable or exercisable for or convertible into shares of common stock currently or hereafter owned either of record or beneficially, or
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|
|
•
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publicly announce an intention to do any of the foregoing for a period of 180 days after the date of this prospectus without the prior written consent of Cantor Fitzgerald & Co.
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This restriction terminates after the close of trading of the common stock on and including the 180th day after the date of this prospectus. The shares of our common stock that ALPHAEON owns are currently pledged to secure its obligations under ALPHAEON’s convertible promissory notes and convertible bridge note.
Cantor Fitzgerald & Co. may, in its sole discretion and at any time or from time to time before the termination of the 180-day period release all or any portion of the securities subject to lock-up agreements. There are no existing agreements between the underwriters and ALPHAEON providing consent to the sale of shares prior to the expiration of the lock-up period.
Stabilization
The underwriters have advised us that they, pursuant to Regulation M under the Exchange Act, may engage in short sale transactions, stabilizing transactions, syndicate covering transactions or the imposition of penalty bids in connection with this offering. These activities may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. Establishing short sales positions may involve either “covered” short sales or “naked” short sales.
“Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares of our common stock in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares of our common stock or purchasing shares of our common stock in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option to purchase additional shares.
“Naked” short sales are sales in excess of the option to purchase additional shares of our common stock. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares of our common stock in the open market after pricing that could adversely affect investors who purchase in this offering.
A stabilizing bid is a bid for the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A syndicate covering transaction is the bid for or the purchase of shares of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. Similar to other purchase transactions, the underwriter’s purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters to reclaim the selling concession otherwise accruing to a syndicate member in connection with the offering if the common stock originally sold by such syndicate member are purchased in a syndicate covering transaction and therefore have not been effectively placed by such syndicate member.
Neither we, nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. The underwriters are not obligated to engage in these activities and, if commenced, any of the activities may be discontinued at any time.
Electronic Distribution
A prospectus in electronic format may be made available by e-mail or on the web sites or through online services maintained by one or more of the underwriters or their affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares of common stock for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters’ web sites and any information contained in
any other web site maintained by any of the underwriters is not part of this prospectus, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.
Other Activities and Relationships
The underwriters and certain of their affiliates are full service financial institutions engaged in a wide range of activities for their own accounts and the accounts of customers, which may include, among other things, securities trading, commercial and investment banking, mergers and acquisitions, equity and fixed income sales, financial advisory, investment management, trading and research, principal investment,
derivatives, foreign exchange, futures, asset management, custody,
hedging, financing and brokerage activities. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for us and our affiliates, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and certain of their affiliates may, directly or indirectly, hold long or short positions, make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments issued by us and our affiliates. If the underwriters or their respective affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. The underwriters and their respective affiliates may hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the common stock offered hereby. Any such short positions could adversely affect future trading prices of the common stock offered hereby. The underwriters and certain of their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Disclaimers About Non-U.S. Jurisdictions
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, or as to each, a Relative Member State, an offer to the public of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of our common stock may be made at any time under the following exemptions under the Prospectus Directive:
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•
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To any legal entity which is a qualified investor as defined in the Prospectus Directive;
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•
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To fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the representatives for any such offer; or
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•
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In any other circumstances falling within Article 3(2) of the Prospectus Directive;
|
provided that no such offer or shares of our common stock shall result in a requirement for the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer to public” in relation to our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and our common stock to be offered so as to enable an investor to decide to purchase our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (as amended), including by Directive 2010/73/EU and includes any relevant implementing measure in the Relevant Member State.
This European Economic Area selling restriction is in addition to any other selling restrictions set out below.
United Kingdom
In the United Kingdom, this prospectus is only addressed to and directed as qualified investors who are (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or the Order; or (ii) high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). Any investment or investment activity to which this prospectus relates is available only to relevant persons and will only be engaged with relevant persons. Any person who is not a relevant person should not act or relay on this prospectus or any of its contents.
Canada
Our common stock may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of our common stock must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
Our common stock may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong), or the Companies (Winding Up and Miscellaneous Provisions) Ordinance, or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong), or the Securities and Futures Ordinance, or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to our common stock may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our common stock may not be circulated or distributed, nor may our common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii)
otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where our common stock are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired our common stock under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation’s securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore, or Regulation 32.
Where our common stock are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired our common stock under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.
Japan
Our common stock has not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. Our common stock may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
LEGAL MATTERS
The validity of the shares of common stock being offered by this prospectus will be passed upon for us by K&L Gates LLP, Irvine, California. Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, is acting as counsel for the underwriters in connection with this offering.
EXPERTS
The financial statements of Evolus, Inc. at December 31, 2016 and 2015, and for each of the two years in the period ended December 31, 2016, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt about the company’s ability to continue as a going concern as described in Note 1 to the financial statements) appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits. For further information with respect to us and the common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. Upon completion of this offering, we will be required to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. You may read and copy this information at the Public Reference Room of the SEC, 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy statements and other information about registrants, like us, that file electronically with the SEC. The address of that site is http://www.sec.gov. We also maintain a website at www.evolus.com, at which, following the completion of this offering, you may access our SEC filings free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference in, and is not part of, this prospectus. You may also request a copy of these filings, at no cost, by writing us at
17901 Von Karman Avenue, Suite 150, Irvine, California 92614
, Attention: Vice President, Legal or telephoning us at (949) 284-4555.
Evolus
, Inc.
Index to Financial Statements
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Years ended December 31, 2015 and 2016 and Nine Months ended September 30, 2016 and 2017
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Page
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Financial Statements:
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|
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholder of Evolus, Inc.
We have audited the accompanying balance sheets of Evolus, Inc. as of December 31, 2016 and 2015 and the related statements of operations and comprehensive loss, convertible preferred stock and stockholder’s equity (deficit) and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Evolus, Inc. at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Irvine, California
August 28, 2017
Evolus, Inc.
Balance Sheets
(in thousands, except share data)
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December 31,
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September 30,
2017
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September 30, 2017
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2015
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2016
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|
|
Pro Forma
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ASSETS
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
Restricted cash
|
4,000
|
|
|
187
|
|
|
—
|
|
|
|
|
Prepaid expenses and other current assets
|
17
|
|
|
24
|
|
|
290
|
|
|
|
|
Total current assets
|
4,017
|
|
|
211
|
|
|
290
|
|
|
$
|
Intangible asset
|
56,076
|
|
|
56,076
|
|
|
56,076
|
|
|
|
|
Goodwill
|
21,208
|
|
|
21,208
|
|
|
21,208
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|
|
|
|
Related party receivable
|
—
|
|
|
—
|
|
|
72,014
|
|
|
|
Other assets
|
—
|
|
|
—
|
|
|
1,383
|
|
|
|
|
Total assets
|
$
|
81,301
|
|
|
$
|
77,495
|
|
|
$
|
150,971
|
|
|
$
|
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDER’S EQUITY (DEFICIT)
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|
|
|
|
|
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|
Current Liabilities
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
230
|
|
|
$
|
2,877
|
|
|
$
|
323
|
|
|
$
|
Accrued expenses
|
1,704
|
|
|
675
|
|
|
841
|
|
|
|
|
Related party borrowings
|
46,167
|
|
|
59,760
|
|
|
72,014
|
|
|
|
|
Total current liabilities
|
48,101
|
|
|
63,312
|
|
|
73,178
|
|
|
$
|
Deferred rent
|
46
|
|
|
44
|
|
|
39
|
|
|
|
Deferred tax liability
|
21,152
|
|
|
21,245
|
|
|
21,301
|
|
|
|
|
Note obligation
|
—
|
|
|
—
|
|
|
134,937
|
|
|
|
|
Total liabilities
|
69,299
|
|
|
84,601
|
|
|
229,455
|
|
|
$
|
Commitments and contingencies (Note 5)
|
|
|
|
|
|
|
|
Convertible Preferred Stock and Stockholder’s equity (deficit)
|
|
|
|
|
|
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Convertible Series A Preferred, $0.00001 par value; 2,500,000 shares authorized; 1,250,000 shares issued and outstanding at December 31, 2015, 2016 and at September 30, 2017 (unaudited); no shares authorized and no shares issued and outstanding, pro forma (unaudited)
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Common Stock, $0.00001 par value; 20,000,000 shares authorized; 10,000,000 shares issued and outstanding at December 31, 2015, 2016 and at September 30, 2017 (unaudited); 11,250,000 shares issued and outstanding, pro forma (unaudited)
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Additional paid-in capital
|
58,743
|
|
|
59,700
|
|
|
—
|
|
|
|
|
Accumulated deficit
|
(46,741
|
)
|
|
(66,806
|
)
|
|
(78,484
|
)
|
|
|
|
Total convertible preferred stock and stockholder’s equity (deficit)
|
12,002
|
|
|
(7,106
|
)
|
|
(78,484
|
)
|
|
—
|
|
Total liabilities, convertible preferred stock and stockholder’s equity (deficit)
|
$
|
81,301
|
|
|
$
|
77,495
|
|
|
$
|
150,971
|
|
|
|
|
See accompanying notes to financial statements.
Evolus
, Inc.
Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
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|
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|
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|
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Year Ended December 31,
|
|
Nine Months Ended September 30,
|
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2015
|
|
2016
|
|
2016
|
|
2017
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
$
|
20,681
|
|
|
$
|
12,607
|
|
|
$
|
9,926
|
|
|
$
|
5,481
|
|
General and administrative
|
9,883
|
|
|
7,033
|
|
|
6,111
|
|
|
3,169
|
|
Depreciation and amortization
|
416
|
|
|
326
|
|
|
224
|
|
|
218
|
|
Total operating expenses
|
30,980
|
|
|
19,966
|
|
|
16,261
|
|
|
8,868
|
|
Loss from operations
|
(30,980
|
)
|
|
(19,966
|
)
|
|
(16,261
|
)
|
|
(8,868
|
)
|
Other expense:
|
|
|
|
|
|
|
|
Other expense, net
|
39
|
|
|
6
|
|
|
5
|
|
|
4
|
|
Loss before taxes
|
(31,019
|
)
|
|
(19,972
|
)
|
|
(16,266
|
)
|
|
(8,872
|
)
|
Provision for income taxes
|
93
|
|
|
93
|
|
|
56
|
|
|
56
|
|
Net loss and comprehensive loss
|
$
|
(31,112
|
)
|
|
$
|
(20,065
|
)
|
|
$
|
(16,322
|
)
|
|
$
|
(8,928
|
)
|
Net loss per share, basic and diluted
|
$
|
(3.11
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(1.63
|
)
|
|
$
|
(0.89
|
)
|
Weighted-average shares used to compute basic and diluted net loss per share
|
10,000,000
|
|
|
10,000,000
|
|
|
10,000,000
|
|
|
10,000,000
|
|
Pro forma net loss per share, basic and diluted (unaudited)
|
|
|
$
|
(1.78
|
)
|
|
|
|
$
|
(0.79
|
)
|
Pro forma weighted-average shares used to compute basic and diluted net loss per share (unaudited)
|
|
|
11,250,000
|
|
|
|
|
11,250,000
|
|
See accompanying notes to financial statements.
Evolus
, Inc.
Statements of Convertible Preferred Stock and Stockholder’s Equity (Deficit)
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Series A Preferred Stock
|
|
Common Stock
|
|
Additional Paid in Capital
|
|
Accumulated Deficit
|
|
Total equity (deficit)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
Balance as of December 31, 2014
|
1,250,000
|
|
|
$
|
—
|
|
|
10,000,000
|
|
|
$
|
—
|
|
|
$
|
57,230
|
|
|
$
|
(15,629
|
)
|
|
$
|
41,601
|
|
Capital contribution - stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,513
|
|
|
—
|
|
|
1,513
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,112
|
)
|
|
(31,112
|
)
|
Balance as of December 31, 2015
|
1,250,000
|
|
|
—
|
|
|
10,000,000
|
|
|
—
|
|
|
58,743
|
|
|
(46,741
|
)
|
|
12,002
|
|
Capital contribution - stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
957
|
|
|
—
|
|
|
957
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,065
|
)
|
|
(20,065
|
)
|
Balance as of December 31, 2016
|
1,250,000
|
|
|
—
|
|
|
10,000,000
|
|
|
—
|
|
|
59,700
|
|
|
(66,806
|
)
|
|
(7,106
|
)
|
Capital contribution - stock-based compensation (unaudited)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
472
|
|
|
—
|
|
|
472
|
|
Deemed distribution to Parent - note obligation (unaudited)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(60,172
|
)
|
|
(2,750
|
)
|
|
(62,922
|
)
|
Net loss (unaudited)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,928
|
)
|
|
(8,928
|
)
|
Balance at September 30, 2017 (unaudited)
|
1,250,000
|
|
|
$
|
—
|
|
|
10,000,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(78,484
|
)
|
|
$
|
(78,484
|
)
|
See accompanying notes to financial statements.
Evolus
, Inc.
Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
2015
|
|
2016
|
|
2016
|
|
2017
|
Cash flows from operating activities
|
|
|
|
|
(unaudited)
|
Net loss
|
$
|
(31,112
|
)
|
|
$
|
(20,065
|
)
|
|
$
|
(16,322
|
)
|
|
$
|
(8,928
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
Depreciation and amortization
|
416
|
|
|
326
|
|
|
224
|
|
|
218
|
|
Stock-based compensation
|
1,513
|
|
|
957
|
|
|
644
|
|
|
472
|
|
Deferred income taxes
|
93
|
|
|
93
|
|
|
56
|
|
|
56
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
(Payment) release of restricted cash
|
(4,000
|
)
|
|
3,813
|
|
|
1,300
|
|
|
187
|
|
Prepaid expenses and other current assets
|
(16
|
)
|
|
(7
|
)
|
|
(4
|
)
|
|
(265
|
)
|
Other assets
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,383
|
)
|
Accounts payable
|
(1,373
|
)
|
|
2,647
|
|
|
2,636
|
|
|
(2,554
|
)
|
Accrued expenses
|
(1,951
|
)
|
|
(1,029
|
)
|
|
(383
|
)
|
|
167
|
|
Deferred rent
|
46
|
|
|
(2
|
)
|
|
—
|
|
|
(5
|
)
|
Net cash used in operating activities
|
(36,384
|
)
|
|
(13,267
|
)
|
|
(11,849
|
)
|
|
(12,035
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Related party borrowings
|
36,384
|
|
|
13,267
|
|
|
11,849
|
|
|
12,035
|
|
Net cash provided by financing activities
|
36,384
|
|
|
13,267
|
|
|
11,849
|
|
|
12,035
|
|
Effect of exchange rates on cash
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Change in cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
Noncash financing activities:
|
|
|
|
|
|
|
|
Related party receivable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(72,014
|
)
|
Note obligation
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
134,937
|
|
Deemed distribution
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(62,922
|
)
|
See accompanying notes to financial statements.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
Note 1. Organization
Description of Business
Evolus, Inc. (“Evolus” or the “Company”) is a
medical aesthetics company focused on providing physicians and their patients with expanded choices in aesthetic procedures and treatments. The Company’s focus is on the self-pay aesthetic market and its first product candidate, DWP-450, is an injectable 900 kilodalton botulinum toxin type A complex designed to address the needs of the facial aesthetics market.
Evolus was incorporated in Delaware in November 2012.
In October 2013, SCH-AEON, LLC (formerly known as Strathspey Crown Holdings, LLC) (“SCH”) acquired all of the Company’s outstanding equity in exchange for 15,000 Class AA units of SCH and 15,000 Class D units of SCH. On June 30, 2014, SCH contributed 90% of the Company’s then outstanding equity that it had acquired in October 2013 to ALPHAEON Corporation (“ALPHAEON”). On September 30, 2014, certain former stockholders of the Company (the “Evolus contributors”) exercised a right held with the Class D units to compel SCH to sell the remaining 10% of the outstanding shares of the Company to ALPHAEON in exchange for certain payments required to be made by ALPHAEON. As a result of these transactions, Evolus became a wholly-owned subsidiary of ALPHAEON.
The Company is headquartered in Irvine, California.
Liquidity and Management Plan
For the
year ended December 31,
2016
, the Company has adopted Financial Accounting Standards Board (the “FASB”) Accounting Standard Codification (“ASC”) Topic 205-40,
Presentation of Financial Statements – Going Concern
, which requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.
The accompanying financial statements have been prepared on a basis that assumes that the Company will continue as a going concern. However, t
he Company has incurred operating losses since its inception and as reflected in the accompanying financial statements. The Company has an accumulated deficit of $
66.8 million
as of
December 31, 2016
, which includes a net loss of $
20.1 million
for the
year ended December 31,
2016
. Additionally, the Company used
$13.3 million
and
$12.0 million
in cash for operations in the
year ended December 31,
2016 and the
nine months ended September 30,
2017
, respectively. As of
September 30, 2017
, the Company has an accumulated deficit of
$78.5 million
, which includes a net loss of
$8.9 million
for the
nine months ended September 30,
2017
. As a result of these conditions, management has concluded that, substantial doubt about the Company’s ability to continue as a going concern exists as conditions and events, considered in the aggregate indicate that it is probable that the Company will not be able to meet its obligations as they become due within one year after the date the financial statements are issued.
The Company’s management believes that it will be necessary to raise additional funding in the form of an equity financing from the sale of capital stock. The Company may in the future seek additional capital from public or private offerings of its capital stock or it may elect to borrow additional amounts under new credit lines or from other sources. If the Company issues equity or debt securities to raise additional funds, its existing stockholder may experience dilution, it may incur significant financing costs, and the new equity or debt securities may have rights, preferences and privileges senior to those of its existing stockholder. The Company’s ability to continue as a going concern is dependent on its ability to raise significant additional capital, of which there can be no assurance.
The accompanying financial statements have been prepared on a basis that assumes that the Company will continue as a going concern, and do not include any adjustments that may result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of the Company’s liabilities and commitments in the normal course of business and does not include any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The audit report covering these accompanying financial statements includes an explanatory paragraph that describes conditions that raise substantial doubt about the Company’s ability to continue as a going concern.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
For comparative purposes, the Company derived its full year 2015 and 2016 and
nine months ended September 30, 2016
and
2017
financial results on a standalone basis from ALPHAEON’s financial statements and accounting records and
prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
. These results reflect amounts attributable to the Company’s business, including the costs ALPHAEON incurred for the development and commercialization of DWP-450 and costs and expenses under the license agreement with
Daewoong Pharmaceuticals Co., Ltd. (“Daewoong”), a South Korean pharmaceutical manufacturer
described below in Note 4,
Related Party Transaction
.
ALPHAEON charges the Company external and internal administrative and research and development expenses ALPHAEON incurs on the Company's behalf. External research and development expenses charged to the Company include costs for contract research organizations (“CROs”), costs to conduct nonclinical and clinical studies on its product, DWP-450, costs to acquire and evaluate clinical study data such as investigator grants, patient screening fees and laboratory work, and fees paid to consultants. ALPHAEON charges these costs to the Company at the same costs that ALPHAEON incurs. Internal development expenses include costs for the work that ALPHAEON development employees perform for the Company. ALPHAEON charges the Company a full-time equivalent rate that covers personnel-related expenses, including salaries and benefits, plus an allocation of facility-related expenses, including rent, utilities, depreciation, insurance and property taxes, for those research and development employees who work either directly or indirectly on the development of the Company's drugs and certain administrative employees. ALPHAEON calculates the facility-related expenses to the Company based on a percentage of aggregate expenses incurred at ALPHAEON. ALPHAEON calculates depreciation expense of property and equipment using the straight-line method over the estimated useful lives of its assets of 3 to 5 years.
The Company currently incurs related party borrowings from ALPHAEON for its share of the internal and external expenses for each of these functions based on the Company’s relative use of each function, plus an allocation of facility-related expenses. The Company’s management believes that the allocations and results are reasonable for all periods presented. However, allocations may not be indicative of actual expense Evolus would have incurred had it operated as an independent company for the periods presented.
The Company has calculated its income tax amounts using a separate return methodology and has presented these amounts as if it were a separate taxpayer from ALPHAEON in each jurisdiction for each period the Company presented.
Acquisition
The accounting for acquisitions requires extensive use of estimates and judgments to measure the fair value of the identifiable tangible and intangible assets acquired, including in-process research and development, and liabilities assumed. Additionally, the Company must determine whether an acquired entity is considered to be a business or a set of net assets, because the excess of the purchase price over the fair value of net assets acquired can only be recognized as goodwill in a business combination.
Evolus was formed in November 2012 for the purposes of developing a botulinum toxin type A product known as DWP-450 (the “Product”) for distribution and sale. As described in Note 1 under “
Description of Business
”, in October 2013
SCH acquired all of the Company’s outstanding equity in exchange for 15,000 Class AA units of SCH and 15,000 Class D units of SCH, which resulted in SCH obtaining a controlling financial interest in Evolus.
Prior to the transaction with SCH, Evolus had executed a License and Supply Agreement with Daewoong and thereby secured exclusive rights to license and distribute the Product for aesthetic indications in the United States
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
and certain other international markets, as well as non-exclusive rights to distribute in Japan (see Note 5). The acquisition of the Company, which represented a business combination by SCH, was to provide SCH and ALPHAEON, its wholly-owned subsidiary, access to the license held by Evolus to develop, produce and market clinical neurotoxins.
The Company has elected to apply push-down accounting pursuant to the guidance in ASC 805,
Business Combinations
. Accordingly, the financial statements reflect the new basis of accounting established by SCH when SCH obtained control of the Company in October 2013. The assets acquired and liabilities assumed in connection with the acquisition were recognized based on their estimated fair values at the acquisition date. The determination of estimated fair values requires significant estimates and assumptions including, but not limited to, determining the timing and estimated costs to complete the in-process projects, projecting regulatory approvals, estimating future cash flows and developing appropriate discount rates. The Company believes the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions.
In connection with the acquisition, SCH and its wholly-owned subsidiary ALPHAEON were obligated to make certain contingent payments to the former shareholders of Evolus. However, since Evolus does not have an obligation associated with the contingent consideration arrangement, no amounts have been recognized in the financial statements for the contingent consideration arrangement between SCH, and its wholly-owned subsidiary ALPHAEON, and the Evolus contributors.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates, judgments, and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes. Actual results could materially differ materially from those estimates. The Company’s management considers many factors in selecting appropriate financial accounting policies and controls and in developing the estimates and assumptions that are used in the preparation of these financial statements.
The Company’s management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates.
On an ongoing basis, the Company evaluates the most significant estimates, including those related to the fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets, joint and several liability obligations, and realizability of income taxes, among others. Although the Company bases these estimates on historical experience, knowledge of current events and actions it may undertake in the future, and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments over the carrying values of assets and liabilities, this process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements.
Risk and Uncertainties
The Company has not commenced principal operations in the form of commercialized product sales. The Product requires approval from the U.S. Food and Drug Administration (“FDA”), the European Medicines Agency, and other similar regulatory authorities prior to commercial sales. There can be no assurance that the Company’s current and any future product candidates will receive the necessary approvals. If the Company is denied approval or approval is delayed, it may have a material adverse impact on the Company’s business and its financial statements.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
The Company is subject to risks common to early stage companies in the pharmaceutical industry including, but not limited to, dependency on the clinical and commercial success of its current and any future product candidates, ability to obtain regulatory approval of its current and any future product candidates, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and patients, significant competition and untested manufacturing capabilities.
Unaudited Interim Financial Information
The accompanying interim balance sheet as of
September 30, 2017
, the statements of operations and comprehensive loss and cash flows for the
nine months ended September 30, 2016
and
2017
, the statements of convertible preferred stock and stockholder’s equity (deficit) for the
nine months ended September 30, 2017
, and the related footnote disclosures are unaudited. These unaudited interim financial statements have been prepared in accordance with GAAP and, in management’s opinion, on a basis consistent with the audited financial statements and reflect all adjustments, which only include normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of
September 30, 2017
and its results of operations and comprehensive loss and cash flows for the
nine months ended September 30, 2016
and
2017
and the statements of convertible preferred stock and stockholder’s equity (deficit) for the
nine months ended September 30, 2017
.
The results for the
nine months ended September 30, 2017
are not necessarily indicative of the results to be expected for the
year ended December 31,
2017
or for any other interim period.
Unaudited Pro Forma Balance Sheet Information
The unaudited pro forma information in the accompanying balance sheet as of
September 30, 2017
assumes the conversion of all outstanding shares of convertible Series A preferred stock into common stock upon the closing of the of the Company’s initial public offering (“IPO”). The pro forma balance sheet assumes that the completion of the IPO had occurred as of
September 30, 2017
and excludes shares of common stock issued in the proposed IPO and any related net proceeds therefrom.
The unaudited pro forma net loss per share information for the
nine months ended September 30, 2017
assumes the conversion of 1,250,000 shares of
convertible Series A preferred stock
into 1,250,000 shares of the Company's common stock at the beginning of the period presented.
Segment Reporting
The Company has determined that it operates in a single reportable segment. The Company’s chief operating decision maker (“CODM”), its Chief Executive Officer, manages operations and reviews the financial information as a single operating segment for purposes of allocating resources and evaluating its financial performance.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines a three-tiered valuation hierarchy for disclosure of fair value measurement is classified and disclosed by the Company in one of the three categories as follows:
|
|
•
|
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
|
|
•
|
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, or can be corroborated by observable market data for substantially the full term of the asset or liability; and
|
|
|
•
|
Level 3—Prices or valuation techniques that require inputs that are unobservable that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Restricted Cash
Restricted cash of $
4.0 million
at
December 31, 2015
, represents cash required to be reserved to fund certain specified research and development activities related to the Company’s rights acquired pursuant to the contribution agreement; the restriction was released in 2016. Restricted cash of $
0.2 million
at
December 31, 2016
, reserved pursuant to a contractual agreement amending the Evolus acquisition agreement, represents cash reserved for Evolus development costs and the advance of the product through the regulatory approval process at the FDA for the Product.
Deferred Rent
The Company leases its Santa Barbara, California office under a non-cancelable operating lease. This lease is classified as an operating lease. For leases that contain rent escalation rent concession provisions, the Company records the total rent expense on a straight-line basis over the term of the lease. Lease renewal periods are considered on a lease-by-lease basis in determining the anticipated lease term. The Company records the difference between the rent paid and the straight-line rent as deferred rent on the accompanying balance sheets.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. The Company performs an annual qualitative assessment of its goodwill in the fourth quarter each calendar year to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If further testing is required, the Company performs a two-step process. The first step involves comparing the fair value of the Company’s reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. For the purpose of impairment testing, the Company has determined that it has one reporting unit. There has been no impairment of goodwill for any of the periods presented.
Intangible Asset
The intangible asset in the accompanying balance sheets represents in-process research and development projects acquired that have not yet been completed. In-process research and development assets with indefinite useful lives that are not amortized, but instead tested for impairment until the successful completion and commercialization or abandonment of the associated research and development efforts, at which point the in-
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
process research and development assets are either amortized over their estimated useful lives or written-off immediately. There has been no impairment of long-lived assets for any periods presented.
Deferred Initial Public Offering Costs
Deferred offering costs, which primarily consist of direct incremental legal and accounting fees relating to the IPO, are capitalized. The deferred offering costs will be offset against IPO proceeds upon the effectiveness of the IPO. In the event the IPO is terminated, deferred offering costs would be expensed. As of
September 30, 2017
, $
1.4 million
of deferred offering costs were capitalized in “
Other assets
” on the accompanying balance sheet. No deferred offering costs were capitalized and deferred as of
December 31, 2015
and
2016
.
Joint and Several Liability Assessment
The Company measures obligations resulting from joint and several liability arrangements as the sum of the amount that the Company has (i) agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amounts that the Company expects to pay on behalf of its co-obligors. The
determination of the “best estimate” from within the range of amounts that might be paid involves substantial judgment by the Company’s management. These estimates are subject to periodic revisions at each period as the joint and several liability is re-measured.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expenses include personnel and personnel-related costs; costs associated with pre-clinical and clinical development activities, costs associated with and costs for prototype products that are manufactured prior to market approval for that prototype product; internal and external costs associated with the Company’s regulatory compliance and quality assurance functions, including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings; overhead costs, including allocated facility related expenses. During the year ended December 31, 2015, $3.5 million of research and development expenses were reimbursed by
Teoxane Laboratories, SA (“Teoxane”)
, a related party as described in
Note 4,
Related Party Transaction
. There have been no further reimbursements of research and development expenses through
September 30, 2017
.
At each financial reporting date, the Company accrues and expenses the estimated costs of clinical trial activities performed by third parties, including clinical research organizations and other service providers, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company determines these estimates based upon a review of the agreements, data collected by internal and external personnel regarding the progress or stage of completion of trials or services. This progress or stage of completion of trials or services is monitored pursuant to contracts with clinical research organizations and other service providers. The agreed-upon fee to be paid for such services are based upon facts and circumstances known to the Company at each financial reporting date. If the actual performance of activities varies from the assumptions used in the estimates, the accruals are adjusted accordingly. There have been no material adjustments to the Company’s prior period accrued estimates for clinical trial activities through
December 31, 2016
and
September 30, 2017
.
Stock-Based Compensation
The Company has not granted stock-based compensation for the periods presented. However, the Company recognizes the fair value of the expense allocated to Evolus for all ALPHAEON stock-based grant arrangements with Evolus employees, including members of ALPHAEON’s board of directors.
Compensation cost related to the grant of ALPHAEON awards to the Company’s employees is recognized in the statements of convertible preferred stock and stockholder’s equity (deficit) as a capital contribution. The Company recorded stock-based compensation expense for the years ended December 31, 2015, 2016, and the
nine months ended September 30, 2017
of
$1.5 million
,
$1.0 million
and
$0.5 million
, respectively.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
Share-based compensation expense is allocated to the Company by ALPHAEON based upon the relative percentage of time utilized by ALPHAEON employees on Company matters.
The ALPHAEON common stock awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period.
E
stimates were used to
determine
the fair value of these awards, as they are not publicly traded. ALPHAEON common stock awards are subject to specified vesting schedules and requirements. The Company estimated the fair value of each ALPHAEON option on the date of grant using the Black-Scholes model.
Compensation expense is allocated to the Company over the required service period over which these ALPHAEON common stock awards and options would vest and is based upon the relative percentage of time utilized by ALPHAEON employees on Company matters.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company’s assets and liabilities and their financial statement reported amounts. Under this method, deferred tax assets and liabilities are determined on the basis of differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded against deferred tax assets, to reduce the net carrying value, by the Company when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.
Additionally, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement. Accordingly, the Company establishes reserves for uncertain tax positions. The Company has not recognized interest or penalties in its statement of operations and comprehensive loss.
Net Loss Per Share
Basic and diluted net income per common stock are presented in conformity with the two-class method required for participating securities. All dividends shall be declared pro rata on the common stock and preferred stock on a pari passu basis according to the number of shares of common stock held by such holders.
Under the two-class method, net income attributable to common stockholders is determined by allocating undistributed earnings between common stock and convertible Series A preferred stock. In computing diluted net income attributable to common stockholders, undistributed earnings are reallocated to reflect the potential impact of dilutive securities. Basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the period.
Recent Accounting Pronouncements
In January 2017,
the Financial Accounting Standards Board (the “FASB”),
issued
Accounting Standards Update (“ASU”),
No. 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
(“ASU 2017-04”)
. This standard simplifies the accounting for goodwill impairment by removing step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will be the amount by which a reporting unit's carrying amount, including goodwill, exceeds its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for us beginning January 1, 2022 (or January 1, 2020 should we cease to be classified as an EGC). The standard requires prospective application. Early adoption is permitted.
The Company is in the process of determining the effects the adoption will have on its financial statements as well as whether to early adopt the new guidance.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”)
, which clarifies when transactions should be accounted for as acquisitions (or disposals) of assets or business. ASU 2017-01 is effective for us beginning January 1, 2019. Early adoption is permitted for transactions not previously reported in issued financial statements. The Company has not yet determined the effect of the standard on our financial statements and related disclosures.
In August 2016, the FASB issued new guidance that clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance is effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those years. The Company does not believe the adoption of the standard will have a material impact on the Company’s statement of cash flow.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation Topic 718
(“ASU 2016-09”), which is intended to simplify several areas of accounting for share-based payment arrangements. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted this standard in the first quarter of 2017. The Company
had no excess tax benefits for which a benefit could not previously be recognized as of December 31, 2016.
Upon adoption, the balance of the unrecognized excess tax benefits is reversed with the impact recorded to (accumulated deficit) retained earnings, including any change to the valuation allowance as a result of the adoption. Due to the full valuation allowance on the U.S. deferred tax assets as of December 31, 2016, there was no impact to the financial statements as a result of this adoption in the first half of 2017.
In February 2016, the FASB issued final guidance for lease accounting. The new guidance requires lessees to put most leases on their balance sheet but to recognize expenses on their income statement in a manner similar to current accounting principles. The new guidance also eliminates the current real estate-specific provisions for all entities. The standard is effective for public companies for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. The Company is in the process of assessing the impact of the adoption of the standard on the Company’s financial statements.
In April 2015, the FASB issued ASU No. 2015-03,
Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the corresponding debt liability rather than as an asset. Management adopted this accounting pronouncement as of December 31, 2016. The adoption did not have a material effect on the financial statements.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”), which requires entities to present deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) as noncurrent in a classified balance sheet. The ASU simplified the previous guidance, which required entities to separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. The adoption of ASU 2015-17 is effective for publicly traded business entities for annual reporting periods beginning after December
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
15, 2016, including interim reporting periods within that reporting period. Early adoption is permitted. The Company elected to early-adopt this guidance and applied it retrospectively to periods presented in the financial statements.
The
adoption did not have a material impact on the accompanying financial statements.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on our present or future financial position, results of operations or cash flows.
Note 3. Goodwill and Intangible Asset
Goodwill and intangible assets were established as a result of the application of push-down accounting in connection with the acquisition by SCH in October 2013, as described in
Note 2 - Summary of Significant Accounting Policies
. The excess of the purchase price of $56.3 million over the fair value of net assets acquired was recognized as goodwill. Goodwill recognized in connection with the acquisition is not deductible for tax purposes. The net assets acquired comprised solely of in-process research and development (“IPR&D”) valued at $56.1 million and a deferred tax liability of $20.9 million, which represented the difference between the book and tax basis related to the IPR&D asset. Goodwill of $21.2 million was recognized based on the excess of consideration transferred over the net assets acquired. As of December 31, 2016 and 2015 and as of September 30, 2017, the carrying value of the IPR&D in the accompanying balance sheets was $56.1 million.
The IPR&D asset related to the development of the Product was in clinical trials in the United States as of the acquisition date.
The estimated fair value of the IPR&D asset on the acquisition date was determined
using a discounted cash flow model using an income approach (Multiple-period excess earnings method). Significant assumptions used in the valuation included projected future cash flows, projected costs, a weighted average cost of capital and appropriate discount rates.
The IPR&D recognized represents the license and associated distribution rights to develop the Product and the ability to pursue new indications and is subject to the success of clinical studies.
As part of the transaction, SCH agreed to pay an aggregate of $13.5 million in additional cash consideration to Daewoong based upon Evolus’ successful completion of certain technical and sales milestones. The fair value of the milestones was recorded by the Company as an element of the acquired IPR&D at the acquisition date.
The IPR&D asset is classified as an indefinite-lived intangible asset until the successful completion and commercialization or abandonment of the associated research and development efforts
.
Note 4
.
Related Party Transactions
Services with ALPHAEON
Since
becoming a wholly-owned subsidiary of ALPHAEON
in 2014, the Company has funded its operations primarily through contributions and related party borrowings from ALPHAEON.
ALPHAEON provides Evolus certain services, including, without limitation, research and development, general and administrative support services and support services. ALPHAEON has allocated a certain percentage of personnel to perform the services that it provides to the Company based on its good faith estimate of the required services. Evolus pays ALPHAEON for these allocated costs, which reflect the ALPHAEON full-time equivalent (“FTE”), rate for the applicable personnel, plus out-of-pocket expenses such as occupancy costs associated with the FTEs allocated to providing Evolus these services. Evolus does not pay a mark-up or profit on the external or internal expenses ALPHAEON allocates to it. All research and development, general and administrative, and other support services expenses shown in the Company's financial statements for 2015 and 2016, and the
nine months ended September 30, 2016
and
2017
, excluding stock-based compensation which is treated as a capital contribution, were treated as related party borrowings from ALPHAEON.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
In addition, as long as ALPHAEON continues to consolidate Evolus’ financial statements, Evolus will comply with ALPHAEON's policies and procedures and internal controls. As long as Evolus is consolidated into ALPHAEON's financial statements under GAAP, Evolus will continue to obtain these services from ALPHAEON.
As of December 31, 2015
and
2016
and
September 30, 2017
, Evolus owed ALPHAEON
$46.2 million
,
$59.8 million
and
$72.0 million
, respectively.
The following table summarizes the amounts included in Evolus’ general and administrative expenses that were generated by transactions with ALPHAEON for the following periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
2015
|
|
2016
|
|
2016
|
|
2017
|
Compensation & Benefits
|
$
|
2,009
|
|
|
$
|
2,052
|
|
|
$
|
1,696
|
|
|
$
|
806
|
|
Third party service fees
|
5,492
|
|
|
3,703
|
|
|
3,665
|
|
|
538
|
|
Stock-based compensation
|
1,219
|
|
|
740
|
|
|
443
|
|
|
447
|
|
Office related expenses
|
852
|
|
|
510
|
|
|
300
|
|
|
958
|
|
Other
|
727
|
|
|
354
|
|
|
231
|
|
|
307
|
|
|
$
|
10,299
|
|
|
$
|
7,359
|
|
|
$
|
6,335
|
|
|
$
|
3,056
|
|
Teoxane Agreement
In April 2014, ALPHAEON and Evolus entered into an agreement with Teoxane, SA (“Teoxane”), for the rights of its license, distribution and development of DWP-450 in the European Union.
During the year ended December 31, 2015, $3.5 million of Evolus research and development expenses was reimbursed by Teoxane. There have been no further reimbursements of research and development expenses through
September 30, 2017
. Teoxane’s Chief Executive Officer was a member of ALPHAEON’s board of directors from January 2014 through July 2016.
Evolus Contributors
Certain of the Evolus contributors, from whom SCH purchased its equity interests include individuals employed by the Company in operational roles, including J. Christopher Marmo, Ph.D., the Company’s Chief Operating Officer.
Note Obligation
In 2016, ALPHAEON entered into two separate debt transactions: (i) a convertible note with one of its shareholders, also a related party (the “Bridge Note”) with a principal amount of $2.5 million and (ii) a Secured Convertible Note Purchase Agreement (the “Purchase Agreement”) pursuant to which ALPHAEON could issue up to an aggregate of $55.0 million (“Note Facility” and together with the Bridge Note, the “Notes”). As of December 31, 2016, the principal drawn on the Notes was $24.0 million. The Notes have substantially similar terms and accrue simple interest at a rate of ten percent (10%) per annum, subject to adjustment pursuant to terms of the Notes. The Notes may be paid at a redemption price equal to 2.5 times the face amount of the Note less any prepayment of principal and any principal amount of the Notes that may convert into shares of ALPHAEON on (i) maturity in December 2018, (ii) a required prepayment event, or (iii) prepayment at any time at ALPHAEON’s election. Upon the occurrence of certain corporate events at ALPHAEON, at the election of the holder, the Notes will convert into a variable number of shares of ALPHAEON with an aggregate fair value equaling the principal value of the Notes or such Notes will continue to maturity as unsecured promissory notes with a reduced interest rate.
ALPHAEON’s obligations under the Notes are secured by a first priority lien and security interest in substantially all of ALPHAEON’s assets, including all of the shares of the Company’s capital stock held by ALPHAEON, which
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
as of December 31, 2016 represented all of our outstanding capital stock, as collateral for the holders of the Notes.
In April 2017, ALPHAEON amended and restated the Purchase Agreement (the “Amended and Restated Secured Note Purchase Agreement”) with the Note holders to amend and restate the terms of the Purchase Agreement and the outstanding Notes and form of Notes to be issued. In addition, the Purchase Agreement was amended and restated to, among other things, set forth the terms for the issuance of up to an additional $30.0 million in principal amount of Notes. Concurrent with the Amended and Restated Secured Note Purchase Agreement, the Company also executed two substantially similar guaranty and security agreements (the “Guaranty Agreements”), with the holders of the Notes. Pursuant to the Guaranty Agreements, the Company absolutely, unconditionally and irrevocably guaranteed, as primary obligor and not merely as surety, the full and punctual payment when due, whether at stated maturity or earlier, by reason of acceleration all the obligations of the Notes. In addition, pursuant to the Guaranty Agreements, the Company agreed to a first priority lien and security interest in and to all its right, title and interest in the assets of the Company. As a result of executing the Guaranty Agreements, there is no requirement that the holders of the Notes first seek payment from ALPHAEON. Instead, they may demand payment from the Company, from ALPHAEON or from both simultaneously.
The Amended and Restated Secured Note Purchase Agreement and Guaranty Agreements stipulate that any payment by the Company under their terms shall result in a dollar-for-dollar offset and reduction in the amount of intercompany loans owed by the Company to ALPHAEON. The Guaranty Agreements will terminate upon the earlier of (i) the date on which all secured obligations under the Guaranty Agreements have been paid and performed in full and (ii) the date on which the entire outstanding principal amount of the Notes has been either converted into equity or unsecured notes pursuant to the terms of the Notes.
Concurrent with the execution of the Guaranty Agreements with the holders of the Notes in April 2017, the Company jointly and severally agreed to pay the redemption amount of 2.5 times the principal amount of the Notes upon maturity if not paid by ALPHAEON. As a co-obligor to these Notes, the Company applied the accounting guidance provided in ASC 405-40,
Obligations Resulting from Joint and Several Liability Arrangements
. This guidance requires companies to measure obligations resulting from joint and several liability arrangements as the sum of the amount that the entity has (a) agreed to pay on the basis of its arrangement with its co-obligors and (b) any additional amount that the entity expects to pay on behalf of its co-obligors.
The Company initially recorded a liability and corresponding deemed distribution to its parent as a reduction to additional paid-in-capital in equity as of April 2017 to reflect the joint and several liability. These amounts were
subsequently adjusted to reflect changes in the Note obligation.
As the Company and ALPHAEON had not agreed to what portion of this joint and several liability each would pay, the Company developed a range of amounts that it expects to pay under the Guaranty Agreement and selected the amount from within that range that it determined to be the best estimate, which equaled
$134.9 million
as of
September 30, 2017
(2.5 times the outstanding principal amount of the Notes as of that date), representing the total principal amount due to the Note holders upon redemption of the Notes at maturity. As provided for within the Amended and Restated Secured Note Purchase Agreement and Guaranty Agreements, in conjunction with its recognition of the joint and several liability, the Company also recorded a receivable from ALPHAEON, which equals the current balance of the amounts it owes to ALPHAEON under its intercompany borrowing arrangements. No amounts have been paid under this joint and several liability by the Company in the
nine months ended September 30, 2017
. As of
September 30, 2017
, the liability recorded by the Company to the Note holders pursuant to the above joint and several liability was
$134.9 million
(2.5 times the outstanding principal amount of the Notes as of that date) and the related party receivable was
$72.0 million
, representing the amount by which related party borrowings could be reduced purs
uant to the terms of the Amended and Restated Secured Convertible Note Purchase Agreement and Guaranty Agreements. The difference between the amount of the joint and several liability and the related party receivable of
$62.9 million
was recorded as a deemed distribution to ALPHAEON, in stockholder’s deficit as a charge to additional paid-in capital in the period the transaction with the related party was made. Amounts in excess of additional paid-in capital were recorded into accumulated deficit.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
Note 5
.
Commitments and Contingencies
Operating Leases
The Company leases its Santa Barbara, California office under an operating lease. The office lease is with a third-party vendor under a non-cancelable operating lease. The office lease includes rent escalation clauses which are recorded on straight-line basis with t
he difference between the rent expense accounted for over the term of the lease and actual amounts paid
.
Rental
expense for the years ended
December 31, 2015
,
2016
and the
nine months ended September 30, 2017
was
$0.2 million
,
$0.2 million
and
$0.1 million
, respectively.
Future minimum payments under operating lease agreements with non-cancelable terms greater than one year as follows (in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
2017
|
$
|
165
|
|
2018
|
170
|
|
2019
|
175
|
|
2020
|
74
|
|
|
$
|
584
|
|
FDA Milestone Payments
In connection with a license and supply agreement, as described in detail below, the Company is obligated to make future milestone payments for certain confidential development and commercial milestones associated with the Product.
License and Supply Agreement
In October 2013, Evolus entered into a license and supply agreement with Daewoong. Pursuant to the license and supply agreement (“Daewoong Agreement”), the Company has an exclusive distribution license to the Product from Daewoong for aesthetic indications in the United States, European Union, Canada, Australia, Russia, Commonwealth of Independent States, and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan. The Company also has an option to exercise a similar license in these territories for therapeutic indications by the end of 2018. The Product will be manufactured by Daewoong in a recently constructed facility in South Korea that is designed with the intention of complying with FDA and the European Medicines Agency’s current Good Manufacturing Practice requirements. The Company also has the option to negotiate first with Daewoong to secure a distribution license for any product that Daewoong directly or indirectly develops or commercializes that is classified as an injectable botulinum toxin (other than the Product), in a territory covered by the Daewoong Agreement.
The Daewoong Agreement also includes
certain minimum annual purchases the Company is required to make in order to maintain the exclusivity of the license.
The Company may, however, meet these minimum purchase obligations by achieving certain market share in its covered territories. T
hese potential minimum purchase obligations are contingent upon the occurrence of future events, including receipt of governmental approvals and the Company’s future market share in various jurisdictions.
Legal Proceedings
The Company, from time to time, is involved in various litigation matters or regulatory encounters arising in the ordinary course of business that could result in unasserted or asserted claims or litigation. The Company is not subject to any currently pending legal matters or claims that would have a material adverse effect on its accompanying financial position, results of operations or cash flows.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. No amounts were accrued as of
December 31, 2015
,
2016
and
September 30, 2017
.
Medytox Litigation
The Company, ALPHAEON, SCH and Daewoong are defendants to a lawsuit brought by Medytox, Inc. (“Medytox”) alleging, among other things,
that Daewoong stole Medytox’s botulinum toxin bacterial strain, that Daewoong misappropriated certain trade secrets of Medytox, including the process used to manufacture the Product. The Company intends to vigorously defend Medytox’s claims. Given the early stage in the Medytox litigation, the Company is unable to determine the likelihood of success of Medytox’s claims against the Company, and
an estimate of the possible loss or range of loss cannot be made
. While the Company is entitled to indemnity under the Daewoong Agreement, the indemnity may not be sufficient.
Further, the probable outcome of this litigation cannot be determined, nor can the Company estimate any possible range of potential loss at this time.
Indemnification
In accordance with the Company’s amended and restated certificate of incorporation and amended and restated bylaws,
as they will be in effect upon completion of this offering,
the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date and the Company has a director and officer insurance policy that may enable it to recover a portion of any amounts paid for future claims.
Note 6. Income Taxes
The Company’s loss before income taxes generated from its operations were (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2015
|
|
2016
|
Loss before income taxes:
|
|
|
|
United States
|
$
|
(31,019
|
)
|
|
$
|
(19,972
|
)
|
Total loss before taxes
|
$
|
(31,019
|
)
|
|
$
|
(19,972
|
)
|
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2015
|
|
2016
|
Current provision:
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
—
|
|
State
|
—
|
|
|
—
|
|
Total current provision
|
—
|
|
|
—
|
|
Deferred provision:
|
|
|
|
Federal
|
72
|
|
|
72
|
|
State
|
21
|
|
|
21
|
|
Total deferred provision
|
93
|
|
|
93
|
|
Total provision for income taxes
|
$
|
93
|
|
|
$
|
93
|
|
As of December 31, 2015
and
2016
, the Company has federal NOL carryforwards of $
44.1 million
and $
63.7 million
respectively, which will begin to expire in year 2034.
As of December 31, 2015
and
2016
, the Company has stated NOL carryforwards of $44.0 million and $
63.7 million
, respectively, which will begin to expire in year 2034. NOL carryforwards generated by the Company have been included in the consolidated and unitary income tax returns of ALPHAEON.
As of December 31, 2015
and
2016
, the Company has federal research and development (“R&D”) credit carryforwards of $0.6 million and $0.9 millions, respectively, which will begin to expire in 2034. The Company also has California R&D credit carryforwards of $0.6 million and $0.9 million, respectively, which has an indefinite carryforward period. Deferred tax assets in the accompanying financial statements are presented as if the Company filed separate income tax returns. Accordingly, the NOL and credit carryforwards allocable to the Company based on ALPHAEON’s consolidated and unitary income tax returns may ultimately differ from those presented in the financial statements on a separate return methodology.
The deferred expense for the
years ended December 31,
2015
and
2016
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2015
|
|
2016
|
Deferred:
|
|
|
|
U.S. Federal
|
$
|
72
|
|
|
$
|
72
|
|
U.S. State
|
21
|
|
|
21
|
|
Total deferred provision
|
$
|
93
|
|
|
$
|
93
|
|
In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership of certain significant stockholders over a three-year period (a “Section 382 ownership change”), utilization of its pre-change NOL carryforwards and the R&D credit carryforwards is subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code and similar state laws. The annual limitation generally is determined by multiplying the value of the Company’s stock at the time of such ownership change, subject to certain adjustments, by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards and R&D credit carryforwards before utilization and may be substantial. As of December 31, 2016, the Company has not determined if ownership change has occurred which would limit the Company’s utilization of its NOL carryovers and R&D credit carryforwards.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
The components of deferred tax assets and liabilities were as follows
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2015
|
|
2016
|
Deferred income tax assets
|
|
|
|
Net operating losses
|
$
|
18,871
|
|
|
$
|
27,291
|
|
Accrued compensation
|
176
|
|
|
—
|
|
Stock compensation
|
724
|
|
|
593
|
|
Research and development credit carryforwards
|
1,257
|
|
|
1,812
|
|
Deferred rent
|
20
|
|
|
19
|
|
Intangible asset
|
6
|
|
|
5
|
|
Valuation allowance
|
(21,054
|
)
|
|
(29,720
|
)
|
Total deferred income tax assets
|
—
|
|
|
—
|
|
Deferred income tax liabilities:
|
|
|
|
Intangible amortization
|
(21,152
|
)
|
|
(21,245
|
)
|
Total deferred income tax liabilities
|
(21,152
|
)
|
|
(21,245
|
)
|
Net deferred income taxes
|
$
|
(21,152
|
)
|
|
$
|
(21,245
|
)
|
The Company recorded deferred tax assets of $
21.1 million
and $
29.7 million
as of
December 31, 2015
and
2016
, respectively, which have been fully offset by a valuation allowance. The valuation allowance
increased
by
$8.7 million
and
$14.1 million
, during
2016
and
2015
, respectively. The increase in the valuation allowance in
2016
and
2015
was due to an increase in net operating loss carryforwards from operating losses and stock-based compensation.
A reconciliation of the difference between the benefit for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows for the
years ended December 31,
2015
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2015
|
|
2016
|
Income tax at statutory rate
|
$
|
(10,546
|
)
|
|
$
|
(6,790
|
)
|
State income taxes, net of Federal benefit
|
14
|
|
|
14
|
|
Research and development tax credit
|
(440
|
)
|
|
(270
|
)
|
Stock compensation
|
163
|
|
|
429
|
|
Meals and entertainment
|
12
|
|
|
2
|
|
Valuation allowance
|
10,890
|
|
|
6,708
|
|
Income tax provision
|
$
|
93
|
|
|
$
|
93
|
|
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
The tax-effected amount that would reduce the Company’s effective income tax rate if recognized is $0.0 million. Additional amounts in the summary rollforward could impact the Company’s effective tax rate if it did not maintain a full valuation allowance on its net deferred tax assets. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2015
|
|
2016
|
Beginning balance
|
$
|
354
|
|
|
$
|
1,257
|
|
Increases to prior year tax positions
|
—
|
|
|
—
|
|
Increases to current year tax positions
|
903
|
|
|
555
|
|
Ending balance
|
$
|
1,257
|
|
|
$
|
1,812
|
|
The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There was no accrued interest and penalties associated with uncertain tax positions as of
December 31, 2015
and
2016
. The Company’s tax returns for all years since inception are open for audit.
Note 7. Stockholder’s Equity (Deficit)
Convertible Series A Preferred Stock
At
December 31, 2015
and
2016
, and
September 30, 2017
, the Company had 2,500,000 shares of
convertible Series A preferred stock
authorized, of which
1,250,000
were issued or outstanding.
The holder of
convertible Series A preferred stock
has the following rights and preferences for all periods presented:
Dividends
. The holder of
convertible Series A preferred stock
is entitled to receive dividends out of any assets legally available only when, as, and if declared by the Company’s board of directors, prior to and in preference to any declaration or payment of any dividend on the common stock. Such dividends are noncumulative. The dividend rate for the convertible Series A preferred stock per share per annum is $0.032. To date, the Company’s board of directors has not declared any dividends.
Conversion
. Each share of Series A preferred stock is convertible, at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder, into fully paid and nonassessable shares of the Company’s common stock. Conversion of all shares of
convertible Series A preferred stock
is automatic upon (i) the closing of a public offering of common stock with gross cash proceeds of at least $15.0 million; or (ii) affirmative election of at least a majority of the shares of preferred stock outstanding.
The number of shares of common stock to which a preferred stockholder is entitled is the product obtained by multiplying the convertible preferred stock conversion rate by the number of shares of preferred stock being converted, subject to adjustments as provided in the Amended and Restated Certificate of Incorporation. As of December 31, 2015 and 2016, all shares of
convertible Series A preferred stock
were convertible into common stock on a one-for-one basis.
The
convertible Series A preferred stock
conversion rates are subject to adjustment in accordance with the Amended and Restated Certificate of Incorporation. Adjustments include any future stock splits or stock combinations, reclassifications or exchanges of similar shares, or upon a reorganization, merger or consolidation of the Company. In addition, the
convertible Series A preferred stock
is subject to adjustment upon a future equity issuance at a price per share below the stated conversion price for the
convertible Series A preferred stock
, subject to certain exceptions in the Amended and Restated Certificate of Incorporation.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
Redemption
.
The
convertible Series A preferred stock
is not mandatorily redeemable, as it does not have a set redemption date or a date after which the shares may be redeemed by the holders of the
convertible Series A preferred stock
. The Company has classified the
convertible Series A preferred stock
as permanent equity on the balance sheet as the conditions to their redemption are entirely within control of the Company. The convertible Series A preferred stock shares are only redeemable after the occurrence of certain deemed liquidation events, including a liquidation of the Company, the sale, license or transfer of substantially all of the assets of the Company or certain mergers of the Company, and each of these events are entirely within the control of the Company.
Voting and protective provisions
. The holder of
convertible Series A preferred stock
is entitled to the number of votes equal to the number of shares of common stock into which each share of preferred stock is convertible as of the record date for the vote and votes together as one class with the common stock.
As long as any shares of
convertible Series A preferred stock
remain outstanding, the holder of
convertible Series A preferred stock
and the holders of common stock, voting together as a single class, will be allowed to elect three directors of the Company.
As long as any shares of
convertible Series A preferred stock
are outstanding, the Company is required to obtain approval by a majority of the holders of the
convertible Series A preferred stock
prior to such actions as a liquidation event, amendment to the underlying certificate of incorporation, declaration of a dividend, issuance of any equity security with preference above or parity to the existing preferred stock and other matters.
Liquidation preferences.
In the event of a liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily, and upon certain other defined events, the holder of
convertible Series A preferred stock
is also entitled to receive a liquidation preference in amounts per share equal to the original issue price plus the amount of any declared and unpaid dividends on such shares of
convertible Series A preferred stock
. Liquidation preferences are made in preference to any payments to the holders of common stock. If the funds or assets from the liquidation event are insufficient to pay the holder of
convertible Series A preferred stock
its full liquidation preference, then all the funds or assets would be distributed to the holder of
convertible Series A preferred stock
, or among the holders of
convertible Series A preferred stock
on a pro rata, pari passu basis, according to the liquidation preference, if there is more than one holder of
convertible Series A preferred stock
. If there are funds remaining after the payment of the liquidation preference to the holder or holders of the
convertible Series A preferred stock
, as the case may be, then all remaining funds shall be distributed to the holders of the common stock, pro rata based on the number of shares held by each such holder.
Common Stock
At
December 31, 2015
and
2016
, and
September 30, 2017
, the Company had 20,000,000 shares of common stock authorized, of which
10,000,000
were issued or outstanding.
Stock-Based Compensation Allocated to the Company
The Company has not granted stock-based compensation for the periods presented. However, t
he Company recognizes t
he fair value of the expense allocated to Evolus
for all ALPHAEON stock-based grant arrangements with Evolus employees, including members of ALPHAEON’s board of directors.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
The following table summarizes stock-based compensation expense (in thousands) which was allocated to Evolus by ALPHAEON:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
2015
|
|
2016
|
|
2016
|
|
2017
|
General and administrative
|
$
|
1,219
|
|
|
$
|
740
|
|
|
$
|
443
|
|
|
$
|
447
|
|
Research and development
|
294
|
|
|
217
|
|
|
201
|
|
|
25
|
|
|
$
|
1,513
|
|
|
$
|
957
|
|
|
$
|
644
|
|
|
$
|
472
|
|
Deemed Distribution
On April 19, 2017 and as a result of
the Guaranty Agreement, as described in Note 4,
Related Party Transaction
,
the Company recorded a non-cash deemed distribution to ALPHAEON. As of September 30, 2017,
t
he difference between the amount of the joint and several liability and the related party receivable of
$62.9 million
was recorded as a deemed distribution to ALPHAEON, in stockholder’s deficit as a charge to additional paid-in capital in the period the transaction with the related party was made. Amounts in excess of additional paid-in capital were recorded into accumulated deficit.
As ALPHAEON is the sole stockholder of the Company, there were no earnings per share adjustments considered necessary.
Note 8. Subsequent Events
The Company has evaluated subsequent events through January 8, 2018. After review and evaluation, management has concluded that there were no material subsequent events as of the date that the financial statements were available to be issued, other than as noted below.
Convertible Promissory Note
In July 2017, ALPHAEON issued an additional $5.0 million of convertible promissory notes under the
Amended and Restated Secured Note Purchase Agreement
. As a result of this additional issuance, the total note obligations under all the Notes increased to $134.9 million (2.5 times the total outstanding principal amount of the Notes).
In December
, 2017, ALPHAEON entered into an amendment to the
Amended and Restated Secured Note Purchase Agreement (the “Amendment”)
in order to permit ALPHAEON to issue an additional $3.3 million of convertible promissory notes. Since December 14, 2017, ALPHAEON has issued an additional $1.5 million of convertible promissory notes, including a convertible promissory note to Murthy Simhambhatla, Ph.D., the Company’s Chief Executive Officer and director, in the principal amount of $45,455.
As a result of this additional issuance, the total note obligations under all the Notes increased to $138.7 million (2.5 times the total outstanding principal amount of the Notes).
Under the Amendment, Mr. Simhambhatla and certain other purchasers are required to lend ALPHAEON funds in exchange for convertible promissory notes up to an aggregate of $1.8 million upon ALPHAEON’s request. Mr. Simhambhatla is required to fund up to an additional of $54,545 upon such request.
Contingent Obligation
On December 14, 2017, SCH and ALPHAEON entered into an amendment to a stock purchase agreement originally entered into in October 2013 (the “Amended Purchase Agreement”), and the Company joined as a contractual party. Pursuant to the Amended Purchase Agreement, ALPHAEON’s existing payment obligations set forth in the October 2013 stock purchase agreement have been replaced with revised payment obligations, which will be
payable directly to the Evolus contributors. The Amended Purchase Agreement provides that, upon the
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
closing of this offering, ALPHAEON will immediately and automatically assign to the Company their payment obligations under the Amended Purchase Agreement.
Pursuant to the Amended Purchase Agreement, the Company issued a promissory note to J. Christopher Marmo, as representative of the Evolus Contributors, that will mature 2.5 years after the anniversary of the first commercial sale of DWP-450 in the United States.
Note Obligation
On December 14 2017, the Company and ALPHAEON entered into amendments with each of Longitude, as the holder of the convertible bridge note, and DI, as collateral agent for the holders of the convertible promissory notes, releasing the Company guaranty of the Notes and the security interest in Evolus’ assets and terminating the Evolus security agreements effective upon consummation of this offering.
Exclusive Distribution and Supply Agreement with Clarion Medical Technologies Inc.
On November 30, 2017, the Company entered into an exclusive distribution and supply agreement, or the distribution agreement, with Clarion Medical Technologies Inc., or Clarion. The distribution agreement provides for the terms pursuant to which the Company will exclusively supply DWP-450 to Clarion in Canada, if approved. Clarion was previously a wholly-owned subsidiary of ALPHAEON. However, pursuant to previous agreements among ALPHAEON, Clarion, and previous equity holders of Clarion, the previous equity holders of Clarion have the option, and have exercised such option, to unwind ALPHAEON’s acquisition of Clarion. As a result, ALPHAEON owes the equity holders of Clarion an unwinding fee of $9.6 million or the unwinding fee. We have agreed to pay the unwinding fee, on behalf of ALPHAEON, through our entry into the distribution agreement. The distribution agreement sets forth that a portion of the proceeds received from each unit of DWP-450 purchased by Clarion shall be paid directly to the previous equity holders of Clarion, and will reduce, on a dollar-for-dollar basis, the amount of the unwinding fee ALPHAEON owes, until the unwinding fee is paid in full.
Under the distribution agreement, if the Company does not receive approval from Health Canada to promote and sell DWP-450 in Canada prior to October 31, 2018, the Company will pay liquidated damages to Clarion in the amount of $1.0 million within 30 days of December 31, 2018, which damages will not reduce the unwinding fee.
In addition, ALPHAEON has guaranteed the payment of the unwinding fee. As a result, ALPHAEON has an indirect material interest in the distribution agreement with Clarion.
Therapeutic Option Letter Agreement
On December 18, 2017, the Company entered into a therapeutic option letter agreement with ALPHAEON relating to certain rights to the therapeutic indications of DWP-450 under the Daewoong Agreement. The Company may exercise the therapeutic option for a confidential exercise price upon thirty days notice to Daewoong. The therapeutic option expires December 31, 2018.
2017 Omnibus Incentive Plan
On November 21, 2017, t
he board of directors and the sole stockholder of the Company approved the Company's 2017 Omnibus Incentive Plan. The plan provides for the grant of incentive options to employees of the Company, and for the grant of nonstatutory options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to the Company's employees, including officers, directors, consultants and employees of Evolus. The maximum number of common shares that may be issued under the plan is 2,638,889 shares.
On January 6, 2018, pursuant to the 2017 plan, the Company granted to certain of its employees and non-employee directors 1,061,446
options to purchase shares of its common stock with an exercise price of $16.49 per share.
Evolus, Inc.
Notes to Financial Statements
(Information as of September 30, 2017 and thereafter and for the nine months ended September 30, 2016 and 2017 is unaudited)
In addition, on January 6, 2018, pursuant to the 2017 plan, the Company granted restricted stock units for 139,480 shares of its common stock with a per share fair value of $16.49.
Stock-based compensation expense will be recognized over the vesting period.
Citizen Petition
In December 2017, Medytox filed a Citizen Petition (the “Citizen Petition”), with the FDA. The Citizen Petition seeks to delay approval of the Biologics License Application submitted by the Company to the FDA in May 2017 for DWP-450 until the FDA determines the identity and source of the botulinum strain for DWP-450 and validates the integrity of the data and information in the Biologics License Application. Medytox further requests that the FDA require the source and identity information in the Biologics License Application to include a single nucleotide polymorphism analysis of the whole genome sequence of the botulinum strain for DWP-450.
Shares
Evolus, Inc.
Common Stock
____________________________________
PRELIMINARY PROSPECTUS
____________________________________
|
|
|
Cantor
|
Mizuho Securities
|
SunTrust Robinson Humphrey
|
JMP Securities
|
, 2018
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection with the offering described in this registration statement, other than underwriting discounts and commissions, all of which will be paid by us. All amounts are estimated except the Securities and Exchange Commission registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and the Nasdaq Global Market listing fee.
|
|
|
|
Amount to be paid
|
SEC registration fee
|
$9,337.50
|
FINRA filing fee
|
*
|
The Nasdaq Global Market listing fee
|
*
|
Blue sky qualification fees and expenses
|
*
|
Printing and engraving expenses
|
*
|
Legal fees and expenses
|
*
|
Accounting fees and expenses
|
*
|
Transfer agent and registrar fees and expenses
|
*
|
Miscellaneous expenses
|
*
|
Total
|
*
|
_____________
|
|
*
|
To be provided by amendment.
|
Item 14. Indemnification of Directors and Officers.
We are incorporated under the laws of the State of Delaware. Section 145 of the DGCL provides that a Delaware corporation may indemnify any persons who were, are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation or enterprise. Except in the case of an action by or in the right of the corporation (
i.e.
, a derivative action), the indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. With respect to an action by or in the right of the corporation, the indemnity may only include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests except that no indemnification is permitted without judicial approval if such person is adjudged to be liable,
unless the Delaware Court of Chancery, or the court in which such action or suit was brought, determines that despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity for such expenses.
Where a present or former officer or director is successful on the merits or otherwise in the defense of any action, suit or proceeding referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) by him or her in connection therewith.
Our amended and restated certificate of incorporation and amended and restated bylaws, each of which will become effective upon the completion of this offering, will provide for the indemnification of our directors and officers to the fullest extent permitted under the DGCL.
Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:
|
|
•
|
transaction from which the director derives an improper personal benefit;
|
|
|
•
|
act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
|
|
|
•
|
willful or negligent violations of Delaware law governing the authorizations of dividends, stock repurchases, and redemptions, as provided in Section 174 of the DGCL; or
|
|
|
•
|
breach of a director’s duty of loyalty to the corporation or its stockholders.
|
Our amended and restated certificate of incorporation will include such a provision. Expenses incurred by any of our officers or directors in defending any such action, suit or proceeding in advance of its final disposition shall be paid by us upon delivery to us of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by us.
Section 174 of DGCL provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of such action.
We have entered into or intend to enter into separate indemnification agreements with our directors and officers. These indemnification agreements may require us, among other things, to indemnify our directors and officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by such director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or as a director, officer,
employee or agent
of any of our subsidiaries or any other company or enterprise to which the person provides services at our request.
Except as otherwise disclosed under the heading “Legal Proceedings” in the “Business” section of this registration statement, there is at present no pending or proceeding involving any of our directors or officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
We maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers and we intend to maintain such insurance coverage.
In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
The following sets forth information regarding all unregistered securities sold since January 1, 2015:
|
|
1.
|
On January 6, 2018,
we issued to
certain of our directors, officers and employees
an aggregate of 139,480 restricted stock units to be settled in shares of our common stock under our
2017 Omnibus Incentive Plan
, or the 2017 plan.
|
|
|
2.
|
On January 6, 2018, we granted to certain of our directors, officers, and employees options to purchase an aggregate of 1,061,446 shares of common stock with a per share exercise price of $16.49 under the 2017 plan.
|
The offers, sales and issuances of securities listed above were deemed exempt from registration in reliance on Section 4(a)(2) of the Securities Act or Rule 701
promulgated under Section 3(b) of the Securities Act
as
transactions by an issuer not involving any public offering or
transactions pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of such securities were our employees, directors or bona fide consultants and received the securities under the 2017 plan.
All of the foregoing securities are deemed restricted securities for purposes of the Securities Act and appropriate legends were affixed to the securities issued in such transactions.
Item 16. Exhibits and Financial Statement Schedules.
See the Exhibit Index attached to this registration statement, which is incorporated by reference herein.
|
|
(b)
|
Financial Statement Schedules.
|
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned hereby undertakes that:
|
|
i.
|
For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
|
|
|
ii.
|
For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
EXHIBIT INDEX
|
|
|
|
Exhibit Number
|
|
Exhibit Title
|
1.1*
|
|
Form of Underwriting Agreement.
|
|
|
Contribution Agreement, dated as of October 3, 2013, by and among Strathspey Crown Holdings, LLC, the Registrant, the Shareholders of the Registrant, and J. Christopher Marmo, as the Shareholders’ Representative, as amended on September 22, 2014, November 3, 2015, February 15, 2016 and April 14, 2016.
|
|
|
|
|
|
|
3.3*
|
|
Form of Amended and Restated Certificate of Incorporation, to be effective in connection with the completion of this offering.
|
|
|
|
|
|
|
3.6*
|
|
Form of Amended and Restated Bylaws, to be effective in connection with the completion of this offering.
|
4.1*
|
|
Specimen certificate evidencing shares of common stock of the Registrant.
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5.1*
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Opinion of K&L Gates LLP.
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10.11+*
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Form of Indemnification Agreement by and between the Registrant and its directors and officers.
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10.12*
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Form of Services Agreement by and between ALPHAEON Corporation and the Registrant.
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23.2*
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Consent of K&L Gates LLP (included in Exhibit 5.1).
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_____________
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*
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To be filed by amendment.
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+
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Indicates management contract or compensatory plan.
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†
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The Registrant has sought confidential treatment with respect to certain omitted portions of this exhibit.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, State of California, on the 9th day of January, 2018.
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EVOLUS, INC.
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By:
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/s/ Murthy Simhambhatla, Ph.D.
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Murthy Simhambhatla, Ph.D.
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Chief Executive Officer
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POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Murthy Simhambhatla, Ph.D. as his or her true and lawful attorney-in-fact and agent, with the full power of substitution, for him or her and in his or her name, place or stead, in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments), and to sign any registration statement for the same offering covered by this registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Murthy Simhambhatla, Ph.D.
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Chief Executive Officer and
Member of the Board of Directors
(Principal Executive Officer and Principal Financial Officer)
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January 9, 2018
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Murthy Simhambhatla, Ph.D.
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/s/ Vikram Malik
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Director
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January 9, 2018
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Vikram Malik
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/s/ Simone Blank
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Director
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January 9, 2018
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Simone Blank
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/s/ Bosun Hau
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Director
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January 9, 2018
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Bosun Hau
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/s/ Kristine Romine, M.D.
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Director
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January 9, 2018
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Kristine Romine, M.D.
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/s/ Robert Hayman
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Director
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January 9, 2018
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Robert Hayman
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CONTRIBUTION AGREEMENT
dated as of October 3, 2013
by and among
STRATHSPEY CROWN HOLDINGS, LLC
EVOLUS, INC.
THE SHAREHOLDERS OF EVOLUS, INC.
AND
J. CHRISTOPHER MARMO, AS THE CONTRIBUTORS’ REPRESENTATIVE
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
TABLE OF CONTENTS
i
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
ii
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
iii
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
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EXHIBITS
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Exhibit A
|
Parent LLC Agreement
|
Exhibit B
|
Alphaeon Stock Purchase Agreement
|
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The following schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K promulgated by the Securities and Exchange Commission (the “SEC”). Evolus, Inc. agrees to furnish supplementally a copy of any omitted schedules to the SEC upon request.
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Schedule 1.1
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Key Personnel
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Schedule 2.1
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Contributors; Shares; Parent Units
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Schedule 2.2
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Development Budget
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Schedule 2.4
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Directors
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Schedule 3.8
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Absence of Certain Changes
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Schedule 3.9, Part (a)
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Properties
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Schedule 3.9, Part (b)
|
Properties
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Schedule 3.9, Part (c)
|
Properties
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Schedule 3.10
|
Litigation
|
Schedule 3.11, Part (b)
|
Material Contracts
|
Schedule 3.11, Part (c)
|
Material Contracts
|
Schedule 3.12
|
Insurance Coverage
|
Schedule 3.15
|
Intellectual Property
|
Schedule 3.16
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Employees
|
Schedule 3.17, Part (a)
|
Environmental Matters
|
Schedule 3.17, Part (b)
|
Environmental Matters
|
Schedule 6.3
|
Employee Benefits
|
Schedule 6.5
|
Affiliate Agreements
|
iv
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this “
Agreement
”) is made and entered into as of October 3, 2013 by and among Strathspey Crown Holdings, LLC, a Delaware limited liability company (“
Parent
”), Evolus, Inc., a Delaware corporation (the “
Company
”), the shareholders of the Company listed on the signature pages hereto (each a “
Contributor
” and collectively, “
Contributors
”), and J. Christopher Marmo, as the Contributors’ Representative. Capitalized terms used in this Agreement without definition shall have the respective meaning given to such terms in Article I hereof.
WITNESSETH:
WHEREAS, on the terms and subject to the conditions set forth herein, Contributors desire to contribute to Parent all of the issued and outstanding shares of capital stock of the Company, consisting solely of 1,250,000 shares of Series A Preferred Stock and 10,000,000 shares of Common Stock, in exchange for 15,000 Class AA membership interests in Parent (the “
Class AA Units
”), which Class AA Units have an aggregate equity value of Thirty Million United States Dollars ($30,000,000), as valued by the most recent financing round of Parent, and 15,000 Class D membership interests in Parent (the “
Class D Units
” and together with the Class AA Units, the “
Parent Units
”) in a non-taxable exchange pursuant to Section 721 of the Code.
NOW, THEREFORE, in consideration of the mutual promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1
Definitions
.
The following terms, as used herein, have the following meanings:
“
Accounting Arbitrator
” has the meaning set forth in Section 2.2(d)(iii).
“
Affiliate
” means, with respect to any Person, (i) any other Person directly or indirectly controlling, controlled by, or under common control with such specified Person, or (ii) any other Person owning or controlling twenty percent (20%) or more of the outstanding voting securities of such Person. For purposes of the foregoing, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
“
Affiliate Agreements
” has the meaning set forth in Section 6.5.
“
Alphaeon
” means Alphaeon Corporation, a Delaware corporation.
1
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
“
Alphaeon Stock Purchase Agreement
” has the meaning set forth in Section 6.7(a).
“
Applicable Law
” means, with respect to any Person, any federal, state or local statute, law, regulation, or other requirement of any Authority applicable to such Person or any of such Person’s respective properties or assets.
“
Authority
” means any governmental, regulatory or administrative body, agency or authority.
“
Bankruptcy and Equity Exception
” has the meaning set forth in Section 3.2.
“
Business
” has the meaning set forth in Section 6.6(a).
“
Business Group Employees
” has the meaning set forth in Section 6.6(a).
“
Bylaws
” means the bylaws of the Company, as amended to the date hereof.
“
Class AA Units
” has the meaning set forth in the recitals.
“
Class D Distributions
” has the meaning set forth in Section 2.2(b).
“
Class D Distribution Period
” has the meaning set forth in Section 2.2(d)(i).
“
Class D Distribution Statement
” has the meaning set forth in Section 2.2(d)(i).
“
Class D Redemption
” has the meaning set forth in Section 2.2(c).
“
Class D Sale Notice
” has the meaning set forth in Section 6.7(a).
“
Class D Sale Right
” has the meaning set forth in Section 6.7(a).
“
Class D Sale Right Period
” has the meaning set forth in Section 6.7(a).
“
Class D Shares
” has the meaning set forth in Section 2.1(a).
“
Class D Units
” has the meaning set forth in the recitals.
“
Closing
” has the meaning set forth in Section 2.4(a).
“
Closing Date
” means the date hereof.
“
Closing Deliverables
” has the meaning set forth in Section 2.4(b).
“
Code
” means the Internal Revenue Code of 1986, as amended.
“
Contract Closing
” has the meaning set forth in Section 6.7(a).
“
Contributing Group
” has the meaning set forth in Section 9.15.
2
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
“
Contribution
” has the meaning set forth in the recitals.
“
Contributor Indemnified Parties
” has the meaning set forth in Section 7.4.
“
Contributors
” has the meaning set forth in the Preamble to this Agreement.
“
Contributors’ Representative
” has the meaning set forth in Section 7.1.
“
Common Stock
” has the meaning set forth in Section 3.5(a).
“
Company
” has the meaning set forth in the preamble of this Agreement.
“
Company Plans
” has the meaning set forth in Section 3.19(a).
“
Customer
” has the meaning set forth in Section 6.6(a).
“
Daewoong
” means Daewoong Pharmaceutical Co., Ltd, a corporation organized and existing under the laws of the Republic of Korea.
“
Daewoong Agreement
” has the meaning set forth in Section 3.11(d).
“
Default Date
” has the meaning set forth in Section 2.2(g).
“
Development
” has the meaning set forth in Section 2.2(e)(i).
“
Development Budget
” has the meaning set forth in Section 2.2(e)(ii).
“
Disclosure Schedules
” has the meaning set forth in Article III.
“
Environmental Claim
” means any claim, action, cause of action, investigation or notice (written or oral) by any Person alleging potential liability arising out of, based on or resulting from (i) the presence or Release of any Hazardous Materials at any location, owned or operated by the Company, or (ii) circumstances forming the basis of any violation of any Environmental Law.
“
Environmental Laws
” means all federal, state, local and foreign laws, statutes and regulations relating to pollution or the environment, including, without limitation, those relating to Releases or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, transport or handling of Hazardous Materials.
“
ERISA
” means the Employee Retirement Income Security Act of 1974, as amended.
“
EU
” means all of the European Union member states as of the applicable time of determination.
“
FDA
” means the United States Food and Drug Administration, or any successor thereto.
3
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
“
Fundamental Representations
” has the meaning set forth in Section 7.1.
“
GAAP
” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, as in effect on the date of this Agreement.
“
Hazardous Materials
” means all substances defined as Hazardous Materials, Oils, Pollutants or Contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. Section 300.5 or defined as such by, or regulates as such under, any Environmental Law.
“
Initial Fund Date
” has the meaning set forth in Section 2.2(f).
“
Intellectual Property Rights
” means the intellectual property and/or other proprietary rights owned, licensed, used or held for use by the Company, including, but not limited to: (i) any and all trademarks, logos, logotypes, and/or service marks, including, but not limited to, any and all common law and statutory rights therein and therefor, and further including any and all registrations thereof and applications for registration therefor; (ii) any and all corporate names, domain names, and/or trade names, including, but not limited to, any and all common law and statutory rights therein and therefor, and further including any and all registrations thereof and applications for registration therefor; (iii) any and all know-how, trade secrets, inventions, patents, patent applications and work product therefor, including, but not limited to, any and all common law and statutory rights therein and therefor; (iv) any and all copyrights, including, but not limited to, any and all common law and statutory rights therein and therefor, and further including any and all copyright registrations thereof and applications for registration of copyright therefor; and (v) any and all technical information, notes, reports, drawings, works, devices, makes, models, works-in-progress, customer lists and creations.
“
Key Personnel
” means the employees, contractors and other service providers listed on
Schedule 1.1
.
“
Knowledge
” means, where capitalized, the actual knowledge of J. Christopher Marmo, Scott Cannizzaro and John Gross, and the knowledge that such persons would have after reasonable inquiry; provided that, for purposes of this definition, reasonable inquiry shall not require contacting, or making inquiry of, third persons other than existing employees or consultants of the Company.
“
Lien
” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, encumbrance or restriction of any kind in respect of such asset.
“
Losses
” has the meaning set forth in Section 7.2.
“
Material Adverse Effect
” means an event that has or would reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business
4
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
of the Company, taken as a whole, other than with respect to any matters which, directly or indirectly, relate to or result from (i) economic, legislative, regulatory or other conditions affecting the Company or the industries in which the Company conducts business, (ii) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States; (iii) changes in United States generally accepted accounting principles; (iv) changes in law, rules, regulations, orders, or other binding directives issued by any Authority; (v) any change resulting from compliance by the Company with the terms of, or the taking of any action contemplated by, this Agreement or any other agreements or documents contemplated hereby; or (vi) any change resulting from the announcement of the execution of this Agreement or the transactions contemplated hereby; provided, that with respect to clauses (i) through (vi), the impact of such event, change, circumstances, occurrence, effect or state of facts is not disproportionately adverse to the Company.
“
Material Contract
” has the meaning set forth in Section 3.11(a).
“
Net Sales
” means the net sales on behalf of the Company, Parent and any of their Affiliates, authorized sublicensees and assignees for Product sold to third parties other than sublicensees and assignees, as determined in accordance with GAAP applied on a consistent basis. The deductions booked by the Company, Parent or any of their Affiliates or authorized sublicensees or assignees to calculate the recorded net sales from gross sales include the following:
(i)
normal trade and cash discounts;
(ii)
amounts repaid or credited by reasons of defects, rejections, recalls or returns;
(iii)
rebates and chargebacks to customers and third parties (including, without limitation, Medicare, Medicaid, TriCare, Managed Healthcare);
(iv)
any amounts recorded in gross revenue associated with goods provided to customers for free including samples;
(v)
amounts provided or credited to customers through coupons, other discount programs and co-pay assistance programs;
(vi)
delayed ship order credits, discounts or payments related to the impact of price increases between purchase and shipping dates;
(vii)
fee for service payments to customers for any non-separable services (including compensation for maintaining agreed inventory levels and providing information); and
(viii)
amounts received for transportation and delivery of the Product, including insurance;
provided
,
however
, with respect to the calculation of Net Sales: (a) Net Sales only include the value charged or invoiced on the first sale to a third party and sales between or among the Company,
5
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Parent and any of their Affiliates, authorized sublicensees and assignees shall be disregarded for purposes of calculating Net Sales; (b) if Product is delivered to the third party before being invoiced (or is not invoiced), Net Sales will be calculated at the time all the revenue recognition criteria under GAAP are met; and (c) distributors shall not be considered as sublicensees or assignees.
“
Parent
” has the meaning set forth in the preamble of this Agreement.
“
Parent Indemnified Parties
” has the meaning set forth in Section 7.3.
“
Parent LLC Agreement
” means the Second Amended and Restated Limited Liability Company Agreement of Parent dated as of August 15, 2013, as amended by that certain Amendment No. 1 to Second Amended and Restated Limited Liability Company Agreement of Parent of even date herewith, as the same may be amended from time to time.
“
Parent Units
” has the meaning set forth in the recitals.
“
Permitted Liens
” means (i) Liens for taxes or real property assessments not due or being contested in good faith (and for which adequate accruals or reserves have been established on the Balance Sheet), (ii) Liens relating to deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security (iii) mechanics’, carriers’, workers’, repairers’ and similar statutory Liens arising or incurred in the ordinary course of business for amounts that are not delinquent, for which adequate accruals or reserves have been established on the Balance Sheet and that, either individually or in the aggregate, would not, individually or in the aggregate, have a Material Adverse Effect, (iv) Liens listed on
Schedule 3.9
, Part (a), and (v) transfer restrictions of general applicability under applicable federal and state securities laws.
“
Person
” means an individual, a corporation, a partnership, a limited liability company, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
“
Potential Claim
” has the meaning set forth in Section 7.6(b).
“
Pre-Closing Tax Period
” means (i) any taxable or measurement period ending on or before the Closing Date and (ii) the portion of any Straddle Period ending on and including the Closing Date.
“
Preferred Stock
” has the meaning set forth in the recitals.
“
Proceeding
” has the meaning set forth in Section 7.6(a).
“
Product
” means the botulinum toxin product licensed to the Company under the Daewoong Agreement.
“
Pro Rata Share
” means with respect to any Contributor, in the same proportion as the number of Class AA Units issued to such Contributor in connection with the Contribution as of
6
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
immediately following the Closing bears to the total number of Class AA Units issued to all Contributors in connection with the Contribution as of immediately following the Closing.
“
Quarterly Fund Date
” has the meaning set forth in Section 2.2(e)(ii).
“
Real Properties
” has the meaning set forth in Section 3.9(c).
“
Related Party
” has the meaning set forth in Section 3.11(a)(vi).
“
Release
” means any spilling, emitting, discharging, leaking, pumping, pouring, dumping, injecting, depositing, disposing, dispersing, leaching or migrating of Hazardous Materials into the environment (including, without limitation, ambient air, surface water, groundwater and surface or subsurface strata).
“
Representatives
” has the meaning set forth in Section 7.3.
“
Restated Certificate
” means the Certificate of Incorporation of the Company, as amended to the date hereof.
“
Return
” has the meaning set forth in Section 3.18(a).
“
Securities Act
” has the meaning set forth in Section 4.5(a).
“
Shares
” has the meaning set forth in Section 3.5(b).
“
Straddle Period
” means any taxable or measurement period that commences on or prior to and includes (but does not end on) the Closing Date.
“
Tangible Personal Property
” of a Person means all machinery, equipment, trucks, automobiles, furniture, supplies, spare parts, tools, stores and other tangible personal property owned by that Person or in which that Person has any interest (including the right to use), other than the inventories and the books and records of that Person.
“
Tax
” means (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, franchise, profits, license, withholding on amounts paid to or by the Company, payroll, employment, excise, severance, stamp occupation, premium, property, obligation under escheat or unclaimed property law, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge, together with any interest or any penalty, addition to tax or additional amount imposed by any Taxing Authority, (ii) any liability of the Company for the payment of any amounts of the type described in clause (i) above as a result of being a member of an affiliated, consolidated, combined or unitary group for any Pre-Closing Tax Period, and (iii) any liability of the Company for the payment of any amounts of the type described in clause (i) above with respect to any other Person, whether by contract or otherwise.
“
Tax Liability
” has the meaning set forth in Section 3.18(g).
7
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
“
Tax Proceeding
” has the meaning set forth in Section 3.18(h).
“
Taxing Authority
” means any Authority responsible for the imposition or collection of any Tax or with which any Return is required to be filed.
“
Termination Date
” has the meaning set forth in Section 2.4(c).
“
Territory
” means the United States of America, and its territories and possessions, the EU, Australia and Canada.
“
Third-Party Claim
” has the meaning set forth in Section 7.6(a).
“
Transaction Documents
” means this Agreement, the Disclosure Schedules, other schedules to this Agreement delivered pursuant to this Agreement, the Parent LLC Agreement, the Alphaeon Stock Purchase Agreement and employment, consulting and other agreements related to the employment or engagement, as the case may be, of the Key Personnel.
“
U.S. Approval
” shall mean the first approval of the FDA necessary for the marketing of the Product in the United States for Glabellar indication.
ARTICLE II
CONTRIBUTION OF SHARES; DESCRIPTION OF PARENT UNITS; CLOSING
Section 2.1
Contribution of Shares
.
(a)
Subject to and in accordance with the terms and conditions set forth in this Agreement, at the Closing, each Contributor shall, and hereby does, assign, transfer, convey and deliver to Parent, free and clear of any Liens (other than any restrictions under applicable federal and state securities laws), such number and series of Shares set forth opposite such Contributor’s name on
Schedule 2.1
and, in exchange therefore, Parent shall, and hereby does, issue and deliver to each Contributor, free and clear of any Liens (other than any restrictions under applicable federal and state securities laws and other than restrictions set forth in the Parent LLC Agreement), such Class AA Units set forth opposite such Contributor’s name on
Schedule 2.1(a)
.
(b)
Subject to and in accordance with the terms and conditions set forth in this Agreement, at the Closing, each Contributor shall, and hereby does, assign, transfer, convey and deliver to Parent, free and clear of any Liens (other than any restrictions under applicable federal and state securities laws), such number and series of Shares set forth opposite such Contributor’s name on
Schedule 2.1(b)
and, in exchange therefore, Parent shall, and hereby does, issue and deliver to each Contributor, free and clear of any Liens (other than any restrictions under applicable federal and state securities laws and other than restrictions set forth in the Parent LLC Agreement), such Class D Units set forth opposite such Contributor’s name on
Schedule 2.1(b)
. The total number of Shares that the Contributors are contributing for Class D Units as set forth on
Schedule 2.1(b)
shall be referred to in this Agreement as the “
Class D Shares
.”
8
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Section 2.2
Description of Parent Units and Parent LLC Agreement
. The Parent Units issued and delivered hereunder shall be duly authorized, validly issued, fully paid and non-assessable and, except as set forth in the Parent LLC Agreement, shall not be subject to any preemptive rights, rights of first refusal or other rights or restrictions in favor of any person. Assuming the accuracy of the representations set forth in Section 4.5, the issuance of the Parent Units shall be exempt from any registration requirements of the Securities Act of 1933, as amended, or the securities laws of any state or other jurisdiction. In connection with the issuance of the Parent Units, the Parent LLC Agreement shall include the following material terms; provided, however that the Parent Units as described herein are subject in all respects to the Parent LLC Agreement attached hereto as
Exhibit A
and in the event of any conflict between this Section 2.2 and the Parent LLC Agreement, the Parent LLC Agreement shall govern:
(a)
The Class AA Units shall have, in the aggregate, a deemed unreturned capital contribution of Thirty Million United States Dollars ($30,000,000) for purposes of the Parent LLC Agreement.
(b)
The Class D Units shall be entitled to distributions in the amount of the distributions received by the Parent with respect to the Class D Shares and proceeds from the sale or redemption of the Class D Shares, including all proceeds received by Parent pursuant to the Alphaeon Stock Purchase Agreement (the “
Class D Distributions
”); provided that such distributions shall be payable only if and to the extent that they are permitted under applicable provisions of Delaware law and the Parent LLC Agreement.
(c)
At any time following U.S. Approval, or, with the prior written consent of the Contributors’ Representative, prior to U.S. Approval, Parent shall have the right, but not the obligation, to acquire all, but not less than all, of the Class D Units for a lump-sum cash payment equal to One Hundred Forty-Five Million United States Dollars ($145,000,000) (the “
Class D Redemption
”), which shall be paid to the Contributors pro rata according to the amount of Class D Units owned thereby.
(d)
In the event the Contract Closing occurs, then following the Contract Closing the parties shall use the following mechanism and procedures for computing, auditing and disputing the amount of the Class D Distributions:
(i)
Not later than ninety (90) days after the end of each quarter in which Class D Distributions are payable (a “
Class D Distribution Period
”), Parent shall prepare and deliver to the Contributors’ Representative a statement setting forth Parent’s calculation of the Net Sales of the Product in each region, territory or jurisdiction for which Parent or any of its Affiliates has the right to market or sell the Product for such Class D Distribution Period and the amount of any Class D Distributions (together, the “
Class D Distribution Statement
”). Each Class D Distribution Statement shall be prepared from the books and records of the Company, and shall fairly present Net Sales of the Product for the relevant Class D Distribution Period in accordance with GAAP. Parent shall maintain at its principal place of business any and all books and records relating to the determination of the amount of the Net Sales of the Product and any Class D Distributions. The parties shall cooperate with each other in connection with, shall furnish all information as may be reasonably requested by a party, and shall provide the other parties and their
9
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
representatives reasonable access to such Person’s books and records and relevant personnel during the preparation of, any Class D Distribution Statement, and during the resolution of any disputes that may arise with respect to the amount of any Class D Distributions.
(ii)
If the Contributors’ Representative disagrees with any aspect of any Class D Distribution Statement, the Contributors’ Representative shall notify Parent in writing of such disagreement within thirty (30) days after delivery thereof, which notice shall describe the nature of any such disagreement in reasonable detail, identify the specific items involved and the dollar amount of each such disagreement and provide reasonable supporting documentation for each such disagreement. During the thirty (30) day period of its review, the Contributors’ Representative shall have access to any documents, schedules or workpapers used in the preparation of the Class D Distribution Statement. Unless the Contributors’ Representative notifies Parent within such thirty (30) day period that it objects to any items set forth in such Class D Distribution Statement, such Class D Distribution Statement shall be final, conclusive and binding upon Contributors and Parent. In the event that the Contributors’ Representative so notifies Parent, after the end of such thirty (30) day period, neither the Contributors’ Representative nor Parent may introduce additional disagreements with respect to any item in the Class D Distribution Statement, or increase the amount of any disagreement, and any item not so identified shall be deemed to be agreed to by the Contributors’ Representative (on behalf of Contributors) and will be final and binding. If a dispute notice has been delivered by the Contributors’ Representative to Parent, any portions of the Class D Distributions for such Class D Distribution Period which are not in dispute shall be distributed in accordance with the Parent LLC Agreement.
(iii)
If the Contributors’ Representative and Parent are unable to resolve all disagreements properly identified within thirty (30) days after the Contributors’ Representative’s delivery to Parent of written notice of such disagreements, then such disagreements shall be submitted for final and binding resolution to an independent certified public accounting firm as mutually agreed upon by the Contributors’ Representative and Parent (the “
Accounting Arbitrator
”). The Accounting Arbitrator will only consider those items and amounts set forth in the Class D Distribution Statement as to which the Contributors’ Representative and Parent have disagreed within the time periods and on the terms specified above and must resolve the matter in accordance with the terms and provisions of this Agreement. The Accounting Arbitrator shall deliver to the Contributors’ Representative and Parent, as promptly as practicable and in any event within ninety (90) days after its appointment, a written report setting forth the resolution of any such disagreement determined in accordance with the terms of this Agreement. The Accounting Arbitrator shall make its determination based solely on presentations and supporting material provided by the Contributors’ Representative and Parent and not pursuant to any independent review. The determination of the Accounting Arbitrator shall be final and binding upon Contributors, the Company and Parent. The fees, costs and expenses of the Accounting Arbitrator shall be borne by Contributors or Parent, as the case may be, on the basis of a determination by the Accounting Arbitrator as to whether the Contributors’ Representative or Parent was least correct (in net dollar terms) in the aggregate in its determination of the disputed items. Other than such fees and expenses of the Accounting Arbitrator, Parent and the Contributors’ Representative (on behalf of Contributors) shall each be responsible for their own costs and expenses incurred in connection with any actions taken pursuant to this Section 2.2(d).
10
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(e)
Until the consummation of the Class D Redemption, Parent shall:
(i)
fund all development activities related to the U.S. Approval (the “
Development
”) as set forth in the development budget agreed to by the Parent and the Contributor’s Representative (the “
Development Budget
”); and
(ii)
except as set forth in Section 2.2(f), no less than ninety (90) days prior to the beginning of each fiscal quarter of the Company (each, a “
Quarterly Fund Date
”), deposit an amount equal to the Development costs determined in accordance with the Development Budget, as updated from time to time in accordance with Section 2.2(j), for the next succeeding fiscal quarter into an escrow account accessible to the Company and the Contributors’ Representative to be used solely to fund the Development in accordance with the terms of the Development Budget. Until U.S. Approval, the Company, Parent and Contributors’ Representative will each cooperate in the timely preparation and updating of the Development Budget no less frequently than each fiscal quarter of the Company.
(f)
The Development Budget for the initial quarter in the amount of $770,650 is set forth in
Schedule 2.2
(the “
Initial Fund Amount
”), $350,000 of which shall be payable by Parent to the escrow account upon the Closing, and the balance of which shall be payable by the Parent to the escrow account within sixty (60) days after the Closing Date (the “
Initial Fund Date
”).
(g)
In the event that: (i) Parent does not fund the Development Budget for the initial quarter as set forth in
Schedule 2.2
by the Initial Fund Date or for any subsequent quarter on a Quarterly Fund Date; (ii) the Contributor’s Representative sends written notice to Parent that Parent has not funded the Development Budget within fifteen (15) days after the Initial Fund Date with respect to the initial quarter or thirty (30) days after the applicable Quarterly Fund Date with respect to each subsequent quarter; and (iii) Parent does not fund the Development Budget within thirty (30) days after the Initial Fund Date with respect to the initial quarter or within sixty (60) days after the applicable Quarterly Fund Date with respect to each subsequent quarter (the “
Default Date
”), then, for thirty (30) days after any Default Date, the Contributors’ Representative (on behalf of the Contributors) shall have the right, but not the obligation, to purchase all of the outstanding capital stock of the Company, and, to the extent that the Company has assigned the Daewoong Agreement to an Affiliate of the Company, Parent and the Company shall cause the Daewoong Agreement to be assigned to the Company effective prior to such purchase, in exchange for: (A) transferring to Parent one hundred percent (100%) of the Class D Units held by the Contributors; (B) transferring to Parent seventy-five percent (75%) of the Class AA Units held by the Contributors; and (C) executing a promissory note in favor of Parent to repay all expenses Parent has incurred in connection with Section 2.2(e) or 2.3 of this Agreement from Net Sales of the Product by the Company or its Affiliates until all such expenses are repaid as follows:
(i)
a quarterly payment in an aggregate amount equal to [***] percent ([***]%) of the Net Sales of the Product in the United States and its territories and possessions for each quarter (or portion thereof) following the U.S. Approval; and
(ii)
a quarterly payment in an aggregate amount equal to [***] percent ([***]%) of the Net Sales of the Product in any region, territory or jurisdiction other than the United
11
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
States and its territories and possessions for each quarter (or portion thereof) following the Product’s approval for any indication in such non-United States region, territory or jurisdiction for which the Company or any of its Affiliates has the right to market or sell the Product.
(h)
The parties agree to cooperate fully, as and to the extent reasonably requested by the other party, to structure the potential transactions described in this Sections 2.2(g) in the manner that results in the lowest aggregate tax liability for the Contributors and the Parent and its Affiliates, as determined by the Contributors’ Representative and the Parent, respectively.
(i)
Parent shall use the “traditional method” within the meaning of Treasury Regulations Section 1.704-3(b) with respect to the Shares contributed by Contributors.
(j)
Until U.S. Approval, the Company, Parent and Contributors’ Representative will each cooperate in the timely preparation and updating of the Development Budget no less frequently than each fiscal quarter of the Company.
Section 2.3
Payment in Respect of the Company’s Obligations to Daewoong
. On the Closing Date, Parent shall contribute to the Company Three Million Five Hundred Thousand United States Dollars ($3,500,000) (the “
Daewoong Payment
”) to permit the Company to satisfy the Company’s obligations under the Daewoong Agreement to pay Daewoong for (i) upfront fees for the exclusive license and distribution rights to the Product for aesthetic use in the Territory and (ii) a five (5) year option to acquire the rights to the Product for therapeutic use in the Territory. The Company hereby irrevocably instructs and directs Parent to pay the Daewoong Payment directly to Daewoong in accordance with the Daewoong Agreement.
Section 2.4
Closing
.
(a)
Closing Date
. The closing of the Contribution and other transactions contemplated hereby (the “
Closing
”) to be consummated on the Closing Date shall take place remotely via the electronic exchange of documents and signatures or in such other manner, and at such time, as Parent, the Company and Contributors’ Representative (on behalf of Contributors) agree in writing.
(b)
Deliveries at Closing
. Subject to the terms and conditions set forth in this Agreement, at the Closing, the following Persons shall deliver or cause to be delivered the following (together, the “
Closing Deliverables
”):
(i)
each Contributor shall deliver:
(A)
to Parent certificates representing the Shares together with appropriate stock powers; and
(B)
the Transaction Documents to which such Contributor is a party, duly executed by such Contributor;
(ii)
the Company shall deliver:
12
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(A)
to Parent resignations of each director of the Company listed on
Schedule 2.4
, which shall be effective upon the Closing, together with evidence of the termination of the Affiliate Agreements; and
(B)
the Transaction Documents to which the Company is a party, duly executed by the Company;
(iii)
the Contributors’ Representative shall deliver the Transaction Documents to which the Contributors’ Representative is a party, duly executed by the Contributors’ Representative; and
(iv)
Parent shall deliver the Transaction Documents to which the Parent is a party, duly executed by the Parent, together with the Daewoong Payment and the Initial Fund Amount to be paid to the Company.
(c)
In the event the Closing Deliverables have not been delivered by October 15, 2013 (the “
Termination Date
”), this Agreement will automatically terminate unless the parties hereto agree to mutually extend the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
Subject to the disclosure schedules attached hereto (the “
Disclosure Schedules
”), the Contributors, jointly and severally, hereby represent and warrant to Parent, as of the date hereof, as follows:
Section 3.1
Corporate Existence and Power
. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the state of Delaware, and has all corporate powers required to carry on its business as now conducted. Except as would not have a Material Adverse Effect, the Company is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities make such qualification necessary. The Company has heretofore made available to Parent true and complete copies of the Restated Certificate of Incorporation and Bylaws.
Section 3.2
Authority to Execute and Perform Under Agreement
. The Company has all requisite corporate power and authority to enter into and perform this Agreement and the other Transaction Documents to which it is a party and to carry out its obligations under this Agreement and the other Transaction Documents to which it is a party, and the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of the Company. This Agreement has been, and the other Transaction Documents to which the Company is a party are duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with the terms thereof, except, in each case, that enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of the rights of
13
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
creditors generally and (b) the availability of equitable remedies (including, without limitation, specific performance and injunctive relief) (the “
Bankruptcy and Equity Exception
”).
Section 3.3
Governmental Authorization; Consents
. None of the execution, delivery or performance by the Company of this Agreement or any other Transaction Document to which the Company is a party requires any action by or in respect of, or filing with, any Authority. No consent, approval, waiver or other action by any Person under any material license, permit or other similar authorization held by Company is required or necessary for, or as a result of, the execution, delivery and performance by Company of this Agreement or any other Transaction Document to which Company is a party or the consummation by Company of the transactions contemplated hereby or thereby.
Section 3.4
Non-Contravention
. None of the execution, delivery or performance by the Company of this Agreement or any other Transaction Document to which the Company is a party (a) violates any provision of the Restated Certificate or Bylaws, (b) contravenes or conflicts with or constitutes a violation of any provision of any Applicable Law, judgment, injunction, order or decree binding upon or applicable to the Company; (c) constitutes a default under or gives rise to any right of termination, cancellation or acceleration of any obligation of the Company or to a loss of any material benefit to which the Company is entitled under any provision of any material license, permit or other similar authorization held by the Company, or (d) results in the creation or imposition of any material Lien on any asset of the Company, except, in the case of clause (b), for any contraventions, conflicts, defaults or other occurrences that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or materially and adversely affect the Contributors’ ability to consummate the transactions contemplated hereby or perform its obligations hereunder.
Section 3.5
Capitalization
. The authorized capital of the Company consists of:
(a)
20,000,000 shares of common stock, $0.00001 par value per share (“
Common Stock
”), 10,000,000 shares of which are issued and outstanding. All of the outstanding shares of Common Stock have been duly authorized, are fully paid and nonassessable and were issued in compliance with all applicable federal and state securities laws.
(b)
2,500,000 shares of Preferred Stock, $0.00001 par value per share (“
Preferred Stock
”), of which 2,500,000 shares have been designated Series A Preferred Stock (the “
Series A Preferred Stock
” and together with the Common Stock, the “
Shares
”), of which 1,250,000 are issued and outstanding.
(c)
There are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from the Company any shares of Common Stock or Preferred Stock, or any securities convertible into or exchangeable for shares of Common Stock or Preferred Stock. All of the Shares have been offered, sold and delivered by the Company in compliance with all applicable federal and state securities laws. There are no outstanding obligations of the Company to issue, sell or transfer or repurchase, redeem or otherwise acquire, or that relate to the holding, voting or disposition of or that restrict the transfer of, the issued or unissued capital stock or other equity or
14
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
ownership interests of the Company. No shares of capital stock or other equity or ownership interests of the Company have been issued in violation of any rights, agreements, arrangements or commitments under any provision of applicable law, the certificate of incorporation or bylaws or equivalent organizational documents of the Company or any contract to which the Company is a party or by which the Company is bound.
(d)
Schedule 2.1
is a true, complete and accurate list that sets forth the name of each Contributor of the Shares, exactly as such Contributor’s name is set forth on the share certificate(s), and the number and series of Shares held by such Contributor. The Contributors are the record and beneficial owners of the Shares, free and clear of any Liens other than transfer restrictions of general applicability under applicable state and federal securities laws. The Contributors have the right, authority and power to sell, transfer and assign the Shares to the Parent. Upon delivery of the Shares at the Closing, the Parent shall acquire good, valid and marketable title to the Shares, free and clear of any Lien other than transfer restrictions of general applicability under applicable state and federal securities laws.
Section 3.6
Subsidiaries and Other Equity Investments
. The Company does not own any shares of capital stock of any corporation or any equity investment in any other Person.
Section 3.7
Material Liabilities
. The Company has no liability or obligation, absolute or contingent (individually or in the aggregate), except (i) obligations and liabilities incurred after the date of incorporation in the ordinary course of business that are not material, individually or in the aggregate, and (ii) obligations under contracts made in the ordinary course of business that would not be required to be reflected in financial statements prepared in accordance with generally accepted accounting principles. The books of account and financial records of the Company are true and correct and have been prepared and are maintained in accordance with sound accounting practice.
Section 3.8
Absence of Certain Changes
. Except as set forth on
Schedule 3.8
, since the date of incorporation, the Company has conducted its business in the ordinary course consistent with past practices. Without limiting the generality of the foregoing, except as set forth on
Schedule 3.8
, since the date of incorporation until the date hereof, there has not been:
(a)
any Material Adverse Effect;
(b)
any declaration, setting aside or payment of any dividend or other distribution with respect to any capital stock or other equity interests in the Company, any issuance by the Company of shares of capital stock or other equity interests in, the Company, or any repurchase, redemption or other acquisition, or any amendment of any term, by the Company of any outstanding shares of capital stock or other equity interests in, the Company;
(c)
any creation or assumption by the Company of any Lien, other than Permitted Liens, on any material asset other than in the ordinary course of business consistent with past practices;
15
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(d)
except as would not have a Material Adverse Effect, any personal property damage, destruction or casualty loss or personal injury loss (whether or not covered by insurance) affecting the business or assets of the Company;
(e)
any sale, transfer, lease to others or otherwise disposition of any of its material assets by the Company except for inventory sold in the ordinary course of business consistent with past practices or immaterial amounts of other Tangible Personal Property not required by its business;
(f)
any capital expenditure by the Company in excess of an aggregate of Twenty-Five Thousand United States Dollars ($25,000);
(g)
any institution of litigation, settlement or agreement to settle any litigation, action, proceeding or investigation before any court or governmental body relating to the Company or its property or suffering of any actual or threatened litigation, action, proceeding or investigation before any court or governmental body relating to the Company or its property; or
(h)
any commitment or agreement to do any of the foregoing.
Section 3.9
Properties
.
(a)
The Company has good and marketable title to, or in the case of leased property has valid leasehold interests in, all of its property and assets (whether real or personal, tangible or intangible) necessary for the business of the Company. Except as set forth on
Schedule 3.9
, Part (a), none of such property or assets is subject to any Liens except for Permitted Liens. The assets owned or leased by the Company constitute all of the assets necessary for the Company to carry on the Company’s business as currently conducted. None of the assets owned or leased by the Company is subject to any Lien other than Permitted Liens. All tangible assets owned or leased by the Company have been maintained in all material respects in accordance with generally accepted industry practice, are in all material respects in good operating condition and repair, ordinary wear and tear excepted, and are adequate for the uses to which they are being put.
(b)
Schedule 3.9
, Part (b) sets forth, as of the date hereof, a description of each item of Tangible Personal Property leased by the Company with annual lease payments in excess of Twenty-Five Thousand United States Dollars ($25,000).
(c)
Schedule 3.9
, Part (c) lists all real estate leased by the Company (collectively the “
Real Properties
”). All leases of Real Properties and all amendments and modifications thereto are in full force and effect, and there exists no default under any such lease by the Company or, to the Company’s Knowledge, any other party thereto, nor any event which, with notice or lapse of time or both, would constitute a default thereunder by the Company or, to the Company’s Knowledge, any other party thereto. All leases of Real Properties shall remain valid and binding in accordance with their terms following the Closing. The Company does not own any real estate.
(d)
With respect to any of the Real Property leased by the Company, there is no sublease from the Company to any other Person and the Company has the right to use all material property, assets and rights that it currently uses in the operation of the business of the Company.
16
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Section 3.10
Litigation
. Except as set forth on
Schedule 3.10
, there is no action, suit, investigation or proceeding (together, “
Action
”) pending against or, to the Knowledge of the Company, threatened against or affecting, the Company or any of its properties, nor, to the Company’s Knowledge, is there any basis for such Action. There is no Action pending or, to the knowledge of the Company, threatened, seeking to prevent, hinder, modify, delay or challenge the transactions contemplated by this Agreement. There is no outstanding order, writ, judgment, injunction, decree, determination or award of, or pending or, to the knowledge of the Company, threatened investigation by, any Authority relating to the Company, any of its properties or assets, or the transactions contemplated by this Agreement.
Section 3.11
Material Contracts
.
(a)
Schedule 3.11
, Part (a) lists all agreements, contracts, arrangements and commitments (collectively, “
Material Contracts
”) to which the Company is a party and which are currently in effect and constitute the following:
(i)
all partnership, joint venture or limited liability company contract arrangements or agreements;
(ii)
all material license agreements or agreements in respect of similar rights granted or held, except for licenses with respect to (A) pre-packaged software applications, or (B) rights to display or use the marks or names of third parties pursuant to agreements with the Company’s suppliers;
(iii)
all contracts or other documents that substantially limit the freedom of the Company to compete in any line of business or with any Person or in any geographic area;
(iv)
all agreements or other documents of the Company in respect of borrowed money, including financial instruments of indenture or security instruments (typically interest-bearing) such as notes, mortgages, loans and lines of credit;
(v)
any contract that requires a consent to or otherwise contains a provision relating to a “change of control,” in connection with this Agreement;
(vi)
any contract with any officer, director, or shareholder of the Company (each, a “
Related Party
”) or any contract with any family member or Affiliate of a Related Party;
(vii)
any contract providing for indemnification to or from any Person with respect to liabilities relating to any current or former business of the Company; and
(viii)
all contracts, agreements or other documents of the Company in respect of property or assets (whether real or personal, tangible or intangible) in which the Company holds a leasehold interest with annual payments in excess of Twenty Five Thousand United States Dollars ($25,000).
(b)
Each Material Contract set forth on
Schedule 3.11
, Part (a) is a valid and binding agreement of the Company, enforceable in accordance with its terms against the Company
17
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
and, to the Knowledge of the Company, the other contracting party (subject to the Bankruptcy and Equity Exception), and is in full force and effect, except where the failure of any Material Contract to be valid, binding, enforceable and in full force and effect, individually or in the aggregate, would not reasonably be expected to be material to the Company. Neither the Company, nor to the Knowledge of the Company, any other party thereto, is in default under the terms of any Material Contract, and the Company has made available to the Parent a copy of each Material Contract.
(c)
Except as set forth on
Schedule 3.11
, Part (b), no consent, approval, waiver or other action by any Person under any Material Contract listed on
Schedule 3.11
, Part (a) is required or necessary for, or as a result of, the execution, delivery and performance by the Company of this Agreement or any other Transaction Document to which the Company is a party or the consummation by the Company of the transactions contemplated hereby or thereby.
(d)
The License & Supply Agreement between the Company and Daewoong, dated as of September 30, 2013 (the “
Daewoong Agreement
”) is a valid and binding agreement of the Company, enforceable in accordance with its terms against the Company and Daewoong (subject to the Bankruptcy and Equity Exception), and is in full force and effect. Neither the Company nor Daewoong is in default under the terms of the Daewoong Agreement. Except as listed on
Schedule 3.11(d)
, no consent, approval, waiver or other action by any Person under the Daewoong Agreement is required or necessary for, or as a result of, the execution, delivery and performance by the Company of this Agreement or any other Transaction Document to which the Company is a party or the consummation by the Company of the transactions contemplated hereby or thereby.
Section 3.12
Insurance Coverage
. The Company has furnished to Parent true and complete copies of all insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the Company, a list of which is set forth on
Schedule 3.12
. All material premiums payable under all such policies and bonds have been paid or accrued, when due or within applicable grace periods, and, except as would not have a Material Adverse Effect, the Company is otherwise in full compliance with the terms and conditions of all such policies and bonds.
Section 3.13
Compliance with Laws; No Defaults
.
(a)
The Company is not in material violation of any Applicable Laws except for violations which individually or in the aggregate would not have a Material Adverse Effect.
(b)
The Company is not in default under and no condition exists that with notice or lapse of time or both would constitute a default under, (i) any Material Contract, or (ii) any judgment, order or injunction of any court, arbitrator or governmental body, agency or authority.
(c)
The Company has all material governmental licenses, authorizations, permits, consents and approvals required to own, lease and operate its property and to carry on its business as now conducted.
(d)
Since the date of incorporation, the Company has not engaged in any conduct that is prohibited under, or fails to comply with the requirements of any U.S. or California Law or
18
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
other Applicable Law that regulates either the manufacturing, promotion or distribution of pharmaceutical or medical device products, except for any such failures that, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect.
(e)
The Company has not, and no officer, director, employee or agent of the Company, has made a fraudulent statement, including, but not limited to certification, to the FDA or any other governmental regulatory body or agent thereof, failed to disclose a material fact required to be disclosed to the FDA or any other governmental regulatory body or agent thereof, or committed an act, made a statement, or failed to make a statement that would reasonably be expected to require the FDA or any other governmental regulatory body or agent thereof, to cause the Company to withdraw any product from the marketplace, to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” as set forth in 56 Fed. Reg. 46191 (Sept. 10, 1991), or to initiate any other legal action relating to fraud, false claims, or false statements.
(f)
Neither the Company nor any of its directors, officers, or employees are debarred by the FDA or other regulatory authority.
(g)
The Company has complied in all material respects with applicable security and privacy standards regarding protected health and employee information, or any Applicable Laws relating to privacy, except for any such failures to comply that, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect.
Section 3.14
Brokers’ and Finders’ Fees
. There is no investment banker, broker or finder which has been retained by or is authorized to act on behalf of the Company who is entitled to any fee or commission from the Company in connection with the transactions contemplated by this Agreement.
Section 3.15
Intellectual Property
.
(a)
Schedule 3.15
sets forth a true and complete list of all Intellectual Property Rights of the Company, identifying for each whether it is owned by or exclusively licensed to the Company.
(b)
Except as set forth in
Schedule 3.15
, the Company possesses all Intellectual Property Rights necessary to conduct its business as it currently operates.
(c)
Since the date of incorporation, the Company has not been sued or threatened in writing with or been a defendant in any claim, suit, action or proceeding relating to its business that involves or involved a claim of infringement of any patent, trademark, service mark, copyright or other intellectual property rights of any other Person. To the Company’s Knowledge, there is no infringement by any Person of any Intellectual Property Rights owned by the Company. No Intellectual Property Right owned by the Company is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company or restricting the licensing thereof by the Company to any Person.
19
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(d)
Except as set forth in
Schedule 3.15
, the business of the Company as currently conducted does not infringe any Intellectual Property Rights of any third party, other than any infringement that would not have a Material Adverse Effect.
Section 3.16
Employees
. There have been no written claims, written grievances, proceedings, disputes, governmental investigations or administrative proceedings of any kind against the Company of which the Company has been notified regarding its employees or employment practices, or operations as they pertain to conditions of employment. Except as set forth on
Schedule 3.16
, there are no current employment contracts or consulting agreements by which the Company is bound, and no deferred compensation, bonus, incentive compensation, stock option, severance or termination pay agreement or plan or any other employee benefit plan, agreement, arrangement or commitment, whether formal or informal, maintained, entered into or contributed to, or which is required to be maintained, entered into or contributed to, by the Company for the benefit of any current or former employee, officer or director of the Company, or with respect to which the Company has any liability, contingent or otherwise.
Section 3.17
Environmental Matters
.
(a)
The Company and its properties are in compliance with all applicable Environmental Laws (which compliance includes, but is not limited to, the possession by the Company of all permits and other governmental authorizations required under applicable Environmental Laws, which are in full force and effect, and compliance with the terms and conditions thereof), except where failure to be in compliance would not have a Material Adverse Effect. The Company has not received any written communication, whether from a governmental authority, citizens’ group, employee or otherwise, alleging that the Company is not in such compliance.
(b)
There is no Environmental Claim pending or, to the Knowledge of the Company, threatened against the Company which would have a Material Adverse Effect.
(c)
Notwithstanding any other provision of this Agreement, the representations and warranties made in this Section 3.17 are the sole and exclusive representations made in this Agreement by the Company with respect to environmental matters.
Section 3.18
Tax Matters
.
(a)
All Tax returns, statements, reports and forms (including estimated tax returns and reports), including IRS Form TD F 90-22.1, to the extent required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of the Company with respect to a Pre-Closing Tax Period (each a “
Return
” and collectively, the “
Returns
”), have been filed when due in accordance with all Applicable Laws, and such Returns are true, correct and complete in all material respects.
(b)
The Company has duly and timely paid in accordance with all Applicable Laws all Taxes due and payable with respect to any Pre-Closing Tax Period, and the Company has properly accrued on its books and records any Tax with respect to any Pre-Closing Tax Period not delinquent.
20
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(c)
The Company has duly and timely withheld or collected, paid over and reported all Taxes required to be withheld or collected by it in any Pre-Closing Tax Period.
(d)
The charges, accruals and reserves for Taxes with respect to the Company for any Pre-Closing Tax Period (excluding any provision for deferred income taxes) are reflected on the books of the Company are adequate to cover such Taxes in accordance with GAAP.
(e)
The Company has not granted any extension or waiver of the limitation period applicable to the assessment or collection of any Tax.
(f)
The Company is not liable with respect to Taxes of any other Person nor is a party to any agreement providing for payments with respect to Taxes.
(g)
No Taxing Authority has asserted, in writing, an adjustment that would reasonably be expected to result in an additional Tax for which the Company is or may be liable or that would reasonably be expected to result in a Lien on any assets of the Company (collectively “
Tax Liability
”) nor, to the Knowledge of the Company, is there a reasonable basis for such an assertion.
(h)
There is no pending audit, examination, investigation, dispute, proceeding or claim (collectively, “
Tax Proceeding
”) relating to any Tax Liability and, to the Knowledge of the Company, no Taxing Authority is contemplating such a Tax Proceeding. No extensions or waivers of statutes of limitations for assessment or collection have been given or requested with respect to any Taxes of the Company.
(i)
There is no outstanding power of attorney authorizing anyone to act on behalf of the Company in connection with a Tax Liability, Return or Tax Proceeding relating to a Tax, and there is no outstanding closing agreement, ruling request, request to change a method of accounting, subpoena or request for information with or by any Taxing Authority with respect to the Company.
(j)
The Company is not nor has it ever been included in any consolidated, combined or unitary Return, and Company has no liability for the Taxes of any Person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee, successor or as a result of similar liability, or by operation of Law.
(k)
The Company has not distributed stock of another Person, or had its stock distributed by another Person in a transaction intended or purported to be governed, in whole or in part, by Section 355 of the Code or Section 361 of the Code.
(l)
The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any period ending after the Closing Date as a result of any: (a) change in method of accounting for any period beginning on or prior to the Closing Date pursuant to Section 481 of the Code (or any similar provision of state, local or foreign Law); (b) “closing agreement” as described in Section 7121 of the Code (or any similar provision of state, local or foreign Law) executed on or prior to the Closing Date; (c) intercompany transactions or excess loss accounts described in Treasury Regulation Section 1.1502-13, or 1.1502-19; (d)
21
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
instalment sale or open transaction disposition made on or prior to the Closing Date; (e) prepaid income received or accrued on or prior to the Closing Date; or (f) method of accounting that defers the recognition of income to any period ending after the Closing Date.
(m)
The Company (x) has not taken a reporting position on a Tax Return that, if not sustained, could be reasonably likely to give rise to a penalty for substantial understatement of federal Income Tax under Section 6662 of the Code (or any similar provision of state, local or foreign Law), or (y) is not and has not been a party to any “reportable transaction” within the meaning of Section 6707A of the Code and Treasury Regulations Sections 1.6011-4(b).
Section 3.19
No Other Representations Or Warranties
. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE III OR IN ARTICLE IV OF THIS AGREEMENT, NEITHER THE COMPANY NOR ANY CONTRIBUTOR MAKES, HAS MADE OR SHALL BE DEEMED TO MAKE OR HAVE MADE ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY AND THE COMPANY AND CONTRIBUTORS HEREBY EXPRESSLY DISCLAIM ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES. PARENT ACKNOWLEDGES THAT IT IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES RELATING TO THE COMPANY OR ANY CONTRIBUTOR EXCEPT FOR THOSE EXPRESSLY SET FORTH IN THIS ARTICLE III OR IN ARTICLE IV OF THIS AGREEMENT.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES REGARDING EACH CONTRIBUTOR
Each of the following representations and warranties is made by each Contributor as to himself, herself or itself only (and not with respect to any other Contributor):
Section 4.1
Ownership
. Each Contributor has good and marketable title to the Shares set forth opposite such Contributor’s name on
Schedule 2.1
.
Section 4.2
Authority
. Each Contributor has the requisite power and authority to execute and deliver this Agreement. This Agreement has been duly executed and delivered by each Contributor and constitutes a valid and binding obligation of such Contributor, enforceable against such Contributor in accordance with its terms, except that enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and (b) the availability of equitable remedies (including, without limitation, specific performance and injunctive relief).
Section 4.3
Non-Contravention
. None of the execution, delivery or performance by each Contributor of this Agreement or any other Transaction Document to which such Contributor is a party (a) violates any provision of such Contributor’s organizational documents; (b) contravenes or conflicts with or constitutes a violation of any provision of any Applicable Law, judgment, injunction, order or decree binding upon or applicable to such Contributor; (c) constitutes a default under or gives rise to any right of termination, cancellation or acceleration of any obligation of such Contributor; or (d) results in the creation or imposition of any material Lien on any asset of the Company.
22
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Section 4.4
Brokers’ and Finders’ Fees
. There is no investment banker, broker or finder which has been retained by or is authorized to act on behalf of any Contributor who is entitled to any fee or commission from any Contributor in connection with the transactions contemplated by this Agreement.
Section 4.5
Investment Representations
.
(a)
Each Contributor is acquiring the Parent Units for investment only, and not with a view to, or for sale in connection with, any distribution thereof within the meaning of the applicable provisions of the Securities Act of 1933, as amended (the “
Securities Act
”), or any applicable state securities laws. Each Contributor has no present intention of selling, granting any participation in, or otherwise distributing the Parent Units. Each Contributor understands that the Parent Units have not been registered by the Parent under the Securities Act or qualified with any state securities commission or other regulatory authority, and are being sold to such Contributor in reliance upon the private offering exemption contained in Section 4(a)(2) of the Securities Act or Regulation D thereunder and applicable state law exemptions, and that such reliance is based in part upon these representations. Each Contributor understands that the Parent Units must be held indefinitely unless they are subsequently registered and qualified or an exemption from registration or qualification is available under the Securities Act and any applicable state securities laws. By executing this Agreement, each Contributor further represents that such Contributor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations, to such person or to any third person, with respect to any part of the Parent Units.
(b)
Each Contributor has decided to acquire the Parent Units based solely on such Contributor’s independent investigation and evaluation of planned operations of the Parent and such Contributor has not relied on any written material other than this Agreement, the Subscription Agreement and the Parent LLC Agreement, it being understood that the information and explanations related to the terms and conditions of the Parent Units shall not be considered investment advice or a recommendation to acquire the Parent Units.
(c)
Each Contributor and such Contributor’s attorneys or advisors have had an opportunity to obtain information concerning the Parent and have had an opportunity to ask questions of and receive answers from, authorized representatives of the Parent concerning the Parent, the offering of the Parent Units and any other relevant matters pertaining to the Parent Units, and, in all instances have been afforded the opportunity to obtain such additional information as necessary to verify the accuracy of the information that was otherwise provided.
(d)
Each Contributor is aware that acquiring the Parent Units is highly speculative and such Contributor could lose the entire value of the Parent Units, and such Contributor’s financial condition is such that such Contributor is able to bear the economic risks of acquiring the Parent Units, including the risk of loss of the entire value of the Parent Units should the Parent Units become worthless, taking into consideration the limitations on resale of the Parent Units.
(e)
Each Contributor (i) is capable of evaluating the risks and merits of acquiring the Parent Units and of protecting such Contributor’s own interests in connection with this
23
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
investment by reason of such Contributor’s business or financial experience, or by reason of the business or financial experience of such Contributor’s financial advisor who is unaffiliated with and who is not compensated, directly or indirectly, by the Parent or any Affiliate or selling agent of the Parent, or (ii) has a preexisting personal or business relationship with the Parent.
(f)
Each Contributor is an “accredited investor”, as that term is defined under Rule 501 of Regulation D promulgated under Section 4(a)(2) of the Securities Act.
(g)
Each Contributor has received, read and understands the Parent LLC Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING PARENT
Parent hereby represents and warrants to the Company and Contributors, as of the date hereof, as follows:
Section 5.1
Organization and Existence
. Parent is a limited liability duly organized, validly existing and in good standing under the laws of the State of Delaware and has all powers and all governmental licenses, authorizations, consents and approvals required to own, lease and operate its property and to carry on its business as now conducted.
Section 5.2
Authority to Execute and Perform Under Agreement
. Parent has all requisite power and authority to enter into and perform this Agreement and the other Transaction Documents to which it is a party and to carry out its obligations under this Agreement and the other Transaction Documents to which it is a party, and the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of Parent. This Agreement has been, and the other Transaction Documents to which Parent is a party are duly executed and delivered by Parent and constitute the legal, valid and binding obligations of Parent, enforceable against Parent in accordance with the terms thereof, except, in each case, that enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of the rights of creditors generally and (b) the availability of equitable remedies (including, without limitation, specific performance and injunctive relief).
Section 5.3
Governmental Authorization; Consents
. None of the execution, delivery or performance by Parent of this Agreement or any other Transaction Document to which Parent is a party requires any action by or in respect of, or filing with, any Authority. No consent, approval, waiver or other action by any Person under any material license, permit or other similar authorization held by Parent is required or necessary for, or as a result of, the execution, delivery and performance by Parent of this Agreement or any other Transaction Document to which Parent is a party or the consummation by Parent of the transactions contemplated hereby or thereby.
Section 5.4
Non-Contravention
. None of the execution, delivery or performance by Parent of this Agreement or any other Transaction Document to which parent is a party (a) violates any provision of the Parent LLC Agreement, certificate of formation or other organizational document of Parent, (b) contravenes or conflicts with or constitutes a violation of any provision of
24
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
any Applicable Law, judgment, injunction, order or decree binding upon or applicable to Parent; (c) constitutes a default under or gives rise to any right of termination, cancellation or acceleration of any obligation of Parent or to a loss of any material benefit to which Parent is entitled under any provision of any material contract or any material license, permit or other similar authorization held by Parent; or (d) result in the creation or imposition of any material Lien on any asset of Parent, except, in case of clause (b) above only, as would not have a material adverse effect on Parent or Parent’s ability to consummate the transactions contemplated hereby or perform its obligations hereunder.
Section 5.5
Brokers’ and Finders’ Fees
. There is no investment banker, broker or finder which has been retained by or is authorized to act on behalf of Parent who is entitled to any fee or commission from Parent, the Company or any Contributor in connection with the transactions contemplated by this Agreement.
Section 5.6
Investment Representations
. Parent acknowledges that the Shares have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state or other jurisdiction. Parent is acquiring the Shares for its own account for purposes of investment and not for the account of any other Person. Parent is not acquiring the Shares for resale to any other Person or with a view to or in connection with a resale or distribution of the Shares. Parent has no present or contemplated contract, agreement or other arrangement for the disposition of the Shares. Parent agrees that it will not sell, transfer or otherwise dispose of the Shares without registration under the Securities Act of 1933, as amended, and under the securities laws of any applicable state or other jurisdiction, or an appropriate exemption therefrom.
Section 5.7
No Other Company or Contributor Representations or Warranties
. Except for the representations and warranties set forth in this Agreement, Parent hereby acknowledges that neither the Company nor any Contributor, nor any other Person, has made or is making any other express or implied representation or warranty with respect to the Company or its business or operations, including with respect to any information provided or made available to Parent.
Section 5.8
Non-Reliance on Company Estimates, Projections, Forecasts, Forward-Looking Statements and Business Plans
. In connection with the due diligence investigation of the Company by Parent, Parent has received and may continue to receive from the Company certain estimates, projections, forecasts and other forward-looking information, as well as certain business plan information, regarding the Company and its business and operations. Parent hereby acknowledges that there are uncertainties inherent in attempting to make such estimates, projections, forecasts and other forward-looking statements, as well as in such business plans, with which Parent is familiar, that Parent is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections, forecasts and other forward-looking information, as well as such business plans, so furnished to it (including the reasonableness of the assumptions underlying such estimates, projections, forecasts, forward-looking information or business plans), and that Parent will have no claim against the Company or any Contributor, with respect thereto.
Section 5.9
Investment Company Partnership
. Following the Contribution, Parent will not be an investment company determined in accordance with Section 721(b) of the Code.
25
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1
Reasonable Best Efforts
. Subject to the terms and conditions of this Agreement, each party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under Applicable Laws to consummate the transactions contemplated by this Agreement and the other Transaction Documents. The Company, Contributors and Parent each agree after the Closing to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this Agreement and the other Transaction Documents.
Section 6.2
Public Announcements
. The parties agree to consult with each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby and, except as may be required by Applicable Law, will not issue any such press release or make any such public statement prior to such consultation and without the prior written consent of the other party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, any party hereto may disclose the terms and provisions of this Agreement to the extent necessary to obtain any required third party consents, estoppels, waivers or other instruments, or to enforce such party’s rights and remedies under this Agreement.
Section 6.3
Employee Benefits
. Parent shall enter into employment or consulting contracts on terms and conditions satisfactory to Parent with the Persons set forth on
Schedule 6.3
for the compensation amounts set forth on
Schedule 6.3
.
Section 6.4
Taxes
.
(a)
After the Closing Date, Parent will prepare, or cause to be prepared, and timely file, or cause to be timely filed, all Returns of the Company that are not yet due but due to be filed (taking into account applicable extensions) after the Closing Date. Parent will permit the Contributors’ Representative to review, comment on, and approve any such Return that includes any Pre-Closing Tax Period, and in accordance therewith, Parent will timely deliver a properly completed draft of each such Return, along with work papers and back-up information reasonably necessary or appropriate for the Contributors’ Representative to appropriately review and approve each such Return, such approval not to be unreasonably withheld, conditioned or delayed. All Returns prepared by Parent in accordance with this Section 6.4(a) will be prepared in a manner consistent with prior practice except to the extent not in accordance with Applicable Law.
(b)
All Taxes of the Company attributable to any Pre-Closing Tax Period will be allocated to and paid by the Contributors (in proportion to their respective share ownership of the Company immediately prior to the Closing). Contributor’s Representative shall promptly reimburse Parent for the amount of any Tax due for any Pre-Closing Tax Period (to the extent not paid before Closing.
(c)
For purposes of determining the amount of Tax for a Straddle Period that is allocable to the Pre-Closing Tax Period, a closing-of the-books (as of the close of business on the
26
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Closing Date) method shall be used, except for property Taxes or any other similar tax, which shall be allocated equally to each day in the applicable Straddle Period.
(d)
Neither the Company nor Parent will amend, or cause to be amended, any Returns that were filed by the Company prior to the Closing Date or that otherwise relate to a Pre-Closing Tax Period in a manner that would adversely affect the Contributors without the consent of the Contributors’ Representative, which consent may not be unreasonably withheld, conditioned or delayed.
(e)
All real property transfer or gains Tax, sales Tax, use Tax, stamp Tax, transfer Tax, documentary Tax, registration Tax, or other similar Tax imposed on the Contribution will be paid by one-half by Parent and one-half by the Contributors (in proportion to their respective share ownership of the Company immediately prior to the Closing). The party required by applicable law to file any Returns and other documentation with respect to any such Taxes described in this Section 6.4(e) will prepare and file such Returns and Parent and the Contributors’ Representative will each cooperate in the timely preparation and filing of, and join in the execution of, any such Returns and other documentation.
(f)
Parent and Contributor’s Representative will cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Returns and any audit, litigation or other proceeding with respect to Taxes. Such cooperation will include the retention and (upon the other Party’s request) the provision of records and information that are reasonably relevant to any such audit, litigation or other proceeding.
(g)
No party to this agreement has made any representation or warranty, or provided any guarantee or indemnification, to any other party regarding the Tax consequences of the transactions contemplated herein.
(h)
Except where required by a determination under Section 1313(a) of the Code, the parties shall file all Returns, take positions with all Authorities and report all financial information to third parties consistent with the following tax treatment:
(i)
The Contribution shall be characterized in the aggregate as a contribution by Contributors of the Shares to Parent in exchange for the Parent Units under Section 721 of the Code.
(ii)
Amounts paid with respect to the Class D Units in respect of Class D Distributions and the Class D Redemption under the Parent LLC Agreement shall be treated as distributions to a member that are not guaranteed payments under Section 707(c) of the Code.
(iii)
Any payments to Daewoong by Parent, directly or indirectly, on behalf of Parent pursuant to Section 2.3 shall be treated as a contribution by Parent to the Company under Section 351 of the Code or Section 118 of the Code and not as a payment or distribution to Contributors.
27
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(iv)
Parent shall report amounts paid under the Alphaeon Stock Purchase Agreement in accordance with the installment method of reporting as described in Section 453 of the Code.
(v)
Except for any transfer of Shares pursuant to the Class D Sale Right, any contribution by Parent to Alphaeon of all or any portion of the Shares shall be treated, in the aggregate as a contribution in exchange solely for common shares of Alphaeon under Section 351(a) of the Code.
Section 6.5
Termination of Company Agreements
. Concurrently with the Closing, the Company shall terminate all Contracts listed on
Schedule 6.5
(the “
Affiliate Agreements
”) between the Company, on the one hand, and any of the Company stockholders, on the other hand. The Contributor’s Representative will deliver at the Closing the resignation of all of the directors of the Company, effective as of the Closing, except for such directors or officers that the Parent specifies in writing to the Contributor’s Representative prior to the Closing Date.
Section 6.6
Non-Competition; Non-Solicitation
.
(a)
For a period of five years following the Closing, the Contributors shall not, and shall cause their Affiliates not to, directly or indirectly through any person, entity or contractual arrangement, other than for or on behalf of Buyer or its Affiliates:
(i)
engage in any business anywhere in the world that is engaged in the business of developing, licensing, commercializing or seeking regulatory approval for any neurotoxin or neuromodulator (the “
Business
”), or perform management, executive or supervisory functions with respect to, own, operate, join, control, render financial assistance to, receive any economic benefit from, participate in, render services or advice to, or allow any of its officers or employees to be connected as an officer, employee, partner, member, stockholder, consultant or otherwise with, any business, person or entity engaged in the Business; provided, that the foregoing shall not prohibit the Contributors or their respective Affiliates from (i) owning (and thus receiving economic benefits from) not more than five percent (5%) of the issued and outstanding capital stock of a publicly held corporation, and (ii) engaging in the Business following the acquisition of the capital stock of the Company as described in Section 2.2(g) above.
(ii)
solicit or recruit any person who at any time on or after the date of this Agreement is a Business Group Employee (as hereinafter defined); provided, that the foregoing shall not prohibit (A) a general solicitation to the public of general advertising or similar methods of solicitation by search firms not specifically directed at Business Group Employees, or (B) the Contributors or any of their Affiliates from soliciting, recruiting or hiring any Business Group Employee who has ceased to be employed or retained by the Company, the Parent or any subsidiary of the Parent for at least twelve (12) months. For purposes of this Section 6.6, “
Business Group Employees
” means, collectively, officers, directors, employees, consultants and contractors of the Company, the Parent and the Parent’s Affiliates;
(iii)
approach or seek Business from any Customer (as hereinafter defined), refer Business from any Customer to any enterprise or business or be paid commissions
28
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
based on Business sales received from any Customer by any enterprise or business. For purposes of this Section 6.6, “
Customer
” means any person, firm, corporation, partnership, association or other entity to which the Company, the Contributors, the Parent or any of their respective Affiliates provided products or services during the 36-month period prior to the time at which any determination shall be made that any such person, firm, corporation, partnership, association or other entity is a Customer, provided that the foregoing shall not prohibit the Contributors or their respective Affiliates from seeking Business from the general public, including Customers, following the acquisition of the capital stock of the Company as described in Section 2.2(g) above; or
(iv)
disparage the Parent or any of its Affiliates in any way that could adversely affect the goodwill, reputation or business relationships of the Business, the Parent or any of its Affiliates with the public generally, or with any of their customers, suppliers or employees.
(b)
The Contributors acknowledge that the covenants of the Contributors set forth in this Section 6.6 are an essential element of this Agreement and that any breach by the Contributors of any provision of this Section 6.6 will result in irreparable injury to the Parent. The Contributors acknowledge that in the event of such a breach, in addition to all other remedies available at law, the Parent shall be entitled to equitable relief, including injunctive relief. The Contributors have independently consulted with legal counsel and after such consultation agree that the covenants set forth in this Section 6.6 are reasonable and proper to protect the legitimate interest of the Parent.
(c)
If a court of competent jurisdiction determines that the character, duration or geographical scope of the provisions of this Section 6.6 are unreasonable, it is the intention and the agreement of the parties that these provisions shall be construed by the court in such a manner as to impose only those restrictions on the Contributors’ conduct that are reasonable in light of the circumstances and as are necessary to assure to the Parent the benefits of this Agreement. If, in any judicial proceeding, a court shall refuse to enforce all of the separate covenants of this Section 6.6 because taken together they are more extensive than necessary to assure to the Parent the intended benefits of this Agreement, it is expressly understood and agreed by the parties that the provisions hereof that, if eliminated, would permit the remaining separate provisions to be enforced in such proceeding, shall be deemed eliminated, for the purposes of such proceeding, from this Agreement.
Section 6.7
Sale of Class D Shares
.
(a)
The Contributors shall have the collective right, but not the obligation, for a period starting March 1, 2014 and ending December 31, 2014 (the “
Class D Sale Right Period
”), to require that Parent sell and Alphaeon purchase, and Parent shall be obligated to sell and Alphaeon shall be obligated to purchase from the Parent, all of the Class D Shares held by Parent (the “
Class D Sale Right
”). The Class D Sale Right may be exercised on behalf of the Contributors by the Contributors’ Representative by delivering written notice to Parent (the “
Class D Sale Notice
”) at any time during the Class D Sale Right Period, which Class D Sale Notice shall set forth the date (which date shall not be more than thirty (30) days nor less than five (5) days after the date of the Class D Sale Notice), time and place for the closing of the repurchase (the “
Contract Closing
”). The parties shall use commercially reasonable efforts to effect the Contract Closing on the date set
29
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
forth in the Class D Sale Notice, but in no event later than thirty (30) days of the receipt of the Class D Sale Notice.
(b)
On the date of the Contract Closing, Parent shall transfer the Class D Shares to Alphaeon in return for certain payments from Alphaeon pursuant to a purchase and sale agreement between Parent and Alphaeon in the form attached hereto as
Exhibit B
(the “
Alphaeon Stock Purchase Agreement
”). The Contributors shall be intended third party beneficiaries of the Alphaeon Stock Purchase Agreement and shall have the right, power and authority to enforce the provisions hereof as though they were a party thereto entitled to enforce the terms thereof, and the terms of the Alphaeon Stock Purchase Agreement shall not be amended without the prior written consent of the Contributors’ Representative. In connection with the contribution by Parent of the shares of the Company other than the Class D Shares, Parent shall cause Alphaeon to assume its obligations under the first sentence of this Section 6.7(b), and to consent to and acknowledge the Contributors’ right to enforce the terms of the Alphaeon Stock Purchase Agreement.
ARTICLE VII
INDEMNIFICATION
Section 7.1
Survival of Representations and Warranties
. The representations and warranties of the parties contained in this Agreement and any schedule, certificate or other document delivered pursuant hereto or in connection with the transactions contemplated hereby shall be continuing and survive the Closing for a period of eighteen (18) months following the Closing Date;
provided,
that (i) the representations and warranties contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.11(d), 3.14, 4.1, 4.2, 4.3, 4.4, 4.5, 5.1, 5.2, 5.3, 5.4 and 5.5 of this Agreement (the “
Fundamental Representations
”) shall survive without limitation as to time, (ii) the representations and warranties contained in Sections 3.17 and 3.18 of this Agreement shall survive until ninety (90) days after the end of the applicable statute of limitations, and (iii) the foregoing limitation as to the survival of representations and warranties of the parties shall not apply with respect to any fraudulent act committed by a party.
Section 7.2
Losses
. For purposes of this Agreement, the term “
Losses
” shall mean and include all losses, damages, liabilities, deficiencies, claims, interest, awards, judgments, penalties, costs and expenses (including reasonable attorneys’ fees, costs and other out-of-pocket expenses incurred in investigating, preparing or defending any third party claim); provided, that “Losses” shall not include any incidental, consequential, special, indirect, or punitive damages, lost profits or amount recoverable based on a multiple of earnings or similar valuation methodology (in each case, except to the extent payable in connection with a Third-Party Claim (as hereinafter defined)).
Section 7.3
Indemnification by the Contributors
. Subject to the limitations set forth in this Article VII, after the Closing, each Contributor, severally and not jointly, in proportion to such Contributor’s Pro Rata Share, shall indemnify, defend and hold harmless the Parent and the Parent’s Affiliates and their respective officers, directors, principals, employees, advisors, auditors, agents, bankers and other representatives (collectively, “
Representatives
”), and successors and assigns of each of the foregoing (collectively, the “
Parent Indemnified Parties
”) from and against any and all Losses incurred, sustained or suffered by any of the foregoing as a result of, arising out of or relating to:
30
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(a)
any breach of any representation or warranty made by the Contributors contained in Article III or Article IV of this Agreement;
(b)
any breach of any covenant or agreement by the Contributors contained in this Agreement; and
(c)
all Taxes of the Company attributable under Section 6.4(c) to any Pre-Closing Tax Period.
Section 7.4
Indemnification by the Parent
. The Parent shall save, defend, indemnify and hold harmless the Contributors and their respective Affiliates, and the respective Representatives, successors and assigns of each of the foregoing (collectively, the “
Contributor Indemnified Parties
”), from and against any and all Losses incurred, sustained or suffered by any of the foregoing as a result of, arising out of or relating to:
(a)
any breach of any representation or warranty made by the Parent contained in this Agreement; and
(b)
any breach of any covenant or agreement by the Parent contained in this Agreement or by the Company subsequent to the Closing.
Section 7.5
Manner of Payment
.
(a)
Payment of amounts due under this Article VII by the Parent shall be made promptly by the Parent upon demand by the Contributor Representative, as and when incurred by wire transfer of immediately available funds to an account designated in writing by the Contributor Representative.
(b)
Payment of amounts due under this Article VII by the Contributors shall be made promptly by the Contributors upon demand by the Parent, and Parent shall have the right to satisfy any amount required to be paid by the Contributors under this Article VII by (i) delivery of cash by wire transfer of immediately available funds to an account designated in writing by the Parent, (ii) the forfeiture of Class AA Units equal in value to the amount to be so paid in cash or (iii) any combination of (i) and (ii); provided, however, that until all Class AA Units have been forfeited pursuant to this Article VII, Parent may only seek payment of the amounts due under this Article VII from Contributors in cash up to the amount of cash that has been distributed to the Contributors pursuant to the Class D Distributions.
(c)
In the event that: (i) any Contributor does not pay or otherwise satisfy in accordance with Section 7.5(b) any amount due under this Article VII; (ii) Parent sends written notice to such Contributor that such Contributor has not paid or otherwise satisfied such amount; and (iii) such Contributor does not pay or otherwise satisfy in accordance with Section 7.5(b) such amount within sixty (60) days after receipt of such written notice, then Parent shall have the right, but not the obligation, to cause such Contributor to forfeit a number of Class AA Units equal in value to the amount to be so paid in cash that has not been paid or otherwise satisfied in accordance with Section 7.5(b).
31
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(d)
For purposes of this Section 7.5, each Class AA Unit shall be deemed to have a value equal $2,000.
Section 7.6
Procedures
.
(a)
“
Third-Party Claim
” means any means any legal action, arbitration, charge, complaint, or proceeding (each, a “
Proceeding
”) instituted or any claim or demand asserted by any person other than a party to this agreement in respect of which indemnification may be sought under this Article VII.
(b)
Any Indemnified Party shall notify the applicable indemnifying party of any indemnification claim by such Indemnified Party or of any facts or events that might give rise to a claim for indemnification hereunder (a “
Potential Claim
”), in writing promptly after becoming aware of such claim (including, without limitation, a Third-Party Claim), Potential Claim, describing the claim or Potential Claim, the amount thereof (if known and quantifiable) and the basis thereof; provided, that the failure to promptly notify the indemnifying party shall not relieve the indemnifying party of its obligations hereunder unless and to the extent the indemnifying party is prejudiced by such failure.
(c)
The indemnifying party shall be entitled to participate in the defense of any Third-Party Claim for which indemnification is being or may be sought hereunder, at such indemnifying party’s expense, and at its option (subject to the limitations set forth below) the indemnifying party shall be entitled to assume the defense thereof by appointing counsel reasonably acceptable to the Indemnified Party to be the lead counsel in connection with such defense. The Indemnified Party shall be entitled to participate in the defense of such claim and to employ, at its own expense not indemnifiable hereunder, counsel of its choice for such purpose. If the indemnifying party undertakes to control the defense of a Third-Party Claim, then (i) the Indemnified Party shall not enter into any settlement of such claim absent the prior written consent of the indemnifying party, and (ii) the indemnifying party shall obtain the prior written consent of the Indemnified Party before entering into any settlement of such Third-Party Claim if, pursuant to or as a result of such settlement, injunctive or other equitable relief will be imposed against the Indemnified Party or if such settlement does not expressly and unconditionally release the Indemnified Party from all liabilities with respect to such claim. If the indemnifying party does not undertake to control the defense of a Third Party Claim, then the Indemnified Party shall obtain the prior written consent of the indemnifying party (which consent shall not unreasonably be withheld or delayed) before entering into any settlement of such Third-Party Claim.
(d)
With respect to any Third-Party Claim subject to this Article VII, both the Indemnified Party and the indemnifying party shall render to each other such assistance as they may reasonably require of each other and shall cooperate in good faith with each other in order to ensure the proper and adequate defense of any Third-Party Claim.
Section 7.7
Remedies Not Affected by Investigation, Disclosure or Knowledge
. If the transactions contemplated hereby are consummated, the Parent and the Contributors each hereby expressly reserves the right to seek indemnity (to the extent provided for in this Article VII of this Agreement and subject to the limitations set forth herein) for any Losses, notwithstanding any
32
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
investigation by, disclosure to or knowledge of such party in respect of any fact or circumstances that reveals the occurrence of any such breach, whether before or after the execution and delivery hereof.
Section 7.8
Limitations on Indemnification
. Notwithstanding the foregoing provisions of this Article VII:
(a)
In no event shall the Contributors be required to make indemnification payments hereunder for Losses suffered by Parent Indemnified Parties under Section 7.3(a) in excess (in the aggregate) of $23,000,000;
provided, however,
that the foregoing limitation shall not apply to Losses suffered by reason of breaches of Fundamental Representations or as a result of the Contributors fraudulent actions.
(b)
In no event shall the Parent be required to make indemnification payments hereunder for Losses suffered by Contributor Indemnified Parties under Section 7.4(a) in excess (in the aggregate) of $23,000,000;
provided, however,
that the foregoing limitation shall not apply to Losses suffered by reason of breaches of Fundamental Representations or as a result of the Parent’s fraudulent actions.
(c)
For purposes of determining Contributors’ liability under this Article VII for any Loses, appropriate reductions shall be made to reflect the following: (i) any recovery pursuant to any insurance policy that may be received by Parent or the Company in respect of the Losses; and (ii) the present value (at an 8% discount rate), as of the date payment is made, of the tax benefits, if any, recognized by the Company. If an indemnification payment is received by Parent, and Parent or the Company later receives insurance proceeds, other third party recoveries or tax benefits in respect of the related Losses that were not previously credited against such indemnification payment when made, Parent shall promptly pay to the Contributors’ Representative (i) the actual amount of such insurance proceeds (after giving effect to any deductible), other third party recoveries and tax benefits or (ii) the actual amount of the indemnification payment previously paid by such Contributors with respect to such Losses.
Section 7.9
Sole Remedy
. Except with respect to the equitable remedies provided for in Section 9.12, the sole and exclusive rights and remedies based on, arising out of, or relating to this Agreement (whether stated as breach of contract, tort or otherwise) shall be those rights and remedies set forth in this Article VII. Without limiting the generality of the preceding sentence, no legal action sounding in contribution, tort or strict liability (in each case, other than claims made or contemplated by this Article VII), may be maintained by any party hereto, or any of their respective officers, managers, directors, employees, members, shareholders, Affiliates, representatives, agents, successors or assigns, against any other party hereto with respect to any matter that is the subject of Article VIII, and each party hereto, for itself and its officers, directors, employees, shareholders, Affiliates, representatives, agents, successors and assigns, hereby waives any and all statutory rights of contribution or indemnification that any of them might otherwise be entitled to under any federal, state or local law.
ARTICLE VIII
CONTRIBUTORS’ REPRESENTATIVE
33
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Section 8.1
Contributors’ Representative Appointment and Duties
. J. Christopher Marmo (or any successor thereto appointed in accordance with Section 8.2) (the “
Contributors’ Representative
”), is hereby appointed the exclusive agent, proxy and attorney-in-fact for each Contributor. The Contributors’ Representative shall have the authority to act for and on behalf of Contributors, including, without limitation, (a) to consummate the transactions contemplated herein including, but not limited to, the rights under Sections 2.2(g) and 2.2(k), (b) to receive and deliver to Parent surrendered certificates representing the Shares, (c) to communicate to, and receive all communications and notices from, Parent, (d) to do each and every act, implement any decision and exercise any and all rights which Contributors are permitted or required to do or exercise under this Agreement or any Transaction Document, (e) to execute and deliver on behalf of such Contributors any amendment or waiver hereto, (f) to negotiate, settle, compromise and otherwise handle any post-closing adjustments and all claims for indemnification made by Parent, (g) to authorize delivery to Parent of any funds and property in its possession in satisfaction of claims by Parent, (h) to object to such deliveries, (i) to agree to, negotiate, enter into settlements and compromises of, and commence, prosecute, participate in, settle, dismiss or otherwise terminate, as applicable, any litigation, action, proceeding or investigation relating to the Company, the Shares, Contributors, this Agreement, the Transaction Documents or any of the transactions contemplated by this Agreement or the Transaction Documents, and to comply with orders of courts and awards of courts, mediators and arbitrators with respect to such litigation, action, proceeding or investigation, and (j) to make, execute, acknowledge and deliver all such other agreements, guarantees, orders, receipts, endorsements, notices, requests, instructions, certificates, stock powers, letters and other writings, and, in general, to do any and all things and to take any and all actions that the Contributors’ Representative, in its sole discretion, may consider necessary or proper or convenient in connection with or to carry out the transactions contemplated by this Agreement and the Transaction Documents. The Contributors’ Representative shall, in this regard, have all of the rights and powers which Contributors would otherwise have, and Contributors agree that Parent shall be entitled to rely exclusively upon all actions taken or omitted to be taken by the Contributors’ Representative pursuant to this Agreement and any of the foregoing matters. The Contributors’ Representative shall for all purposes be deemed the sole authorized agent of Contributors until such time as the agency is terminated. Each Contributor agrees that such agency and proxy are coupled with an interest, are therefore irrevocable without the consent of the Contributors’ Representative and shall survive the death, incapacity, bankruptcy, dissolution or liquidation of any Contributor. All decisions and actions by the Contributors’ Representative shall be binding upon all Contributors, and no such Contributor shall have the right to object, dissent, protest or otherwise contest the same.
Section 8.2
Resignation or Removal of the Contributors’ Representative
. The Contributors’ Representative may be removed at any time upon a vote of Contributors holding a majority of the Class AA Units determined as of immediately following the Closing. Subject to the appointment and acceptance of a successor Contributors’ Representative as provided below, the Contributors’ Representative may resign at any time thirty (30) days after giving notice thereof to Contributors. Upon any such removal or resignation, the retiring Contributors’ Representative may, on behalf of Contributors, appoint a successor Contributors’ Representative; provided, however, that if the retiring Contributors’ Representative is unwilling or unable to appoint a successor Contributors’ Representative, Contributors may appoint a successor Contributors’ Representative by a vote of Contributors holding a majority of the Class AA Units determined as of immediately
34
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
following the Closing. Upon the acceptance of any appointment as the Contributors’ Representative hereunder, such successor Contributors’ Representative shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Contributors’ Representative, and the retiring Contributors’ Representative shall be discharged from its duties and obligations hereunder. After any retiring Contributors’ Representative’s resignation or removal hereunder as the Contributors’ Representative, the provisions of Section 8.2 shall continue in effect for such retiring Contributors’ Representative’s benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Contributors’ Representative.
Section 8.3
Liability of Contributors’ Representative
. The Contributors’ Representative shall not incur any liability to Contributors with respect to any action taken in reliance upon any note, direction, instruction, consent, statement or other document believed by the Contributors’ Representative to be genuinely and duly authorized, or for any other action or inaction in its capacity as the Contributors’ Representative, excepting only the fraud or willful misconduct of the Contributors’ Representative. The Contributors’ Representative may, in all questions arising hereunder, rely on the advice of legal counsel and for anything done, omitted or suffered in good faith by the Contributors’ Representative based on such advice, the Contributors’ Representative shall not be liable to any Contributors while acting in its capacity as Contributors’ Representative. Each Contributor shall be liable in proportion to such Contributor’s Pro Rata Share for any expenses (including, without limitation, reasonable attorneys’ fees and expenses) paid or incurred by the Contributors’ Representative in connection with the performance of its obligations as Contributors’ Representative, including in the defense of any indemnification claim brought against Contributors under Article VII. The Contributors’ Representative shall have the right to demand payment from each Contributor in proportion to such Contributor’s Pro Rata Share.
ARTICLE IX
MISCELLANEOUS
Section 9.1
Notices
. All notices and other communications under or in connection with this Agreement shall be in writing and shall be deemed given (a) if delivered personally, upon delivery, (b) upon confirmed delivery by an internationally recognized air courier, or (c) if given by telecopy or facsimile or email, upon receipt by the receiving party (with a hard copy confirmed via courier), in each case to the parties at the following addresses:
If to Parent, to: Strathspey Crown Holdings, LLC
4040 MacArthur Boulevard, Suite 210
Newport Beach, CA 92660
Attention: Robert E. Grant, Chairman
Facsimile: [______________]
35
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
with a copy to: Kendall, Koenig & Oelsner PC
999 Eighteenth Street, Suite 1825
Denver, Colorado 80202
Attention: Brad Schoenfeld
Facsimile: (303) 672-0101
If to the Company, to: Evolus, Inc.
1027 Garden Street
Santa Barbara, CA 93101
Attention: J. Christopher Marmo,
Chief Executive Officer
Facsimile: (805) 845-2585
with a copy to: Stradling Yocca Carlson & Rauth
800 Anacapa Street, Suite A
Santa Barbara, California
Attention: David E. Lafitte
Facsimile: (805) 730-6801
If to the Contributors’ J. Christopher Marmo
Representative: Evolus, Inc.
1027 Garden Street
Santa Barbara, CA 93101
Facsimile: (805) 845-2585
with a copy to: Stradling Yocca Carlson & Rauth
800 Anacapa Street, Suite A
Santa Barbara, California
Attention: David E. Lafitte
Facsimile: (805) 730-6801
Any party may at any time change the address to which notices may be sent under this Section by the giving of notice of such to the other parties in the manner set forth herein.
Section 9.2
Amendments; No Waivers
. This Agreement may not be amended except by an instrument in writing signed by Parent, the Company and the Contributors’ Representative (on behalf of Contributors). No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
36
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Section 9.3
Expenses
. Parent shall be responsible for and pay all costs, fees and expenses incurred by Parent in connection with this Agreement or any of the transactions contemplated hereby. The Company shall be responsible for and pay all costs, fees and expenses incurred by the Company in connection with this Agreement or any of the transactions contemplated hereby.
Section 9.4
Successors and Assigns
. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the written consent of the other parties hereto, and any such purported assignment, delegation or transfer by any party without such consent shall be void. Notwithstanding the foregoing, the Parent may assign this Agreement to any Affiliate of Parent, provided that Parent provides prior written notice of such assignment and a copy of the document effecting such assignment and provided further that such assignment shall not be relieved of its obligations under this Agreement.
Section 9.5
Governing Law; Jurisdiction and Venue
. This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws. Any legal action or other legal proceeding relating to this Agreement or the enforcement of any provision of this Agreement shall be brought or otherwise commenced exclusively in any state court located in Santa Barbara, California or any federal court located in the Western Division of the Central District of California. Each party to this Agreement: (a) expressly and irrevocably consents and submits to the jurisdiction of any state court located in Santa Barbara, California, any federal court located in the Western Division of the Central District of California and each appellate court located in the State of California, in connection with any legal proceeding, (b) agrees that service of any process, summons, notice or document by in the manner and addressed to such party at the address set forth in Section 9.1 shall constitute effective service of such process, summons, notice or document for purposes of any such legal proceeding, (c) agrees that each state court located in Santa Barbara, California and each federal court located in the Western Division of the Central District of California, shall be deemed to be a convenient forum, and (d) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any state court located in Santa Barbara, California or federal court located in the Western Division of the Central District, any claim that it is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, that the venue of such proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court.
Section 9.6
WAIVER OF JURY TRIAL
. EACH OF THE PARTIES IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN THE PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
Section 9.7
Counterparts
. This Agreement may be executed in one or more counterparts, including electronically transmitted counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same agreement.
37
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Section 9.8
Entire Agreement
. This Agreement, together with the Transaction Documents, the Disclosure Schedules and the exhibits and schedules hereto, constitutes the entire agreement among the parties with respect to its subject matter and supersedes all prior and contemporaneous agreements, understandings and negotiations, both written and oral, among the parties with respect to such subject matter.
Section 9.9
Construction; Interpretation
. The article, section and subsection headings used herein are inserted for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. As used in this Agreement, the masculine, feminine or neuter gender, and the singular or plural, shall be deemed to include the others whenever and wherever the context so requires.
Section 9.10
Severability
. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable such term or provision in any other jurisdiction, the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or enforceable.
Section 9.11
Third Party Rights
. Any other provision of this Agreement to the contrary notwithstanding, this Agreement shall not create benefits on behalf of any other Person not a party to this Agreement (including without limitation any broker or finder), and this Agreement shall be effective only as between the parties hereto, their successors and permitted assigns.
Section 9.12
Specific Performance
. Each of the parties hereto acknowledges and agrees that the other parties hereto would be irreparably damaged in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and money damages may not be an adequate remedy for any such failure to perform or breach. Accordingly, each of the parties hereto agrees that, in addition to any other remedy to which such party may be entitled at law or in equity or under this Agreement, they each shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof, and each of the parties hereto expressly waives the defense that a remedy in damages will be adequate.
Section 9.13
Disclosure Schedules
. The Disclosure Schedules are hereby incorporated into this Agreement to the same extent as though fully set forth herein (provided that and in no event shall any information or disclosures in the Disclosure Schedules be deemed or interpreted to broaden or otherwise amplify the representations and warranties contained in this Agreement). Information contained in the Disclosure Schedules under any particular schedule or section is deemed disclosed with respect to all other schedules or sections and any representations, warranties or covenants of the Company and/or Contributors where the applicability of such information to such other schedules or sections or representations, warranties or covenants is reasonably apparent, regardless of whether a cross-reference to the applicable section or schedule is actually made. Any matter disclosed in the Disclosure Schedules shall not be deemed an admission or representation as to the materiality of the item so disclosed or that such item did not arise in the ordinary course of business, and matters disclosed in the Disclosure Schedules are not necessarily limited to matters required by this
38
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Agreement to be disclosed in the Disclosure Schedules. Nothing in the Disclosure Schedules constitutes an admission of any liability or obligation of the Company or any Contributor to any third party or shall confer or give to any third party any remedy, claim, liability, reimbursement, cause of action or other right.
Section 9.14
Attorneys’ Fees
. In the event of any dispute related to or based upon this Agreement, the prevailing party shall be entitled to recover from the other party its reasonable attorneys’ fees and costs.
Section 9.15
Retention of Counsel
. Parent, for itself and the Company and for Parents’ and the Company’s respective successors and assigns, irrevocably acknowledges and agrees that all communications between the Contributors’ Representative and Contributors (collectively, “
Contributing Group
”) and counsel, including, without limitation, Stradling Yocca Carlson & Rauth, made in connection with the negotiation, preparation, execution, delivery and closing under, or any dispute or proceeding arising under or in connection with, this Agreement which, immediately prior to the Closing, would be deemed to be privileged communications of the Contributing Group and their counsel and would not be subject to disclosure to Parent in connection with any process relating to a dispute arising under or in connection with, this Agreement or otherwise, shall continue after the Closing to be privileged communications between the Contributing Group and such counsel and neither Parent nor any Person acting or purporting to act on behalf of or through Parent shall seek to obtain the same by any process on the grounds that the privilege attaching to such communications belongs to the Company and not the Contributing Group. Other than as explicitly set forth in this Section 9.15, the parties acknowledge that any attorney-client privilege attaching as a result of legal counsel representing the Company prior to the Closing shall survive the Closing and continue to be a privilege of the Company, and not the Contributing Group, after the Closing.
[Remainder of Page Intentionally Left Blank]
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF,
each of the parties hereto has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf by a representative duly authorized, all as of the date first above set forth.
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COMPANY:
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Evolus, Inc.
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By:
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/s/ J. Christopher Marmo
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Name:
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J. Christopher Marmo
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Title:
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CEO
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PARENT:
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Strathspey Crown Holdings, LLC
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By:
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/s/ Robert Grant
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Name:
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Robert Grant
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Title:
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Manager
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ALPHAEON:
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ALPHAEON Corporation
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By:
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/s/ Robert Grant
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Name:
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Robert Grant
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Title:
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CEO
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CONTRIBUTORS’ REPRESENTATIVE:
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/s/ J. Christopher Marmo
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Name:
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J. Christopher Marmo
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Title:
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as the Contributors’ Representative
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[Signature Page to Contribution Agreement]
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
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CONTRIBUTORS:
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/s/ J. Christopher Marmo
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/s/ John E. Gross
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John Gross
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/s/ Scott Cannizzaro
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Scott Cannizzaro
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The Gordon and Dona Crawford
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Trust UTD 8/23/77
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By:
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/s/ Gordon Crawford
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Trustee
|
[Signature Page to Contribution Agreement]
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
September 22, 2014
Evolus, Inc.
1027 Garden Street
Santa Barbara, CA 93101
Attention: J. Christopher Marmo
Re: Agreement to Amend Contribution Agreement
Dear Chris:
Reference is hereby made to that certain Contribution Agreement, dated as of October 3, 2013 (the “
Contribution Agreement
”), by and among Strathspey Crown Holdings, LLC (“
Parent
”), Evolus, Inc. (the “
Company
”), the Contributors and J. Christopher Marmo as Contributors’ Representative (the “
Contributors’ Representative
”). All capitalized terms not defined herein shall have the meanings acscribed to them in the Contribution Agreement. The parties have agreed to amend the Contribution Agreement to provide for the following (the “
Amendment
”):
|
|
a)
|
Section 1.1 .
Definitions
.
|
|
|
a.
|
The definition of “
Alphaeon Stock Purchase Agreement
” shall be amended and restated to read, in Rill, as follows:
|
“
Alphaeon Stock Purchase Agreement
”
has the meaning set forth in Section 6.7(b).”
|
|
b.
|
The definition of
Product
shall be amended and restated to read, in full, as follows:
|
“
Product
”
means (i) the
botulinum toxin product licensed to the Company under the Daewoong Agreement, and (ii) any other botulinum toxin, including any next generation botulinum toxin, in-licensed by
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Parent or any Affiliate of Parent, including, without limitation, Evolus or Alphaeon, from any third party (a “
New Toxin
”).”
|
|
b)
|
Section 2.2(e).
Development Budget
.
|
|
|
a.
|
The following shall be added to the end of Section 2.2(e)(ii) of the Agreement:
|
“In order to fund the Development Budget, Parent has deposited the sum of $3,000,000 with CitiBank, as Escrow Agent (the “
Escrow Account
”), pursuant to the terms of the Escrow Agreement dated February 2014 (the “
Escrow Agreement
”), among CitiBank, as Escrow Agent (“
CitiBank
”), Parent, the Company and the Contributors’ Representative. Parent and the Contributors’ Representative agree to immediately execute a joint instruction letter to CitiBank instructing CitiBank to release $3,000,000 from Escrow to Parent. Parent agrees to deposit back into the Escrow Account the amount of $3,000,000 on or before December 1, 2014, which shall be held by CitiBank in accordance with the terms of the Escrow Agreement. If Parent fails to deposit the $3,000,000 on or before December 1, 2014, then, in addition to all other rights and remedies under the Contribution Agreement, including Section 2.2(g) of the Contribution Agreement, Parent shall issue to the Company and the Contributors’ Representative a senior secured promissory note in the principal amount of $3,000,000 less any funds deposited back into the Escrow Account on or before December 1, 2014. Nothing in this Amendment shall reduce or limit the obligations of Parent to fund the Development Budget as described in Section 2.2(e) of the Contribution Agreement.
|
|
c)
|
Section 6.7(b).
Alphaeon Stock Purchase Agreement
.
|
The Aphaeon Stock Purchase Agreement attached as Exhibit B to the Contribution Agreement shall be amended by the terms of the Amendment attached hereto as
Exhibit A
.
|
|
d)
|
Continuing Effect
. This Amendment shall be deemed to form an integral part of the Contribution Agreement and construed in connection with and as part of the Contribution Agreement, and all terms, conditions, covenants and agreements set forth in the Contribution Agreement and each other instrument or agreement referred to therein, as applicable, except as explicitly set forth herein, are hereby ratified and confirmed and shall remain in full force and effect, unmodified in any way. In the event of any inconsistency or conflict between the provisions of
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
the Contribution Agreement and this Amendment, the provisions of this Amendment will prevail and govern. All references to the “Contribution Agreement” in the Contribution Agreement shall hereinafter refer to the Agreement as supplemented by this Amendment. Except as otherwise provided herein, the terms of the Contribution Agreement shall remain in full force and effect.
|
|
e)
|
Counterparts
. This Amendment may be executed in two (2) or more counterparts (any of which may be delivered by facsimile or email transmission followed promptly by an executed original), each of which will be deemed an original, but all of which together will constitute one and the same instrument.
|
|
|
f)
|
Governing Law
. This Amendment, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Amendment, or the negotiation, execution or performance of this Amendment shall be governed by the internal Laws of the State of California, without giving effect to the conflict-of-laws principles thereof.
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf by a representative duly authorized, all as of the date first above set forth.
|
|
|
COMPANY:
|
|
|
Evolus, Inc.
|
|
|
By:
|
/s/ J. Christopher Marmo
|
Name:
|
J. Christopher Marmo
|
Title:
|
CEO
|
|
|
|
|
PARENT:
|
|
|
Strathspey Crown Holdings, LLC
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
Manager
|
|
|
|
|
ALPHAEON:
|
|
|
ALPHAEON Corporation
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
CEO
|
|
|
|
|
CONTRIBUTORS’ REPRESENTATIVE:
|
|
|
/s/ J. Christopher Marmo
|
Name:
|
J. Christopher Marmo
|
Title:
|
as the Contributors’ Representative
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
November 3, 2015
Evolus, Inc.
1027 Garden Street
Santa Barbara, CA 93101
Attention: J. Christopher Marmo
Re: Second Agreement to Amend Contribution Agreement
Dear Chris:
Reference is hereby made to that certain Contribution Agreement, dated as of October 3, 2013, as amended September 22, 2014 (collectively, the “
Contribution Agreement
”), by and among Strathspey Crown Holdings, LLC (“
Parent
”), Evolus, Inc. (the “
Company
”), the Contributors and J. Christopher Marmo as Contributors’ Representative (the “
Contributors’ Representative
”). All capitalized terms not defined herein shall have the meanings ascribed to them in the Contribution Agreement. The parties have agreed to further amend the Contribution Agreement to provide for the following (the “
Amendment
”):
|
|
a)
|
Section 2.2(e).
Development Budget
.
|
|
|
a.
|
Section 2.2(e)(ii) of the Contribution Agreement shall be replaced in the entirety by the following:
|
“(ii) except as set forth in Section 2.2(f), no less than ninety (90) days prior to the beginning of each fiscal quarter of the Company (each, a “
Quarterly Fund Date
”)
,
deposit an amount equal to the Development costs determined in accordance with the Development Budget, as updated from time to time in accordance with Section 2.2(j), for the next succeeding fiscal quarter into an escrow account accessible to the Company and the Contributors’ Representative to be used solely to fund the Development in accordance with the terms of the Development
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Budget. Until U.S. Approval, the Company, Parent and Contributors’ Representative will each cooperate in the timely preparation and updating of the Development Budget no less frequently than each fiscal quarter of the Company. In order to fund the Development Budget, Parent has deposited the sum of $3,000,000 with CitiBank, as Escrow Agent (the “
Escrow Account
”), pursuant to the terms of the Escrow Agreement dated February 2014 (the “
Escrow Agreement
”), among CitiBank, as Escrow Agent (“
CitiBank
”), Parent, the Company and the Contributors’ Representative. Parent and the Contributors’ Representative agree to immediately execute a joint instruction letter to CitiBank instructing CitiBank to release $3,000,000 from Escrow to Parent. Parent agrees to apply $1,000,000 to satisfy outstanding obligations owed to Pharmaceutical Product Development, LLC (“
PPD
”), with payment made to PPD not later than seven (7) days following the release of the $3,000,000 to Parent. Parent agrees to deposit back into the Escrow Account the amount of $4,000,000 (“
Escrow Amount
”)
on or before December 2, 2015, which shall be held by CitiBank in accordance with the terms of the Escrow Agreement. A failure by Parent to deposit the Escrow Amount on or before December 2, 2015 (“
Escrow Failure
”) shall be deemed to be a failure to fund the Development Budget with a Default Date of December 2, 2015. In the event of (i) an Escrow Failure, or (ii) failure of Parent to pay the $1,000,000 to PPD, Contributors’ Representative may exercise (on behalf of the Contributors) all rights and remedies under the Contribution Agreement, including, but not limited to those rights and remedies set forth in Section 2.2(g) without regard for the notice and waiting periods of Section 2.2(g)(ii) and the cure periods of Section 2.2(g)(iii), none of which shall be applicable in case of an Escrow Failure or failure to pay PPD. In addition, the thirty (30) days in which Contributor’s Representative has to act after a Default Date shall be extended to ninety (90) days in case of an Escrow Failure or failure to pay PPD. Nothing in this Amendment shall reduce or limit the obligations of Parent to fund the Development Budget as described in Section 2.2(e) of the Contribution Agreement.”
|
|
b)
|
Continuing Effect
. This Amendment shall be deemed to form an integral part of the Contribution Agreement and construed in connection with and as part of the Contribution Agreement, and all terms, conditions, covenants and agreements set forth in the Contribution Agreement and each other instrument or agreement referred to therein, as applicable, except as explicitly set forth
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
herein, are hereby ratified and confirmed and shall remain in full force and effect, unmodified in any way. In the event of any inconsistency or conflict between the provisions of the Contribution Agreement and this Amendment, the provisions of this Amendment will prevail and govern. All references to the “Contribution Agreement” in the Contribution Agreement shall hereinafter refer to the Agreement as supplemented by this Amendment. Except as otherwise provided herein, the terms of the Contribution Agreement shall remain in full force and effect.
|
|
c)
|
Counterparts
. This Amendment may be executed in two (2) or more counterparts (any of which may be delivered by facsimile or email transmission followed promptly by an executed original), each of which will be deemed an original, but all of which together will constitute one and the same instrument.
|
|
|
d)
|
Governing Law
. This Amendment, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Amendment, or the negotiation, execution or performance of this Amendment shall be governed by the internal Laws of the State of California, without giving effect to the conflict-of-laws principles thereof.
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf by a representative duly authorized, all as of the date first above set forth.
|
|
|
COMPANY:
|
|
|
Evolus, Inc.
|
|
|
By:
|
/s/ J. Christopher Marmo
|
Name:
|
J. Christopher Marmo
|
Title:
|
CEO
|
|
|
|
|
PARENT:
|
|
|
Strathspey Crown Holdings, LLC
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
Manager
|
|
|
|
|
ALPHAEON:
|
|
|
ALPHAEON Corporation
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
CEO
|
|
|
|
|
CONTRIBUTORS’ REPRESENTATIVE:
|
|
|
/s/ J. Christopher Marmo
|
Name:
|
J. Christopher Marmo
|
Title:
|
as the Contributors’ Representative
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
February 15, 2016
Evolus, Inc.
1027 Garden Street
Santa Barbara, CA 93101
Attention: J. Christopher Marmo
Re: Agreement to Amend Contribution Agreement
Dear Chris:
Reference is hereby made to that certain Contribution Agreement, dated as of October 3, 2013, as amended on September 22, 2014 and November 2, 2015 (collectively, the “
Contribution Agreement
”),
by and among Strathspey Crown Holdings, LLC (“
Parent
”),
Evolus, Inc. (the “
Company
”),
a wholly-owned subsidiary of ALPHAEON Corporation (“
Alphaeon
”),
the Contributors and J Christopher Marmo as Contributors’ Representative (the “
Contributors
’
Representative
”).
All capitalized terms not defined herein shall have the meanings ascribed to them in the Contribution Agreement. The parties have agreed to further amend the Contribution Agreement to provide for the following (the “
Amendment
”)
:
|
|
a)
|
Section 2.2(e).
Development Budget
.
|
|
|
a.
|
Section 2.2(e)(ii) of the Contribution Agreement shall be replaced in the entirety by the following:
|
“(ii) except as set forth in Section 2.2(f), no less than ninety (90) days prior to the beginning of each fiscal quarter of the Company (each, a “
Quarterly Fund Date
”)
,
deposit an amount equal to the Development costs determined in accordance with the Development Budget, as updated from time to time in accordance with Section 2.2(j), for the next succeeding fiscal quarter into an escrow account accessible to the
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Company and the Contributors’ Representative to be used solely to fund the Development in accordance with the terms of the Development Budget. Until U.S. Approval, the Company, Parent, Alphaeon and Contributors’ Representative will each cooperate in the timely preparation and updating of the Development Budget no less frequently than each fiscal quarter of the Company. In order to fund the Development Budget, Parent has deposited the sum of $3,000,000 with CitiBank, as Escrow Agent (the “
Escrow Account
”),
pursuant to the terms of the Escrow Agreement dated February 2014 (the “
Escrow Agreement
”),
among CitiBank, as Escrow Agent (“
CitiBank
”),
Parent, the Company and the Contributors’ Representative, Parent, Alphaeon and the Contributors’ Representative agree to immediately execute a joint instruction letter to CitiBank instructing CitiBank to release $3,000,000 from Escrow to Parent. Parent and Alphaeon agree to apply $2,000,000 to satisfy outstanding obligations owed to Pharmaceutical Product Development, LLC (“
PPD
”), with payment made to PPD not later than seven (7) days following the release of the $3,000,000 to Parent. Parent agrees to deposit back into the Escrow Account the amount of $2,200,000 (“
Escrow Amount
”)
on or before March 15, 2016, which shall be held by CitiBank in accordance with the terms of the Escrow Agreement. A failure by Parent or Alphaeon to deposit the Escrow Amount on or before March 15, 2016 (“
Escrow Failure
”)
shall be deemed to be a failure to fund the Development Budget with a Default Date of March 15, 2016. In the event of (i) an Escrow Failure, or (ii) failure of Parent or Alphaeon to pay $2,000,000 to PPD, Contributors’ Representative may exercise (on behalf of the Contributors) all rights and remedies under the Contribution Agreement, including, but not limited to those rights and remedies set forth in Section 2.2(g) without regard for the notice and waiting periods of Section 2.2(g)(ii) and the cure periods of Section 2.2(g)(iii), none of which shall be applicable in case of an Escrow Failure or failure to pay PPD. In addition, the thirty (30) days in which Contributor’s Representative has to act after a Default Date shall be extended to ninety (90) days in case of an Escrow Failure or failure to pay PPD. Nothing in this Amendment shall reduce or limit the obligations of Parent and Alphaeon to fund the Development Budget as described in Section 2.2(e) of the Contribution Agreement.”
|
|
b)
|
Continuing Effect
. This Amendment shall be deemed to form an integral part of the Contribution Agreement and construed in connection with and as part
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
of the Contribution Agreement, and all terms, conditions, covenants and agreements set forth in the Contribution Agreement and each other instrument or agreement referred to therein, as applicable, except as explicitly set forth herein, are hereby ratified and confirmed and shall remain in full force and effect, unmodified in any way. In the event of any inconsistency or conflict between the provisions of the Contribution Agreement and this Amendment, the provisions of this Amendment will prevail and govern. All references to the “Contribution Agreement” in the Contribution Agreement shall hereinafter refer to the Agreement as supplemented by this Amendment. Except as otherwise provided herein, the terms of the Contribution Agreement shall remain in full force and effect.
|
|
c)
|
Counterparts
. This Amendment may be executed in two (2) or more counterparts (any of which may be delivered by facsimile or email transmission followed promptly by an executed original), each of which will be deemed an original, but all of which together will constitute one and the same instrument.
|
|
|
d)
|
Governing Law
. This Amendment, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Amendment, or the negotiation, execution or performance of this Amendment shall be governed by the internal Laws of the State of California, without giving effect to the conflict-of-laws principles thereof.
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf by a representative duly authorized, all as of the date first above set forth.
|
|
|
COMPANY:
|
|
|
Evolus, Inc.
|
|
|
By:
|
/s/ J. Christopher Marmo
|
Name:
|
J. Christopher Marmo
|
Title:
|
CEO
|
|
|
|
|
PARENT:
|
|
|
Strathspey Crown Holdings, LLC
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
Manager
|
|
|
|
|
ALPHAEON:
|
|
|
ALPHAEON Corporation
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
CEO
|
|
|
|
|
CONTRIBUTORS’ REPRESENTATIVE:
|
|
|
/s/ J. Christopher Marmo
|
Name:
|
J. Christopher Marmo
|
Title:
|
as the Contributors’ Representative
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
April 14, 2016
Evolus, Inc.
1027 Garden Street
Santa Barbara, CA 93101
Attention: J. Christopher Marmo
Re: Fourth Agreement to Amend Contribution Agreement
Dear Chris:
Reference is hereby made to that certain Contribution Agreement, dated as of October 3, 2013, as amended on September 22, 2014, November 2, 2015 and February 15, 2016 (collectively, the “
Contribution Agreement
”), by and among Strathspey Crown Holdings, LLC (“
Parent
”), Evolus, Inc. (the “
Company
”), a wholly-owned subsidiary of ALPHAEON Corporation (“
Alphaeon
”), the Contributors and I Christopher Marmo as Contributors’ Representative (the “
Contributors’ Representative
”). All capitalized terms not defined herein shall have the meanings ascribed to them in the Contribution Agreement. The parties have agreed to further amend the Contribution Agreement to provide for the following (the “
Amendment
”):
|
|
a)
|
Section 2.2(e).
Development Budget
.
|
|
|
a.
|
Section 2.2(e)(ii) of the Contribution Agreement shall be replaced in the entirety by the following:
|
“(ii) except as set forth in Section 2.2(f), no less than ninety (90) days prior to the beginning of each fiscal quarter of the Company (each, a “
Quarterly Fund Date
”), deposit an amount equal to the Development costs determined in accordance with the Development Budget, as updated from time to time in accordance with Section 2.2(j), for the next succeeding fiscal quarter into an escrow account accessible to the
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Company and the Contributors’ Representative to be used solely to fund the Development in accordance with the terms of the Development Budget. Until U.S. Approval, the Company, Parent, Alphaeon and Contributors’ Representative will each cooperate in the timely preparation and updating of the Development Budget no less frequently than each fiscal quarter of the Company. In order to fund the Development Budget, Parent has deposited the sum of $3,200,000 with CitiBank, as Escrow Agent (the “
Escrow Account
”), pursuant to the terms of the Escrow Agreement dated February 2014 (the “
Escrow Agreement
”), among CitiBank, as Escrow Agent (“
CitiBank
”), Parent, the Company and the Contributors’ Representative, Parent, Alphaeon and the Contributors’ Representative agree to immediately execute a joint instruction letter to CitiBank instructing CitiBank to release $3,200,000 from Escrow to Parent. Parent and Alphaeon agree to apply $2,200,000.00 to satisfy outstanding obligations as directed by Contributors’ Representative, with payment made no later than ten (10) days following the release of the $3,200,000 to Parent. Parent agrees to deposit back into the Escrow Account the amount of $2,700,000 (“
Escrow Amount
”) on or before May 31, 2016, which shall be held by CitiBank in accordance with the terms of the Escrow Agreement. A failure by Parent or Alphaeon to deposit the Escrow Amount on or before May 31, 2016 (“
Escrow Failure
”) shall be deemed to be a failure to fund the Development Budget with a Default Date of May 31, 2016. In the event of (i) an Escrow Failure, or (ii) failure of Parent or Alphaeon to pay $2,200,000.00 as directed by Contributors’ Representative, Contributors’ Representative may exercise (on behalf of the Contributors) all rights and remedies under the Contribution Agreement, including, but not limited to those rights and remedies set forth in Section 2.2(g) without regard for the notice and waiting periods of Section 2.2(g)(ii) and the cure periods of Section 2.2(g)(iii), none of which shall be applicable in case of an Escrow Failure or failure to pay $2,200,000.00 as directed by Contributors’ Representative. In addition, the thirty (30) days in which Contributor’s Representative has to act after a Default Date shall be extended to ninety (90) days in case of an Escrow Failure or failure to pay $2,200,000.00 as directed by Contributors’ Representative. Nothing in this Amendment shall reduce or limit the obligations of Parent and Alphaeon to fund the Development Budget as described in Section 2.2(e) of the Contribution Agreement.”
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
b)
|
Continuing Effect
. This Amendment shall be deemed to form an integral part of the Contribution Agreement and construed in connection with and as part of the Contribution Agreement, and all terms, conditions, covenants and agreements set forth in the Contribution Agreement and each other instrument or agreement referred to therein, as applicable, except as explicitly set forth herein, are hereby ratified and confirmed and shall remain in full force and effect, unmodified in any way. In the event of any inconsistency or conflict between the provisions of the Contribution Agreement and this Amendment, the provisions of this Amendment will prevail and govern. All references to the “Contribution Agreement” in the Contribution Agreement shall hereinafter refer to the Agreement as supplemented by this Amendment. Except as otherwise provided herein, the terms of the Contribution Agreement shall remain in full force and effect.
|
|
|
c)
|
Counterparts
. This Amendment may be executed in two (2) or more counterparts (any of which may be delivered by facsimile or email transmission followed promptly by an executed original), each of which will be deemed an original, but all of which together will constitute one and the same instrument.
|
|
|
d)
|
Governing Law
. This Amendment, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Amendment, or the negotiation, execution or performance of this Amendment shall be governed by the internal Laws of the State of California, without giving effect to the conflict-of-laws principles thereof.
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf by a representative duly authorized, all as of the date first above set forth.
|
|
|
COMPANY:
|
|
|
Evolus, Inc.
|
|
|
By:
|
/s/ J. Christopher Marmo
|
Name:
|
J. Christopher Marmo
|
Title:
|
CEO
|
|
|
|
|
PARENT:
|
|
|
Strathspey Crown Holdings, LLC
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
Manager
|
|
|
|
|
ALPHAEON:
|
|
|
ALPHAEON Corporation
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
CEO
|
|
|
|
|
CONTRIBUTORS’ REPRESENTATIVE:
|
|
|
/s/ J. Christopher Marmo
|
Name:
|
J. Christopher Marmo
|
Title:
|
as the Contributors’ Representative
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
EVOLUS, INC.
Evolus, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “
General Corporation Law
”),
DOES HEREBY CERTIFY THAT:
1. The name of this corporation is Evolus, Inc.
2. The Amended and Restated Certificate of Incorporation of Evolus, Inc. in the form attached hereto as
Exhibit A
, which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented, has been duly adopted in accordance with the provisions of Sections 242, 245, and 228 of the General Corporation Law of the State of Delaware by the directors and stockholders of the Corporation.
3. The Amended and Restated Certificate of Incorporation, so adopted reads in full as set forth in
Exhibit A
attached hereto and is incorporated herein by this reference.
IN WITNESS WHEREOF
, Evolus, Inc. has caused this Amended and Restated Certificate of Incorporation to be executed by a duly authorized officer of this corporation on this 21st day of February 2013.
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By:
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/s/ J. Christopher Marmo
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J. Christopher Marmo
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President & Chief Executive Officer
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EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
EVOLUS, INC.
FIRST:
The name of this corporation is Evolus, Inc. (the “
Corporation
”)
SECOND:
The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, County New Castle. The name of the Corporation’s registered agent at that address is Corporation Service Company.
THIRD:
The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
FOURTH:
The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 20,000,000 shares of Common Stock, $0.00001 par value per share (“
Common Stock
”), and (ii) 2,500,000 shares of Preferred Stock, $0.00001 par value per share (“
Preferred Stock
”).
The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1.
General
. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.
2.
Voting
. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). No person entitled to vote at an election for directors may cumulate votes to which such person is entitled. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of this Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
B. PREFERRED STOCK
1.
Issuance and Reissuance
.
Preferred Stock may be issued from time to time in one or more series, each of such series to consist of such number of shares and to have such terms, rights, powers and preferences, and the qualifications and limitations with respect thereto, as stated or expressed herein. Any shares of Preferred
Stock that may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law or by the terms of any series of Preferred Stock.
C. SERIES A PREFERRED STOCK
2,500,000 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “
Series A Preferred Stock
” with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to “Sections” or “Subsections” in this Part C of this Article Fourth refer to sections and subsections of Part C of this Article Fourth.
1.
Dividends
.
The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of the Series A Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred Stock in an amount at least equal to $0.032 per share of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock) per year from and after the date of the issuance of any shares of Series A Preferred Stock (to the extent not previously paid). In addition, in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, the Corporation will pay a dividend per share of Series A Preferred Stock as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Series A Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend; in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series A Preferred Stock determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount equal to the Series A Original Issue Price (as defined below); provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Series A Preferred Stock pursuant to this
Section 1
shall be calculated based upon the dividends on the class or series of capital stock that would result in the highest Series A Preferred Stock dividends. The foregoing dividend shall not be cumulative. The “
Series A Original Issue Price
” shall mean $0.40 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock.
2.
Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales
.
2.1
Payments to Holders of Series A Preferred Stock
. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation legally available for distribution to its stockholders, pro rata, on an equal priority, pari passu basis, and before
any payment shall be made to the holders of Common Stock, by reason of their ownership of Preferred Stock, an amount per share equal to the greater of (i) the Series A Original Issue Price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series A Preferred Stock been converted into Common Stock pursuant to
Section 4
immediately prior to such liquidation, dissolution or winding up (such greater amount, the “
Series A Liquidation Amount
”). If upon any such liquidation, dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled under this
Subsection 2.1
, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full, and no assets shall be distributed to the holders of Common Stock.
2.2
Payments to Holders of Common Stock
. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment in full of all preferential amounts required to be paid to the holders of shares of Series A Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.
2.3
Deemed Liquidation Events
.
2.3.1
Definition
. Each of the following events shall be considered a “
Deemed Liquidation Event
” unless the holders of at least a majority of the outstanding shares of Series A Preferred Stock elect otherwise by written notice sent to the Corporation at least five (5) business days prior to the effective date of any such event:
(a) a merger or consolidation in which
(i) the Corporation is a constituent party; or
(ii) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,
except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation (provided that, for the purpose of this
Subsection 2.3.1
, all shares of Common Stock issuable upon exercise of Options (as defined below) outstanding immediately prior to such merger or consolidation or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of Common Stock are converted or exchanged); or
(b) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
2.3.2
Effecting a Deemed Liquidation Event
.
(a) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in
Subsection 2.3.1(a)(i)
unless the agreement or plan of merger or consolidation for such transaction (the “
Merger Agreement
”) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with
Subsections 2.1
and
2.2
.
(b) In the event of a Deemed Liquidation Event referred to in
Subsection 2.3.1(a)(ii)
or
2.3.1(b)
, if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within 60 days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Series A Preferred Stock no later than the 60th day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following
clause (ii)
to require the redemption of such shares of Series A Preferred Stock, and (ii) if the holders of at least a majority of the then outstanding shares of Series A Preferred Stock so request in a written instrument delivered to the Corporation not later than 75 days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation), together with any other assets of the Corporation available for distribution to its stockholders (the “
Available Proceeds
”), to the extent legally available therefor, on the 120th day after such Deemed Liquidation Event (the “
Liquidation Redemption Date
”), to redeem all outstanding shares of Series A Preferred Stock at a price per share equal to the Series A Liquidation Amount (the “
Redemption Price
”). In the event of a redemption pursuant to the preceding sentence (the “
Liquidation Redemption
”), if the Available Proceeds are not sufficient to redeem all outstanding shares of Series A Preferred Stock, or if the Corporation does not have sufficient lawfully available funds to effect such redemption, the Corporation shall redeem a pro rata portion of each holder’s shares of Series A Preferred Stock to the fullest extent of such Available Proceeds, or such lawfully available funds, as the case may be, and, where such redemption is limited by the amount of lawfully available funds, the Corporation shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. Written notice of the Liquidation Redemption (the “
Redemption Notice
”) shall be sent to each holder of record of Series A Preferred Stock not less than 20 days prior to Liquidation Redemption Date. The Redemption Notice shall state: (A) the number of shares of Series A Preferred Stock held by the holder that the Corporation shall redeem on the Liquidation Redemption Date; (B) the Liquidation Redemption Date; (C) that the holder is to surrender to the Corporation, in the manner and the place designated, his, her or its certificate or certificates representing the shares of Series A Preferred Stock to be redeemed. On or before the Liquidation Redemption Date, each holder of shares of Series A Preferred Stock to be redeemed on such Liquidation Redemption Date shall surrender the certificate or certificates representing such shares (or if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit
and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Series A Preferred Stock represented by a certificate are redeemed, a new certificate representing the unredeemed shares of Series A Preferred Stock shall promptly be issued to such holder. If the Redemption Notice shall have been duly given, and if on the Liquidation Redemption Date the Redemption Price payable upon redemption of the shares of Series A Preferred Stock to be redeemed on such Liquidation Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor, then notwithstanding that the certificates evidencing any of the shares of Series A Preferred Stock shall have not been surrendered, dividends with respect to such shares of Series A Preferred Stock shall cease to accrue after such Liquidation Redemption Date and all rights with respect to such shares shall forthwith after the Liquidation Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of their certificate or certificates therefor. Prior to the distribution or redemption provided for in this
Subsection 2.3.2(b)
, the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.
2.3.3
Amount Deemed Paid or Distributed
. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.
3.
Voting
.
3.1
General
. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class and on an as-converted basis.
3.2
Election of Directors
. The Corporation shall have three (3) directors who shall be elected by the holders of record of the shares of Series A Preferred Stock and the holders of record of the shares of Common Stock, voting together as a single class. Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Series A Preferred Stock and Common Stock fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, then any directorship not so filled shall remain vacant until such time as the holders of the Series A Preferred Stock and Common Stock elect a person to fill such directorship by vote or written consent in lieu of a
meeting; and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director.
3.3
Series A Preferred Stock Protective Provisions
. At any time when shares of Series A Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class on an as-converted basis:
(a) alter or change the rights, preferences or privileges of the Series A Preferred Stock;
(b) increase the authorized number of shares of Series A Preferred Stock or increase the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and redemption rights;
(c) liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any Deemed Liquidation Event, or consent to any of the foregoing;
(d) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Stock;
(e) create, or authorize the creation of, any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and redemption rights;
(f) purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series A Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service pursuant to the terms of restricted stock purchase agreements approved by the Board of Directors;
(g) increase or decrease the authorized number of directors constituting the Board of Directors;
(h) authorize the payment of a dividend to any holders of any class or series of capital stock;
(i) take any action resulting in the transfer of material assets of the Corporation to any person other than a wholly owned subsidiary of the Corporation; or
(j) file a petition under any bankruptcy or insolvency law.
4.
Optional Conversion
.
The holders of the Series A Preferred Stock shall have conversion rights as follows (the “
Conversion Rights
”):
4.1
Right to Convert
.
4.1.1
Conversion Ratio
. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion. The “
Series A Conversion Price
” shall initially be equal to $0.40. Such initial Series A Conversion Price, and the rate at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.
4.1.2
Termination of Conversion Rights
. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series A Preferred Stock.
4.2
Fractional Shares
. No fractional shares of Common Stock shall be issued upon conversion of the Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
4.3
Mechanics of Conversion
.
4.3.1
Notice of Conversion
. In order for a holder of Series A Preferred Stock to voluntarily convert shares of Series A Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series A Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series A Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series A Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice shall be the time of conversion (the “
Conversion Time
”), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, issue and deliver to such holder of Series A Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof, a certificate for the number (if any) of the shares of Series A Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, and cash as provided in
Subsection 4.2
in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and payment of any declared but unpaid dividends on the shares of Series A Preferred Stock converted.
4.3.2
Reservation of Shares
. The Corporation shall at all times when the Series A Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series A Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the Series A Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Series A Conversion Price.
4.3.3
Effect of Conversion
. All shares of Series A Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Any shares of Series A Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly.
4.3.4
No Further Adjustment
. Upon any such conversion, no adjustment to the Series A Conversion Price shall be made for any declared but unpaid dividends on the Series A Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
4.3.5
Taxes
. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Series A Preferred Stock pursuant to this
Section 4
. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Series A Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.4
Adjustments to Series A Conversion Price for Diluting Issues
.
4.4.1
Special Definitions
. For purposes of this Article Fourth, the following definitions shall apply:
(a) “
Option
” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(b) “
Series A Original Issue Date
” shall mean the date on which the first share of Series A Preferred Stock was issued.
(c) “
Convertible Securities
” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(d) “
Additional Shares of Common Stock
” shall mean all shares of Common Stock issued (or, pursuant to
Subsection 4.4.3
below, deemed to be issued) by the Corporation after the Series A Original Issue Date, other than the shares of Common Stock, and shares of Common Stock deemed issued pursuant to the following excluded Options and Convertible Securities (collectively “
Exempted Securities
”):
(i) shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Series A Preferred Stock;
(ii) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by
Subsection 4.5
,
4.6
,
4.7
or
4.8
;
(iii) shares of Common Stock or Options issued to employees or directors of, or consultants, service providers or advisors to, the Corporation or any of its subsidiaries pursuant to any stock option plan, equity incentive plan or similar plan, agreement or arrangement approved by the Board of Directors of the Corporation;
(iv) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;
(v) shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors of the Corporation; and
(vi) shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board of Directors of the Corporation.
4.4.2
No Adjustment of Series A Conversion Price
. No adjustment in the Series A Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the holders of at least a majority of the then outstanding shares of Series A Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
4.4.3
Deemed Issue of Additional Shares of Common Stock
.
(a) If the Corporation at any time or from time to time after the Series A Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Series A Conversion Price pursuant to the terms of
Subsection 4.4.4
, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option and/or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Series A Conversion Price computed upon the original issue of such Option and/or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Series A Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option and/or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this
clause (b)
shall have the effect of increasing the Series A Conversion Price to an amount which exceeds the lower of (i) the Series A Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Series A Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option and/or Convertible Security) between the original adjustment date and such readjustment date.
(c) If the terms of any Option or Convertible Security (excluding Options and/or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Series A Conversion Price pursuant to the terms of
Subsection 4.4.4
(either because the consideration per share (determined pursuant to
Subsection 4.4.5
) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Series A Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series A Original Issue Date), are revised after the Series A Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security in effect prior to the Series A Original Issue Date) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in
Subsection 4.4.3(a)
) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series A Conversion Price pursuant to the terms of
Subsection 4.4.4
, the Series A Conversion Price shall be readjusted to such Series A Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.
(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option and/or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Series A Conversion Price provided for in this
Subsection 4.4.3
shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this
Subsection 4.4.3
). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Series A Conversion Price that would result under the terms of this
Subsection 4.4.3
at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Series A Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
4.4.4
Adjustment of Series A Conversion Price Upon Issuance of Additional Shares of Common Stock
. In the event the Corporation shall at any time after the Series A Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4.4.3
), without consideration or for a consideration per share less than the Series A Conversion Price in effect immediately prior to such issue, then the Series A Conversion Price shall be reduced, concurrently with such issue, to a price determined in accordance with the following formula:
CP
2
= CP
1
x (A + B) ÷ (A + C).
For purposes of the foregoing formula, the following definitions shall apply:
(a) “CP
2
” shall mean the Series A Conversion Price in effect immediately after such issue of Additional Shares of Common Stock;
(b) “CP
1
” shall mean the Series A Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;
(c) “A” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock reserved for issuance under the Corporation’s stock incentive plan, whether or not subject to outstanding Options, or upon conversion or exchange of Convertible Securities (including the Series A Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) and all shares of Common Stock issuable upon exercise of any other outstanding Options, immediately prior to such issue);
(d) “B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and
(e) “C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.
4.4.5
Determination of Consideration
. For purposes of this
Subsection 4.4
, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(a)
Cash and Property
: Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and
(iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in
clauses (i)
and
(ii)
above, as determined in good faith by the Board of Directors of the Corporation.
(b)
Options and Convertible Securities
. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to
Subsection 4.4.3
, relating to Options and Convertible Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
4.4.6
Multiple Closing Dates
. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Series A Conversion Price pursuant to the terms of
Subsection 4.4.4
then, upon the final such issuance, the Series A Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).
4.5
Adjustment for Stock Splits and Combinations
. If the Corporation shall at any time or from time to time after the Series A Original Issue Date effect a subdivision of the outstanding Common Stock without a corresponding subdivision of the Preferred Stock, the Series A Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series A Original Issue Date combine the outstanding shares of Common Stock without a corresponding subdivision or combination of the Preferred Stock, the Series A Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
4.6
Adjustment for Certain Dividends and Distributions
. In the event the Corporation at any time or from time to time after the Series A Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Series A Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series A Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series A Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series A Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of Series A Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series A Preferred Stock had been converted into Common Stock on the date of such event.
4.7
Adjustments for Other Dividends and Distributions
. In the event the Corporation at any time or from time to time after the Series A Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of
Section 1
do not apply to such dividend or distribution, then and in each such event the holders of Series A Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Series A Preferred Stock had been converted into Common Stock on the date of such event.
4.8
Adjustment for Merger or Reorganization, etc
. Subject to the provisions of
Subsection 2.3
, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Series A Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by
Subsections 4.4
,
4.6
or
4.7
), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Series A Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Series A Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this
Section 4
with respect to the rights and interests thereafter of the holders of the Series A Preferred Stock, to the end that the provisions set forth in this
Section 4
(including provisions with respect to changes in and other adjustments of the Series A Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series A Preferred Stock.
4.9
Certificate as to Adjustments
. Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price pursuant to this
Section 4
, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than 10 business days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment (including the
kind and amount of securities, cash or other property into which the Series A Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series A Preferred Stock (but in any event not later than 10 business days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series A Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series A Preferred Stock.
4.10
Notice of Record Date
. In the event:
(a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Series A Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will send or cause to be sent to the holders of the Series A Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Series A Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series A Preferred Stock and the Common Stock. Such notice shall be sent at least 10 business days prior to the record date or effective date for the event specified in such notice.
5.
Mandatory Conversion
.
5.1
Trigger Events
. Upon either (a) the closing of the sale of shares of Common Stock to the public at a price of at least $2.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Common Stock), in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $15,000,000 of gross proceeds to the Corporation (a “
Qualified Public Offering
”) or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “
Mandatory Conversion Time
”), (i) all outstanding shares of Series A Preferred Stock shall automatically be converted into
shares of Common Stock, at the then effective conversion rate and (ii) such shares may not be reissued by the Corporation.
5.2
Procedural Requirements
. All holders of record of shares of Series A Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Series A Preferred Stock pursuant to this
Section 5
. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Series A Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Series A Preferred Stock converted pursuant to
Section 5.1
, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender the certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this
Subsection 5.2
. As soon as practicable after the Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Series A Preferred Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in
Subsection 4.2
in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Series A Preferred Stock converted. Such converted Series A Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly.
6.
Redemption
. The Series A Preferred Stock is not redeemable except in accordance with the Deemed Liquidation provisions of
Subsection 2.3.2(b)
.
7.
Waiver
. Any of the rights, powers, preferences and other terms of the Series A Preferred Stock set forth herein may be waived on behalf of all holders of Series A Preferred Stock by the affirmative written consent or vote in writing of the holders of at least a majority of the shares of Series A Preferred Stock then outstanding.
8.
Notices
. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.
FIFTH:
Subject to any additional vote required by the Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
SIXTH:
Subject to any additional vote required by the Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.
SEVENTH:
Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
EIGHTH:
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
NINTH:
To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
TENTH:
To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.
Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EVOLUS, INC.,
a Delaware corporation
Evolus, Inc., a Delaware corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “
Corporation
”), does hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted resolutions proposing and declaring advisable the following amendment to the Amended and Restated Certificate of Incorporation of the Corporation filed with the Secretary of State of the State of Delaware on February 21, 2013 (the “
Amended and Restated Certificate of Incorporation
”), directing that said amendment be submitted to the stockholders of the Corporation for consideration. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that Section 3.2 of the Amended and Restated Certificate of Incorporation be amended in its entirety to read as follows:
“3.2
Election of Directors
. The Corporation shall have seven (7) directors who shall be elected by the holders of record of the shares of Series A Preferred Stock and the holders of record of the shares of Common Stock, voting together as a single class. Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Series A Preferred Stock and Common Stock fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, then any directorship not so filled shall remain vacant until such time as the holders of the Series A Preferred Stock and Common Stock elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director.”
SECOND: That thereafter, the holders of the necessary number of shares of capital stock of the Corporation gave their written consent in favor of the foregoing amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
IN WITNESS WHEREOF, Evolus, Inc. has caused this Certificate of Amendment to be executed by a duly authorized officer of Evolus, Inc. on this 5th day of January, 2018.
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/s/Murthy Simhambhatla
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Murthy Simhambhatla
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Chief Executive Officer
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BYLAWS
OF
EVOLUS, INC.
a Delaware corporation
November 9, 2012
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Page
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ARTICLE I
OFFICES
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1
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Section 1.
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Registered Office
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1
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Section 2.
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Other Offices
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1
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Section 3.
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Books
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1
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ARTICLE II
MEETINGS OF STOCKHOLDERS
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1
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Section 1.
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Place of Meetings
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1
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Section 2.
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Annual Meetings
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1
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Section 3.
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Special Meetings
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2
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Section 4.
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Notification of Business to be Transacted at Meeting
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2
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Section 5.
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Notice
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2
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Section 6.
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Quorum; Meeting Adjournment; Presence by Remote Means
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2
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Section 7.
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Voting
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3
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Section 8.
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Stockholder Action by Written Consent Without a Meeting; Electronic Consent; Notice of Action
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4
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Section 9.
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List of Stockholders Entitled to Vote
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5
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Section 10.
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Stock Ledger
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5
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Section 11.
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Inspectors of Election
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5
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Section 12.
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Organization
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5
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Section 13.
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Order of Business
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6
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ARTICLE III
DIRECTORS
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6
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Section 1.
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Powers
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6
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Section 2.
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Number and Election of Directors
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6
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Section 3.
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Removal of Directors
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6
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Section 4.
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Vacancies
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6
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Section 5.
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Time and Place of Meetings
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7
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Section 6.
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First Meeting
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7
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Section 7.
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Annual Meeting
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7
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Section 8.
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Regular Meetings
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7
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Section 9.
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Special Meetings
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7
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Section 10.
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Quorum; Vote Required for Action; Adjournment
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8
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Section 11.
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Action by Written Consent
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8
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Section 12.
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Telephone Meetings
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8
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Section 13.
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Compensation
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9
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Section 14.
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Interested Directors
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9
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Table of Contents
(continued)
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Page
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ARTICLE IV
Committees
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9
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Section 1.
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Committees of Directors.
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9
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Section 2.
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Committee Minutes.
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10
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Section 3.
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Meetings and Actions of Committees.
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10
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ARTICLE V
NOTICES
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10
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Section 1.
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Notice.
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10
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Section 2.
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Waiver of Notice
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10
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Section 3.
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Electronic Notice
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10
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ARTICLE VI
OFFICERS
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11
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Section 1.
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Officers
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11
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Section 2.
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Appointment of Officers
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11
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Section 3.
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Subordinate Officers
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12
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Section 4.
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Officer Compensation
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12
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Section 5.
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Term of Office; Removal and Resignation of Officers
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12
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Section 6.
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Vacancies in Offices
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12
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Section 7.
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Chairman of the Board
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12
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Section 8.
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Vice Chairman of the Board
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12
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Section 9.
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Chief Executive Officer
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12
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Section 10.
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President
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13
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Section 11.
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Vice President
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13
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Section 12.
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Secretary
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13
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Section 13.
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Treasurer
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14
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Section 14.
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Approval of Loans to Officers
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14
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ARTICLE VII
STOCK
|
14
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Section 1.
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Form of Certificates
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14
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Section 2.
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Signatures
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15
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Section 3.
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Lost Certificates
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15
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Section 4.
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Transfers
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15
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Section 5.
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Fixing a Record Date
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15
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Section 6.
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Record Holders
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16
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Section 7.
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Special Designation on Certificates
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16
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ARTICLE VIII
INDEMNIFICATION
|
17
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Section 1.
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Right to Indemnification
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17
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Section 2.
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Right of Indemnitee to Bring Suit
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17
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Table of Contents
(continued)
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Page
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Section 3.
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Non-Exclusivity of Rights
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18
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Section 4.
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Insurance
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18
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Section 5.
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Indemnification of Employees or Agents of the Corporation
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18
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Section 6.
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Indemnification Contracts
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19
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Section 7.
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Nature of Rights and Effect of Amendment
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19
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Section 8.
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Conflicts with the Certificate of Incorporation
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19
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ARTICLE IX
GENERAL PROVISIONS
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19
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Section 1.
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Dividends
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19
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Section 2.
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Reserve for Dividends
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19
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Section 3.
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Disbursements
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19
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Section 4.
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Fiscal Year
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19
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Section 5.
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Corporate Seal
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20
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Section 6.
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Voting of Stock Owned by the Corporation
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20
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Section 7.
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Construction and Definitions
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20
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Section 8.
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Amendments
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20
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ARTICLE X
DISSOLUTION
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20
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ARTICLE XI
CUSTODIAN
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21
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Section 1.
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Appointment of a Custodian in Certain Cases
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21
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Section 2.
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Duties of a Custodian
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21
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BYLAWS
OF
EVOLUS, INC.
a Delaware corporation
ARTICLE I
OFFICES
Section 1.
REGISTERED OFFICE
The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2.
OTHER OFFICES
The Corporation may also have offices at such other places both within and outside of the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
Section 3.
BOOKS
The books of the Corporation may be kept within or outside of the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1.
PLACE OF MEETINGS
All meetings of stockholders for the election of directors shall be held at such place either within or outside of the State of Delaware as may be fixed from time to time by the Board of Directors, or at such other place either within or outside of the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting; provided, however, that the Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211 of the Delaware General Corporation Law (“
DGCL
”). If no such place is designated by the Board of Directors, the place of meeting will be the principal business office of the Corporation. Meetings of stockholders, if any, for any other purpose may be held at such time and place, within or outside of the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof, or a waiver by electronic transmission by the person or persons entitled to notice.
Section 2.
ANNUAL MEETINGS
Annual meetings of stockholders shall be held at a time and date designated by the Board of Directors for the purpose of electing directors and transacting such other business as may properly be brought before the meeting.
Section 3.
SPECIAL MEETINGS
Special meetings of stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chief Executive Officer or President (in the absence of a Chief Executive Officer) and shall be called by the Chief Executive Officer or President (in the absence of a Chief Executive Officer) or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of a stockholder or stockholders owning stock of the Corporation possessing at least ten percent (10%) of the voting power possessed by all of the then outstanding capital stock of any class of the Corporation entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 4.
NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING
To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder entitled to vote at the meeting.
Section 5.
NOTICE
Unless waived as provided in these Bylaws, whenever stockholders are required or permitted to take any action at a meeting, written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person or by proxy, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, notice shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at the meeting. If mailed, the notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at the stockholder's address as it appears on the records of the Corporation. If electronically transmitted, then notice is deemed given when transmitted and directed to a facsimile number or electronic mail address at which the stockholder has consented to receive notice.
Section 6.
QUORUM; MEETING ADJOURNMENT; PRESENCE BY REMOTE MEANS
(a)
Quorum; Meeting Adjournment
. Except as otherwise required by law, or provided by the Certificate of Incorporation or these Bylaws, the holders of a majority of the capital stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business at a meeting of the stockholders. Where a separate vote by a class or classes or series is required, a majority of the voting power of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of enough votes to leave less than a quorum, if any action taken is approved by at least a majority of the required quorum to conduct that meeting. If less than a majority of the shares entitled to vote at a meeting of stockholders is present in person or represented by proxy at such meeting, a majority of the shares so represented may adjourn the meeting from time to time, to reconvene at the same or another place, if any, or by means of remote
communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and notice need not be given of any such adjourned meeting if the time, date, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.
(b)
Presence by Remote Means
. If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:
(1) participate in a meeting of stockholders; and
(2) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
Section 7.
VOTING
Except as otherwise required by law, or provided by the Certificate of Incorporation or these Bylaws, when a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting. If the question is one upon which a different vote is required by express provision of an applicable law, the Certificate of Incorporation or these Bylaws, such express provision shall govern and control the decision of such question.
Unless otherwise provided in the Certificate of Incorporation, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock having voting power held by such stockholder. Such votes may be cast in person or by proxy, but no proxy shall be voted after three (3) years from its date, unless such proxy provides for a longer period. Elections of directors need not be by ballot unless the Chairman of the meeting so directs or unless a stockholder demands election by ballot at the meeting and before the voting begins.
Section 8.
STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING; ELECTRONIC CONSENT; NOTICE OF ACTION
(a)
Stockholder Action by Written Consent Without a Meeting
. Except as otherwise provided in the Certificate of Incorporation, any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, is signed in a manner permitted by law by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and delivered (as provided herein) to the Corporation. Every written consent shall bear the date of signature of each stockholder who signs the consent. No written consent shall be effective to take the corporate action referred to in the written consent unless, within sixty (60) days of the earliest dated consent delivered to the Corporation, written consents signed by a sufficient number of stockholders to take action are delivered (as provided herein) to the Corporation.
(b)
Electronic Consent
. A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the Corporation can determine that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the Corporation or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the Board of Directors of the Corporation. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
(c)
Notice of Action
. Prompt notice of the taking of corporate action without a meeting by less than unanimous consent pursuant to this
Section 8
shall be given to those stockholders who have not consented in writing. In the event that the action which is consented to is such as would have required the filing of a certificate with any governmental body, if such action had been voted on by stockholders at a meeting thereof, the certificate filed shall state, in lieu of any statement required by law concerning any vote of stockholders, that consent had been given in accordance with the provisions of Section 228 of the DGCL, and that notice has been given as provided in such section.
Section 9.
LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.
Section 10.
STOCK LEDGER
The stock ledger of the Corporation shall be the only evidence as to the stockholders entitled to examine the stock ledger, the list required by
Section 9
of this ARTICLE II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 11.
INSPECTORS OF ELECTION
In advance of any meeting of stockholders, the Board of Directors may appoint one or more persons (who shall not be candidates for office) as inspectors of election to act at the meeting or any adjournment thereof. The Board of Directors may designate one or more alternate inspectors to replace any inspector who fails to act. If an inspector or inspectors are not so appointed, or if an appointed inspector fails to appear or fails or refuses to act at a meeting, the Chairman of any meeting of stockholders may, to the extent required by law, and on the request of any stockholder or stockholder’s proxy shall, appoint an inspector or inspectors of election at the meeting. The duties of such inspector(s) shall include: determining the number of shares outstanding and the voting power of each; the shares represented at the meeting; the existence of a quorum; the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all stockholders. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. In the event of any dispute between or among the inspectors, the determination of the majority of the inspectors shall be binding.
Section 12.
ORGANIZATION
At each meeting of stockholders, the Chairman of the Board of Directors, if one shall have been elected (or in his or her absence or if one shall not have been elected, the Chief Executive Officer), shall act as Chairman of the meeting. The Secretary (or in his or her absence or inability to act, the person whom the Chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof.
Section 13.
ORDER OF BUSINESS
The order and manner of transacting business at all meetings of stockholders shall be determined by the Chairman of the meeting.
ARTICLE III
DIRECTORS
Section 1.
POWERS
Except as otherwise required by law or provided by the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
Section 2.
NUMBER AND ELECTION OF DIRECTORS
Subject to any limitations in the Certificate of Incorporation, the authorized number of directors of the Corporation shall be set at one (1) until changed by an amendment to this Bylaw adopted by the affirmative vote of a majority of the entire Board of Directors or a duly adopted amendment to the Certificate of Incorporation. Directors shall be elected at each annual meeting of stockholders to replace directors whose terms then expire, and each director elected shall hold office until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, disqualification or removal. Any director may resign at any time effective upon giving written notice to the Board of Directors or the Secretary of the Corporation, unless the notice specifies a later time for such resignation to become effective. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor prior to such effective time to take office when such resignation becomes effective. Directors need not be stockholders.
Section 3.
REMOVAL OF DIRECTORS
Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors.
Section 4.
VACANCIES
Subject to the limitations in the Certificate of Incorporation, vacancies in the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Each director so selected shall hold office for the remainder of the full term of office of the former director which such director replaces and until such director’s successor is duly elected and qualified, or until such director’s earlier death, resignation or removal. No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent directors.
If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder,
may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.
If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board of Directors (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.
Section 5.
TIME AND PLACE OF MEETINGS
The Board of Directors shall hold its meetings at such place, either within or outside of the State of Delaware, and at such time as may be determined from time to time by the Board of Directors.
Section 6.
FIRST MEETING
The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order to legally constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.
Section 7.
ANNUAL MEETING
The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place, either within or outside of the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in
Section 9
of this ARTICLE III or in a waiver of notice thereof.
Section 8.
REGULAR MEETINGS
Regular meetings of the Board of Directors may be held at such places within or outside of the State of Delaware at such date and time as the Board of Directors may from time to time determine and, if so determined by the Board of Directors, notices thereof need not be given.
Section 9.
SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer, or President (in the absence of a Chief Executive Officer), the Secretary or on the
written request of two (2) directors unless the Board of Directors consists of only one director, in which case special meetings shall be called by the President or Secretary on written request of the sole director. Notice of the date, time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at the director's address as it is shown on the records of the Corporation, or by facsimile transmission or electronic transmission (provided, with respect to electronic transmission, that the director has consented to receive the form of transmission at the address to which it is directed). In case the notice is mailed, it shall be deposited in the United States mail at least five (5) days before the time of the holding of the meeting. In case the notice is delivered personally or by telephone, it shall be given at least twelve (12) hours prior to the time set for the meeting. If by telegram, it shall be delivered personally or by telephone or to the telegraph company at least twenty-four (24) hours before the time of the holding of the meeting. If by facsimile transmission or other electronic transmission, such notice shall be transmitted at least twenty-four (24) hours before such meeting. The notice need not specify the purpose of the meeting, except for amendments to these Bylaws as provided in
Section 8
of Article IX.
Section 10.
QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT
Except as otherwise required by law, or provided in the Certificate of Incorporation or these Bylaws, a majority of the directors shall constitute a quorum for the transaction of business at all meetings of the Board of Directors and the affirmative vote of not less than a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present at the meeting may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum to conduct that meeting. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting.
Section 11.
ACTION BY WRITTEN CONSENT
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing, writings, electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee.
Section 12.
TELEPHONE MEETINGS
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee, as the case may be, by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and be heard. Participation in a meeting pursuant to this
Section 12
shall constitute presence in person at such meeting.
Section 13.
COMPENSATION
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors, shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefore. Members of special or standing committees may be allowed like compensation for attending committee meetings.
Section 14.
INTERESTED DIRECTORS
No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or the committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose if: (i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
COMMITTEES
Section 1.
COMMITTEES OF DIRECTORS.
The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member of the committee. Any committee, to the extent provided by law and as provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by Section 141 of the DGCL to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation.
Section 2.
COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
Section 3.
MEETINGS AND ACTIONS OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of ARTICLE III of these Bylaws and ARTICLE V,
Section 2
(Waiver of Notice), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
NOTICES
Section 1.
NOTICE.
Unless otherwise provided in these Bylaws, whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at the address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram.
Section 2.
WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the DGCL or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person or persons attend a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.
Section 3.
ELECTRONIC NOTICE
(a)
Electronic Transmission
. Without limiting the manner by which notice otherwise may be given effectively to stockholders and directors, any notice to stockholders or directors given by the
Corporation under any provision of the DGCL, the Certificate of Incorporation or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder or director to whom the notice is given. Any such consent shall be revocable by the stockholder or director by written notice to the Corporation. Any such consent shall be deemed revoked if (1) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (2) such inability becomes known to the secretary or an assistant secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other such action.
(b)
Effective Date of Notice
. Notice given pursuant to
subsection (a)
of this section shall be deemed given: (1) if by facsimile telecommunication, when directed to a number at which the stockholder or director has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder or director has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder or director of such specific posting, upon the later of (i) such posting and (ii) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder or director. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the Corporation that the notice has been given by electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(c)
Form of Electronic Transmission
. For purposes of these Bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
ARTICLE VI
OFFICERS
Section 1.
OFFICERS
The officers of the Corporation shall be a President, a Secretary and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer, one or more Vice Presidents, one or more Assistant Treasurers and Chief Financial Officer, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of
Section 3
of this ARTICLE VI. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide.
Section 2.
APPOINTMENT OF OFFICERS
The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of
Section 3
or
Section 5
of this ARTICLE VI, shall be appointed by the Board of Directors, and each shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.
Section 3.
SUBORDINATE OFFICERS
The Board of Directors may appoint, and may empower the Chief Executive Officer or, in the absence of a Chief Executive Officer, the President, to appoint such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board of Directors may from time to time determine.
Section 4.
OFFICER COMPENSATION
The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors.
Section 5.
TERM OF OFFICE; REMOVAL AND RESIGNATION OF OFFICERS
The officers of the Corporation shall hold office until their successors are chosen and qualify, or until such officer’s earlier death, resignation or removal. Subject to the rights of an officer under any contract, any officer may be removed at any time, with or without cause, upon duly authorized action of the Board of Directors or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary of the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights of the Corporation under any contract to which the officer is a party.
Section 6.
VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office.
Section 7.
CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer is elected, shall, if present, preside at meetings of the stockholders and of the Board of Directors. He or she shall, in addition, perform such other functions (if any) as may be prescribed by the Bylaws or the Board of Directors.
Section 8.
VICE CHAIRMAN OF THE BOARD
The Vice Chairman of the Board, if such an officer is elected, shall, in the absence or disability of the Chairman of the Board, perform all duties of the Chairman of the Board and when so acting shall have all the powers of and be subject to all of the restrictions upon the Chairman of the Board. The Vice Chairman of the Board shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws.
Section 9.
CHIEF EXECUTIVE OFFICER
The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, exercise the duties usually vested in the chief executive officer of a Corporation and perform such other
powers and duties as may be assigned to him or her from time to time by the Board of Directors or prescribed by the Bylaws. In the absence of the Chairman of the Board, and any Vice Chairman of the Board, the Chief Executive Officer shall preside at all meetings of the stockholders and of the Board of Directors.
The Chief Executive Officer of the Corporation shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.
Section 10.
PRESIDENT
The President of the Corporation shall, subject to the control of the Board of Directors and Chief Executive Officer of the Corporation (if there shall be such an officer), have general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws or the Chief Executive Officer of the Corporation. In the absence of the Chairman of the Board, Vice Chairman of the Board, or the Chief Executive Officer, the President shall preside at all meetings of the Board of Directors and stockholders.
Section 11.
VICE PRESIDENT
In the absence or disability of the Chief Executive Officer and President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, the Bylaws, the Chief Executive Officer, or the Chairman of the Board.
Section 12.
SECRETARY
The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors and shall perform like duties for the standing committees when required. The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and a summary of the proceedings.
The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required by the Bylaws or by law to be given, and he or she shall keep or cause to be kept the seal of the Corporation if one be adopted, in safe custody, and shall have such powers and perform such other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 13.
TREASURER
The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all of his or her transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall also have such other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws.
If required by the Board of Directors, the Treasurer shall give the Corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of the Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer’s possession or under his or her control belonging to the Corporation.
Section 14.
APPROVAL OF LOANS TO OFFICERS
The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.
ARTICLE VII
STOCK
Section 1.
FORM OF CERTIFICATES
Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President and (ii) by the Chief Financial Officer or the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation.
Certificates may be issued for partly paid shares and, in such case, upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified.
If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 2.
SIGNATURES
Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still acting as such at the date of issue.
Section 3.
LOST CERTIFICATES
The Corporation may issue a new certificate to be issued in place of any certificate theretofor issued by the Corporation, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. The Corporation may, in the discretion of the Board of Directors and as a condition precedent to the issuance of such new certificate, require the owner of such lost, stolen, or destroyed certificate, or his, her or its legal representative, to give the Corporation a bond (or other security) sufficient to indemnify it against any claim that may be made against the Corporation (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
Section 4.
TRANSFERS
Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws or in any agreement with the stockholder making the transfer. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his or her attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued.
Section 5.
FIXING A RECORD DATE
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may, except as otherwise required by law, fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other
action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
If the Board of Directors does not so fix a record date:
(a)
The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
(b)
The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed.
(c)
The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Stockholders on the record date are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date, except as otherwise provided by agreement or by applicable law.
Section 6.
RECORD HOLDERS
The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the record holder of shares to receive dividends, and to vote as such record holder, and to hold liable for calls and assessments a person registered on its books as the record holder of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.
Section 7.
SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
ARTICLE VIII
INDEMNIFICATION
Section 1.
RIGHT TO INDEMNIFICATION
Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "
Proceeding
"), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (hereinafter an "
Indemnitee
"), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that, except as provided in
Section 2
of this ARTICLE VIII with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this
Section 1
shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "
advancement of expenses
"); provided, however, that, if the DGCL requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this ARTICLE VIII or otherwise (hereinafter an "
undertaking
").
Section 2.
RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under
Section 1
of this ARTICLE VIII is not paid in full by the Corporation within forty-five (45) days after a written claim has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or part in any such suit or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard of conduct set forth in the Delaware DGCL. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified or to such advancement of expenses under this ARTICLE VIII or otherwise shall be on the Corporation.
To assure indemnification under this ARTICLE VIII of all directors, officers and employees who are determined by the Corporation or otherwise to be or to have been “fiduciaries” of any employee benefit plan of the Corporation that may exist from time to time, Section 145 of the DGCL shall, for the purposes of this
Section 2
, be interpreted as follows: an “other enterprise” shall be deemed to include such an employee benefit plan, including without limitation, any plan of the Corporation that is governed by the Act of Congress entitled “Employee Retirement Income Security Act of 1974,” as amended from time to time; the Corporation shall be deemed to have requested a person to serve the Corporation for purposes of Section 145 of the DGCL, as administrator of an employee benefit plan where the performance by such person of his or her duties to the Corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to such Act of Congress shall be deemed “fines.”
Section 3.
NON-EXCLUSIVITY OF RIGHTS
The rights of indemnification and to the advancement of expenses conferred in this ARTICLE VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Section 4.
INSURANCE
The Corporation may purchase and maintain insurance, at its expense, to protect itself and any current or former director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
Section 5.
INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION
The Corporation may (but shall not be obligated), to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses, to any employee or agent of the Corporation to the fullest extent of the provisions of this ARTICLE VIII with respect to the indemnification and advancement of expenses of directors or officers of the Corporation.
Section 6.
INDEMNIFICATION CONTRACTS
The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this ARTICLE VIII.
Section 7.
NATURE OF RIGHTS AND EFFECT OF AMENDMENT
The rights conferred upon indemnitees in this ARTICLE VIII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the indemnitee’s heirs, executors and administrators. Any amendment, repeal or modification of any provision of this ARTICLE VIII by the stockholders or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification.
Section 8.
CONFLICTS WITH THE CERTIFICATE OF INCORPORATION
In the event of any conflict between the provisions of the Corporation’s Certificate of Incorporation and these Bylaws, the provisions of the Certificate of Incorporation shall govern.
ARTICLE IX
GENERAL PROVISIONS
Section 1.
DIVIDENDS
Subject to limitations contained in the DGCL and the Certificate of Incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, securities of the Corporation or other property.
Section 2.
RESERVE FOR DIVIDENDS
Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their sole discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any such property of the Corporation, or for such other purposes as the Board of Directors think conducive to the interests of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
Section 3.
DISBURSEMENTS
All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
Section 4.
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
Section 5.
CORPORATE SEAL
The Corporation may have a corporate seal in such form as shall be prescribed by the Board of Directors.
Section 6.
VOTING OF STOCK OWNED BY THE CORPORATION
The Chairman of the Board, the President, the Chief Executive Officer, and any other officer of the Corporation authorized by the Board of Directors shall have power, on behalf of the Corporation, to attend, vote and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock.
Section 7.
CONSTRUCTION AND DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these Bylaws.
Section 8.
AMENDMENTS
Subject to the DGCL, the Certificate of Incorporation and these Bylaws, the Board of Directors may by the affirmative vote of a majority of the entire Board of Directors amend or repeal these Bylaws, or adopt other Bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Corporation. These Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, at any annual meeting of the stockholders (or at any special meeting thereof duly called for that purpose) by a majority of the combined voting power of the then outstanding shares of capital stock of all classes and series of the Corporation entitled to vote generally in the election of directors, voting as a single class, provided that, in the notice of any such special meeting, notice of such purpose shall be given.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the Board of Directors of the Corporation that the Corporation should be dissolved, the Board of Directors, after the adoption of a resolution to that effect by a majority of the entire Board of Directors at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the Corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the DGCL and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the DGCL. Upon such certificate's becoming effective in accordance with Section 103 of the DGCL, the Corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent to a dissolution in writing (either in person or by duly authorized attorney), no meeting of directors or stockholders shall be necessary. The consent shall be filed and shall become effective in accordance with Section 103 of the DGCL.
Upon such consent becoming effective in accordance with Section 103 of the DGCL, the Corporation shall be dissolved. If the consent is signed by an attorney, then the original power of attorney or a photocopy thereof shall be attached to and filed with the consent. The consent filed with the Secretary of State of the State of Delaware shall have attached to it the affidavit of the secretary or some other officer of the Corporation stating that the consent has been signed by or on behalf of all the stockholders entitled to vote on a dissolution; in addition, there shall be attached to the consent a certification by the secretary or some other officer of the Corporation setting forth the names and residences of the directors and officers of the Corporation.
ARTICLE XI
CUSTODIAN
Section 1.
APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the Corporation is insolvent, to be receivers, of and for the Corporation when:
(a)
at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or
(b)
the business of the Corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the Corporation that the required vote for action by the Board of Directors cannot be obtained and the stockholders are unable to terminate this division; or
(c)
the Corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets.
Section 2.
DUTIES OF A CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed under Section 291 of the DGCL, but the authority of the custodian shall be to continue the business of the Corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the DGCL.
CERTIFICATE OF AMENDMENT
OF THE BYLAWS
OF
EVOLUS, INC.,
a Delaware corporation
Article III, Section 2, of the Bylaws of this corporation was amended by a resolution duly adopted by the Board of Directors of this corporation on February 20, 2013, to read as follows:
“
Section 2. Number and Election of Directors
Subject to any limitations in the Certificate of Incorporation, the authorized number of directors of the Corporation shall be set at three (3) until changed by an amendment to this Bylaw adopted by the affirmative vote of a majority of the entire Board of Directors or a duly adopted amendment to the Certificate of Incorporation. Directors shall be elected at each annual meeting of stockholders to replace directors whose terms then expire, and each director elected shall hold office until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, disqualification or removal. Any director may resign at any time effective upon giving written notice to the Board of Directors or the Secretary of the Corporation, unless the notice specifies a later time for such resignation to become effective. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor prior to such effective time to take office when such resignation becomes effective. Directors need not be stockholders.”
CERTIFICATE OF AMENDMENT
OF
THE BYLAWS
OF
EVOLUS, INC.,
a Delaware corporation
Article III, Section 2, of the Bylaws of Evolus, Inc. (the “
Corporation
”) was further amended by a resolution duly adopted by the Board of Directors of the Corporation on January 5, 2018, to read as follows:
“
Section 2. Number and Election of Directors
Subject to any limitations in the Certificate of Incorporation, the authorized number of directors of the Corporation shall be not less than one (1) nor more than seven (7) directors, as determined from time to time by the Board of Directors by adopting a resolution to that effect, with the initial number of authorized directors to be set at seven (7). Directors shall be elected at each annual meeting of stockholders to replace directors whose terms then expire, and each director elected shall hold office until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, disqualification or removal. Any director may resign at any time effective upon giving written notice to the Board of Directors or the Secretary of the Corporation, unless the notice specifies a later time for such resignation to become effective. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor prior to such effective time to take office when such resignation becomes effective. Directors need not be stockholders.”
EVOLUS, INC.
STOCKHOLDERS’ AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this “
Agreement
”), is made as of December 14, 2017, by and between Evolus, Inc., a Delaware corporation (the “
Company
”), Alphaeon Corporation, a Delaware corporation (“
Alphaeon
”), Dental Innovations BVBA, a private limited liability company organized under the laws of Belgium (“
DI
”), solely in its capacity as collateral agent of the DI Notes (as defined herein), and Longitude Venture Partners II, L.P., a Delaware limited partnership (“
Longitude
”) solely in its capacity as a holder of the Longitude Note (as defined herein).
RECITALS
WHEREAS
, Alphaeon presently owns 10,000,000 shares of the Company’s Common Stock, par value $0.00001 per share (the “
Common Stock
”), and 1,250,000 shares of the Company’s Series A Preferred Stock, par value $0.00001 per share (the “
Series A
Preferred Stock
”), constituting all of the issued and outstanding shares of capital stock of the Company on the date hereof;
WHEREAS
, from time to time, Alphaeon has provided to the Company certain financial and administrative support, including research and development expenses, general and administrative support services and development support; and
WHEREAS
, in order to induce Alphaeon and the Company to continue to render and accept such support services, Alphaeon and the Company hereby agree that this Agreement shall govern the rights of Alphaeon (and its permitted assigns pursuant to
Section 2.10
hereof) to cause the Company to register shares of Common Stock now or hereinafter held by Alphaeon as set forth in this Agreement.
NOW, THEREFORE
, the parties hereby agree as follows:
1.
General
.
1.1
Definitions
. As used in this Agreement the following terms shall have the following respective meanings:
“
Affiliate
” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person.
“
Board
” means the Board of Directors of the Company.
“
DI Notes
” means the secured convertible promissory notes issued by Alphaeon to the purchasers pursuant to the DI Purchase Agreement.
“
DI Purchase Agreement
” means that certain Amended and Restated Secured Convertible Note Purchase Agreement, dated as of April 19, 2017, among Alphaeon, the purchasers party thereto from time to time, and the DI Collateral Agent (which amended and restated the Secured Convertible Note Purchase Agreement, dated as of July 26, 2016, as amended on November 9, 2016), as the same was amended by that certain First Amendment dated as of the date hereof, and as further amended, amended and restated, supplemented or otherwise modified from time to time.
“
Event of Default
” means an Event of Default as defined in each of the DI Notes and the Longitude Note.
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“
Form S-1
” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.
“
Form S-3
”
means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
“
IPO
” means the Company’s first underwritten public offering of its Common Stock under the Securities Act.
“
Longitude Note
” means that certain Third Amended and Restated Secured Convertible Bridge Note, by and between Alphaeon and Longitude, originally dated as of May 27, 2016 and amended and restated as of the date hereof, which amended and restated that certain Amended and Restated Secured Convertible Bridge Note by and between Alphaeon and Longitude, originally dated as of May 27, 2016, as amended and restated as of July 26, 2016, and as of April 19, 2017, and amending that certain Secured Convertible Bridge Note and Warrant Agreement, dated as of May 27, 2016, as further amended, amended and restated, supplemented or otherwise modified from time to time.
“
Permitted Transfer
” means (a) a transfer by a Stockholder to its stockholders in accordance with their interest in the corporation, (b) any pledge of Registrable Securities by Alphaeon to DI or Longitude and any transfer of Registrable Securities to DI, Longitude or any other holder of DI Notes pursuant to the terms of such pledge, (c) any bona fide gift to any charitable organization described in Section 501(c)(3) of the Internal Revenue Code, (d) a transfer by a Stockholder to an Affiliate of the Stockholder or (e) a transfer to the Company.
“
Pledge Agreements
” means that certain (a) Pledge and Security Agreement, dated as of July 26, 2016, as amended on November 9, 2016 and April 19, 2017, by and between Alphaeon and DI, as collateral agent for the DI Notes, and (b) Amended and Restated Pledge and Security Agreement, dated as of May 27, 2016, as amended on April 19, 2017, by and between Alphaeon and Longitude, as each may be amended, amended and restated, supplemented or otherwise modified from time to time.
“
Register,
”
“
registered,
”
and “
registration
”
refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.
“
Registrable Securities
” means (i) any Common Stock issued or issuable (directly or indirectly) upon conversion of the Series A Preferred Stock of the Company, (ii) any Common Stock held by Alphaeon on the date hereof or issued to Alphaeon after the date hereof, and (iii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i) and (ii) above; excluding in all cases any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not
assigned pursuant to
Section 2.10
, and excluding for purposes of
Section 2
any shares for which registration rights have terminated pursuant to
Section 2.7
of this Agreement.
“
Registrable Securities then outstanding
” means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.
“
Registration Expenses
”
shall mean all expenses incurred by the Company in complying with
Sections 2.2
,
2.3
and
2.4
hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed twenty-five thousand dollars ($25,000) of a single special counsel for the Stockholders (including its permitted assigns pursuant to
Section 2.10
hereof), blue sky fees and expenses and the expense of any special audits incident to or required by any such registration.
“
Rule 144
” means Rule 144 as promulgated under the Securities Act, and any similar successor rule or regulation.
“
Rule 145
” means Rule 145 as promulgated under the Securities Act, and any similar successor rule or regulation.
“
SEC
”
means the Securities and Exchange Commission.
“
Securities Act
”
shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Selling Expenses
”
shall mean all underwriting discounts and selling commissions applicable to the sale of securities.
“
Seriously Detrimental
” shall mean, in the good faith judgment of the Board, any filing or the sale of any securities pursuant to a registration statement that would: (a) materially impede, delay or interfere with any pending or proposed financing, acquisition, corporate reorganization or other similar transaction involving the Company for which the Board has authorized negotiations, (b) materially and adversely impair the consummation of any pending or proposed offering or sale of any class of securities by the Company, or (c) require disclosure of material nonpublic information that, if disclosed at such time, would be harmful to the interests of the Company and its stockholders;
provided, however
, that during any such period all executive officers and directors of the Company are also prohibited from selling securities of the Company (or any security of any of the Company’s subsidiaries or Affiliates).
“
Stockholders
” shall mean any holder of Registrable Securities. The initial Stockholder shall be Alphaeon and shall also include any permitted transferee or assignee of the Registrable Securities, including without limitation, upon an Event of Default as provided in and subject to the terms of Section 2.10(b) and (c), DI and Longitude and any Permitted Transferee pursuant to a DI/Longitude Transfer.
2.
Registration; Restrictions on Transfer
.
2.1
Restrictions on Transfer
.
(a)
Each Stockholder agrees not to make any disposition of all or any portion of the Registrable Securities unless and until:
(i)
There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or
(ii)
(A) The transferee has agreed in writing to be bound by the terms of this Agreement (unless the Company is, at the time of such transfer, subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, and such transfer is made pursuant to Rule 144), (B) such Stockholder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Stockholder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. Upon consummation of a transfer consistent with this
Section 2.1(a)(ii)
, the transferee shall have all rights and obligations of a Stockholder with no further action required, subject to
Section 2.10
of this Agreement.
(iii)
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a Permitted Transfer; provided that in each case the transferee will be subject to the terms of this Agreement to the same extent as if such transferee were the Stockholder hereunder provided that such transferee shall execute a counterpart signature page to this Agreement agreeing to be bound as a “Stockholder.”
(b)
Each certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
(c)
The Company shall be obligated to reissue promptly unlegended certificates at the request of a Stockholder if such Stockholder shall (i) have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend or (ii) have provided reasonable representations evidencing that such Stockholder satisfies the requirements of Rule 144 with respect to such shares.
(d)
Without limiting the foregoing, any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal.
2.2
Demand Registration
.
(a)
Subject to the conditions of this
Section 2.2
, if the Company shall receive a written request from Stockholders that the Company file a Form S-1 with respect to at least fifty percent (50%) of the Registrable Securities then outstanding, then the Company shall as soon as practicable, and in any event within sixty (60) days after the date such request is given by the
Stockholders, file a Form S-1 under the Securities Act covering all Registrable Securities that the Stockholders requested to be registered, subject to the limitations of
Sections 2.2(b)
and
2.2(c)
.
(b)
If the Stockholders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this
Section 2.2
or any request pursuant to
Section 2.4
. In such event, the right of the Stockholders to include their Registrable Securities in such registration shall be conditioned upon the Stockholders’ participation in such underwriting and the inclusion of the Stockholders’ Registrable Securities in the underwriting to the extent provided herein. The Stockholders shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Stockholders (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this
Section 2.2
or
Section 2.4
, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise the Stockholders,
provided,
no such reduction shall reduce the amount of Registrable Securities of the Stockholders below twenty percent (20%) of the total amount of securities included in such registration, unless such offering is the IPO and such registration does not include shares of any other selling stockholders, in which event any or all of the Registrable Securities of the Stockholders may be excluded in accordance with the immediately preceding sentence. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.
(c)
The Company shall not be required to effect a registration pursuant to this
Section 2.2
:
(i)
prior to one hundred eighty (180) days after the effective date of the registration statement for an IPO;
(ii)
after the Company has effected two (2) registrations pursuant to this
Section 2.2
, and such registrations have been declared, have been ordered, or have become effective;
(iii)
during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of the registration statement pertaining to a public offering (other than a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future);
provided
that the Company makes reasonable good faith efforts to cause such registration statement to become effective;
(iv)
if within thirty (30) days of receipt of a written request from the Stockholders pursuant to
Section 2.2(a)
, the Company gives notice to the Stockholders of the Company’s intention to make a public offering within ninety (90) days;
provided
that, the Company makes reasonable good faith efforts to make such public offering during such period;
provided
,
however
, except in the case of a DI/Longitude Transfer (as defined below) to a Permitted Transferee (as defined below) in which case the following proviso shall not apply, this clause (iv) shall not apply or have any effect in the period prior to December 23, 2018, or upon an Event of Default for so long as such Event of Default is continuing;
(v)
if the Company shall furnish to the Stockholders pursuant to this
Section 2.2
, a certificate signed by the Chairman of the Board stating that it would be Seriously Detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than
ninety (90) days after receipt of the request of the Stockholders;
provided
that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period;
provided, further, however
, that in the event of the suspension of effectiveness of any registration statement pursuant to this Agreement, the applicable time period during which such registration statement is to remain effective shall be extended by that number of days equal to the number of days the effectiveness of such registration statement was suspended pursuant to this Section; or
(vi)
if the Stockholders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to
Section 2.4.
2.3
Piggyback Registrations.
So long as the Stockholders hold Registrable Securities, the Company shall notify the Stockholders in writing at least twenty (20) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding (i) registration statements relating to an IPO for which the underwriters have delivered an exclusion notice to the Company as provided in Section 2.3(a), (ii) employee benefit plans or with respect to corporate reorganizations or (iii) other transactions under Rule 145 of the Securities Act, and will afford the Stockholders an opportunity to include in such registration statement all or part of such Registrable Securities held by the Stockholders. If the Stockholders desire to include in any such registration statement all or any part of the Registrable Securities held by them, the Stockholders shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by the Stockholders. If the Stockholders decide not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, the Stockholders shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.
(a)
Underwriting
.
If the registration statement under which the Company gives notice under this
Section 2.3
is for an underwritten offering, the Company shall so advise the Stockholders. In such event, the right of the Stockholders to be included in a registration pursuant to this
Section 2.3
shall be conditioned upon the Stockholders’ participation in such underwriting and the inclusion of Stockholders’ Registrable Securities in the underwriting to the extent provided herein. The Stockholders shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Stockholders, and third, to any stockholder of the Company (other than the Stockholders) on a
pro rata
basis, or in such other proportions as shall mutually be agreed to by all such selling stockholder. No such reduction shall reduce the amount of securities of the Stockholders included in the registration below twenty percent (20%) of the total amount of securities included in such registration, unless such offering is an IPO and such registration does not include shares of any other selling stockholders, in which event any or all of the Registrable Securities of the Stockholders may be excluded in accordance with the immediately preceding sentence;
provided, further,
if the underwriter determines in good faith prior to the public filing of the registration statement for the IPO that marketing factors require such limitation, it may so notify the Company and the notice provided for in the introductory paragraph of this
Section 2.3
shall not be required. If the Stockholders disapprove of the terms of any such underwriting, the Stockholders may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall
be excluded and withdrawn from the registration. Notwithstanding the foregoing and except in the case of a DI/Longitude Transfer to a Permitted Transferee in which case the following shall not apply, unless such offering is an IPO, in the period prior to December 23, 2018, or upon an Event of Default for so long as such Event of Default is continuing, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Stockholders; second, to the Company; and third, to any stockholder of the Company (other than the Stockholders) on a
pro rata
basis, or in such other proportions as shall mutually be agreed to by all such selling stockholder.
(b)
Right to Terminate Registration
.
The Company shall have the right to terminate or withdraw any registration initiated by it under this
Section 2.3
prior to the effectiveness of such registration whether or not the Stockholders have elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with
Section 2.5
hereof.
2.4
Form S-3 Registration
. In case the Company shall receive from the Stockholders a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by the Stockholders, the Company will:
(a)
as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of the Stockholders’ Registrable Securities as are specified in such request;
provided
,
however
, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this
Section 2.4
:
(i)
if Form S-3 is not available for such offering by the Stockholders;
(ii)
if the Stockholders propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than Five Million Dollars ($5,000,000);
(iii)
if within thirty (30) days of receipt of a written request from the Stockholders pursuant to this
Section 2.4
, the Company gives notice to the Stockholders of the Company’s intention to make a public offering within ninety (90) days;
provided
, that the Company makes reasonable good faith efforts to make such public offering during such period;
provided
,
however
, except in the case of a DI/Longitude Transfer to a Permitted Transferee in which case the following proviso shall not apply, this clause (iii) shall not apply or have any effect in the period prior to December 23, 2018, or upon an Event of Default for so long as such Event of Default is continuing;
(iv)
if the Company shall furnish to the Stockholders a certificate signed by the Chairman of the Board stating that it would be Seriously Detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than sixty (60) days after receipt of the request of the Stockholders under this
Section 2.4
;
provided
, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period;
provided, further, however
, that in the event of the suspension of effectiveness of any registration statement pursuant to this Agreement, the applicable time period during which such registration statement is to remain effective shall be extended by that number of days equal to the number of days the effectiveness of such registration statement was suspended pursuant to this Section;
(v)
if the Company has, within the twelve (12) month period preceding the date of such request, already effected three (3) registrations on Form S-3 for the Stockholders pursuant to this
Section 2.4
and such registrations have been declared, have been ordered or have become effective; or
(vi)
in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.
(b)
Subject to the foregoing, the Company shall file a Form S-3 covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request of the Stockholders. Registrations effected pursuant to this
Section 2.4
shall not be counted as demands for registration or registrations effected pursuant to
Section 2.2
or
2.3
, respectively.
2.5
Expenses of Registration
.
Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to
Section 2.2
or any registration under
Section 2.3
or
Section 2.4
herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the Stockholders.
2.6
Obligations of the Company
.
Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a)
Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Stockholders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days (or 270 days in the case of a registration on Form S-3 or any other registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act) or, if earlier, until the Stockholders have completed the distribution related thereto. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, unless such registration is effected on Form S-3; provided that this restriction shall not apply if the Company is not eligible to use Form S-3 as a result of the failure by the Company to file all required reports during the twelve calendar months and any portion of a month immediately preceding the filing of the registration statement.
(b)
Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above.
(c)
Furnish to the Stockholders such number of copies of a prospectus, including a preliminary prospectus, and amendments and supplements thereto in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.
(d)
Use reasonable commercial efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Stockholders;
provided
that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.
(e)
In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. The Stockholders participating in such underwriting shall also enter into and perform their obligations under such an agreement.
(f)
Notify the Stockholders of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.
(g)
Use its reasonable best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters.
(h)
Cause all such Registrable Securities registered pursuant to this
Section 2
to be listed on a national securities exchange or trading system or, if then listed, on each securities exchange and trading system on which similar securities issued by the Company are then listed.
(i)
Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereto and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.
2.7
Termination of Registration Rights
. The right of a Stockholder to request registration or inclusion of Registrable Securities in any registration pursuant to
Sections 2.2
,
2.3
or
2.4
shall terminate as to any Stockholder:
(a)
such time as all of the Stockholder’s Registrable Securities have been sold pursuant to an effective registration statement under the Securities Act; or
(b)
such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of the Stockholder’s shares without limitation during a three-month period without registration.
2.8
Delay of Registration; Furnishing Information
.
(a)
The Stockholders shall not have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this
Section 2
.
(b)
It shall be a condition precedent to the obligations of the Company to take any action pursuant to
Sections 2.2
,
2.3
or
2.4
with respect to the Stockholders that the
Stockholders shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of such securities as shall be required to effect the registration of its Registrable Securities.
(c)
The Company shall have no obligation with respect to any registration requested pursuant to
Section 2.4
if, due to the operation of
Section 2.8(b)
, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company’s obligation to initiate such registration as specified in
Section 2.4
.
2.9
Indemnification
.
In the event any Registrable Securities are included in a registration statement under
Section 2.2
,
2.3
or
2.4
:
(a)
To the extent permitted by law, the Company will indemnify and hold harmless the Stockholders, the officers and directors of the Stockholders, any underwriter (as defined in the Securities Act) for the Stockholders and each person, if any, who controls Stockholders or any such underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each a “
Violation
”) by the Company, (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to a Stockholder, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action;
provided
however
, that the indemnity agreement contained in this
Section 2.9(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by a Stockholder, partner, officer, director, underwriter or controlling person of a Stockholder.
(b)
To the extent permitted by law, each Stockholder will, if Registrable Securities held by such Stockholder are included in the securities as to which such registration qualification or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other stockholder selling securities under such registration statement or any of such other stockholder’s partners, members, directors or officers or any person who controls such other stockholder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer or controlling person of the Company, underwriter or other stockholder, or partner, members, director, officer or controlling person of such other stockholder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by the indemnifying Stockholders under an
instrument duly executed by the Stockholders and stated to be specifically for use in connection with such registration; and the Stockholders will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person of the Company, underwriter or other stockholder, or partner, officer, director or controlling person of such other stockholder in connection with investigating or defending any such loss, claim, damage, liability or action;
provided
,
however
, that the indemnity agreement contained in this
Section 2.9(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the indemnifying Stockholders, which consent shall not be unreasonably withheld;
provided
further
, that in no event shall any indemnity under this
Section 2.9
exceed the net proceeds from the offering received by such Stockholder.
(c)
Promptly after receipt by an indemnified party under this
Section 2.9
of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this
Section 2.9
, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties;
provided
,
however
, that an indemnified party shall have the right to retain its own counsel, and the fees and expenses of such counsel will be paid by the indemnifying party if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this
Section 2.9
, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this
Section 2.9
.
(d)
If the indemnification provided for in this
Section 2.9
is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission;
provided
, that in no event shall any contribution by a Stockholder hereunder exceed the net proceeds from the offering received by such Stockholder.
(e)
The obligations of the Company and the Stockholders under this
Section 2.9
shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.
2.10
Assignment of Registration Rights.
(a)
Subject to
Sections 2.10(b)
and
(c)
, the rights to cause the Company to register Registrable Securities pursuant to this
Section 2
may be assigned by a Stockholder to a transferee or assignee of Registrable Securities (i) which acquires at least five percent (5%) of the transferring Stockholder’s aggregate shares of Registrable Securities, or (ii) who acquires such Registrable Securities in a Permitted Transfer;
provided,
however
, (A) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (B) such transferee shall agree to be subject to all restrictions set forth in this Agreement.
(b)
Upon an Event of Default by Alphaeon, all registration rights granted to Alphaeon (in its capacity as the initial Stockholder hereunder) in this Agreement shall immediately and automatically be assigned in full to DI, as the collateral agent of the DI Notes, and Longitude, as holder of the Longitude Note, with respect to any Registrable Securities possessed by DI, as the collateral agent for the DI Notes, and Longitude, as holder of the Longitude Note, and DI and Longitude shall thereupon be Stockholders under this Agreement.
(c)
In the event all registration rights granted to Alphaeon as the initial Stockholder in this Agreement are immediately and automatically assigned in full to DI, as the collateral agent of the DI Notes, and Longitude, as holder of the Longitude Note pursuant to
Section 2.10(b)
, DI and Longitude, collectively, thereafter, may assign all or a portion of such registration rights to up to two (2) transferees (each, a “
Permitted Transferee
” and such assignment a “
DI/Longitude Transfer
”),
provided
, (i) each such Permitted Transferee acquires at least ten percent (10%) of the Registrable Securities, (ii) the applicable transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such Permitted Transferee and the securities with respect to which such registration rights are being assigned, and (iii) such Permitted Transferee shall agree to be subject to all restrictions set forth in this Agreement as if it were the initial Stockholder hereunder, whereupon each such Permitted Transferee shall be a Stockholder hereunder.
2.11
“Market Stand-Off” Agreement; Agreement to Furnish Information.
In the case of an underwritten public offering of the Company’s Common Stock under the Securities Act (a “
Public Offering
”),
each
Stockholder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale of, any Common Stock (or other securities) of the Company held by such Stockholder before the effective date of the registration statement for such Public Offering (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed (a) one hundred eighty (180) days following the effective date of such registration statement if the Public Offering is an IPO, and (b) ninety (90) days following the effective date of such registration statement for all other Public Offerings (the “
Lock-Up Period
”);
provided
that all officers and directors of the Company and holders of at least five percent (5%) of the Company’s voting securities enter into similar agreements; and
provided, further
that any releases of any stockholder from such agreements by the underwriters shall be made only on a pro rata basis to the benefit of the Stockholders.
Each Stockholder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter that are consistent with the foregoing or that are necessary to give further effect thereto. In addition, if reasonably requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, a Stockholder shall provide, within ten (10) days of such request, such information related to such Stockholder as may be reasonably required by the Company or such representative in connection with the completion of any public offering of the Company’s securities pursuant to a registration statement filed under the Securities
Act. The obligations described in this
Section 2.11
shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of the Lock-Up Period.
Each party hereto covenants and agrees that in the event that such party ceases to remain a party to this Agreement or loses its rights hereunder, this
Section 2.11
shall survive and remain enforceable as against such party.
2.12
Rule 144 Reporting
.
With a view to making available to the Stockholders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public:
(a)
make and keep public information available, as those terms are understood and defined in Rule 144 or any similar or analogous rule promulgated under the Securities Act;
(b)
file with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and
(c)
so long as a Stockholder owns any Registrable Securities, furnish to such Stockholder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of Rule 144, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as such Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.
3.
Miscellaneous
.
3.1
Governing Law; Forum
.
This Agreement shall be governed by and construed under the internal laws of the State of Delaware. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of California and to the jurisdiction of the United States District Court for the Central District of California for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of California
or the United States District Court for the Central District of California, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
WAIVER OF JURY TRIAL:
SOLELY TO THE EXTENT ALLOWABLE UNDER APPLICABLE LAW, EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
3.2
Successors and Assigns
.
Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto;
provided, however
, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends.
3.3
Entire Agreement
. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner with respect to the subjects hereof by any representations, warranties, covenants and agreements,
provided, however,
nothing herein shall negate any additional management, informational or related rights the Company may grant in its discretion to parties from time to time.
3.4
Severability
.
In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
3.5
Amendment and
Waiver. This Agreement may be amended or modified and the obligations of the Company and the rights of the Stockholders under this Agreement may be waived only upon the written consent of the Company, Stockholders holding a majority of the Registrable Securities, DI and Longitude. Notwithstanding the foregoing, in the event that (a) the DI Notes and the Longitude Note have been repaid in full in accordance with their respective terms, or (b) Registrable Securities are no longer pledged as Collateral (as defined in each Pledge Agreement) under the Pledge Agreements and neither DI nor Longitude nor any Permitted Transferee pursuant to a DI/Longitude Transfer own any Registrable Securities, this Agreement shall only be amended or modified and the obligations of the Company and the rights of the Stockholders under this Agreement shall be waived only upon the written consent of the Company and Stockholders holding a majority of the Registrable Securities.
3.6
Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to the Stockholder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on the Stockholders part of any breach, default or noncompliance under the Agreement or any waiver on the Stockholders part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to the Stockholders, shall be cumulative and not alternative.
3.7
Notices
.
All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto.
3.8
Attorneys’ Fees
.
In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.
3.9
Titles and Subtitles
.
The titles of the Sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
3.10
Counterparts; Additional Stockholders
.
This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one (1) instrument, including signature pages effective as of a date after the date of this Agreement intended to join additional parties hereto pursuant to the terms of this Agreement. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
3.11
Aggregation of Stock
. All securities of the Company addressed by this Agreement held or acquired by affiliated entities (including affiliated venture capital funds) or persons shall be aggregated together for the purpose of determining the availability of any rights under, and restriction imposed upon by, this Agreement.
3.12
Legend
. Each certificate representing any Registrable Securities or securities convertible into or exercisable or exchangeable for Registrable Securities issued by the Company shall be endorsed by the Company with a legend reading substantially as follows:
“THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO A STOCKHOLDER AGREEMENT (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE ISSUER), AND BY ACCEPTING ANY INTEREST IN SUCH SECURITIES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID STOCKHOLDER AGREEMENT. ADDITIONALLY, THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF THE STOCKHOLDER AGREEMENT.”
3.13
Further Assurances
. Each of the parties hereto agrees to perform any further acts and execute and deliver any documents that may be reasonably necessary to carry out the
provisions of this Agreement or otherwise enable the Company to honor the rights provided to the Stockholders in this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF,
the parties hereto have executed this STOCKHOLDER AGREEMENT
as of the date set forth in the first paragraph hereof.
|
|
|
COMPANY:
|
|
|
EVOLUS, INC.
|
|
|
By:
|
/s/ Murthy Simhambhata
|
Name:
|
Murthy Simhambhatla
|
Title:
|
CEO
|
|
|
Address:
|
|
|
1027 Garden Street
|
Santa Barbara, California 93101
|
|
|
STOCKHOLDER:
|
|
|
ALPHAEON CORPORATION
|
|
|
By:
|
/s/ Murthy Simhambhata
|
Name:
|
Murthy Simhambhatla
|
Title:
|
CEO
|
|
|
Address:
|
|
|
17901 Von Karman Avenue, Suite 150
|
Irvine, California 92614
|
|
|
DI:
|
|
|
|
DENTAL INNOVATIONS BVBA
|
|
|
By:
|
/s/ Didier Westen /s/ Frank Laukoetter
|
Name:
|
Didier Westen Frank Laukoetter
|
Title:
|
Managing Director Managing Director
|
|
|
Address:
|
Dental Innovations BVBA
|
Wiegstraat 21
|
2000 Antwerpen
|
Belgium
|
SIGNATURE PAGE TO STOCKHOLDER AGREEMENT
|
|
|
LONGITUDE:
|
|
|
LONGITUDE VENTURE PARTNERS II, L.P.
|
|
|
By:
|
Longitude Capital Partners II, LLC,
its General Partner
|
|
|
By:
|
/s/ Juliet Tammenoms Bakker
|
Name:
|
Juliet Tammenoms Bakker
|
Title:
|
Managing Member
|
|
|
Address:
|
800 El Camino Real, Suite 220
|
Menlo Park, CA 94025
|
Email Address: jbakker@longitudecapital.com and chelms@longitudecapital.com
|
SIGNATURE PAGE TO STOCKHOLDER AGREEMENT
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT
(this “
Agreement
”
)
is made and entered into as of September 30, 2014, between
STRATHSPEY CROWN HOLDINGS, LLC
, a Delaware limited liability company
(
“
Seller
”
)
and
ALPHAEON CORPORATION
, a Delaware corporation
(
“
Purchaser
”
).
RECITALS
A.
Pursuant to the Contribution Agreement (the “
Contribution Agreement
”
)
between Seller, Evolus, Inc., a Delaware corporation
(
“
Evolus
”
),
the shareholders of Evolus (the “
Contributors
”
)
and J. Christopher Marmo, as the Contributors’ Representative (the
Contributors’ Representative
”
),
the Seller received 1,250,000 shares of Series A Preferred Stock of Evolus and 10,000,000 shares of Common Stock of Evolus, representing 100% of the outstanding capital stock of Evolus, of which 125,000 shares of the Series A Preferred Stock of Evolus and 1,000,000 shares of the Common Stock of Evolus (the “
Class D Shares
”
)
were in exchange for Class D Units of the Seller.
B.
Pursuant to the Contribution Agreement, the Contributors were given the right to require that the Seller sell all of the Class D Shares to the Purchaser, and the Contributors have exercised such right.
C.
Seller now desires to sell all of the Class D Shares, and Purchaser is willing to purchase the Class D Shares, subject to the terms and conditions of this Agreement.
NOW, THEREFORE
, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed as follows:
AGREEMENT
1.
Definitions.
The following terms, as used in this Agreement, have the following meanings:
“
Affiliate
”
means, with respect to any Person, (i) any other Person directly or indirectly controlling, controlled by, or under common control with such specified Person, or (ii) any other Person owning or controlling twenty percent (20%) or more of the outstanding voting securities of such Person. For purposes of the foregoing, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
“
Daewoong Agreement
”
means the License & Supply Agreement between Evolus and Daewoong Pharmaceutical Co., Ltd, a corporation organized and existing under the laws of the Republic of Korea, dated as of September 30, 2013.
“
FDA
”
means the United States Food and Drug Administration, or any successor thereto.
“
GAAP
”
means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, as in effect on the date of this Agreement.
“
Net Sales
”
means the net sales on behalf of Evolus, Seller and any of their Affiliates, authorized sublicensees and assignees for Product sold to third parties other than sublicensees and assignees, as determined in accordance with GAAP applied on a consistent basis. The deductions booked by Evolus, Seller or any of their Affiliates or authorized sublicensees or assignees to calculate the recorded net sales from gross sales include the following:
(i) normal trade and cash discounts;
(ii) amounts repaid or credited by reasons of defects, rejections, recalls or returns;
(iii) rebates and chargebacks to customers and third parties (including, without limitation, Medicare, Medicaid, TriCare, Managed Healthcare);
(iv) any amounts recorded in gross revenue associated with goods provided to customers for free including samples;
(v) amounts provided or credited to customers through coupons, other discount programs and co-pay assistance programs;
(vi) delayed ship order credits, discounts or payments related to the impact of price increases between purchase and shipping dates;
(vii) fee for service payments to customers for any non-separable services (including compensation for maintaining agreed inventory levels and providing information); and
(viii) amounts received for transportation and delivery of the Product, including insurance;
provided, however, with respect to the calculation of Net Sales: (a) Net Sales only include the value charged or invoiced on the first sale to a third party and sales between or among
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Evolus, Seller and any of their Affiliates, authorized sublicensees and assignees shall be disregarded for purposes of calculating Net Sales; (b) if Product is delivered to the third party before being invoiced (or is not invoiced), Net Sales will be calculated at the time all the revenue recognition criteria under GAAP are met; and (c) distributors shall not be considered as sublicensees or assignees.
“
Person
”
means an individual, a corporation, a partnership, a limited liability company, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
“
Product
”
means the botulinum toxin product licensed to the Company under the Daewoong Agreement.
“
U.S. Approval
”
means first approval of the FDA necessary for the marketing of the Product in the United States for Glabellar indication.
2.
Sale of Shares
.
(a)
Seller hereby sells, assigns, transfers, conveys, and delivers to Purchaser, Seller’s entire right, title, and interest in the Class D Shares.
(b)
In consideration for the Class D Shares, Purchaser shall make the following payments: (A) a payment by Purchaser to Seller in an aggregate amount equal to Ten Million United States Dollars ($10,000,000) upon U.S. Approval; (B) quarterly payments by Purchaser to Seller in an aggregate amount equal to [***] percent [***] of the Net Sales of the Product in the United States and its territories and possessions for each quarter (or portion thereof) following the U.S. Approval; and (C) quarterly payments by Purchaser to Seller in an aggregate amount equal to [***] percent [***] of the Net Sales of the Product in any region, territory or jurisdiction other than the United States and its territories and possessions for each quarter (or portion thereof) for any indication in such non-United States region, territory or jurisdiction for which Purchaser or any of its Affiliates has the right to market or sell the Product.
(c)
Purchaser has the right to terminate the payments set forth in clauses (B) and (C) of Section 2(b) of this Agreement upon payment of a lump-sum cash payment to Seller equal to One Hundred Forty-Five Million United States Dollars ($145,000,000).
2.
Severability
. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable such term or provision in any other jurisdiction, the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or enforceable.
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
3.
Governing Law
. This Agreement shall be governed in all respects by the laws of the State of Delaware, without regard to conflict of law principles.
4.
Counterparts
. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same Agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission or other electronic means shall constitute effective execution and delivery of this Agreement and may be used in lieu of the original Agreement for all purposes.
5.
Third Party Beneficiary.
Seller and Purchaser acknowledge and agree that the Contributors are intended third party beneficiaries of this Agreement and the obligations under this Agreement shall inure to the benefit of the Contributors. The Contributors’ Representative, on behalf of the Contributors, shall have the right power and authority to enforce the provisions hereof as though the Contributors were a party hereto.
6.
Entire Agreement; Amendment.
This Agreement contains the entire agreement between the parties with respect to the matters contemplated herein, and supersedes all other prior written or oral negotiations, commitments, or understandings with respect to the matters provided for herein. No amendment or variation of the terms of this Agreement will be valid unless made in writing and executed by the parties hereto and the Contributors’ Representative on behalf of the Contributors.
[Remainder of Page Left Intentionally Blank]
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF
, the undersigned have executed this Agreement as of the date first set forth above.
|
|
|
SELLER:
|
|
|
STRATHSPEY CROWN HOLDINGS
,
LLC
,
|
a Delaware limited liability company
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
Manager
|
|
|
PURCHASER:
|
|
|
ALPHAEON CORPORATION
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
Chief Executive Officer
|
[SIGNATURE PAGE TO UNIT PURCHASE AGREEMENT]
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS
AMENDMENT TO STOCK, PURCHASE AGREEMENT
(this “
Amendment
”) is made and entered into as of September 30, 2014 (the “
Effective Date
”), by and between
STRATHSPEY CROWN HOLDINGS, LLC
, a Delaware limited liability company (“
Seller
”) and
ALFHAEON CORPORATION
, a Delaware corporation (“
Purchaser
”).
RECITALS
WHEREAS, Seller and Purchaser entered into that certain Stock Purchase Agreement, dated as of September 30, 2014 (the “
Agreement
”), pursuant to which and subject to the terms and conditions of which, Seller agreed to sell to Buyer, and Buyer agreed to purchase from Seller, all of the Class D Shares of Evolus;
WHEREAS, the Agreement may be amended by written instrument making specific reference to the Agreement signed by Buyer and Seller; and
NOW, THEREFORE
, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed as follows:
AGREEMENT
|
|
1.
|
Defined Terms
. Capitalized terms used but not defined in this Amendment shall have the respective meanings ascribed to them in the Agreement,
|
2.
Amendments
.
|
|
a.
|
Definitions
.
Net Sales
. The definition of “
Net Sales
” shall be shall be amended to read in its entirety as follows
|
“
Net Sales
” means the net sales on behalf of Evolus, Seller, Purchaser and any of their Affiliates, authorized sublicensees and assignees for Product sold to third parties other than sublicensees and assignees, as determined in accordance with GAAP applied on a consistent basis. The deductions booked by Evolus, Seller, Purchaser or any of their Affiliates or authorized sublicensees or assignees to calculate the recorded net sales from gross sales include the following:
(i)
normal trade and cash discounts;
(ii)
amounts repaid or credited by reasons of defects, rejections, recalls or returns;
(iii)
rebates and chargebacks to customers and third parties (including, without limitation, Medicare, Medicaid, TriCare, Managed Healthcare);
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(iv)
any amounts recorded in gross revenue associated with goods provided to customers for free including samples;
(v)
amounts provided or credited to customers through coupons, other discount programs and co-pay assistance programs;
(vi)
delayed ship order credits, discounts or payments related to the impact of price increases between purchase and shipping dates;
(vii)
fee for service payments to customers for any non-separable services (including compensation for maintaining agreed inventory levels and providing information); and
(viii)
amounts received for transportation and delivery of the Product, including insurance;
provided, however, with respect to the calculation of Net Sales: (a) Net Sales only include the value charged or invoiced on the first sale to a third party and sales between or among Evolus, Seller, Purchaser and any of their Affiliates, authorized sublicensees and assignees shall be disregarded for purposes of calculating Net Sales; (b) if Product is delivered to the third party before being invoiced (or is not invoiced), Net Sales will be calculated at the time all the revenue recognition criteria under GAAP are met; and (c) distributors shall not be considered as sublicensees or assignees.
|
|
b.
|
Definitions
,
Product
. The definition of “
Product
” shall be shall be amended to read in its entirety as follows
|
“
Product
” means (i) the botulinurn toxin product licensed to the Company under the Daewoong Agreement, and (ii) any other botulinum toxin, including any next generation botulinum toxin, in-licensed by Parent or any Affiliate of Parent, including, without limitation, Evolus or Alpheori, from any third party (a “
New Toxin
”).
|
|
c.
|
Sale of Shares. Section 2(b) of the Agreement shall be amended and restated to read in its entirety as follows:
|
“(b) In consideration for the Class D Shares, Purchaser shall make the following payments: (A) a payment by Purchaser to Seller in an aggregate amount equal to Ten Million United States Dollars ($10,000,000) upon U.S. Approval; (B) quarterly payments by Purchaser to Seller in an aggregate amount equal to [***] percent [***] of the Net Sales of the Product in the United States and its territories and possessions for each quarter (or portion thereof) following the U.S. Approval;
provided
,
however
, that any quarterly payments related to a Product which is a New Toxin shall be reduced by the amount of royalties, if any, that are paid by Evolus, Seller, Purchaser and any of their Affiliates to any third party (who is not an Affiliate) for the license rights to the
Page 2 of 4
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
New Toxin;
provided
,
further
, that in no event shall the quarterly payments by Purchaser to Seller be less than [***] percent [***] of the Net Sales of the New Toxin in the United States and its territories and possessions; and (C) quarterly payments by Purchaser to Seller in an aggregate amount equal to [***] percent [***] of the Net Sales of the Product in any region, territory or jurisdiction other than the United States and its territories and possessions for each quarter (or portion thereof) for any indication in such non-United States region, territory or jurisdiction for which Purchaser or any of its Affiliates has the right to market or sell the Product;
provided
,
however
, that any quarterly payments related to a Product which is a New Toxin shalt be reduced by the amount of royalties, if any, that are paid by Evolus, Seller, Purchaser and any of their Affiliates to any third party (who is not an Affiliate) for the license rights to the New Toxin;
provided
,
further
, that in no event shall the quarterly payments by Purchaser to Seller be less than [***] percent [***] of the Net Sales of the New Toxin in such non-United States region, territory or jurisdiction.
3.
Governing Law
. This Agreement shall be governed in all respects by the laws of the State of Delaware, without regard to conflict of law principles.
4.
Counterparts
. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same Agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission or other electronic means shall constitute effective execution and delivery of this Agreement and may be used in lieu of the original Agreement for all purposes.
5.
Third Party Beneficiary
. Seller and Purchaser acknowledge and agree that the Contributors are intended third party beneficiaries of this Amendment and the obligations under this Amendment shall inure to the benefit of the Contributors, The Contributors’ Representative, on behalf of the Contributors, shall have the right power and authority to enforce the provisions hereof as though the Contributors were a party hereto.
6.
Entire Agreement; Amendment
. This Amendment shall be deemed to form an integral part of the Agreement and construed in connection with and as part of the Agreement, and all terms, conditions, covenants and agreements set forth in the Agreement and each other instrument or agreement referred to therein, as applicable, except as explicitly set forth herein, are hereby ratified and confirmed and shall remain in full force and effect, unmodified in any way. In the event of any inconsistency or conflict between the provisions of the Agreement and this Amendment, the provisions of this Amendment will prevail and govern, All references to the “Agreement” in the Agreement shall hereinafter refer to the Agreement as supplemented by this Amendment,
[Remainder of Page Left Intentionally Blank]
Page 3 of 4
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF
, the undersigned have executed this Agreement as of the date first set forth above.
|
|
|
SELLER:
|
|
|
STRATHSPEY CROWN HOLDINGS
,
LLC
,
|
a Delaware limited liability company
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
Manager
|
|
|
PURCHASER:
|
|
|
ALPHAEON CORPORATION
|
|
|
By:
|
/s/ Robert Grant
|
Name:
|
Robert Grant
|
Title:
|
Chief Executive Officer
|
[SIGNATURE PAGE TO AMENDMENT TO STOCK PURCHASE AGREEMENT]
Page 4 of 4
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
LICENSE & SUPPLY AGREEMENT
THIS
LICENSE AND SUPPLY AGREEMENT
(hereinafter this “
Agreement
”) is entered into this 30
th
day of September, 2013 (the “
Effective Date
”), by and between Daewoong Pharmaceutical Co., Ltd, a corporation organized and existing under the laws of the Republic of Korea, having its main office at 163-3, Samsung-Dong, Kangnam-Gu, Seoul, 135-715, Korea (hereinafter “
DAEWOONG
”); and
Evolus Inc., a corporation organized and existing under the laws of Delaware, United States, having its main office at 1270 Via Brigitte, Santa Barbara, CA, USA 93111 (hereinafter “
EVOLUS
”).
For the purpose of this Agreement, DAEWOONG and EVOLUS will be referred to respectively as a “
Party
” and collectively as “
Parties
”.
WITNESSETH:
WHEREAS, DAEWOONG has extensive experience in research, development and manufacture of Product and owns valuable technical information and know-how on manufacture, use, market and sale of Product;
WHEREAS, DAEWOONG has the rights for distribution, importation, drug registration, promotion, marketing and sale of Product and EVOLUS desires to obtain an exclusive license to the same in the Territory subject to the terms and conditions set out in this Agreement and DAEWOONG desires to grant such an exclusive license;
WHEREAS, DAEWOONG has the capability to manufacture and supply Product to EVOLUS and EVOLUS desires to purchase Product for resale in the Territory from DAEWOONG; and
WHEREAS, both Parties desire to ensure that Information that is disclosed to the other Party shall remain confidential during the Term and after the termination of this Agreement, for any reason whatsoever.
NOW THEREFORE
, in consideration of the foregoing premises and the mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
Article 1
Definitions
.
Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:
1
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
1.1
|
“Affiliate(s)” with respect to any Person means (a) any corporation or business entity of which fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting stock or general partnership interest are owned, controlled or held, directly or indirectly, by such Person; or (b) any corporation or business entity which, directly or indirectly, owns, controls or holds fifty percent (50%) (or the maximum ownership interest permitted by law) or more of the securities or other ownership interests representing the equity, the voting stock or, if applicable, the general partnership interest, of such Person; or (c) any corporation or business entity of which fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting stock or general partnership interest are owned, controlled or held, directly or indirectly, by a Person described in (a) or (b).
|
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1.2
|
“Agreement” has the meaning set forth in the preamble.
|
|
|
1.3
|
“Certificate of Analysis”
means a certificate in writing, signed by an authorized employee of DAEWOONG, that certifies the conformity of Product to the relevant Technical Specifications.
|
|
|
1.4
|
“Certificate of Compliance”
means a certificate in writing, signed by an authorized employee of DAEWOONG, that certifies that Product was manufactured in compliance with GMP and cGMP.
|
|
|
1.5
|
“Clinical Research Organization” or “CRO” means independent organization that provides outsourced pharmaceutical research services or Clinical Trial for drugs.
|
|
|
1.6
|
“Clinical Trial” means any research study of Product with human subjects designed to provide specific data to determine either or both of the safety and efficacy of Product for filing a regulatory application as required under Code of Federal Regulations Title 21.
|
|
|
1.7
|
“Commercial Launch” means the first commercial sale by EVOLUS or its Affiliates of Product to a distributor, wholesaler or other person engaged in the commercial business similar thereto for distribution, or to an end user or a consumer in the Territory.
|
2
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
1.8
|
“Commercialize” or “Commercialization” means any action directed to developing, marketing, promoting, distributing, importing or selling Product. Commercialize will also include post-approval Clinical Trials.
|
|
|
1.9
|
“Commercialization Plan” means, with respect to Product, any and all plans and activities directed to the development, marketing, promotion, distribution, offering for sale, and selling of Product, and importing Product for sale in the Territory in accordance with this Agreement, any plan for Regulatory Approval and any Marketing Plan, as set forth in
Annex C
hereto.
|
|
|
1.10
|
“Commercially Reasonable Efforts” means, with respect to a Party’s obligations under this Agreement, the carrying out of such obligations or tasks in a diligent manner consistent with customary practices of comparable companies in the specialty pharmaceutical industry for the development or commercialization of a comparable pharmaceutical product at a similar stage of development or commercialization in light of the intellectual property and competitive landscape relevant to such product, the safety and efficacy profile of a product, the development and regulatory approval (including any reimbursement approval) risks associated with such product, and the anticipated commercial viability.
|
|
|
1.11
|
“Competitive Product” means any product that is classified as an injectable botulinum toxin (other than the Product) launched in the Territory after the Effective Date of this Agreement
|
|
|
1.12
|
“DAEWOONG Trademarks” has the meaning set forth in Article 3.2.
|
|
|
1.13
|
“Effective Date” has the meaning set forth in the preamble.
|
|
|
1.14
|
“GMP” or “GMPs” shall mean Good Manufacturing Practices as determined by applicable regulatory requirements set forth by relevant Governmental Authorities of the applicable jurisdiction and “cGMP” shall mean current Good Manufacturing Practices as determined by applicable regulatory requirements set forth by relevant Governmental Authorities of the applicable jurisdiction.
|
3
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
1.15
|
“Governmental Authority” or “Governmental Authorities” means any supranational, national, regional, state or local government, court, governmental agency, authority, board, bureau, instrumentality or regulatory body.
|
|
|
1.16
|
“Governmental Authorization” means any approval, permit, license, certificate, franchise, permission, clearance, registration, qualification or other authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or pursuant to any law.
|
|
|
1.17
|
“Information” means any and all information disclosed or otherwise made available by one Party (the “
Disclosing Party
”) to the other Party (the “
Receiving Party
”), its agents, independent contractors or employees in any manner, whether communicated in writing or orally or by any method and all copies thereof, including without limitation, any business information, such as product or marketing plans and strategies, vendor or customer relationships, finances, or business operations or affairs, any information of legal nature, any information or know-how of scientific, technical or clinical nature, related to research or development efforts, future development, trade secrets, manufacturing processes, engineering, designs, Clinical Trial, field tests, process, technique, work-in-process, algorithm, program, design, drawing, formula or test data, formulations and methods of manufacture or use, and any other information which is or has been disclosed by the Receiving Party.
|
|
|
1.18
|
“Initial Marketing Plan” means the initial Marketing Plan of Product as set forth in the Commercialization Plan.
|
|
|
1.19
|
“Initial Term” has the meaning set forth in Article 15.1.
|
|
|
1.20
|
“Joint Steering Committee” or “JSC” has the meaning set forth in Article 11.1.
|
|
|
1.21
|
“Legal Proceeding” means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before,
|
4
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
or otherwise involving, any court or other Governmental Authority or any arbitrator or arbitration panel.
|
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1.22
|
“Manufacturing Plan” means the manufacturing plan as agreed by the parties periodically.
|
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|
1.23
|
“Marketing Authorization” means approval from the relevant Governmental Authority necessary to market and sell Product in the Territory as a pharmaceutical or commercial product in any formulation or dosage form, together with all subsequent submissions, supplements and amendments thereto.
|
|
|
1.24
|
“Marketing Authorization Application” means an application for permit, report, or other regulatory submission filed in accordance with the laws or regulations of the relevant Governmental Authorities to obtain a Marketing Authorization.
|
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|
1.25
|
“Marketing Plan” means each marketing plan of Product agreed by Parties periodically and set forth in the Commercialization Plan.
|
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|
1.26
|
“Material” means ingredients, contents, composition, or components of Product.
|
|
|
1.27
|
“Net Sales” means the net sales on behalf of EVOLUS and any of its Affiliates or authorized sublicensees or assignees for Product sold to third parties other than sublicensees/assignees, as determined in accordance with generally accepted accounting principles consistently applied at EVOLUS (“
Accounting Principles
”). The deductions booked by EVOLUS and its Affiliates, sublicensees and assignees to calculate the recorded net sales from gross sales include the following:
|
|
|
(a)
|
normal trade and cash discounts;
|
|
|
(b)
|
amounts repaid or credited by reasons of defects, rejections, recalls or returns;
|
|
|
(c)
|
rebates and chargebacks to customers and third parties (including, without limitation, Medicare, Medicaid, TriCare, Managed Healthcare);
|
5
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
(d)
|
any amounts recorded in gross revenue associated with goods provided to customers for free – with the exception of samples;
|
|
|
(e)
|
amounts provided or credited to customers through coupons, other discount programs and co-pay assistance programs;
|
|
|
(f)
|
delayed ship order credits, discounts or payments related to the impact of price increases between purchase and shipping dates; and
|
|
|
(g)
|
fee for service payments to customers for any non-separable services (including compensation for maintaining agreed inventory levels and providing information).
|
provided, however, with respect to the calculation of Net Sales: (i) Net Sales only include the value charged or invoiced on the first sale to a third party and sales between or among EVOLUS and its Affiliates and authorized sublicensees/assignees shall be disregarded for purposes of calculating Net Sales; (ii) if Product is delivered to the third party before being invoiced (or is not invoiced), Net Sales will be calculated at the time all the revenue recognition criteria under Accounting Principles are met; and (iii) distributors/resellers shall not be considered as sublicensees/assignees.
Upon the request of DAEWOONG, but not exceeding once in any one (1) year period and upon reasonable notice, EVOLUS shall permit an independent certified accountant, selected by DAEWOONG and acceptable to EVOLUS, which acceptance shall not be unreasonably withheld, to have access to such records of EVOLUS as may be necessary to verify the accuracy of the Net Sales submitted to DAEWOONG hereunder. The independent certified accountant shall verify to DAEWOONG the amount of Net Sales by country and timing of the milestone payments due under Section 6.7 below and disclose no other information revealed in its audit. Any such audit of records shall be at DAEWOONG’S expense.
|
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1.28
|
“Person” means an individual, partnership, corporation, joint stock company, estate, trust (including a business trust), limited liability company, unincorporated association, joint venture or other entity or a Governmental Authority.
|
|
|
1.29
|
“Product(s)” means any pharmaceutical or biological preparation containing botulinum toxin type A with 900 kDa protein ready for aesthetic use in the Territory, and, if Evolus exercises the option in Article 2.4, for Therapeutic Use (as defined in Article 2.4) in the Territory.
|
6
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
1.30
|
“Product Samples”
mean any form of Product to be used solely for promotional purposes and identified with appropriate wording, if necessary.
|
|
|
1.31
|
“Protocol” means a document that describes the objectives, design, methodology, statistical considerations and process of a Clinical Trial.
|
|
|
1.32
|
“Purchase Order” means a written order in substantially in the form set forth in
Annex F
attached hereto, setting forth (a) Product to be supplied, (b) delivery dates, (c) applicable Product price, and (d) any other terms and conditions for manufacturing such Product, as set forth in
Annex F
.
|
|
|
1.33
|
“Regulatory Approval” means any applicable approvals of any Governmental Authorities, including without limitation, where applicable, Marketing Authorization, schedule classifications, permits, licenses, registration, necessary and relevant to market, distribute, promote and commercialize Product in the Territory.
|
|
|
1.34
|
“Technical Specification” means a set of requirements or standards to be met by Product as set forth in
Annex G
, as may be amended from time to time by mutual agreement of the Parties.
|
|
|
1.35
|
“Term” means the Initial Term together with any Renewal Term.
|
|
|
1.36
|
“Territory” means the United States of America, and its territories and possessions, the EU, Australia and Canada. As used herein,
“EU”
means all of the European Union member states as of the applicable time during the Term. From time to time in this Agreement, all regions within the Territory other than the United States of America and its territories and possessions are sometimes referred to herein as the “
Non-US Territory
”, and the United States and its territories and possessions are referred to as the “
US Territory
.”
|
|
|
1.37
|
“Trademark” means Nabota™.
|
Article 2
License; Exclusivity; Option; Right of First Negotiation
.
|
|
2.1
|
During the Term, DAEWOONG hereby grants to EVOLUS an exclusive (even as to DAEWOONG and its Affiliates) right and license, to import, distribute, promote, market, develop, offer for
|
sale and otherwise commercialize or exploit Product in the Territory. EVOLUS shall have the right to Commercialize Product through one or more third party distributors and/or resellers, and EVOLUS’ relationship with any such distributor/reseller shall not constitute a sublicense hereunder.
|
|
2.2
|
Subject to the terms and conditions of this Agreement: (a) DAEWOONG shall manufacture and supply Product for the Territory exclusively to EVOLUS and its Affiliates; and (b) subject to Article 4.9, EVOLUS and its Affiliates shall purchase all of its requirements of Product for the Territory exclusively from DAEWOONG.
|
|
|
2.3
|
Except as specifically set forth in this Agreement, EVOLUS and its Affiliates will not acquire any license or other intellectual property interest, by implication or otherwise, in any Information disclosed to it under this Agreement or under any patent rights owned or otherwise controlled by DAEWOONG or its Affiliates.
|
|
|
(a)
|
US Territory
. In consideration of a cash payment in the amount of US$500,000, which shall be payable within thirty (30) days following the execution of this Agreement, DAEWOONG hereby grants to Evolus an exclusive option, exercisable at any time prior to December 31, 2018 (the “
Option Period
”), to expand the permitted uses of the Product to include all therapeutic uses, [***] in the US Territory. Evolus may exercise this option by written notice to DAEWOONG during the Option Period, along with payment within thirty (30) days of such notice, of an option exercise fee of [***].
|
|
|
(b)
|
Non-US Territory
. In consideration of a cash payment in the amount of US$500,000, which shall be payable within [***] following the execution of this Agreement, DAEWOONG hereby grants to Evolus an exclusive option, exercisable at any time during the Option Period, to expand the permitted uses of the Product to include Therapeutic Use in the Non-US Territory. Evolus may exercise this option by written notice to
|
7
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
DAEWOONG during the Option Period, along with payment within [***] of such notice, of an option exercise fee of [***].
|
|
2.5
|
In the event that DAEWOONG or its Affiliates intend to directly or indirectly (i) develop or commercialize, or (ii) assist any other Person to develop or commercialize, any Competitive Product, DAEWOONG shall promptly provide written notice thereof to EVOLUS. If within [***] of receipt of such notice, EVOLUS elects to expand the definition of Product to include a Competitive Product, DAEWOONG shall negotiate in good faith exclusively with EVOLUS the terms and conditions of such expansion. If the parties fail to reach a definitive agreement within [***] of EVOLUS’ election, DAEWOONG shall be free to develop and commercialize the applicable Competitive Product itself or provide such rights to a third party, provided; however, that if DAEWOONG offers to, or is prepared to accept an offer from, any such third party on terms more favorable to such third party than those last offered to EVOLUS, it shall notify EVOLUS, and EVOLUS shall have [***] to accept such terms. If within [***] following DAEWOONG’s initial notice under this Article 2.5, DAEWOONG does not commence development and commercialization activities for such Competitive Product (as evidenced by a filing for regulatory approval to begin clinical studies in the United States) or does not enter into a definitive agreement with a third party to develop and commercialize such Competitive Product, EVOLUS’ right of first negotiation and right of first refusal under this Article 2.5 shall be re-instated.
|
Article 3
Trademarks
.
|
|
3.1
|
N
othing in this Agreement shall require or oblige EVOLUS to use the DAEWOONG Trademarks in relation to Product. However, any marketing, promotion, sale and/or distribution by EVOLUS of Product that carries, or sold by reference to, the DAEWOONG Trademarks shall be governed by the relevant provisions of this Agreement.
|
|
|
3.2
|
DAEWOONG shall, at its own expense, register and maintain the trademark(s) used by DAEWOONG and its Affiliates in connection with Product, including, without limitation, the Trademark
|
8
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(collectively, the “
DAEWOONG Trademarks
”); provided, however, that DAEWOONG shall not change, amend or otherwise modify the DAEWOONG Trademarks in the Territory without the prior written consent of EVOLUS. EVOLUS shall have no rights in respect to the DAEWOONG Trademarks, designs, copyrights and other proprietary rights used on or embodied in Product except as necessary to accomplish the purpose of this Agreement.
|
|
3.3
|
Each Party shall notify the other Party of any actual, suspected or threatened infringement, violation or misappropriation within the Territory of the DAEWOONG Trademarks (“
Infringement
”) that comes to its attention. DAEWOONG shall have the sole and exclusive right to send notices and bring and conduct action in relation to any Infringement in the Territory; provided, however, in the event that DAEWOONG does not take reasonable steps to prevent any individual Infringement within thirty (30) days of becoming aware or receiving written notice thereof, EVOLUS shall thereafter have the sole right (but shall not be under any obligation in this regard) to send notices and bring and conduct actions in relation to such Infringement. The Parties will cooperate fully with each other in taking all reasonable steps requested by the other Party in connection with any Infringement action, including joining in any Legal Proceedings. DAEWOONG shall bear the costs of any such Legal Proceedings, and shall be entitled to any damages, account of profits and/or awards of costs recovered.
|
|
|
3.4
|
DAEWOONG hereby grants to EVOLUS an exclusive, irrevocable, sub-licensable, assignable, fully paid-up license during the Term: (a) to use the DAEWOONG Trademark(s) to import, distribute, promote, market, offer for sale and otherwise commercialize or otherwise exploit Product in the Territory, and (b) to prepare, obtain and maintain Marketing Authorization in the Territory. For the avoidance of doubt, the rights granted to EVOLUS hereunder is limited in the Territory and only
for the purposes and within the limits provided by this Agreement.
|
|
|
3.5
|
EVOLUS shall not alter or add to DAEWOONG Trademark(s) without the prior written consent of DAEWOONG. For the avoidance of doubt, EVOLUS may use its trade name, trademarks
|
9
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
and logos on packaging, leaflets, advertising and promotional materials for Product together with the DAEWOONG Trademarks.
|
|
3.6
|
During the Term, EVOLUS shall not (a) contest the validity of the DAEWOONG Trademarks; or (b) without the prior written consent of DAEWOONG, apply, or attempt to apply, for the registration or use, in the Territory or anywhere else, of the DAEWOONG Trademarks or any trademarks identical with or confusingly similar to the DAEWOONG Trademarks.
|
|
|
3.7
|
After the Term, EVOLUS shall refrain from any further use of the DAEWOONG Trademarks or of any marks which may cause confusion to a third party; provided, however, that DAEWOONG shall grant EVOLUS permission to sell off Product sourced from DAEWOONG prior to the end of the Term. [***].
|
Article 4
Supply of Product
.
|
|
4.1
|
DAEWOONG shall manufacture and supply Product to EVOLUS in a primary packaged and labeled form. Product packaging shall display the logo of DAEWOONG (to the extent required by applicable law) and EVOLUS and the outer label shall be marked using English language in accordance with applicable laws and Product’s Regulatory Approvals.
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|
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4.2
|
Within ninety (90) days after the Effective Date, EVOLUS shall provide DAEWOONG a non-binding twelve (12) month rolling forecast of its requirements of Product, which the Parties agree is not a commitment to buy any stated quantity. Thereafter, on at least a quarterly basis, EVOLUS shall provide DAEWOONG with an updated twelve (12) month rolling forecast, together with a binding six (6) month forecast to the extent EVOLUS has requested Safety Stock as described in Section 4.10 below. Each such forecast shall be referred to herein as a “
Forecast
”.
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4.3
|
EVOLUS may from time to time submit Purchase Orders to DAEWOONG for Product in accordance with the forecasting requirements in Article 4.2. Orders will be shipped on CIF Los Angeles port.
|
10
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
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4.4
|
Once a Purchase Order for Product and Product Samples has been received by DAEWOONG, it shall be considered as irrevocable.
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4.5
|
EVOLUS agrees herein to place an Order for Product not later than [***] from receipt of Regulatory Approval.
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4.6
|
Individual Purchase Orders of Product shall be placed at least [***] in advance of the required delivery date.
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4.7
|
For the purpose of Commercialization, EVOLUS will store and maintain the full quantity of Product in a clean, secured area in accordance with the reasonable directions and specifications provided by DAEWOONG in writing in connection thereof in the Territory. EVOLUS will advise DAEWOONG on the applicable requirements specifically deriving from the laws and regulations in the Territory.
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4.8
|
EVOLUS agrees that DAEWOONG and its collaborators and agents, in DAEWOONG’s sole discretion, which collaborators and agents will be subject to appropriate obligations of confidentiality, will have the right upon reasonable prior notice, to observe and to inspect and to audit EVOLUS’ facility to ascertain compliance by EVOLUS with the terms of this Agreement, including without limitation (a) the holding facilities for Product, and (b) EVOLUS’ compliance with applicable law, including cGMP (if applicable). Following any such audit, DAEWOONG will discuss its observations and conclusions with EVOLUS and corrective actions, if any, will be agreed upon by the Parties, and executed by EVOLUS using Commercially Reasonable Efforts.
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4.9
|
In addition to any other rights and remedies available to EVOLUS, EVOLUS shall have the right to recover lost profits in the event that DAEWOONG fails to deliver at least [***] in any [***] (a “
Supply Default Event
”). For purposes of this provision, lost profits would be equal to [***] of EVOLUS operating profit (sales less direct expenses and the price paid by EVOLUS for such Products) on Products that have not been shipped against firm Purchase Orders during the period leading up to the Supply Default Event, and bona fide Purchase Orders submitted by EVOLUS that are consistent with the Forecast during the Supply Default Period (as defined
|
11
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
below). Such payment shall be made with respect to all Product not shipped in the period giving rise to the Supply Default and for the period until DAEWOONG is again timely shipping Product to meet EVOLUS’ needs (the “
Supply Default Period
”). The first such payment shall be made within [***] of the Supply Default Event, and every [***] thereafter.
EVOLUS agrees to permit full disclosure to DAEWOONG of EVOLUS’ accounting records, solely related to the calculation of lost profits, for the [***] ending on the first day of the month in which the Supply Event Default occurred.
In the event that DAEWOONG is unable to supply both EVOLUS’ requirements of Product and its own and third parties’ requirements for Product, DAEWOONG shall allocate Product that DAEWOONG has in inventory and that DAEWOONG is able to produce, so that EVOLUS receives its requirements of Product in priority to DAEWOONG and third parties.
|
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4.10
|
At the request of EVOLUS, DAEWOONG shall at its own cost and expense during the term of this Agreement, maintain an amount of inventory of Product equal to EVOLUS’ requirements for Product for [***] based on EVOLUS’ most recent forecast (“
Safety Stock
”). The Safety Stock shall be (i) maintained for the sole benefit of EVOLUS and its Affiliates, (ii) shall be stored at a secure facility in compliance with GMP, and (iii) shall not be used for the benefit of any other customer of DAEWOONG. DAEWOONG shall rotate the Safety Stock on a “
First Expiry-First Out
” basis for routine fulfillment of firm orders, subject to Article 7.9. Such Safety Stock shall be independent of any safety stock maintained for the benefit of DAEWOONG or any other customer of DAEWOONG. In the event DAEWOONG is not able to supply EVOLUS Product pursuant to any firm Purchase Order, DAEWOONG shall draw upon the Safety Stock maintained for EVOLUS to make up for any shortfall. Within five (5) days after the end of each calendar quarter, DAEWOONG shall deliver a report to EVOLOUS describing the quantities of the Safety Stock remaining as of the end of such quarter.
|
Article 5
Minimum Annual Purchases
.
12
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
5.1
|
If EVOLUS fails to achieve (i) the Minimum Annual Purchases, as specified in
Annex B
for the US Territory, DAEWOONG may, upon thirty (30) days’ prior written notice to EVOLUS, elect to convert the exclusive license to EVOLUS to a non-exclusive one in the US Territory and, at its sole discretion, grant licenses to other Persons in the US Territory to market Product, and (ii) the Minimum Annual Purchases as specified in
Annex B
for the Non-US Territory, DAEWOONG may, upon thirty (30) days’ prior written notice to EVOLUS, elect to convert the exclusive license to EVOLUS to a non-exclusive one in the Non-US Territory and, at its sole discretion, grant licenses to other Persons in the Non-US Territory to market Product.
|
|
|
5.2
|
Following the fifth anniversary of the Commercial Launch, the Minimum Annual Purchase requirement for calendar years following the fifth anniversary of the Commercial Launch shall be mutually agreed to by the Parties. In the event the Parties are not able to reach agreement on such Minimum Annual Purchase, DAEWOONG may set the Minimum Annual Purchase requirement for each subsequent year at an amount that is no more than [***] percent ([***]%)] greater than the Minimum Annual Purchase requirement for the immediately preceding year.
|
|
|
5.3
|
A minimum order per Purchase Order shall be as [***] vials per each dosage of Product.
|
Article 6
Price and Milestone Payments
.
|
|
6.1
|
For Product ordered by EVOLUS, EVOLUS shall pay to DAEWOONG the prices set forth in
Annex B
hereto, calculated on CIF Los Angeles port. In the event that any Product is not timely shipped, the price for such late order shall be reduced by [***] for each full week of delay.
|
|
|
6.2
|
All amounts payable and calculations made hereunder shall be in United States Dollars (“
USD
”) payable within [***] days of invoice receipt, except to the extent such invoices, or any part thereof, are disputed in good faith by EVOLUS; provided, that, if the invoice receipt date is prior to shipment of the applicable Products, the [***] days shall instead be calculated from the shipment date.
|
13
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
6.3
|
DAEWOONG is not liable for and DAEWOONG will not reimburse, or otherwise pay, for any cost due to any possible devaluation of any local currency corresponding to the value of USD.
|
|
|
6.4
|
Unless otherwise provided by the relevant laws or treaties, any sales and similar taxes imposed by any Governmental Authorities in relation to the payments made under this Agreement shall be paid by EVOLUS regardless to whom they are charged, and EVOLUS shall not withhold the payment to DAEWOONG, in whole or in part, for such taxes.
|
|
|
6.5
|
EVOLUS shall be responsible for obtaining and maintaining any and all authorizations from Governmental Authorities in the Territory and for making all the payments to DAEWOONG hereunder; provided, however, that DAEWOONG shall provide EVOLUS with all necessary information to enable EVOLUS to obtain and maintain any such authorization.
|
|
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6.6
|
If any sum due and payable under this Agreement by EVOLUS shall not have been paid on or before the applicable due date, simple interest shall accrue on the unpaid amount at the rate of [***]% per annum, calculated on a daily basis from the due date until the date actual payment is made, without prejudice to any other claim or remedy available to DAEWOONG, except to the extent such invoices, or any part thereof, are disputed in good faith by EVOLUS. EVOLUS also agrees to pay all collection costs, including DAEWOONG’s legal costs for the collection of any amount due and unpaid, to the extent that such amounts are determined by a court of competent jurisdiction or other applicable Governmental Authority to be due to DAEWOONG. Without prejudice to any of its other rights, DAEWOONG may withhold shipments of Product if EVOLUS has not paid any invoice when due, except to the extent such invoices, or any part thereof, are disputed in good faith by EVOLUS.
|
|
|
6.7
|
EVOLUS will make upfront and milestone payments to DAEWOONG based on achievement of Product as set forth below. EVOLUS will pay each milestone payment set forth below within [***] after the first achievement of the corresponding milestone.
|
14
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Each payment hereunder shall be non-creditable and non-refundable.
|
|
(a)
|
2.5 (two and one half) Million USD within thirty (30) days following the execution of this Agreement;
|
|
|
(b)
|
[***] ([***]) [***] USD upon Marketing Authorization approval in the US Territory;
|
|
|
(c)
|
[***] ([***])[***] USD upon Marketing Authorization approval in the EU;
|
|
|
(d)
|
[***] ([***])[***] USD upon accomplishing Net Sales since Commercial Launch of more than [***] IU in the US Territory;
|
|
|
(e)
|
[***] ([***])[***] USD upon accomplishing Net Sales since Commercial Launch of more than [***] IU in the US Territory;
|
|
|
(f)
|
[***] ([***])[***] USD upon accomplishing Net Sales since Commercial Launch of more than [***] IU in the Non-US Territory; and
|
|
|
(g)
|
[***] ([***])[***] USD upon accomplishing Net Sales since Commercial Launch of more than [***] IU in the Non-US Territory.
|
Article 7
Quality; Acceptance and Rejection; Indemnification
.
|
|
(a)
|
Product supplied hereunder by DAEWOONG shall meet the Technical Specifications. DAEWOONG shall not subcontract or delegate any portion of its obligations hereunder to a third party or Affiliate without the prior written consent of EVOLUS. Changes to the Technical Specifications require prior written approval of EVOLUS, and in the event that compliance with such change requires additions and/or modifications to the existing product registrations of EVOLUS or its Affiliates, the Parties will meet to decide how to implement the change.
|
|
|
(b)
|
DAEWOONG warrants that (i) it shall manufacture and supply Product and carry on operations at its Product facility in full
|
15
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
compliance with (A) cGMP and standards specified by GMP, the drug master files, and all other regulatory guidelines and requirements as applicable, and (B) all legal requirements, including, the prevailing laws and regulations on health, safety and environmental protection, and (ii) Product will not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as amended from time to time.
|
|
(c)
|
Each time DAEWOONG ships Product to EVOLUS, or an Affiliate or designee of EVOLUS, it shall provide EVOLUS with a Certificate of Analysis and a Certificate of Compliance. During the Term, DAEWOONG shall keep and maintain a drug master file for Product and authorize EVOLUS to incorporate by reference all information and documentation contained therein.
|
|
|
(d)
|
Following thirty (30) days prior written notice (or sooner to the extent required by any Governmental Authority), DAEWOONG shall allow EVOLUS (or its designee) to visit the facilities where the Product is manufactured during regular business hours to assure EVOLUS of the quality standards used. DAEWOONG shall make documentation available for on-site inspections at DAEWOONG’s site and provide to EVOLUS information reasonably requested by EVOLUS to (i) assist EVOLUS in determining whether any delivery complies fully with the terms of this Agreement; (ii) assist EVOLUS or its Affiliates in obtaining any and all regulatory approvals necessary to market proprietary products containing Product; and/or (iii) enable EVOLUS to comply with any statutory or regulatory requirements, or with a request by any Governmental Authority.
|
|
|
7.2
|
Promptly upon receipt of each shipment of Product, EVOLUS shall diligently inspect each Product as to any defects or missing quantities, as far as reasonably practical.
|
|
|
7.3
|
If EVOLUS determines that any such Product is damaged or defective, EVOLUS will notify DAEWOONG in writing, providing a complete report on the nature, effects, possible cause and relevancy of the defect, and deliver to DAEWOONG no later than [***] days after the receipt of such Product by EVOLUS.
|
16
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
7.4
|
EVOLUS shall not return Product to DAEWOONG without prior written consent of DAEWOONG (such consent shall not be unreasonably withheld) in connection with a claim made pursuant to Article 7.3.
|
|
|
7.5
|
When a claim of defect or damages is made by EVOLUS, DAEWOONG shall analyze a sample of Product taken from such delivered quantity. Should DAEWOONG find the claim of EVOLUS is justifiable, then DAEWOONG shall promptly replace, at its expense, such Product with defect with equal quantity of Product that meets the Technical Specifications.
|
|
|
7.6
|
In the event that DAEWOONG does not agree with EVOLUS that Product that has been rejected under the provisions of this Article 7 fails, the matter shall, at the request of either Party, be submitted to an independent analytical laboratory acceptable to both Parties, which will resolve the discrepancy in the analysis taking into consideration the counter-sample of the rejected Product kept by DAEWOONG. The decision of said laboratory shall be final, not subject to appeal and neither Party shall unreasonably withhold its approval of an independent laboratory proposed by the other.
|
|
|
7.7
|
Should the independent laboratory agree with the complaint, then:
|
|
|
(a)
|
subparagraphs 7.5 (a) and (b) above shall apply; and
|
|
|
(b)
|
The cost of the assay and any other services performed by the independent laboratory shall be borne by the Party whose opinion was not supported by the independent laboratory.
|
|
|
7.8
|
Article 7.7 shall not apply, where Parties agree or the independent laboratory declares that:
|
|
|
(a)
|
Product meets the Technical Specifications; or
|
|
|
(b)
|
the failure of such non–conforming Product results from EVOLUS’:
|
|
|
(i)
|
negligent or defective transportation of Product following the delivery condition by DAEWOONG; or
|
17
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
(ii)
|
negligent or defective handling, storage or use of Product by EVOLUS.
|
|
|
7.9
|
All Product supplied by DAEWOONG to EVOLUS shall have [***] of DAEWOONG’s shelf life as approved by the United States Food and Drug Administration (“FDA”) or any other Governmental Authority at time of receipt by EVOLUS. Subject to the foregoing, (a) DAEWOONG shall not be responsible for any expired units of Product, including without limitation to those returned by wholesalers, pharmacists, doctors, or other Persons to whom EVOLUS sold Product in the Territory, and (b) EVOLUS shall not be entitled to any replacement of the expired Product or to any compensation of any kind from DAEWOONG.
|
|
|
7.10
|
Each Party will, at its own expense, carry and maintain, during the Term and a subsequent period of [***] after its expiry or termination whatever the cause and the time may be, insurance sufficient to cover its obligations and liabilities hereunder.
|
|
|
7.11
|
EVOLUS shall indemnify, defend, and hold harmless DAEWOONG and its employees, officers, directors and agents (hereinafter respectively referred to as an “
DAEWOONG Indemnitee
”) from and against, any and all losses, costs, expenses, liabilities and damages of every kind and nature (including, without limitation, reasonable attorney fees) (hereinafter collectively referred to as “
Claims
”) incurred by a DAEWOONG Indemnitee arising from: (a) willful misconduct or any grossly negligent acts or omissions on the part of EVOLUS or its employees or agents in performing duties obligations in connection with this Agreement; or (b) EVOLUS’ breach of this Agreement except to the extent that any such Claim is caused by DAEWOONG's own willful misconduct or grossly negligent acts or omissions. DAEWOONG agrees to give EVOLUS prompt written notice of any Claim, and agrees to reasonably cooperate with EVOLUS in the defense of any Claim, provided that each DAEWOONG Indemnitee will be entitled to participate in the defense of any Claim and employ counsel at its own cost and expense.
|
|
|
7.12
|
DAEWOONG shall indemnify, defend, and hold harmless EVOLUS and its employees, officers, directors and agents
|
18
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
(hereinafter respectively referred to as an “
EVOLUS Indemnitee
”) from and against, any and all Claims arising from: (a) willful misconduct or any grossly negligent acts or omissions on the part of DAEWOONG or its employees or agents in performing duties obligations in connection with this Agreement; (b) DAEWOONG’s breach of this Agreement, or (c) an allegation that Product or any DAEWOONG Trademark infringes or misappropriates the rights, including without limitation, intellectual property rights, of a third party; except to the extent that any such Claim is caused by EVOLUS' own willful misconduct or grossly negligent acts or omissions. EVOLUS agrees to give DAEWOONG prompt written notice of any Claim, and agrees to reasonably cooperate with DAEWOONG in the defense of any Claim, provided that each EVOLUS Indemnitee will be entitled to participate in the defense of any Claim and employ counsel at its own cost and expense.
|
|
7.13
|
In the event and to the extent of any Recall or Seizure of any Product, as hereinafter defined, due to an improper act or omission of DAEWOONG or a third party acting on its behalf (excluding EVOLUS or its Affiliates), DAEWOONG shall, at the written election of EVOLUS and, without limiting DAEWOONG’s indemnity obligations under Article 7.12, [***]. For purposes of this Agreement, “
Recall
” means (i) any action by EVOLUS or any of its Affiliate to recover title to or possession of any Product sold or shipped (including market withdrawal) based on Governmental Authority action or the good faith belief of EVOLUS or such Affiliate that such action was necessary under the circumstances, and/or (ii) any decision by EVOLUS not to sell or ship Product to third parties that would have been subject to recall if it had been sold or shipped, in each case taken in the good faith belief that such action was necessary under the circumstances; and “
Seizure
” means any action by any Governmental Authority to detain or destroy any Product.
|
|
|
7.14
|
Within thirty (30) days following the Effective Date, the Parties shall agree upon and implement a procedure for the mutual exchange of adverse event reports and safety information associated with the Product. Details of the operating procedure respecting such adverse event reports and safety information exchange shall be the
|
19
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
subject of a mutually-agreed written pharmacovigilance agreement between the Parties which shall be entered into within such thirty (30) day period.
Article 8
Technical Assistance
.
|
|
8.1.
|
If EVOLUS requests that DAEWOONG provide EVOLUS with technical assistance with the Commercial Plan and Clinical Trial, including information and illustrated material, and advertising material suitable for the promotion and advertising of Products, then DAEWOONG shall provide such assistance at no cost or expense to EVOLUS.
|
|
|
8.2.
|
Any expenses of EVOLUS’ personnel dispatched for training shall be borne by EVOLUS. Further, if the training is completed in the Territory, EVOLUS shall also compensate expenses incurred by DAEWOONG personnel who train EVOLUS’ personnel.
|
Article 9
Drug Registration
.
|
|
9.1
|
The Parties agree to fully cooperate in good faith under this Agreement in connection with the Marketing Authorization, supplying and commercialization of Product in Territory to the extent permitted by any applicable laws. For purposes thereof, each Party shall provide (or request its Affiliates to provide) to the other Party and/or the JSC any necessary Information and such other information as may be reasonably required under this Agreement.
|
|
|
9.2
|
During the Term of this Agreement, EVOLUS, at its sole cost and expense, shall use Commercially Reasonable Efforts to (i) obtain Regulatory Approvals required by Governmental Authorities in relation to the Commercial Plan of Product in Territory, including but not limited to preparing and filing all necessary applications and (ii) maintain any such Regulatory Approvals.
|
|
|
9.3
|
During the Term of this Agreement, EVOLUS agrees to use Commercially Reasonable Efforts to achieve all Regulatory Approvals necessary for Products to be marketed in the Territory. EVOLUS shall be responsible for preparing, submitting requirements and prosecuting any study for the Marketing
|
20
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Authorization in the Territory. EVOLUS shall be responsible for completing all technical non-clinical studies and Clinical Trials required for Marketing Authorization Application. DAEWOONG will provide all materials and documentations requested by EVOLUS to register the Product in the Territory. [***]. For avoidance of doubt, any documents, study results and reports made pursuant to this Article 9 or otherwise communicated between the Parties will be subject to the confidentiality provisions of Article 14. Further, EVOLUS and its consultants shall exercise Commercially Reasonable Efforts to achieve Marketing Authorization.
|
|
9.4
|
EVOLUS shall provide DAEWOONG with reasonable prior notice of all material meetings, conferences and discussions scheduled with any relevant Governmental Authority concerning any Regulatory Approval relating to Products to the extent such notice is practicable and in any event shall use its reasonable efforts to provide such notice as promptly as practicable. At all such meetings, conferences or discussions, DAEWOONG shall have the right to attend and participate (accompanied by a translator, consultants or advisors, if so decided by DAEWOONG), either in person or by telephone, to the extent permitted by the applicable Governmental Authority at DAEWOONG’S sole cost and expense; provided, further that DAEWOONG shall have the right to comment in timely fashion on any such approval applications or communication with Governmental Authorities, which comments EVOLUS shall reasonably consider.
|
|
|
9.5
|
Subject to the EVOLUS Regulatory Right, EVOLUS shall provide DAEWOONG with complete and accurate record of dossier related to all Regulatory Approvals, including copies of: (a) all the correspondence exchanged with Governmental Authorities; (b) any certificate of Drug Registrations in Territory related to Product within fourteen (14) days of completion of such registration; (c) subsequent amendments or supplements thereto; and (d) any regulatory documents and certificates that DAEWOONG request. [***].
|
21
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Article 10
Marketing and Promotion
.
|
|
10.1
|
Upon obtaining all necessary Regulatory Approvals, EVOLUS shall use Commercially Reasonable Efforts to Commercialize Product in the Territory. Subject to the terms and conditions of this Agreement, EVOLUS shall be responsible for the establishment and implementation for Commercialization of Product in the Territory as set forth in Initial Marketing Plan. EVOLUS will discuss with DAEWOONG the following:
|
|
|
(a)
|
Initial Marketing Plan for Product within [***] after obtaining Marketing Authorization in the Territory; and
|
|
|
(b)
|
Annual Marketing Plan [***] prior to the end of each year.
|
|
|
10.2
|
EVOLUS shall submit to DAEWOONG semi-annual review reports on January 1 and July 31 of each calendar year which will include, but without limitation, the following: (a) customer requirements with respect to Product; (b) market analysis; (c) competition; (d) any primary or secondary market research on Product in the Territory; (e) details of any changes in applicable laws in Territory; and (f) all in-market sales data.
|
|
|
10.3
|
For the avoidance of doubt, EVOLUS will bear all costs and expenses related to the activities related to Commercialization of Product as well as cost related to obtaining and maintaining Marketing Authorization.
|
|
|
10.4
|
EVOLUS shall use Commercially Reasonable Efforts to Commercialize Product and to provide physicians, practitioners and other prescribers with information and support related to Product. EVOLUS’ obligations in connection with Commercialization of Product in the Territory are set out in Initial Marketing Plan. Further, on at least a Calendar Year basis, EVOLUS shall provide DAEWOONG with a written summary of EVOLUS’ planned and completed Commercialization activities with respect to Product in the Territory, covering subject matter at a level of detail sufficient to enable DAEWOONG to determine EVOLUS’ compliance with its diligence obligations in this Article 10.
|
22
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
10.5
|
EVOLUS will, in implementing the Marketing Plan, use Commercially Reasonable Efforts to protect and preserve the good image and reputation of DAEWOONG and Product, and shall ensure that no marketing or promotional effort will violate any applicable laws.
|
Article 11
Joint Steering Committee (JSC)
.
|
|
11.1
|
Parties shall promptly, and in any event within thirty (30) days from execution of this Agreement, establish a joint steering committee (“
Joint Steering Committee
” or “
JSC
”) to review and provide input on all Commercialization Plans of Product in the Territory. The JSC shall be comprised of an equal number of representatives from each of the Parties, including both development and commercial representatives of Parties. In addition, it is contemplated that senior executive and managerial personnel of each Party will serve as members of the JSC or will periodically participate in meetings of the JSC, when so required to assure that relevant matters are reviewed and jointly approved by the senior executive management of both Parties.
|
|
|
11.2
|
The JSC shall meet at least once each calendar quarter or as otherwise agreed to by the Parties. At least one meeting in each year shall be held in person, as face to face meetings.
|
|
|
11.3
|
The JSC shall exercise such authority in good faith in accordance with the terms of this Agreement. In the event that JSC is unable to reach a decision on any matter within thirty (30) days, the matter shall be referred to the top management of each Party for resolution.
|
|
|
11.4
|
The JSC shall review, and make recommendations with regards to Commercialization Plan to be performed by EVOLUS hereunder. To that end, the JSC shall review, and make recommendations with regards to, the following; provided, however, that EVOLUS shall, in its reasonable discretion, have the authority to make final decisions with respect to the following matters:
|
|
|
(a)
|
the implementation of the plan for Drug Registration and strategy for filling application for Regulatory Approval for Products in the Territory;
|
23
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
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(b)
|
all regulatory aspects of Products, including but not limited to, each and every regulatory action, communication, and filing and submission including any supplements or amendments thereto to relevant Governmental Authorities in the Territory with respect to Products;
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(c)
|
schedule and implementation strategy for all applications for Regulatory Approval;
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(d)
|
coordinate the provision of expertise from both Parties to the JSC with respect to pre-clinical or clinical studies related to Product recommended by the JSC;
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(e)
|
suggest updates to, and implementation of, Marketing Plan; and
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(f)
|
the marketing, promotion, sale and/or distribution of Product.
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11.5
|
Each Party may attend the JSC and other meetings together with interpreters, it being also agreed that the agendas and minutes of the meetings will be written in English and that the reports and information to be reviewed or evaluated in JSC and meetings will be accompanied with their corresponding translation into English (when not originally prepared in English).
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Article 12
Prohibition on Certain Activities
.
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12.1
|
During the Term, EVOLUS and its Affiliates shall not, directly or indirectly, other than through DAEWOONG (a) purchase, import, export, sell or distribute any Competitive Product in the Territory, or assist any third party to do so; (b) sell Product outside the Territory, or (c) sell Product to any Person in the Territory who such Person knows intends to sell such Product outside the Territory.
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12.2
|
During the initial [***] period following the Effective Date, DAEWOONG and its Affiliates shall not, directly or indirectly, (a) purchase, import, export, sell, distribute, or otherwise deal in any Competitive Product in the Territory, or assist any other third party to do so; (b) sell any Competitive Product to any Person (other than EVOLUS and its Affiliates or designees) inside the Territory; or (c) sell any Competitive Product to any Person outside the Territory
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24
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
who such Person knows intends to sell such Product inside the Territory.
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12.3
|
During the Term, DAEWOONG and its Affiliates shall not, directly or indirectly, other than through EVOLUS, (a) purchase, import, export, sell, distribute, or otherwise deal in Product in the Territory, or assist any other third party to do so; (b) sell any Product to any Person (other than EVOLUS and its Affiliates or designees) inside the Territory; or (c) sell any Product to any Person outside the Territory who such Person knows intends to sell such Product inside the Territory.
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Article 13
Other Obligations of Parties
.
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13.1
|
Each Party shall promptly inform the other Party of any relevant changes in laws and regulations that such Person becomes aware of that may affect Drug Registration (including the local regulatory requirements: classification, marketing authorization and safety), and Commercialization of Product in the Territory.
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13.2
|
In its execution of the Commercialization Plan of Product and its other obligations under this Agreement, EVOLUS will comply with all applicable laws.
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13.3
|
EVOLUS shall, at DAEWOONG’s sole cost and expense, submit to DAEWOONG all texts, tapes and recordings of any printed, audio or video promotional material of Product produced in the Territory.
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13.4
|
EVOLUS shall (a) commence conducting non-clinical studies in the Territory within [***] of the Effective Date, and (b) use Commercially Reasonable Efforts to follow the schedule of Clinical Trial Plan set forth in the Commercialization Plan.
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13.5
|
Before conducting the Clinical Trials in the Territory, EVOLUS shall submit the Protocol to DAEWOONG and provide the interim findings and final results of non-clinical and clinical studies to DAEWOONG promptly. DAEWOONG shall not publish or reveal non-clinical and clinical data to third parties without prior written consent of EVOLUS. For the avoidance of doubt, any documents, study results and reports made pursuant to this Article 13 shall be
|
25
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
the Information of EVOLUS and subject to the confidentiality provisions of Article 14.
|
|
13.6
|
EVOLUS shall use Commercially Reasonable Efforts: (a) to advance Product through completion of Clinical Trials in accordance with the Regulatory Plan; (b) to obtain Marketing Authorization in accordance with the Marketing Plan; and (c) to conduct the Commercialization Plan.
|
|
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13.7
|
DAEWOONG shall, at its own cost and expense, develop, qualify and maintain a site for the manufacture of Product (including the active ingredient therein) so that there exists, at a minimum, sufficient capacity to meet [***] of EVOLUS’ Forecast, and DAEWOONG shall insure that site for the manufacture of Product is in a qualified and validated state appropriate for inclusion as a manufacturing site for Product as required by the U.S. FDA and any other regulations in the Territory. [***].
|
Article 14
Obligation of Confidentiality
.
|
|
14.1
|
During the Term of this Agreement, and for [***] thereafter, each of the Parties will keep confidential, and not disclose or use any of the Information of the other Party except in the performance of its obligations and exercise of its rights under this Agreement. Each Party will treat the other Party’s Information with the same degree of confidentiality as it keeps its own confidential information (but in no event will it use less than reasonable care with such Information). Notwithstanding the foregoing, the provisions of this Article 14 shall not apply to any information that can be shown by the Receiving Party:
|
|
|
(a)
|
To have been known to or in the possession of the Receiving Party prior to the date of its actual receipt from the Disclosing Party without breaching any provision of this Agreement or any other agreement between the Parties or of any agreement between the Disclosing Party and a Third Party, by such Third Party;
|
|
|
(b)
|
To be or to have become available to the public other than through any act or omission of the Receiving Party in breach of this Agreement or any other agreement between the Parties;
|
26
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
(c)
|
To have been disclosed to the Receiving Party, other than under an obligation of confidentiality, by a Third Party that had no obligation to the Disclosing Party not to disclose such information to others; or
|
|
|
(d)
|
To have been subsequently independently developed by the Receiving Party without use of the Disclosing Party Information as demonstrated by competent contemporaneous tangible records.
|
|
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14.2
|
Receiving Party shall ensure that its Affiliates, directors or employees, who have access to Information, shall consider and hold any of the Information as herein contemplated.
|
|
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14.3
|
Each Party may disclose the other Party’s Information hereunder solely to the extent such disclosure is reasonably necessary in connection with complying with applicable laws; provided that in the event of any such disclosure of the Disclosing Party’s Information by the Receiving Party, the Receiving Party will, except where impracticable, give reasonable advance notice to the Disclosing Party of such disclosure requirement (so that the Disclosing Party may seek a protective order and / or other appropriate remedy or waive compliance with the confidentiality provisions of this Article 14 and will use its Commercially Reasonable Efforts to secure confidential treatment of such confidential Information required to be disclosed).
|
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14.4
|
Each Receiving Party shall keep Information belonging to the Disclosing Party in appropriately secure locations. Upon expiration or termination of this Agreement, any and all Information possessed in tangible form by a Receiving Party, or its Affiliates, or its or any of their directors, officers, employees, agents, consultants, and clinical investigators and belonging to the Disclosing Party, shall, upon written request, be destroyed to the extent practicable and not used or disclosed by the Receiving Party, its Affiliates, or any of their directors, officers, employees, agents, consultants, and clinical investigators; provided, however, that a Party may retain one (1) copy of any Information in an appropriately secure location solely for use by its legal department to ensure compliance with the confidentiality provisions of this Agreement.
|
27
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
14.5
|
DAEWOOONG and EVOLUS each acknowledge the other Party's interest in publishing the results of its scientific research in order to obtain recognition within the scientific community and to advance the state of scientific knowledge. Authorship of any publication shall be determined based on the accepted standards used in peer-reviewed, academic journals at the time of the proposed publication. Each Party also recognizes the mutual interest in obtaining valid patent protection and in protecting business interests and trade secret information. Consequently, except for disclosures permitted pursuant to Article 14.1, if either Party, its employees or consultants wishes to publish or present to any third party, during the Term, results of the scientific, preclinical and clinical studies or any information about Product, or the results of any program to discover or develop any of the above, it shall deliver to the other Party a copy of the proposed written publication or an outline of an oral disclosure at least fifteen (15) days prior to submission for publication or presentation. The reviewing Party shall notify the other Party within fifteen (15) days of receipt of such proposed publication whether such draft publication contains (i) Information of the reviewing Party, or (ii) information that if published would have an adverse effect on a patent application covering the subject matter of this Agreement. The reviewing Party shall have the right to (a) propose modifications to the publication or presentation for patent reasons, trade secret reasons, confidentiality reasons or business reasons or (b) request a reasonable delay in publication or presentation in order to protect patentable information. If the reviewing Party requests a delay to protect patentable information, the publishing Party shall delay submission or presentation for a period not to exceed thirty (30) days to enable patent applications protecting each Party’s rights in such information to be filed in accordance with the terms of this Agreement. Upon expiration of such thirty (30) days, the publishing Party shall be free to proceed with the publication or presentation. If the reviewing Party reasonably requests modifications to the publication or presentation to prevent disclosure of material trade secret or proprietary business information, the publishing Party shall edit such publication to prevent the disclosure of such information prior to submission of the publication or presentation. After the termination or expiration of this Agreement, the Parties shall continue to be obligated to adhere to the guidelines set out in Article 14.4 and
|
28
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
this Article 14.5, but solely with respect to publications or presentations to any third party containing information about Product.
|
|
14.6
|
Once approval for a publication or presentation has been granted, the relevant Party shall be entitled to use the specific information contained in such publication or presentation after the date of its publication or presentation without seeking further approval. General comments made by a Party relating to the relationship between DAEWOONG and EVOLUS established by this Agreement, including, for example, general comments made in response to inquiries at professional meetings and other similar circumstances, are not intended to be restricted by the provisions of this Article 14 provided such information has been disclosed to the public previously or cleared for such disclosure by the other Party. For the avoidance of doubt, neither Party shall be entitled to publish Information of the other in violation of Article 14.
|
|
|
14.7
|
DAEWOONG and EVOLUS shall agree upon the timing and content of an initial press release relating to this Agreement and the transactions contemplated herein. Except to the extent already disclosed in that initial press release, no disclosure of the subject matter of this Agreement or its terms may be made by either Party, and no Party shall use the name, trademark, trade name or logo of the other Party or its employees in any publicity, news release or disclosure relating to this Agreement or its subject matter, without the prior express written permission of the other Party, except as may be required by applicable laws, regulations, or judicial order. The Party desiring to make any such public announcement shall provide the other Party with a written copy of the proposed announcement in sufficient time prior to public release to allow such other Party to comment upon such announcement, prior to public release.
|
Article 15
Term.
|
|
15.1
|
The initial term of this Agreement (the “
Initial Term
”) shall commence as of the Effective Date and shall expire on the later of (a) the fifth (5th) anniversary of the grant of Marketing Authorization in the Territory, or (b) the tenth (10th) anniversary of the Effective Date. This Agreement shall be automatically extended for unlimited additional three (3) year terms after the expiration of
|
29
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
the Initial Term (each, a “
Renewal Term
”) provided that, in order to extend the term of this Agreement, EVOLUS must meet the performance requirements during the Initial Term or the preceding Renewal Term, as the case may be. For avoidance of doubt, except as otherwise provided herein, on expiration or termination of this Agreement, the licenses granted by DAEWOONG to EVOLUS hereunder shall also expire and be revoked.
|
|
15.2
|
Except as otherwise required by law or any rule of any stock exchange, each Party shall keep the existence and terms of the Agreement confidential, and the negotiations relating hereto in accordance with the terms of the Mutual Disclosure Agreement between DAEWOONG and EVOLUS.
|
Article 16
Termination
|
|
16.1
|
A Party may terminate this Agreement in its entirety upon written notice of termination to the other Party, if: (a) the other Party breaches any of its duties or obligations hereunder, (such breaches will be referred to as “
Default
”); and (b) such Default continues without being cured or remedied within ninety (90) days (or 30 days in case of a payment default) after the defaulting Party receives written notice of such Default from the non-defaulting Party; provided, however, that if the pertinent breach is not capable of cure within ninety (90) days, but is capable of cure, and the defaulting Party has promptly commenced, and is and continues to diligently pursuing good faith the remedy of any such breach, then such cure period shall be extended for such period as may be reasonably required to effectuate such cure; provided, further, however, that if such breach is not capable of cure, the non-defaulting Party may terminate this Agreement, or suspend performance under this Agreement, immediately by delivery of written notice thereof to such defaulting Party.
|
|
|
16.2
|
This Agreement shall terminate forthwith without notice when any of following events occurs to EVOLUS: (a) bankruptcy or insolvency or filing of a petition therefor; (b) assignment of its business, or this Agreement in whole or in part or rights thereof, for the benefit of creditors; (c) appointment of a receiver over any of its assets not vacated in sixty(60) days thereafter; or (d) filing of any
|
30
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
other petition based upon the alleged bankruptcy or insolvency not dismissed within ninety (90) days thereafter.
|
|
16.3
|
DAEWOONG shall have the right to elect to make all licenses granted to EVOLUS under this Agreement non-exclusive upon thirty (30) day written notice to EVOLUS for EVOLUS’ failure to achieve the Minimum Annual Purchases.
|
Article 17
Representations, Warranties and Covenants
.
|
|
17.1
|
Each Party represents and warrants to the other Party that:
|
|
|
(a)
|
Such Party is duly organized and validly existing and in good standing under the laws of the jurisdiction of its organization;
|
|
|
(b)
|
Such Party has the full corporate power and is duly authorized to enter into, execute and deliver this Agreement, and to carry out and otherwise perform its obligations hereunder;
|
|
|
(c)
|
This Agreement has been duly executed and delivered by, and is the legal and valid obligation binding upon such Party and the entry into, the execution and delivery of, and the carrying out and other performance of its obligations under this Agreement by such Party (i) does not conflict with, or contravene or constitute any default under, any agreement, instrument or understanding, oral or written, to which it is a party, including its certificate of incorporation or by-laws, and (ii) does not violate applicable law or any judgment, injunction, order or decree of any Governmental Authority having jurisdiction over it;
|
|
|
(d)
|
No government authorization, consent, approval, license, exemption of or filing or registration with any court or Governmental Authority, under any applicable law currently in effect, is or will be necessary for, or in connection with, the transaction contemplated by this Agreement or any other agreement or instrument executed in connection herewith, or for the performance by such Party of its obligations under this Agreement and such other agreements; and
|
|
|
(e)
|
Neither such Party, nor any of its employees, officers, subcontractors, or consultants who have rendered or will render
|
31
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
services relating to Products: (i) has ever been debarred or is subject or debarment or convicted of a crime for which an entity or person could be debarred by the FDA under 21 U.S.C. Section 335a (or subject to a similar sanction of any other Governmental Authority) or (ii) has ever been under indictment for a crime for which a person or entity could be so debarred.
|
|
17.2
|
DAEWOONG represents and warrants to EVOLUS as follows:
|
|
|
(a)
|
Litigation.
As of the Effective Date, there is no Legal Proceeding pending or threatened against DAEWOONG, that (i) relates to Product, or (ii) challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the transactions contemplated by this Agreement. No event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or could reasonably be expected to, give rise to or serve as a basis for the commencement of any such Legal Proceeding.
|
|
|
(i)
|
DAEWOONG and each of its Affiliates is in compliance in all material respects with all applicable laws that relate to the manufacture, development or Commercialization of Product.
|
|
|
(ii)
|
Neither DAEWOONG nor any of its Affiliates has received any written communication regarding, and has not been and is not now subject to, any adverse inspection, compelled or voluntary recall, investigation, regulatory enforcement action, penalty or corrective or remedial action by any Governmental Authority, in each case that relates to (i) Product, (ii) any alleged or actual violation by DAEWOONG or Product of any Governmental Authorization or other requirements of any Governmental Authority relating to the commercialization of Product, (iii) any alleged or actual failure to have or maintain in effect all Governmental Authorizations required in connection with the conduct of the manufacture, development or Commercialization of Product, or (iv) any
|
32
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
alleged or actual failure to be in compliance with applicable laws with respect to Product, and no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to result in any of the foregoing.
|
|
(iii)
|
There has not been any occurrence of any Product recall, market withdrawal or replacement, or post-sale warning conducted by or on behalf of DAEWOONG or any of its Affiliates concerning Product or any product recall, market withdrawal or replacement conducted by or on behalf of any entity as a result of any alleged defect in Product.
|
|
|
(iv)
|
No Legal Proceeding seeking the recall, withdrawal, suspension or seizure of Product is pending with respect to DAEWOONG (or any of its Affiliates), nor was any such Legal Proceeding pending at any time during the last three (3) years.
|
|
|
(v)
|
At no time during the last three (3) years has DAEWOONG (or any of its Affiliates) received any written notice that any Governmental Authority has commenced, or threatened to commence, any Legal Proceeding to withdraw its approval, registration or licensure of Product or has initiated or threatened to initiate any action to seize or enjoin the production of Product.
|
|
|
(vi)
|
The information contained in all reports filed with any Governmental Authority is accurate and complete in all material respects and there has been no adverse occurrence, event, effect, study, test, article, report, investigation, or finding that was omitted from such reports, that would require amendment, modification, updating or supplementing of such reports, or that would require disclosure in a future report.
|
|
|
(c)
|
Compliance with Laws
.
|
33
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
(i)
|
DAEWOONG (and each of its Affiliates) is in compliance in all material respects with all laws applicable to it which relate materially to Product. Neither DAEWOONG nor its Affiliates has received any written notice within the past three (3) years of any asserted violation of any such laws and neither DAEWOONG nor its Affiliates has received any written notice within the past three (3) years that any investigation or review by any Governmental Authority with respect to the Product is pending or that any such investigation or review is contemplated.
|
|
|
(ii)
|
The Product is not (i) subject to the International Traffic in Arms Regulations and (ii) controlled at a level greater than EAR99/AT under the Export Administration Regulations or an equivalent level of control under non-U.S. export control laws.
|
|
|
(iii)
|
DAEWOONG is not, nor are any of its employees, customers or other business partners, in either case, in connection with the Commercialization of Product (A) located in any sanctioned countries; (B) owned or controlled by any entity located in any sanctioned country; or (C) included on any restricted parties lists, as such terms are defined under applicable U.S. and non-U.S. export control and economic sanctions Laws.
|
|
|
(d)
|
Intellectual Property Rights
.
|
|
|
(i)
|
The Trademark has been duly registered or filed in the Territory with the appropriate Governmental Authorities.
|
|
|
(ii)
|
There are no outstanding claims asserted in writing against DAEWOONG alleging that its manufacture, development or Commercialization of Product infringes or misappropriates any intellectual property or other proprietary rights of any other Person.
|
|
|
(iii)
|
DAEWOONG’S manufacture, development or Commercialization of Product does not infringe or
|
34
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
misappropriate any intellectual property or other proprietary rights of any other Person.
Article 18
Effect of Termination
.
|
|
18.1
|
Upon termination of this Agreement for any reason, EVOLUS shall immediately cease to Commercialize Product in the Territory; and shall cease to use Information, patent rights, and Trademarks owned by or associated with DAEWOONG and its Affiliates; provided, however, that EVOLUS shall have the right to sell off Product sourced from DAEWOONG prior to the termination of this Agreement.
|
|
|
18.2
|
Upon termination of this Agreement for any reason, each Party hereto shall also make no further use of any of the Information of the other Party and, except as required by law, each Party shall immediately send to the other Party all documents and media containing any such Information or, at the request of the Disclosing Party, destroy the same (in which case the Receiving Party shall certify such destruction in writing).
|
|
|
18.3
|
Article 3.5, Article 6.6, Article 7, Article 9.6, Article 14, Article 17, Article 18, Article 20, Article 21, and Article 25 and any other provision of this Agreement that by its terms would survive expiration or termination, shall survive expiration or termination of this Agreement.
|
|
|
18.4
|
Termination of this Agreement, for any reason, shall not affect either Party’s obligation to pay all outstanding amounts having already accrued while this Agreement remained in effect.
|
|
|
18.5
|
Termination or expiry of this Agreement, or assignment or transfer of rights or obligations under this Agreement, shall not prejudice any right or remedy having arisen before such Termination, expiry, assignment, or transfer arising from this Agreement.
|
Article 19
Force Majeure
.
Neither Party shall be considered liable for any failure or delay to perform any obligation under this Agreement, if such failure or delay arises directly or indirectly from any act of God, war, strikes, labor conflicts, riots, fires, floods, explosions, deluge, natural
35
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
calamities, wreckage of material, delay or interruption of transportation, fire, accident, civil commotion, change in law or any other cause making compliance with this Agreement practically impossible or exorbitant beyond the reasonable control of the Parties hereto. The affected Party will notify the other Party of such force majeure circumstances as soon as reasonably practical, and will promptly undertake all reasonable efforts necessary to cure such force majeure circumstances. In the event that a force majeure circumstance exists which prevents a Party from carrying out a material obligation under this Agreement, and such circumstance continues for a [***] period following the occurrence of such force majeure event, then either Party may terminate this Agreement by providing written notice to the other Party; provided, however, that the affected Party may only terminate this Agreement if the affected Party has undertaken all reasonable efforts necessary to cure such force majeure circumstances.
Article 20
Arbitration
.
In case any disputes arise out of or in connection with this Agreement or any further amendment thereto, Parties shall try to resolve such dispute amicably. In the event that Parties fail to settle the dispute through amicable negotiation, such dispute shall be submitted to and finally settled by arbitration in
[***]
in accordance with the rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with such rules. The language to be used in the arbitral proceedings shall be English.
Article 21
Governing Law
.
This Agreement and all rights and liabilities of Parties hereunder shall be governed and construed in accordance with
[***]
, without giving effect to that body of laws pertaining to conflicts of laws.
Article 22
Notice
.
Any notice given by either Party to the other Party shall be in writing, and may be given by e-mail, (confirmed as received by the intended recipient), personal service, registered airmail, or by cable, telex or facsimile to the address most recently notified by such other Party. If a party changes its address, notice thereof must be given in writing to the other party.
Article 23
Assignment and Succession
.
|
|
23.1
|
EVOLUS shall autonomously perform its duties and obligations hereunder and shall not sub-contract or assign the same or any part thereof to any other person whatsoever without the prior written consent of DAEWOONG; provided, however, that (a) EVOLUS
|
36
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
may assign this Agreement, including its duties and obligations hereunder to an Affiliate; and (b) EVOLUS may assign this Agreement in connection with any sale or transfer of the business to which this Agreement relates, whether by sale of assets, sale of stock, merger or otherwise; provided, further, however, that the successor of the business has the financial wherewithal to continue the obligations under this Agreement.
|
|
23.2
|
This Agreement shall be binding upon and inure to the benefit of either party and its successors and assignees.
|
Article 24
Non-Competition
|
|
24.1
|
EVOLUS and its Affiliates shall not develop, register, manufacture, promote, market and sell any Product in the Territory during the term of the Agreement, other than Product acquired from DAEWOONG.
|
|
|
24.2
|
DAEWOONG shall not directly or indirectly develop, register, manufacture, promote, market and sell any Product in the Territory, or assist or enable any third party to do so, during the term of the Agreement, other than development, manufacture and sales of Product to EVOLUS and its Affiliates under this Agreement.
|
Article 25
Miscellaneous
.
|
|
25.1
|
If any term, covenant or condition of this Agreement or the application thereof to any Party or circumstance shall, to any extent, be held to be invalid or unenforceable by a court or administrative agency of competent jurisdiction, then (a) the remainder of this Agreement, and the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and (b) the Parties covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated.
|
37
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
25.2
|
This Agreement, including all Annexes attached hereto, which are hereby incorporated herein by reference, sets forth all covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties and supersedes and terminates all prior and contemporaneous agreements and understandings between the Parties with respect to the subject matter hereof, including the Mutual Nondisclosure Agreement between EVOLUS and DAEWOONG. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as set forth herein.
|
|
|
25.3
|
Parties hereto shall act in all matters pertaining to this Agreement as independent contractors and nothing contained herein shall be construed to place Parties in the relationship of principal and agent or employer and employee. Neither Party shall have right to enter into contracts in the name or on behalf of the other.
|
|
|
25.4
|
This Agreement shall be executed in English and may additionally be executed in other languages (including Korean). In the event of any difference or inconsistency among different language versions of this Agreement, English version shall prevail in all respect.
|
[Signature Page Follows]
IN WITNESS WHEREOF, Parties have this AGREEMENT executed by their duly authorized representatives as of the Effective Date.
38
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
Agreed and accepted for on behalf of
DAEWOONG PHARMACEUTICAL CO., LTD.
|
/s/ Jongwook Lee
|
Date: September 30, 2013
|
Name: Jongwook Lee
|
Title: CEO, President
|
Agreed and accepted for and on behalf of
EVOLUS INC.,
/s/ J. Christopher Marmo
|
Date: September 30, 2013
|
Name: Christopher Marmo
|
Title: Chief Executive Officer
|
39
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Attachment
Annex A: Intentionally Omitted
Annex B: Product Price and Minimum Annual Purchases
Annex C: Commercialization Plan
Annex D: Intentionally Omitted
Annex E: Intentionally Omitted
Annex F: Purchase Order
Annex G: Technical Specifications
40
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Annex A
Intentionally Omitted
41
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Annex B
Product Price and Minimum Annual Purchases
A Minimum Annual Purchase shall mean
[***]
(
[***]
) ]% of the Target Performance stated in the Tables below.
1.
Target Performance for US territory
*
(volume calculation based on
[***]
IU)
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1
st
Year
|
2
nd
Year
|
3
rd
Year
|
4
th
Year
|
5
th
Year
|
Nabota™
|
[***] USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU vial
|
[***] vial
|
[***] vial
|
[***] vial
|
[***] vial
|
[***] vial
|
(volume calculation based on
[***]
IU)
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1
st
Year
|
2
nd
Year
|
3
rd
Year
|
4
th
Year
|
5
th
Year
|
Nabota™
|
[***]USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU vial
|
[***] vial
|
[***] vial
|
[***] vial
|
[***] vial
|
[***] vial
|
* In the event that EVOLUS fails to achieve the Minimum Annual Purchases in the US Territory as described above (i.e.,
[***
]% of the targeted performance for the US Territory), but EVOLUS or its Affiliates have achieved at least
[***]
% of the target performance by market share in the US Territory based upon the table set forth below, then EVOLUS and its Affiliates shall be deemed to have met the Annual Purchase Minimums for the US Territory for the applicable year. For the avoidance of doubt, if the Minimum Annual Purchase quantities are accomplished for the US Territory for any given year, then EVOLUS shall have met the Minimum Annual Purchases for the US Territory in such year regardless of the market share criteria set forth below.
42
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Target percentage of market share for US Territory
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1
st
Year
|
2
nd
Year
|
3
rd
Year
|
4
th
Year
|
5
th
Year
|
Nabota™
|
[***] USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU vial
|
[***]%
|
[***]%
|
[***]%
|
[***]%
|
[***]%
|
2.
Target Performance for non-US territories
*
(volume calculation based on
[***]
IU)
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1
st
Year
|
2
nd
Year
|
3
rd
Year
|
4
th
Year
|
5
th
Year
|
Nabota™
|
[***] USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU vial
|
[***] vial
|
[***] vial
|
[***] vial
|
[***] vial
|
[***] vial
|
(volume calculation based on
[***]
IU)
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1
st
Year
|
2
nd
Year
|
3
rd
Year
|
4
th
Year
|
5
th
Year
|
Nabota™
|
[***] USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU vial
|
[***] vial
|
[***] vial
|
[***] vial
|
[***] vial
|
[***] vial
|
* In the event that EVOLUS fails to achieve the Minimum Annual Purchases in the Non-US Territory as described above (i.e.,
[***]
% of the targeted performance for the Non-US Territory), but EVOLUS or its Affiliates have achieved at least
[***]
% of the target performance by market share in the Non-US Territory based upon the table set forth below, then EVOLUS and its Affliates shall be deemed to have met the Annual Purchase Minimums for the Non-US Territory for the applicable year. For the avoidance of doubt, if the Minimum Annual Purchase quantities are accomplished for any given year in the Non-US Territory, then EVOLUS shall have met the Minimum Annual Purchases for the Non-US Territory in such year regardless of the market share criteria set forth below.
43
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
* Target percentage of market share for Non-US Territory
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1
st
Year
|
2
nd
Year
|
3
rd
Year
|
4
th
Year
|
5
th
Year
|
Nabota™
|
[***] USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU vial
|
[***]%
|
[***]%
|
[***]%
|
[***]%
|
[***]%
|
44
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Annex C
Commercialization Plan of Product
[***]
45
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
[***]
46
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
[***]
47
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
[***]
48
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
[***]
49
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
[***]
50
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
[***]
51
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
[***]
52
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Annex D
Intentionally Omitted
53
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Annex E
Intentionally Omitted
54
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Annex F
PURCHASE ORDER
THIS PURCHASE ORDER, entered into pursuant to the terms of that certain License & Supply Agreement dated ___________ (the “Agreement”), is made by and between Daewoong Pharmaceutical Co., Ltd. (for itself and its subsidiaries) and Evolus Inc. (including its Affiliates). All capitalized terms not otherwise defined herein will have the meaning so attributed to such terms in the Agreement.
Product and Ordered Quantity:
Delivery Date:
Packaging Specification (if any):
Payment:
55
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Annex G
TECHNICAL SPECIFICATIONS
|
|
|
|
|
|
Test items
|
Acceptance criteria
|
Method
|
Analytical procedure
|
Specification
|
1. Appearance
|
[***]
|
[***]
|
[***]
|
[***]
|
2. pH
|
[***]
|
[***]
|
[***]
|
[***]
|
3. Sterility
|
[***]
|
[***]
|
[***]
|
[***]
|
4. Bacterial endotoxins
|
[***]
|
[***]
|
[***]
|
[***]
|
5. Water
|
[***]
|
[***]
|
[***]
|
[***]
|
6. Potency
|
[***] of labeled activity
|
[***]
|
[***]
|
[***]
|
7. Identification
|
[***]
|
[***]
|
[***]
|
[***]
|
8. Solubility
|
[***]
|
[***]
|
[***]
|
[***]
|
9. Foreign insoluble matter
|
[***]
|
[***]
|
[***]
|
[***]
|
10. Insoluble particulate matter
|
[***] particles/vial
[***] particles/vial
|
[***]
|
[***]
|
[***]
|
56
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
FIRST AMENDMENT
This
FIRST AMENDMENT
(“
First Amendment
”) is effective as of February 26, 2014 (“
First Amendment Effective Date
”), by and between Daewoong Pharmaceutical Co., Ltd. (“
DAEWOONG
”) and Evolus Inc. (“
EVOLUS
”), and amends that certain License & Supply Agreement between the Parties dated September 30, 2013 (the “
Original Agreement
”).
The Parties, for their mutual benefit, now wish to amend the Original Agreement. Capitalized terms herein used which are not herein defined shall have the respective meanings ascribed to them in the Original Agreement. All references to the term “Agreement” in the Original Agreement shall be deemed to include all of the terms and conditions of this First Amendment.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:
1.
AMENDMENT.
(a)
Territory.
The definition of “Territory” in Section 1.36 of the Original Agreement is hereby deleted in its entirety and replaced with the following:
““Territory” means the United States of America and its territories and possessions, the EU, Switzerland, Australia, Canada, Russia and the CIS and South Africa. As used herein, (a)
“EU”
means all of the European Union member states as of the applicable time during the Term and (b) CIS means all of the Commonwealth of Independent member states as of the applicable time during the Term. From time to time in this Agreement, all regions within the Territory other than the United States of America and its territories and possessions are sometimes referred to herein as the “
Non-US Territory
”, and the United States and its territories and possessions are referred to as the “
US Territory
.””
2.
COUNTERPARTS.
This First Amendment may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. Signatures to this First Amendment transmitted by facsimile, email, portable document format (.pdf) or by any other electronic means intended to preserve the original graphic and pictorial appearance of this Agreement shall have the same effect as the physical delivery of the paper document bearing original signatures.
3.
NO OTHER AMENDMENTS.
Except as herein set forth, the Original Agreement has not been modified and, as amended by this First Amendment, remains of full force and effect. To the extent there are any inconsistencies or ambiguities between the specific subject matter of this First Amendment and the Original Agreement, the terms of this First Amendment shall supersede the Original Agreement.
IN WITNESS WHEREOF,
the duly authorized representatives of the Parties have executed this First Amendment effective as of the First Amendment Effective Date.
|
|
|
|
|
|
DAEWOONG PHARMACEUTICAL CO., LTD.
|
EVOLUS INC.
|
By:
|
/s/ Jongwook Lee
|
|
By:
|
/s/ Christopher Marmo
|
Name:
|
Jongwook Lee
|
|
Name:
|
Christopher Marmo
|
Title:
|
CEO, President
|
|
Title:
|
Chief Executive Officer
|
Date:
|
March 17, 2014
|
|
Date:
|
February 26, 2014
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Annex B Amendment
Target Performance for Russia, CIS, and South Africa*
(volume calculation based on [***] IU)
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1st Year
|
2nd Year
|
3rd Year
|
4th Year
|
5th Year
|
Nabota™
|
[***] USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU
vial
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
*In the event that EVOLUS fails to achieve the Minimum Annual Purchases in the Amended Territories as described above (i.e. [***]% of targeted performance for the amended territories), but EVOLUS or its affiliates have achieved at least [***]% of the target performance by market share in the Amended Territories based upon the table set forth below, then Evolus and its affiliates shall be deemed to have met the Annual Purchase Minimums for the Amended Territories for the applicable year. For avoidance of doubt, if the Minimum Annual Purchase quantities are accomplished for any given year in the Amended Territories, then EVOLUS shall have met the Minimum Annual Purchase for the Amended Territories in such year regardless of the market share criteria set forth below.
*Target Performance for Russia, CIS, and South Africa
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1st Year
|
2nd Year
|
3rd Year
|
4th Year
|
5th Year
|
Nabota™
|
[***] USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU
vial
|
[***]%
|
[***]%
|
[***]%
|
[***]%
|
[***]%
|
Page
2
of
2
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
SECOND AMENDMENT
This
SECOND AMENDMENT
(“
Second Amendment
”) is effective as of July 15, 2014 (“
Second Amendment Effective Date
”), by and between Daewoong Pharmaceutical Co., Ltd. (“
DAEWOONG
”) and Evolus Inc. (“
EVOLUS
”), and amends that certain License & Supply Agreement between the Parties dated September 30, 2013, as amended by that certain First Amendment dated on February 26, 2014 (the “
Original Agreement
”).
The Parties, for their mutual benefit, now wish to amend the Original Agreement. Capitalized terms herein used which are not herein defined shall have the respective meanings ascribed to them in the Original Agreement. All references to the term “Agreement” in the Original Agreement shall be deemed to include all of the terms and conditions of this Second Amendment.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:
1.
AMENDMENT.
(a)
Territory.
The definition of “Territory” in Section 1.36 of the Original Agreement is hereby deleted in its entirety and replaced with the following:
“Territory” means the United States of America and its territories and possessions, the EU, Australia, Canada, Russia and the CIS, South Africa, and Japan. As used herein, (a)
“EU”
means all of the European Union member states as of the applicable time during the Term and (b) CIS means all of the Commonwealth of Independent member states as of the applicable time during the Term. From time to time in this Agreement, all regions within the Territory other than Japan and the United States of America and its territories and possessions are sometimes referred to herein as the “
Non-US Territory
”, and the United States and its territories and possessions are referred to as the “
US Territory
,” and Japan is referred to as “
Japan
.”
(b)
Exclusivity.
All definition and meaning of exclusivity including but not limited to such a word written as “exclusive” and/or “exclusively” in the entire Original Agreement, is hereby considered as exclusive only in the Non-US Territory and US Territory. Any right or license to be granted by DAEWOONG to EVOLUS shall be non-exclusive in Japan. As following this condition, section 2.2 (a), 3.4, 4.9, 4.10, 12.3 13.7 and 24.2 shall not be related to Japan among the territories of this Agreement.
2.
COUNTERPARTS.
This Second Amendment may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. Signatures to this Second Amendment transmitted by facsimile, email, portable document format (.pdf) or by any other electronic means intended to preserve the original graphic and pictorial appearance of this Agreement shall have the same effect as the physical delivery of the paper document bearing original signatures.
3.
NO OTHER AMENDMENTS.
Except as herein set forth, the Original Agreement has not been modified and, as amended by this Second Amendment, remains of full force and effect. To the extent there are any inconsistencies or ambiguities between the specific subject matter of this Second Amendment and the Original Agreement, the terms of this Second Amendment shall supersede the Original Agreement.
IN WITNESS WHEREOF,
the duly authorized representatives of the Parties have executed this Second Amendment effective as of the Second Amendment Effective Date.
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
|
|
|
|
|
|
DAEWOONG PHARMACEUTICAL CO., LTD.
|
EVOLUS INC.
|
By:
|
/s/ Jongwook Lee
|
|
By:
|
/s/ Christopher Marmo
|
Name:
|
Jongwook Lee
|
|
Name:
|
Christopher Marmo
|
Title:
|
CEO, President
|
|
Title:
|
Chief Executive Officer
|
Date:
|
July 15, 2014
|
|
Date:
|
July 15, 2014
|
Page
2
of
3
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Annex B Amendment
Target Performance for Japan
(volume calculation based on [***] IU)
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1st Year
|
2nd Year
|
3rd Year
|
4th Year
|
5th Year
|
Nabota™
|
[***]] USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU
Vial
|
[***] Vial
|
[***] Vial
|
[***] Vial
|
[***] Vial
|
[***] Vial
|
* In the event that EVOLUS fails to achieve the Minimum Annual Purchases in Japan as described above (i.e., [***]% of the targeted performance for Japan), but EVOLUS or its Affiliates have achieved at least [***]% of the target performance by market share in Japan based upon the table set forth below, then EVOLUS and its Affiliates shall be deemed to have met the Annual Purchase Minimums for Japan for the applicable year. For the avoidance of doubt, if the Minimum Annual Purchase quantities are accomplished for Japan for any given year, then EVOLUS shall have met the Minimum Annual Purchases for Japan in such year regardless of the market share criteria set forth below.
Target percentage of market share for Japan
|
|
|
|
|
|
|
|
Product
|
Price per Unit
|
1st Year
|
2nd Year
|
3rd Year
|
4th Year
|
5th Year
|
Nabota™
|
[***] USD per [***] IU vial
[***] USD per [***] IU vial
[***] USD per [***] IU
vial
|
[***]%
|
[***]%
|
[***]%
|
[***]%
|
[***]%
|
Page
3
of
3
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
EVOLUS, INC. 2017 OMNIBUS INCENTIVE PLAN
Evolus, Inc. sets forth herein the terms and conditions of its 2017 Omnibus Incentive Plan.
The Plan is intended to enhance the Company’s and its Affiliates’ ability to attract and retain employees, Consultants and Non-Employee Directors, and to motivate such employees, Consultants, and Non-Employee Directors to serve the Company and its Affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the grant of stock options (nonstatutory and incentive), stock appreciation rights, restricted shares, restricted stock units, other stock-based awards, and cash awards. Any of these awards may—but need not—be made as performance incentives to reward attainment of performance goals in accordance with the terms and conditions hereof.
For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply:
“
Affiliate
” means any company or other trade or business that “controls,” is “controlled by,” or is “under common control with,” the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including any Subsidiary.
“
Annual Incentive Award
” means a cash-based Performance Award with a performance period that is the Company’s fiscal year or other 12-month (or shorter) performance period as specified under the terms and conditions of the Award as approved by the Board.
“
Award
” means a grant, under the Plan, of (1) an Option, (2) a Stock Appreciation Right, (3) Restricted Shares, (4) Restricted Stock Units, (5) an Other Stock-based Award, (6)
a cash award, or (7) a Substitute Award.
“
Award Agreement
” means a written agreement between the Company and a Grantee, or notice from the Company or an Affiliate to a Grantee that evidences and sets out the terms and conditions of an Award.
“
Beneficial Owner
” shall have the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular Person, that Person shall be deemed to have beneficial ownership of all securities that the Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have corresponding meanings.
“
Board
” means the Board of Directors of the Company.
“
Business Combination
” means the consummation of a reorganization, merger, or consolidation or sale or other disposition of all or substantially all of the assets of the Company.
“
Cause
” shall be defined as that term is defined in the Grantee’s offer letter or other applicable employment agreement; or, if there is no such definition, “Cause” means, as determined by the Company and unless otherwise provided in the applicable Award Agreement: (1) the commission of any act by the Grantee constituting financial dishonesty against the Company or its Affiliates; (2) the Grantee’s engaging in any other act of dishonesty, fraud, intentional misrepresentation, moral turpitude, illegality, or harassment that would (A) adversely affect the business or the reputation of the Company or any of its Affiliates with their respective current or prospective customers, suppliers, lenders, or other third parties with whom such entity does or might do business or (B) expose the Company or any of its Affiliates to a risk of civil or criminal legal damages, liabilities, or penalties; (3) the repeated failure by the Grantee to follow the directives of the chief executive officer of the Company or any of its Affiliates or the Board; or (4) any material misconduct, violation of Company or Affiliate policy, or willful and deliberate non-performance of duty by the Grantee in connection with the business affairs of the Company or its Affiliates. A Separation from Service for Cause shall be deemed to include a determination by the Company after the Grantee’s Separation from Service that circumstances existing before the Separation from Service would have entitled the Company or an Affiliate to have terminated the Grantee’s service for Cause. All rights a Grantee has or may have under the Plan shall be suspended automatically during the pendency of any investigation by the Company, or during any negotiations between the Company and the Grantee, regarding any actual or alleged act or omission by the Grantee of the type described in the applicable definition of Cause.
“
Change in Control
” means, except as otherwise provided by the Board, the occurrence of any of the following events:
|
|
(1)
|
The acquisition by any Person of Beneficial Ownership of 50% or more of the outstanding voting power;
provided
,
however
, that the following acquisitions shall not constitute a Change in Control for purposes of this subparagraph (1): (A) any acquisition directly from the Company; (B) any acquisition by the Company or any of its Affiliates; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Affiliates; or (D) any acquisition by any corporation under a transaction that complies with clauses (A), (B) and (C) of subparagraph (3) below; or
|
|
|
(2)
|
Individuals who at the beginning of any two-year period constitute the Board (the “
Incumbent Board
”) cease for any reason to constitute at least a majority of the Board;
provided
,
however
, that any individual who becomes a director of the Company during such two-year period and whose election, or whose nomination for election by the Stockholders, to the Board was either (A) approved by a vote of at least a majority of the directors then comprising the Incumbent Board or (B) recommended by a nominating committee comprised entirely of directors who are then Incumbent Board members shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act), other actual or threatened solicitation of proxies or consents or an actual or threatened tender offer; or
|
|
|
(3)
|
Consummation of a Business Combination, unless after the Business Combination: (A) all or substantially all of the Persons who were the Beneficial Owners, respectively, of the outstanding shares and outstanding voting securities immediately before the Business Combination own, directly
|
or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Company, as the case may be, of the entity resulting from the Business Combination (including an entity that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately before such Business Combination, of the outstanding voting securities (
provided
,
however
, that for purposes of this clause (A) any shares of common stock or voting securities of such resulting entity received by such Beneficial Owners in such Business Combination other than as the result of such Beneficial Owners’ ownership of outstanding shares or outstanding voting securities immediately before such Business Combination shall not be considered to be owned by such Beneficial Owners for the purposes of calculating their percentage of ownership of the outstanding common stock and voting power of the resulting entity); (B) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from the Business Combination) becomes the Beneficial Owner, directly or indirectly, of 50% or more of the combined voting power of the then outstanding voting securities of such entity resulting from the Business Combination unless such Person owned 50% or more of the outstanding shares or outstanding voting securities immediately before the Business Combination; and (C) at least a majority of the members of the Board of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or the action of the Board, providing for such Business Combination; or
|
|
(4)
|
Approval by the Stockholders of a complete liquidation or dissolution of the Company.
|
Solely to the extent required by Section 409A, an event described above shall not constitute a Change in Control for purposes of the payment (but not vesting) terms and conditions of any Award subject to Section 409A unless such event also constitutes a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the Company’s assets within the meaning of Section 409A.
“
Code
” means the Internal Revenue Code of 1986.
“
Committee
” means the Compensation Committee of the Board or any committee or other person or persons designated by the Board to administer the Plan. The Board shall cause the Committee to satisfy the applicable requirements of any securities exchange on which the Common Stock may then be listed. For purposes of Awards to Covered Employees intended to constitute Qualified Performance-Based Compensation, to the extent required by Section 162(m), Committee means all of the members of the Committee who are “outside directors” within the meaning of Section 162(m). For purposes of Awards to Grantees who are subject to Section 16 of the Exchange Act, Committee means all of the members of the Committee who are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act. All references in the Plan to the Board shall mean such Committee or the Board.
“
Company
” means Evolus, Inc. a Delaware corporation.
“
Common Stock
” means the common stock of the Company, par value $0.00001 per share.
“
Consultant
” means any person, except an employee or Non-Employee Director, engaged by the Company or any Affiliate to render personal services to such entity, including as an advisor, and who qualifies as a consultant or advisor under Rule 701 of the Securities Act (during any period in which the Company is not subject to the reporting requirements of the Exchange Act) or Form S-8 (during any period in which the Company is subject to the reporting requirements of the Exchange Act).
“
Corporate Transaction
” means a reorganization, merger, statutory share exchange, consolidation, sale of all or substantially all of the Company’s assets, or the acquisition of assets or stock of another entity by the Company, or other corporate transaction involving the Company or any of its Affiliates.
“
Covered Employee
” means a Grantee who is a “covered employee” within the meaning of Section 162(m) as qualified by
Section 12.4
.
“
Detrimental Conduct
” means, as determined by the Company, the Grantee’s serious misconduct or unethical behavior, including any of the following: (1) any violation by the Grantee of a restrictive covenant agreement that the Grantee has entered into with the Company or an Affiliate (covering, for example, confidentiality, non-competition, non-solicitation, non-disparagement, etc.); (2) any conduct by the Grantee that could result in the Grantee’s Separation from Service for Cause; (3) the commission of a criminal act by the Grantee, whether or not performed in the workplace, that subjects, or if generally known would subject, the Company or an Affiliate to public ridicule or embarrassment, or other improper or intentional conduct by the Grantee causing reputational harm to the Company, an Affiliate, or a client or former client of the Company or an Affiliate; (4) the Grantee’s breach of a fiduciary duty owed to the Company or an Affiliate or a client or former client of the Company or an Affiliate; (5) the Grantee’s intentional violation, or grossly negligent disregard, of the Company’s or an Affiliate’s policies, rules, or procedures; or (6) the Grantee taking or maintaining trading positions that result in a need to restate financial results in a subsequent reporting period or that result in a significant financial loss to the Company or its Affiliates.
“
Disability
” shall be defined as that term is defined in the Grantee’s offer letter or other applicable employment agreement; or, if there is no such definition, “Disability” means, as determined by the Company and unless otherwise provided in the applicable Award Agreement, the Grantee is unable to perform each of the essential duties of the Grantee’s position by reason of a medically determinable physical or mental impairment that is potentially permanent in character or that can be expected to last for a continuous period of not less than 12 months;
provided
,
however
, that, with respect to rules regarding expiration of an Incentive Stock Option after termination of the Grantee’s employment, “Disability” means “permanent and total disability” as set forth in Code Section 22(e)(3).
“
Effective Date
” means November 21, 2017.
“
Exchange Act
” means the Securities Exchange Act of 1934.
“
Fair Market Value
” of a Share as of a particular date means (1) if the Shares are listed on a national securities exchange, the closing price of a Share as quoted on such exchange or other comparable reporting system for the first regular trading day immediately preceding the applicable date, or (2) if the Shares are not then listed on a national securities exchange, the closing price of a Share quoted by an established quotation service for over-the-counter securities for the first trading day immediately preceding the applicable date, or (3) if the Shares are not then listed on a national securities exchange or quoted by an
established quotation service for over-the-counter securities, or the value of the Shares is not otherwise determinable, such value as determined by the Board. Notwithstanding the foregoing, if the Board determines that an alternative definition of Fair Market Value should be used in connection with the grant, exercise, vesting, settlement, or payout of any Award, it may specify such alternative definition in the applicable Award Agreement. Such alternative definition may include a price that is based on the opening, actual, high, low, or average selling prices of a Share on the applicable securities exchange on the given date, the trading date preceding the given date, the trading date next succeeding the given date, or an average of trading days.
“
Family Member
” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the applicable individual, any person sharing the applicable individual’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than 50% of the beneficial interest, a foundation in which any one or more of these persons (or the applicable individual) control the management of assets, and any other entity in which one or more of these persons (or the applicable individual) own more than 50% of the voting interests.
“
GAAP
” means U.S. Generally Accepted Accounting Principles.
“
Grant Date
” means the latest to occur of (1) the date as of which the Board approves an Award, (2) the date on which the recipient of an Award first becomes eligible to receive an Award under
Section 6
, or (3) such other date as may be specified by the Board in the Award Agreement.
“
Grantee
” means a person who receives or holds an Award.
“
Incentive Stock Option
” means an Option that is an “incentive stock option” within the meaning of Code Section 422.
“
IPO
” means the initial public offering of Shares pursuant to a registration statement (other than a Form S-8) filed with, and declared effective by, the SEC.
“
Issued Share
” means an outstanding Share issued under an Award (including a Restricted Share).
“
Non-Employee Director
” means a member of the Board who is not an employee.
“
Nonstatutory Stock Option
” means an Option that is not an Incentive Stock Option.
“
Option
” means an option to purchase one or more Shares under the Plan.
“
Option Price
” means the exercise price for each Share subject to an Option.
“
Other Stock-based Award
” means Awards consisting of Share units, or other Awards, valued in whole or in part by reference to, or otherwise based on, Common Stock, other than Options, SARs, Restricted Shares, and RSUs.
“
Permitted Transferee
” means any of the following to whom a Grantee may transfer Issued Shares under
Section 17.14.3
: the Grantee’s spouse, children (natural or adopted), or stepchildren or a trust for their sole benefit of which the Grantee is the settlor;
provided
,
however
, that any such trust does not require or permit distribution of any Issued Shares during the term of the Plan unless subject to its terms. Upon the death of the Grantee, the term Permitted Transferees shall also include the deceased Grantee’s estate, executors, administrators, personal representatives, heirs, legatees, and distributees.
“
Performance Award
” means an Award made subject to the attainment of performance goals (as described in
Section 12
) over a performance period established by the Board, and includes an Annual Incentive Award.
“
Person
” means a person as defined in Section 13(d)(3) of the Exchange Act.
“
Plan
” means this Evolus, Inc. 2017 Omnibus Incentive Plan.
“
Purchase Price
” means the purchase price for each Share under a grant of Restricted Shares.
“
Qualified Performance-Based Compensation
” means compensation that is intended to qualify as “performance-based compensation” under Section 162(m).
“
Restricted Period
” shall have the meaning set forth in
Section 10.1
.
“
Restricted Shares
” means restricted Shares awarded to a Grantee under
Section 10
.
“
Restricted Stock Unit
” or “
RSU
” means a bookkeeping entry representing the equivalent of Shares, awarded to a Grantee under
Section 10
.
“
SAR Exercise Price
” means the per Share exercise price of a SAR granted under
Section 9
.
“
SEC
” means the U.S. Securities and Exchange Commission.
“
Section 162(m)
” means Code Section 162(m).
“
Section 409A
” means Code Section 409A.
“
Securities Act
” means the Securities Act of 1933.
“
Separation from Service
” means the termination of the applicable Grantee’s employment with, and performance of services for, the Company and each Affiliate. Unless otherwise determined by the Company, if a Grantee’s employment or service with the Company or an Affiliate terminates but the Grantee continues to provide services to the Company or an Affiliate in a non-employee director capacity or as an employee, officer, or consultant, as applicable, such change in status shall not be deemed a Separation from Service. Approved temporary absences from employment because of illness, vacation, or leave of absence and transfers among the Company and its Affiliates shall not be considered Separations from Service. Notwithstanding the foregoing, with respect to any Award that constitutes nonqualified deferred compensation under Section 409A, “Separation from Service” shall mean a “separation from service” as defined under Section 409A.
“
Service Provider
” means an employee, officer, Non-Employee Director, or Consultant of the Company or an Affiliate.
“
Share
” means one share of Common Stock.
“
Stock Appreciation Right
” or “
SAR
” means a right granted to a Grantee under
Section 9
.
“
Stockholder
” means a stockholder of the Company.
“
Subsidiary
” means any corporation, partnership, joint venture, affiliate, or other entity in which the Company owns more than 50% of the voting stock or voting ownership interest, as applicable, or any other business entity designated by the Board as a Subsidiary for purposes of the Plan.
“
Substitute Award
” means any Award granted in assumption of or in substitution for an award of a company or business acquired by the Company or an Affiliate or with which the Company or an Affiliate combines.
“
Ten Percent Stockholder
” means an individual who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its parent or any of its Subsidiaries. In determining stock ownership, the attribution rules of Code Section 424(d) shall be applied.
“
Termination Date
” means the date that is 10 years after the Effective Date, unless the Plan is earlier terminated by the Board under
Section 5.2
.
“
Transition Period
” means the period beginning upon an IPO and ending upon the earlier of (1) the date of the first annual meeting of Stockholders at which directors are to be elected that occurs after the close of the third calendar year after the calendar year of the IPO and (2) the expiration of the “reliance period” under Treasury Regulation Section 1.162-27(f)(2).
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3.
|
ADMINISTRATION OF THE PLAN
|
The Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company’s articles of incorporation and bylaws and applicable law. The Board shall have the power and authority to delegate its powers and responsibilities hereunder to the Committee, which shall have full authority to act in accordance with its charter, and with respect to the authority of the Board to act hereunder, all references to the Board shall be deemed to include a reference to the Committee, to the extent such power or responsibilities have been delegated. Except as specifically provided in
Section 14
or as otherwise may be required by applicable law, regulatory requirement, or the articles of incorporation or the bylaws of the Company, the Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and conditions of the Plan that the Board deems to be necessary or appropriate to the administration of the Plan. The Committee shall administer the Plan;
provided
that the Board shall retain the right to exercise the authority of the Committee to the extent consistent with applicable law and the applicable requirements of any securities exchange on which the Common Stock may then be listed. The interpretation and construction by the Board of the Plan, any Award, or any Award Agreement
shall be final, binding, and conclusive. Without limitation, the Board shall have full and final authority, subject to the other terms and conditions of the Plan, to:
|
|
(2)
|
determine the type or types of Awards to be made to a Grantee;
|
|
|
(3)
|
determine the number of Shares to be subject to an Award;
|
|
|
(4)
|
establish the terms and conditions of each Award (including the Option Price of any Option, the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the Shares subject thereto, and any terms or conditions that may be necessary to qualify Options as Incentive Stock Options);
|
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|
(5)
|
prescribe the form of each Award Agreement; and
|
|
|
(6)
|
amend, modify, or supplement the terms and conditions of any outstanding Award, including the authority, in order to effectuate the purposes of the Plan, to modify Awards to foreign nationals or individuals who are employed outside the U.S. to recognize differences in local law, tax policy, or custom.
|
To the extent permitted by applicable law, the Board may delegate its authority as identified herein to any individual or committee of individuals (who need not be directors), including the authority to make Awards to Grantees who are not subject to Section 16 of the Exchange Act or who are not Covered Employees. To the extent that the Board delegates its authority to make Awards as provided by this
Section 3.1
, all references in the Plan to the Board’s authority to make Awards and determinations with respect thereto shall be deemed to include the Board’s delegate. Any such delegate shall serve at the pleasure of, and may be removed at any time by the Board.
This
Section 3.2
shall be applicable only after an IPO. Notwithstanding any other term or condition of the Plan, the repricing of Options or SARs is prohibited without prior approval of the Stockholders. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (1) changing an Option or SAR to lower its Option Price or SAR Exercise Price; (2) any other action that is treated as a “repricing” under GAAP; and (3) repurchasing for cash or canceling an Option or SAR at a time when its Option Price or SAR Exercise Price is greater than the Fair Market Value of the underlying Shares in exchange for another Award, unless the actions contemplated in clauses (1), (2), or (3) occur in connection with a change in capitalization or similar change under
Section 15
. A cancellation and exchange under clause (3) would be considered a “repricing” regardless of whether it is treated as a “repricing” under GAAP and regardless of whether it is voluntary on the part of the Grantee.
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3.3.
|
Separation from Service for Cause; Clawbacks; Detrimental Conduct
|
|
|
3.3.1.
|
Separation from Service for Cause
|
The Company may annul an Award if the Grantee incurs a Separation from Service for Cause.
All awards, amounts, or benefits received or outstanding under the Plan shall be subject to clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with any Company clawback or similar policy or any applicable law related to such actions. A Grantee’s acceptance of an Award shall be deemed to constitute the Grantee’s acknowledgement of and consent to the Company’s application, implementation, and enforcement of any applicable Company clawback or similar policy that may apply to the Grantee, whether adopted before or after the Effective Date, and any applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and the Grantee’s agreement that the Company may take any actions that may be necessary to effectuate any such policy or applicable law, without further consideration or action.
|
|
3.3.3.
|
Detrimental Conduct
|
Except as otherwise provided by the Board, notwithstanding any other term or condition of the Plan, if a Grantee engages in Detrimental Conduct, whether during the Grantee’s service or after the Grantee’s Separation from Service, in addition to any other penalties or restrictions that may apply under the Plan, state law, or otherwise, the Grantee shall forfeit or pay to the Company the following:
|
|
(1)
|
any and all outstanding Awards granted to the Grantee, including Awards that have become vested or exercisable;
|
|
|
(2)
|
any cash or Shares received by the Grantee in connection with the Plan within the 36-month period immediately before the date the Company determines the Grantee has engaged in Detrimental Conduct; and
|
|
|
(3)
|
the profit realized by the Grantee from the sale, or other disposition for consideration, of any Shares received by the Grantee in connection with the Plan within the 36-month period immediately before the date the Company determines the Grantee has engaged in Detrimental Conduct.
|
|
|
3.4.
|
Deferral Arrangement
|
The Board may permit or require the deferral of any Award payment into a deferred compensation arrangement, subject to such rules and procedures as it may establish and in accordance with Section 409A, which may include terms and conditions for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred units.
No member of the Board shall be liable for any action or determination made in good faith with respect to the Plan, any Award, or Award Agreement.
Notwithstanding any other term or condition of the Plan, the Company may elect to satisfy any requirement under the Plan for the delivery of stock certificates through the use of book-entry.
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4.
|
SHARES SUBJECT TO THE PLAN
|
|
|
4.1.
|
Authorized Number of Shares
|
Subject to adjustment under
Section 15
, the total number of Shares authorized to be awarded under the Plan shall not exceed 2,638,889, plus an annual increase on each anniversary of the Effective Date before the Termination Date equal to 4% of the total issued and outstanding Shares as of such anniversary (or such lesser number of Shares as may be determined by the Board). Shares issued under the Plan shall consist in whole or in part of authorized but unissued Shares, treasury Shares, or Shares purchased on the open market or otherwise, all as determined by the Company from time to time.
Each Share granted in connection with an Award shall be counted as one Share against the limit in
Section 4.1
, subject to this
Section 4.2
. Share-based Performance Awards shall be counted assuming maximum performance results (if applicable) until such time as actual performance results can be determined.
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|
4.2.2.
|
Cash-Settled Awards
|
Any Award settled in cash shall not be counted as Shares for any purpose under the Plan.
|
|
4.2.3.
|
Expired or Terminated Awards
|
If any Award expires, or is terminated, surrendered, or forfeited, in whole or in part, the unissued Shares covered by that Award shall again be available for the grant of Awards.
|
|
4.2.4.
|
Repurchased, Surrendered, or Forfeited Awards
|
If Issued Shares are repurchased by, or are surrendered or forfeited to the Company at no more than cost, such Shares shall again be available for the grant of Awards.
|
|
4.2.5.
|
Payment of Option Price or Tax Withholding in Shares
|
If Shares issuable upon exercise, vesting, or settlement of an Award, or Shares owned by a Grantee (that are not subject to any pledge or other security interest), are surrendered or tendered
to the Company in payment of the Option Price or Purchase Price of an Award or any taxes required to be withheld in respect of an Award, in each case, in accordance with the terms of the Plan, such surrendered or tendered Shares shall again be available for the grant of Awards.
In the case of any Substitute Award, such Substitute Award shall not be counted against the number of Shares reserved under the Plan.
|
|
4.3.1.
|
Incentive Stock Options
|
Subject to adjustment under
Section 15
, 2,638,889 Shares available for issuance under the Plan shall be available for issuance as Incentive Stock Options.
|
|
4.3.2.
|
Limits on Awards to Non-Employee Directors
|
The maximum value of Awards granted during any calendar year to any Non-Employee Director, taken together with any cash fees paid to that Non-Employee Director during the calendar year and the value of awards granted to the Non-Employee Director under any other equity compensation plan of the Company during the calendar year, shall not exceed the following in total value (based on the Fair Market Value of the Shares underlying the Award as of the Grant Date for Restricted Shares, RSUs, and Other Stock-based Awards, and based on the Grant Date fair value for accounting purposes for Options and SARs): (1) $600,000 for the non-employee Chair of the Board and (2) $500,000 for each Non-Employee Director other than the Chair of the Board;
provided
,
however
, that awards granted to Non-Employee Directors upon their initial election to the Board shall not count towards the limits in this paragraph. The Board may make exceptions to the limits in this paragraph in extraordinary circumstances for individual Non-Employee Directors;
provided
that the Non-Employee Director receiving such additional compensation may not participate in the decision to award such compensation.
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|
4.3.3.
|
Section 162(m) Limits
|
Before the end of the Transition Period, the Company shall establish and the Stockholders shall approve any limits on Awards that may be necessary to enable the Board to grant Qualified Performance-Based Compensation under the Plan.
|
|
5.
|
EFFECTIVE DATE, DURATION, AND AMENDMENTS
|
The Plan shall be effective as of the Effective Date. The Plan shall terminate automatically on the 10-year anniversary of the Effective Date and may be terminated on any earlier date as provided in
Section 5.2
.
|
|
5.2.
|
Amendment and Termination of the Plan
|
The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any Awards that have not been made. An amendment shall be contingent on approval of the Stockholders to the extent stated by the Board, required by applicable law, or required by applicable securities exchange listing requirements. Notwithstanding the foregoing, after an IPO, any amendment to
Section 3.2
shall be contingent upon the approval of the Stockholders. No Awards may be granted after the Termination Date. The applicable terms and conditions of the Plan, and any terms and conditions applicable to Awards granted before the Termination Date shall survive the termination of the Plan and continue to apply to such Awards. No amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, materially impair rights or obligations under any Award theretofore awarded.
|
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6.
|
AWARD ELIGIBILITY AND LIMITATIONS
|
Subject to this
Section 6.1
, Awards may be made to any Service Provider as the Board may determine and designate from time to time.
An eligible person may receive more than one Award, subject to such restrictions as are provided herein.
|
|
6.3.
|
Stand-Alone, Additional, Tandem, and Substitute Awards
|
The Board may grant Awards either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate, or any other right of a Grantee to receive payment from the Company or any Affiliate. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, the Board shall have the right to require the surrender of such other Award in consideration for the grant of the new Award. Subject to
Section 3.2
, the Board shall have the right to make Awards in substitution or exchange for any other award under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any Affiliate, in which the value of Shares subject to the Award is equivalent in value to the cash compensation (for example, RSUs or Restricted Shares).
Each Award shall be evidenced by an Award Agreement, in such form or forms as the Board shall from time to time determine. Without limiting the foregoing, an Award Agreement may be provided in the form of a notice that provides that acceptance of the Award constitutes acceptance of all terms and conditions of the Plan and the notice. Award Agreements granted from time to time or at the same time need not contain similar terms and conditions but shall be consistent with the terms and conditions of the Plan. Each Award
Agreement evidencing an Award of Options shall specify whether such Options are intended to be Nonstatutory Stock Options or Incentive Stock Options, and in the absence of such specification such options shall be deemed Nonstatutory Stock Options.
|
|
8.
|
TERMS AND CONDITIONS OF OPTIONS
|
The Option Price of each Option shall be fixed by the Board and stated in the related Award Agreement. The Option Price of each Option intended to be an Incentive Stock Option (except those that constitute Substitute Awards) shall be at least the Fair Market Value on the Grant Date of a Share;
provided
,
however
, that in the event that a Grantee is a Ten Percent Stockholder as of the Grant Date, the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than 110% of the Fair Market Value of a Share on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a Share.
Subject to
Section 8.3
, each Option shall become exercisable at such times and under such terms and conditions (including performance requirements) as may be determined by the Board and stated in the Award Agreement.
Each Option shall terminate, and all rights to purchase Shares thereunder shall cease, upon the expiration of a period not to exceed 10
years from the Grant Date, or under such circumstances and on any date before 10 years from the Grant Date as may be set forth in the Plan or as may be fixed by the Board and stated in the related Award Agreement;
provided
,
however
, that in the event that the Grantee is a Ten Percent Stockholder, an Option granted to such Grantee that is intended to be an Incentive Stock Option at the Grant Date shall not be exercisable after the expiration of five years from its Grant Date.
|
|
8.4.
|
Limitations on Exercise of Option
|
Notwithstanding any other term or condition of the Plan, in no event may any Option be exercised, in whole or in part, after the occurrence of an event that results in termination of the Option.
An Option that is exercisable may be exercised by the Grantee’s delivery of a notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. To be effective, notice of exercise must be made in accordance with procedures established by the Company from time to time.
|
|
8.6.
|
Rights of Holders of Options
|
Unless otherwise stated in the related Award Agreement, an individual holding or exercising an Option shall have none of the rights of a Stockholder (for example, the right to receive cash or dividend
payments or distributions attributable to the subject Shares or to direct the voting of the subject Shares) until the Shares covered thereby are fully paid and issued to him. Except as provided in
Section 15
or the related Award Agreement, no adjustment shall be made for dividends, distributions, or other rights for which the record date is before the date of such issuance.
|
|
8.7.
|
Limitations on Incentive Stock Options
|
An Option shall constitute an Incentive Stock Option only (1) if the Grantee of the Option is an employee of the Company or any Subsidiary; (2) to the extent specifically provided in the related Award Agreement; and (3) to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the Shares with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Grantee’s employer and its Affiliates) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted. No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the Stockholders in a manner intended to comply with the stockholder approval requirements of Code Section 422,
provided
that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonstatutory Stock Option unless and until such approval is obtained.
An Option may include a term that allows the Grantee to elect at any time before the Grantee’s Separation from Service to exercise the Option as to any part or all of the Shares subject to the Option prior to the full vesting of the Option. Any unvested Shares so purchased shall be subject to a repurchase option in favor of the Company and to any other restrictions the Board determines to be appropriate.
|
|
9.
|
TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS (SARs)
|
A SAR shall confer on the Grantee a right to receive, upon exercise thereof, the excess of (1) the Fair Market Value of one Share on the date of exercise over (2) the SAR Exercise Price. The Award Agreement for a SAR (except those that constitute Substitute Awards) shall specify the SAR Exercise Price, which shall be fixed on the Grant Date as not less than the Fair Market Value of a Share on that date. SARs may be granted alone or in conjunction with all or part of an Option or at any subsequent time during the term of such Option or in conjunction with all or part of any other Award. A SAR granted in tandem with an outstanding Option after the Grant Date of such Option shall have a SAR Exercise Price that is equal to the Option Price;
provided
,
however
, that the SAR Exercise Price may not be less than the Fair Market Value of a Share on the Grant Date of the SAR to the extent required by Section 409A.
The Board shall determine at the Grant Date the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable
after Separation from Service or upon other terms or conditions, the method of exercise, whether or not a SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR.
The term of a SAR granted under the Plan shall be determined by the Board;
provided
,
however
, that such term shall not exceed 10 years.
|
|
9.4.
|
Payment of SAR Amount
|
Upon exercise of a SAR, a Grantee shall be entitled to receive payment from the Company (in cash or Shares) in an amount determined by multiplying:
|
|
(1)
|
the difference between the Fair Market Value of a Share on the date of exercise over the SAR Exercise Price; by
|
|
|
(2)
|
the number of Shares with respect to which the SAR is exercised.
|
|
|
10.
|
TERMS AND CONDITIONS OF RESTRICTED SHARES AND RESTRICTED STOCK UNITS (RSUs)
|
At the time of grant, the Board may establish a period of time (a “
Restricted Period
”) and any additional restrictions including the satisfaction of corporate or individual performance objectives applicable to an Award of Restricted Shares or RSUs in accordance with
Section 12.1
and
Section 12.2
. Each Award of Restricted Shares or RSUs may be subject to a different Restricted Period and additional restrictions. Neither Restricted Shares nor RSUs may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period or before the satisfaction of any other applicable restrictions.
|
|
10.2.
|
Restricted Share Certificates
|
The Company shall issue, in the name of each Grantee to whom Restricted Shares have been granted, stock certificates or other evidence of ownership representing the total number of Restricted Shares granted to the Grantee, as soon as reasonably practicable after the Grant Date.
|
|
10.3.
|
Rights of Holders of Restricted Shares
|
Unless the Board otherwise provides in an Award Agreement and subject to
Section 17.15
, holders of Restricted Shares shall have rights as Stockholders, including voting and dividend rights.
|
|
10.4.
|
Rights of Holders of RSUs
|
|
|
10.4.1.
|
Settlement of RSUs
|
RSUs may be settled in cash or Shares, as determined by the Board and set forth in the Award Agreement. The Award Agreement shall also set forth whether the RSUs shall be settled (1) within the time period specified for “short term deferrals” under Section 409A or (2) otherwise within the requirements of Section 409A, in which case the Award Agreement shall specify upon which events such RSUs shall be settled.
|
|
10.4.2.
|
Voting and Dividend Rights
|
Unless otherwise stated in the applicable Award Agreement and subject to
Section 17.15
, holders of RSUs shall not have rights as Stockholders, including no voting or dividend or dividend equivalents rights.
|
|
10.4.3.
|
Creditor’s Rights
|
A holder of RSUs shall have no rights other than those of a general creditor of the Company. RSUs represent an unfunded and unsecured obligation of the Company, subject to the applicable Award Agreement.
|
|
10.5.
|
Purchase of Restricted Shares
|
The Grantee shall be required, to the extent required by applicable law, to purchase Restricted Shares from the Company at a Purchase Price equal to the greater of (1) the aggregate par value of the Restricted Shares or (2) the Purchase Price, if any, specified in the related Award Agreement. If specified in the Award Agreement, the Purchase Price may be deemed paid by services already rendered. The Purchase Price shall be payable in a form described in
Section 11
or, if permitted by the Board, in consideration for past services rendered.
Upon the expiration or termination of any Restricted Period and the satisfaction of any other terms and conditions prescribed by the Board, the restrictions applicable to Restricted Shares or RSUs settled in Shares shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate for such Shares shall be delivered, free of all such restrictions, to the Grantee or the Grantee’s beneficiary or estate, as the case may be.
|
|
11.
|
FORM OF PAYMENT FOR OPTIONS AND RESTRICTED SHARES
|
Payment of the Option Price for an Option or the Purchase Price for Restricted Shares shall be made in cash or in cash equivalents acceptable to the Company, except as provided in this
Section 11
.
|
|
11.2.
|
Surrender of Shares
|
To the extent the Award Agreement so provides, payment of the Option Price for an Option or the Purchase Price for Restricted Shares may be made all or in part through the tender to, or withholding by, the Company of Shares that shall be valued, for purposes of determining the extent to which the Option Price or Purchase Price for Restricted Shares has been paid thereby, at their Fair Market Value on the date of exercise or surrender. Notwithstanding the foregoing, in the case of an Incentive Stock Option, the right to make payment in the form of already owned Shares may be authorized only at the time of grant.
With respect to an Option only (and not with respect to Restricted Shares), to the extent permitted by law and to the extent the Award Agreement so provides, payment of the Option Price may be made all or in part by delivery (on a form acceptable to the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Shares and to deliver all or part of the sales proceeds to the Company in payment of the Option Price and any withholding taxes described in
Section 17.3
.
|
|
11.4.
|
Other Forms of Payment
|
To the extent the Award Agreement so provides, payment of the Option Price or the Purchase Price for Restricted Shares may be made in any other form that is consistent with applicable laws, regulations, and rules, including the Company’s withholding of Shares otherwise due to the exercising Grantee.
|
|
12.
|
TERMS AND CONDITIONS OF PERFORMANCE AWARDS
|
|
|
12.1.
|
Performance Terms and Conditions
|
The right of a Grantee to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance terms conditions as may be specified by the Board. The Board may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance terms or conditions.
|
|
12.2.
|
Performance Awards Granted to Designated Covered Employees
|
If and to the extent that the Committee determines that a Performance Award to be granted to a Grantee who is designated by the Committee as having the potential to be a Covered Employee should constitute Qualified Performance-Based Compensation, the grant, exercise, and settlement of such Performance Award shall be contingent upon achievement of pre-established performance goals and other terms and conditions set forth in this
Section 12.2
. Notwithstanding any other term or condition of the Plan, the Committee may provide for Performance Awards to Covered Employees that are not intended to constitute Qualified Performance-Based Compensation.
|
|
12.2.1.
|
Performance Goals Generally
|
The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this
Section 12.2
. After the Transition Period, performance goals
shall meet the requirements of Section 162(m), to the extent applicable, including the requirements that the performance goals be objective and that the level or levels of performance targeted by the Committee result in the achievement of performance goals being “substantially uncertain.” The Committee may determine that such Performance Awards shall be granted, exercised, and settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise, or settlement of such Performance Awards. The Committee may establish performance goals on a Company-wide basis, or with respect to one or more business units, divisions, subsidiaries, or business segments, as applicable. Performance goals may be absolute or relative (to the performance of one or more comparable companies or indices or based on year-over-year growth). To the extent not inconsistent with the requirements of Section 162(m), the Committee may determine at the time that goals under this
Section 12
are established, the extent to which measurement of performance goals may include or exclude certain unusual or nonrecurring events, including the following: the impact of charges for restructuring; discontinued operations; debt redemption or retirement; asset write downs; litigation or claim judgments or settlements; acquisitions or divestitures; foreign exchange gains and losses; and other unusual, nonrecurring items; and the cumulative effects of tax or accounting changes. Performance goals may differ for Performance Awards granted to any one Grantee or to different Grantees.
|
|
12.2.2.
|
Business Criteria
|
One or more of the following business criteria for the Company, on a consolidated basis, and/or specified subsidiaries or business units of the Company (except with respect to the total shareholder return and earnings per share criteria), shall be used exclusively by the Committee in establishing performance goals for such Performance Awards:
|
|
(3)
|
earnings or income measures (including EBITDA);
|
|
|
(4)
|
return measures (including return on assets, capital, invested capital, equity, sales, or revenue);
|
|
|
(5)
|
total shareholder return;
|
|
|
(6)
|
share price performance;
|
|
|
(9)
|
economic value added;
|
|
|
(10)
|
improvement or attainment of corporate governance goals;
|
|
|
(11)
|
attainment of regulatory approvals;
|
|
|
(12)
|
attainment of clinical trial milestones;
|
|
|
(13)
|
attainment of research and development milestones;
|
|
|
(14)
|
contract or grant awards;
|
|
|
(15)
|
regulatory inspections;
|
|
|
(16)
|
customer metrics (including customer satisfaction, customer retention, and customer profitability);
|
|
|
(20)
|
cost control measures;
|
|
|
(21)
|
balance sheet metrics;
|
|
|
(22)
|
strategic initiatives;
|
|
|
(23)
|
implementation, completion, or attainment of measurable objectives with respect to recruitment or retention of personnel or employee satisfaction;
|
|
|
(24)
|
successful completion of, or achievement of milestones or objectives related to, financing or capital raising transactions, strategic acquisitions or divestitures, joint ventures, partnerships, collaborations, or other transactions;
|
|
|
(25)
|
debt levels or reduction or debt ratios;
|
|
|
(26)
|
operating efficiency;
|
|
|
(27)
|
working capital targets;
|
|
|
(28)
|
quantifiable, objective measures of individual performance relevant to the particular individual’s job responsibilities; or
|
|
|
(29)
|
any combination of the foregoing business criteria.
|
The foregoing business criteria shall include any derivations of thereof (e.g., income shall include pre-tax income, net income, or operating income). Any business criteria that are financial metrics may be determined in accordance with GAAP or may be adjusted when established (or to the extent permitted under or not prohibited by Section 162(m), at any time thereafter) to include or exclude any items otherwise includable or excludable under GAAP.
|
|
12.2.3.
|
Timing for Establishing Performance Goals
|
After the Transition Period, to the extent required by Section 162(m), performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for Qualified Performance-Based Compensation.
|
|
12.2.4.
|
Settlement of Performance Awards; Other Terms
|
Settlement of Performance Awards may be in cash, Shares, other Awards, or other property. The Committee may reduce the amount of a settlement otherwise to be made in connection with a Performance Award.
|
|
12.3.
|
Written Determinations
|
All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards, and the achievement of performance goals relating to Performance Awards, shall be made in writing in the case of any Award intended to constitute Qualified Performance-Based Compensation to the extent required by Section 162(m). To the extent permitted under or not prohibited by Section 162(m), the Committee may delegate any responsibility relating to such Performance Awards.
|
|
12.4.
|
Status of Section 12.2 Awards under Section 162(m)
|
This
Section 12.4
shall be applicable only after the Transition Period and only to the extent that Section 162(m) is applicable. It is the intent of the Company that Performance Awards under
Section 12.2
granted to persons who are designated by the Committee as having the potential to be Covered Employees within the meaning of Section 162(m) shall, if so designated by the Committee, constitute Qualified Performance-Based Compensation. Accordingly, the terms and conditions of
Section 12.2
, including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Section 162(m). Notwithstanding the foregoing, because the Committee cannot determine with certainty whether a given Grantee will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards, as having the potential to be a Covered Employee with respect to that fiscal year or any subsequent fiscal year. If any term or condition of the Plan or any agreement relating to such Performance Awards does not comply or is inconsistent with the requirements of Section 162(m), such terms and conditions shall be construed or deemed amended to the extent necessary to conform to such requirements.
|
|
13.
|
OTHER STOCK-BASED AWARDS
|
|
|
13.1.
|
Grant of Other Stock-based Awards
|
Other Stock-based Awards may be granted either alone or in addition to or in conjunction with other Awards. Other Stock-based Awards may be granted in lieu of other cash or other compensation to which a Service Provider is entitled from the Company or may be used in the settlement of amounts payable in Shares under any other compensation plan or arrangement of the Company. Subject to the terms and conditions of the Plan, the Board shall determine the persons to whom and the time or times at which such Awards may be made, the number of Shares to be granted under such Awards, and all other terms and conditions of such Awards. Unless the Board determines otherwise, any such Award shall be confirmed by an Award Agreement, which shall contain such terms and conditions as the Board determines to be necessary or appropriate to carry out the intent of the Plan with respect to such Award.
13.2.
Terms of Other Stock-based Awards
Any Shares subject to Awards made under this
Section 13
may not be sold, assigned, transferred, pledged, or otherwise encumbered before the date on which the Shares are issued, or, if later, the date on which any applicable restriction, performance, or deferral period lapses.
The Company shall not be required to sell or issue any Shares under any Award if the sale or issuance of such Shares would constitute a violation by the Grantee, any other individual, or the Company of any law or regulation of any governmental authority, including any federal or state securities laws or regulations. If at any time the Company determines that the listing, registration, or qualification of any Shares subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or
desirable as a term or condition of, or in connection with, the issuance or purchase of Shares hereunder, no Shares may be issued or sold to the Grantee or any other individual exercising an Option unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any terms and conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any Shares underlying an Award, unless a registration statement under such Act is in effect with respect to the Shares covered by such Award, the Company shall not be required to sell or issue such Shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such Shares under an exemption from registration under the Securities Act. The Company may, but shall not be obligated to, register any securities covered hereby under the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of Shares under the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the Shares covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. The Board may require the Grantee to sign such additional documentation, make such representations, and furnish such information as the Board may consider appropriate in connection with the grant of Awards or issuance or delivery of Shares in compliance with applicable laws.
During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards and the exercise of Options granted to officers and directors hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any term or condition of the Plan or action by the Board does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may modify the Plan in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement.
|
|
14.3.
|
California Grantees
|
The Plan is intended to comply with Section 25102(o) of the California Corporations Code, to the extent applicable. In that regard, to the extent required by Section 25102(o), (1) the terms of any Options or SARs, to the extent vested and exercisable upon a Grantee’s Separation from Service, shall include any minimum exercise periods following Separation from Service specified by Section 25102(o) and (2) any repurchase right of the Company with respect to Issued Shares shall include a minimum 90-day notice requirement. Any Plan term that is inconsistent with Section 25102(o) shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 25102(o).
|
|
15.
|
EFFECT OF CHANGES IN CAPITALIZATION
|
|
|
15.1.
|
Changes in Common Stock
|
If (1) the number of outstanding Shares is increased or decreased or the Shares are changed into or exchanged for a different number or kind of shares or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such Shares effected without receipt of consideration by the Company occurring after the Effective Date or (2) there occurs any spin-off, split-up, extraordinary cash dividend, or other distribution of assets by the Company, (A) the number and kinds of shares for which grants of Awards may be made (including the per-Grantee maximums set forth in
Section 4
), (B) the number and kinds of shares for which outstanding Awards may be exercised or settled, and (C) the performance goals relating to outstanding Awards, shall be equitably adjusted by the Company;
provided
that any such adjustment shall comply with Section 409A. In addition, in the event of any such increase or decease in the number of outstanding shares or other transaction described in clause (2) above, the number and kind of shares for which Awards are outstanding and the Option Price per share of outstanding Options and SAR Exercise Price per share of outstanding SARs shall be equitably adjusted;
provided
that any such adjustment shall comply with Section 409A.
|
|
15.2.
|
Effect of Certain Transactions
|
Except as otherwise provided in an Award Agreement, in the event of a Corporate Transaction, the Plan and the Awards shall continue in effect in accordance with their respective terms, except that after a Corporate Transaction either (1) each outstanding Award shall be treated as provided for in the agreement entered into in connection with the Corporate Transaction or (2) if not so provided in such agreement, each Grantee shall be entitled to receive in respect of each Share subject to any outstanding Awards, upon exercise or payment or transfer in respect of any Award, the same number and kind of stock, securities, cash, property, or other consideration that each Stockholder was entitled to receive in the Corporate Transaction in respect of one Share;
provided
,
however
, that, unless otherwise determined by the Board, such stock, securities, cash, property or other consideration shall remain subject to all of the terms and conditions (including performance criteria) that were applicable to the Awards before such Corporate Transaction. Without limiting the generality of the foregoing, the treatment of outstanding Options and SARs under this
Section 15.2
in connection with a Corporate Transaction in which the consideration paid or distributed to the Stockholders is not entirely shares of common stock of the acquiring or resulting corporation may include the cancellation of outstanding Options and SARs upon consummation of the Corporate Transaction as long as, at the election of the Board, (A) the holders of affected Options and SARs have been given a period of at least 15 days before the date of the consummation of the Corporate Transaction to exercise the Options or SARs (to the extent otherwise exercisable) or (B) the holders of the affected Options and SARs are paid (in cash or cash equivalents) in respect of each Share covered by the Option or SAR being canceled an amount equal to the excess, if any, of the per Share price paid or distributed to Stockholders in the Corporate Transaction (the value of any noncash consideration to be determined by the Board) over the Option Price or SAR Exercise Price, as applicable. For avoidance of doubt, (i) the cancellation of Options and SARs under clause (B) of the preceding sentence may be effected notwithstanding any other term or condition of the Plan or any Award Agreement and (ii) if the amount determined under clause (B) of the preceding sentence is zero or less, the affected Option or SAR may be cancelled without any payment
therefore. The treatment of any Award as provided in this
Section 15.2
shall be conclusively presumed to be appropriate for purposes of
Section 15.1
.
For any Awards outstanding as of the date of a Change in Control, either of the following provisions shall apply, depending on whether, and the extent to which, Awards are assumed, converted, or replaced by the resulting entity in a Change in Control, unless otherwise provided by the Award Agreement:
|
|
(1)
|
To the extent such Awards are not assumed, converted or replaced by the resulting entity in the Change in Control, then upon the Change in Control such outstanding Awards that may be exercised shall become fully exercisable, all restrictions with respect to such outstanding Awards, other than for Performance Awards, shall lapse and become vested and nonforfeitable, and for any outstanding Performance Awards the target payout opportunities attainable under such Awards shall be deemed to have been fully earned as of the Change in Control based upon the greater of (A) an assumed achievement of all relevant performance goals at the “target” level or (B) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control.
|
|
|
(2)
|
To the extent such Awards are assumed, converted, or replaced by the resulting entity in the Change in Control, if, within 24 months after the date of the Change in Control, the Service Provider has a Separation from Service by the Company other than for Cause (which may include a Separation from Service by the Service Provider for “good reason” if provided in the applicable Award Agreement), then such outstanding Awards that may be exercised shall become fully exercisable, all restrictions with respect to such outstanding Awards, other than for Performance Awards, shall lapse and become vested and nonforfeitable, and for any outstanding Performance Awards the target payout opportunities attainable under such Awards shall be deemed to have been fully earned as of the Separation from Service based upon the greater of: (A) an assumed achievement of all relevant performance goals at the “target” level, or (B) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control.
|
Adjustments under this
Section 15
related to Share or other securities of the Company shall be made by the Board. No fractional Shares or other securities shall be issued under any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole Share.
|
|
16.
|
NO LIMITATIONS ON COMPANY
|
The grant of Awards shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets.
|
|
17.
|
TERMS APPLICABLE GENERALLY TO AWARDS
|
|
|
17.1.
|
Disclaimer of Rights
|
No term or condition of the Plan or any Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Company. In addition, notwithstanding any other term or condition of the Plan, unless otherwise stated in the applicable Award Agreement, no Award shall be affected by any change of duties or position of the Grantee, so long as such Grantee continues to be a Service Provider. The obligation of the Company to pay any benefits under the Plan shall be interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the terms and conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the Plan.
|
|
17.2.
|
Nonexclusivity of the Plan
|
Neither the adoption of the Plan nor the submission of the Plan to the Stockholders for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals), including the granting of Options as the Board determines desirable.
The Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any federal, state, or local taxes of any kind required by law to be withheld (1) with respect to the vesting of or other lapse of restrictions applicable to an Award, (2) upon the issuance of any Shares upon the exercise of an Option or SAR, or (3) otherwise due in connection with an Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to the Company or the Affiliate, as the case may be, any amount that the Company or the Affiliate may reasonably determine to be necessary to satisfy such withholding obligation. The Company or the Affiliate, as the case may be, may require or permit the Grantee to satisfy such obligations, in whole or in part, (A) by causing the Company or the Affiliate to withhold up to the maximum required number of Shares otherwise issuable to the Grantee as may be necessary to satisfy such withholding obligation or (B) by delivering to the Company or the Affiliate Shares already owned by the Grantee. The Shares so delivered or withheld shall have an aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the Shares used to satisfy such withholding obligation shall be determined by the Company or the Affiliate as of the date that the amount of tax to be withheld is to be determined. To the extent applicable, a Grantee may satisfy his or her withholding obligation only with Shares that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
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17.4.
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Right of First Refusal
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Before an IPO, except as otherwise provided by the Board, if the Grantee desires to sell or otherwise transfer all or any part of the Grantee’s Issued Shares (to the extent transferable), the Grantee shall first give written notice to the Company of the Grantee’s intention to make such sale or other transfer. This notice must state the number of Issued Shares that the Grantee proposes to sell/transfer (the “
Offered Shares
”), the price and other terms and conditions of the proposed sale/transfer, and the name and address of the proposed buyer/transferee. At any time within 120 days after the receipt of such notice by the Company, the Company or its assigns may elect to purchase all or any portion of the Offered Shares at the price and on the terms and conditions offered by the proposed transferee and specified in the notice. The Company or its assigns may exercise this right by mailing or delivering written notice to the Grantee within the foregoing 120-day period. If the Company or its assigns elect to exercise the purchase right under this
Section 17.4
, the closing for the purchase shall take place within 90 days after the receipt by the Company of the initial notice from the Grantee. If the Company or its assigns do not elect to exercise such purchase right, or if the Company or its assigns do not pay the full purchase price within the 90-day period, the Grantee may, within 30 days thereafter, sell the Offered Shares to the proposed transferee at the same price and on the same terms and conditions as specified in the Grantee’s notice. Any Issued Shares purchased by such proposed transferee shall continue to be subject to the Plan. Any Issued Shares not sold to the proposed transferee shall remain subject to the Plan.
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17.5.
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Right of Repurchase
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Before an IPO, except as otherwise provided by the Board, at any time after the Grantee’s Separation from Service for any reason, the Company or its assigns shall have the right to purchase some or all of the Grantee’s Issued Shares that are outstanding as of the Separation from Service, which right may be exercised by giving written notice of such exercise (a “
Call Notice
”) to the Grantee. The purchase price under this
Section 17.5
of the Issued Shares shall be the Fair Market Value of the Issued Shares as of the date of the Call Notice,
provided
that if the Separation from Service is for Cause, the purchase price for the Issued Shares shall be for the lesser of (1) the Fair Market Value of the Issued Shares as of the date of the Call Notice and (2) the purchase price paid by the Grantee to acquire the Issued Shares (which may be $0). If the Company or its assigns elect to exercise the repurchase right under this
Section 17.5
, the closing for the purchase shall take place within 45 days after the date of the Call Notice. At the closing, the Company or its assigns shall deliver to the Grantee the purchase price in cash and the Grantee shall deliver to the Company such instruments that the Company reasonably requests evidencing the transfer of the Issued Shares.
Before an IPO, except as otherwise provided by the Board, if the Company receives a bona fide offer from an independent third-party to purchase in one transaction, or a series of related transactions, all of the outstanding Shares (a “
Drag-along Sale
”), the Company shall have the right to require that each Grantee with Issued Shares (each, a “
Drag-along Stockholder
”) participate in the sale in the manner set forth in this
Section 17.6
, by delivering a written notice (the “
Drag-along Notice
”) to the Drag-along Stockholder no more than 90 days after the execution and delivery by all of the parties thereto of the definitive agreement entered into for the Drag-along Sale and no later than 45 days before the closing date of the Drag-along Sale. The consideration to be received by a Drag-along Stockholder shall be the same
form and amount of consideration per Share to be received by the Company and the terms and conditions of the Drag-along Sale shall be the same as those upon which the Company sells its Shares.
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17.7.
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Stockholders’ Agreement
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The Board may require a Grantee to execute and become a party to any applicable Stockholders’ agreement as a condition to the grant, vesting, exercise, or transfer of an Award. The Stockholders’ agreement may contain restrictions on the transferability of Issued Shares (such as a right of first refusal or a prohibition on transfer) and call rights and drag-along rights of the Company and its investors. Nothing in this
Section 17.7
shall limit the Company’s or its assigns’ first refusal, repurchase, or drag-along rights set forth in the Plan or any Award Agreement.
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17.8.
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Market Standoff Requirement
|
Except as otherwise provided by the Board, in connection with any IPO and upon request of the Company or the underwriters managing the IPO, (1) no Grantee may sell, make any short sale of, loan, grant any option for the purchase of, or otherwise directly or indirectly dispose of any Issued Shares (other than Shares included in the IPO) without the prior written consent of the Company or the underwriters, as the case may be, for such period of time from the effective date of the registration statement for the IPO as may be requested by the Company or the underwriters and (2) each Grantee shall execute an agreement reflecting the foregoing as may be requested by the Company or the underwriters.
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17.9.
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Other Terms and Conditions; Employment Agreements
|
Each Award Agreement may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board. In the event of any conflict between the terms and conditions of an employment agreement and the Plan, the terms and conditions of the employment agreement shall govern.
If any term or condition of the Plan or any Award Agreement is determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining terms and conditions hereof and thereof shall be severable and enforceable, and all terms and conditions shall remain enforceable in any other jurisdiction.
The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of California without regard to the principles of conflicts of law that could cause the application of the laws of any jurisdiction other than the State of California. For purposes of resolving any dispute that arises under the Plan, each Grantee, by virtue of receiving an Award, shall be deemed to have submitted to and consented to the exclusive jurisdiction of the State of California and to have agreed that any related litigation shall be conducted solely in the courts of Orange County, California or the federal courts for the U.S. for the Central District of California, where the Plan is made and to be performed, and no other courts. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974.
The Plan is intended to comply with Section 409A to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and administered to be in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Section 409A shall not be treated as deferred compensation unless applicable laws require otherwise.
For purposes of Section 409A, each installment payment under the Plan shall be treated as a separate payment.
Notwithstanding any other term or condition of the Plan, to the extent required to avoid accelerated taxation or tax penalties under Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided under the Plan during the six-month period immediately after the Grantee’s Separation from Service shall instead be paid on the first payroll date after the six-month anniversary of the Grantee’s Separation from Service (or the Grantee’s death, if earlier). Notwithstanding the foregoing, neither the Company nor the Board shall have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Grantee under Section 409A and neither the Company nor the Board shall have any liability to any Grantee for such tax or penalty.
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17.13.
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Separation from Service
|
The Board shall determine the effect of a Separation from Service upon Awards, and such effect shall be set forth in the appropriate Award Agreement. Without limiting the foregoing, the Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, the actions that may be taken upon the occurrence of a Separation from Service, including accelerated vesting or termination, depending upon the circumstances surrounding the Separation from Service.
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17.14.
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Transferability of Awards and Issued Shares
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17.14.1. Transfers in General
Except as provided in
Section 17.14.2
, no Award shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution, and, during the lifetime of the Grantee, only the Grantee personally (or the Grantee’s personal representative) may exercise rights under the Plan.
17.14.2.
Family Transfers
If authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or part of an Award (other than Incentive Stock Options) to any Family Member. For the purpose of this
Section 17.14.2
, a “not for value” transfer is a transfer that is (1) a gift, (2) a transfer under a domestic relations order in settlement of marital property rights; or (3) a transfer to an entity in which more than 50% of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in that entity. After a transfer under this
Section 17.14.2
, any such Award shall continue to be subject to the same terms and conditions as were applicable immediately before transfer. Subsequent transfers of transferred Awards are prohibited except to Family Members of the original Grantee in accordance with this
Section 17.14.2
or by will or the laws of descent and distribution.
17.14.3.
Issued Shares
Before an IPO, no Issued Shares may be sold, assigned, transferred, pledged, hypothecated, given away, or in any other manner disposed of or encumbered, whether voluntarily or by operation of law, unless (A) such action is in compliance with the terms and conditions of the applicable Award, all applicable securities laws, and the Plan, (B) such action does not cause the Company to become subject to the reporting requirements of the Exchange Act, and (C) all beneficiaries of the Issued Shares consent in writing to be bound by the Plan. The Company may require that a legend be placed on any certificate representing the Issued Shares that describes the restrictions under this
Section 17.14.3
. In connection with any proposed action under this
Section 17.14.3
, the Board may require the Grantee to provide at the Grantee’s own expense an opinion of counsel, satisfactory to the Board, that the action is in compliance with all applicable laws. Any attempted sale, assignment, transfer, pledge, hypothecation, gift, or other disposition or encumbrance of Issued Shares not in accordance with this
Section 17.14.3
shall be null and void, and the Company shall not reflect in its records any change in record ownership of any Issued Shares as a result of any such action, shall otherwise refuse to recognize any such action, and shall not in any way give effect to any such action. Before an IPO, subject to the foregoing terms and conditions of this
Section 17.14.3
, and if and to the extent provided in the applicable Award Agreement, Issued Shares may be transferred only under the following specific terms and conditions:
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(1)
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The Grantee may sell, assign, transfer, or give away any or all of the Issued Shares to Permitted Transferees;
provided
,
however
, that following such sale, assignment, transfer, or gift, such Issued Shares shall continue to be subject to the Plan and such Permitted Transferees shall, as a condition to any receipt of Issued Shares, deliver a written acknowledgment to that effect to the Board.
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(2)
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Upon the death of the Grantee, any Issued Shares then held by the Grantee and any Issued Shares acquired thereafter by the Grantee’s legal representative shall be subject to the terms and conditions of the Plan, and the Grantee’s estate, executors, administrators, personal representatives, heirs, legatees, and distributees shall be obligated to convey such Issued Shares to the Company or its assigns under the terms and conditions of the Plan.
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17.15.
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Dividend Equivalent Rights
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If specified in the Award Agreement, the recipient of an Award may be entitled to receive dividend equivalent rights with respect to the Shares or other securities covered by an Award. The terms and conditions of a dividend equivalent right may be set forth in the Award Agreement. Dividend equivalents credited to a Grantee may be paid in cash or deemed to be reinvested in additional Shares or other securities of the Company at a price per unit equal to the Fair Market Value of a Share on the date that such dividend was paid to Stockholders. Notwithstanding the foregoing, dividends or dividend equivalents shall not be paid on any Award or portion thereof that is unvested or on any Award that is subject to the achievement of performance criteria before the Award has become earned and payable.
A Grantee’s acceptance of an Award shall be deemed to constitute the Grantee’s acknowledgement of and consent to the collection and processing of personal data relating to the Grantee so that the Company can meet its obligations and exercise its rights under the Plan and generally administer and manage the Plan. This data shall include data about participation in the Plan and Shares offered or received, purchased, or sold under the Plan and other appropriate financial and other data (such as the date on which the Awards were granted) about the Grantee and the Grantee’s participation in the Plan.
In the Plan, unless otherwise stated, the following uses apply:
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(1)
|
references to a statute or law refer to the statute or law and any amendments and any successor statutes or laws, and to all valid and binding governmental regulations, court decisions, and other regulatory and judicial authority issued or rendered thereunder, as amended, or their successors, as in effect at the relevant time;
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(2)
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in computing periods from a specified date to a later specified date, the words “from” and “commencing on” (and the like) mean “from and including,” and the words “to,” “until” and “ending on” (and the like) mean “to and including”;
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(3)
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indications of time of day shall be based upon the time applicable to the location of the principal headquarters of the Company;
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(4)
|
the words “include,” “includes” and “including” (and the like) mean “include, without limitation,” “includes, without limitation” and “including, without limitation” (and the like), respectively;
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(5)
|
all references to articles and sections are to articles and sections in the Plan;
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(6)
|
all words used shall be construed to be of such gender or number as the circumstances and context require;
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(7)
|
the captions and headings of articles and sections have been inserted solely for convenience of reference and shall not be considered a part of the Plan, nor shall any of them affect the meaning or interpretation of the Plan;
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(8)
|
any reference to an agreement, plan, policy, form, document or set of documents, and the rights and obligations of the parties under any such agreement, plan, policy, form, document or set of documents, shall mean such agreement, plan, policy, form, document or set of documents as amended from time to time, and any and all modifications, extensions, renewals, substitutions or replacements thereof; and
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(9)
|
all accounting terms not specifically defined shall be construed in accordance with GAAP.
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OPTION AWARD AGREEMENT
EVOLUS, INC. 2017 OMNIBUS INCENTIVE PLAN
Evolus, Inc. (the “
Company
”) grants to the Grantee named below (“
you
”) [an Incentive/a Nonstatutory] Stock Option to purchase the number of Shares set forth below (the “
Option
”).
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Plan:
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Evolus, Inc. 2017 Omnibus Incentive Plan
|
Defined Terms:
|
As set forth in the Plan, unless otherwise defined in this Agreement
|
Grantee:
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[Name]
|
Type of Option:
|
[Incentive/Nonstatutory] Stock Option
|
Grant Date:
|
[Date]
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Number of Shares Purchasable:
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[####]
|
Option Price per Share:
|
$[#.##], which is the Fair Market Value as of the Grant Date
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Expiration Date:
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[Date], which is [10] years from the Grant Date (or earlier if your Separation from Service occurs before this Expiration Date; see
Exercise after Separation from Service
below)
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Exercisability Schedule:
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The Option will become exercisable on the following schedule, as long as you do not have a Separation from Service before the applicable exercisability date:
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Exercisability Date
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% of Option Exercisable
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[1
st
] anniversary of Grant Date
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[25]%
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[2
nd
] anniversary of Grant Date
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Additional [25]%
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[3
rd
] anniversary of Grant Date
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Additional [25]%
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[4
th
] anniversary of Grant Date
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Remaining[25]%
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[Acceleration of Exercisability:]
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The Option will become fully exercisable upon [your Separation from Service due to your Disability or death].
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Exercise after Separation from Service:
|
Separation from Service for any reason other than death, Disability, or Cause
: any unexercisable portion of the Option expires immediately and any exercisable portion remains exercisable for [three] months after your Separation from Service for any reason other than death, Disability, or Cause.
Separation from Service due to death or Disability
: any unexercisable portion of the Option expires immediately and any exercisable portion remains exercisable for [12] months after your Separation from Service due to your death or Disability.
Separation from Service for Cause
: the entire Option, including any exercisable and unexercisable portion, expires immediately you’re your Separation from Service for Cause.
THE OPTION MAY NOT BE EXERCISED AFTER THE ORIGINAL EXPIRATION DATE SET FORTH ABOVE.
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By signing below, you agree that the Option is granted under and governed by the terms of the Plan and this Option Award Agreement (including the attached Option Terms) (“
Agreement
”), as of the Grant Date.
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GRANTEE
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EVOLUS, INC.
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Sign Name:
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Sign Name:
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Print Name:
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Print Name:
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Title:
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OPTION TERMS
1.
Grant of Option
.
(a) The Option is subject to the terms of the Plan. The terms of the Plan are incorporated into this Agreement by this reference.
(b) You must accept the terms of this Agreement by returning a signed copy to the Company within 60 days after the Agreement is presented to you for review. You may not exercise any portion of the Option before you have accepted the terms of this Agreement. The Committee may unilaterally cancel and forfeit the Option in its entirety if you do not accept the terms of this Agreement.
(c) If designated above as an Incentive Stock Option, the Option is intended to qualify as an Incentive Stock Option. To the extent the Option fails to meet the requirements of an Incentive Stock Option or is not designated as an Incentive Stock Option, the Option will be a Nonstatutory Stock Option.
2.
Exercise of Option
.
(a)
Right to Exercise
. The Option will be exercisable in accordance with the Exercisability Schedule, Acceleration of Exercisability, and Exercise after Separation from Service terms provided above, and all the rest of the terms of this Agreement. The Option, to the extent exercisable, may be exercised in whole or in part[,
provided
that the minimum number of Option Shares that you may exercise at any time is the lesser of (i) [#] Shares and (ii) the entire exercisable portion of the Option]. The Option may not be exercised after it expires. No Shares will be issued upon the exercise of the Option unless the issuance and exercise comply with all applicable laws. For income tax purposes, Shares will be considered transferred to you on the date you properly exercise the Option. Until you have duly exercised the Option and Shares have been delivered, you will not have any rights as a Stockholder for those Shares (including voting or dividend rights).
(b)
Method of Exercise
. You may exercise the Option by delivering an exercise notice in a form approved by the Company (the “
Exercise Notice
”). The Exercise Notice must state your election to exercise the Option, the number of Option Shares that are being purchased, and any other representations and agreements that may be required by the Company. Together with the Exercise Notice, you must tender payment of the aggregate Option Price for all Shares exercised and all applicable withholding and other taxes. The Option will be deemed to be exercised upon receipt by the Company of a fully executed Exercise Notice and payment of the aggregate Option Price and all applicable withholding and other taxes.
3.
Method of Payment
. If you elect to exercise the Option, you must pay the aggregate Option Price, as well as any applicable withholding or other taxes, by cash or check. However, the Committee may—but is not required to—consent to payment in any of the following forms, or a combination of them together with cash or check:
(a) a “net exercise” under which the Company reduces the number of Shares issued upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate Option Price and any applicable withholding;
(b) other consideration received by the Company under a cashless exercise program approved by the Company;
(c) surrender of other Shares owned by you that have a Fair Market Value on the date of surrender equal to the aggregate Option Price of the exercised Shares and any applicable withholding; or
(d) any other consideration that the Committee deems appropriate.
4.
Restrictions on Exercise
.
(a) You may not exercise the Option (i) if it is an Incentive Stock Option and the Plan has not been approved by the Stockholders or (ii) if the issuance of Shares upon exercise or the method of payment for those Shares would constitute a violation of any applicable law, regulation, or Company policy.
(b) Any issuance of Shares under the Option may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
(c) If a certificate for Shares is delivered to you under the Option, the certificate may bear the following or a similar legend as determined by the Company:
The ownership and transferability of this certificate and the shares of stock represented hereby are subject to the terms (including forfeiture) of the Evolus, Inc. 2017 Omnibus Incentive Plan and an option award agreement entered into between the registered owner and Evolus, Inc. Copies of such plan and agreement are on file in the executive offices of Evolus, Inc.
In addition, any stock certificates for Shares will be subject to any stop-transfer orders and other restrictions as the Company may deem advisable under the rules, regulations, and other requirements of the SEC, any securities exchange or similar entity upon which the Shares are then listed, and any applicable federal or state securities law, and the Company may cause a legend or legends to be placed on any certificates to make appropriate reference to these restrictions.
5.
Transferability
.
(a) The Option may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised during your lifetime only by you [;
provided
,
however
, that you may transfer the Option (i) pursuant to a domestic relations order by a court of competent jurisdiction or (ii) to any Family Member in accordance with the “family transfers” provisions of the Plan by delivering to the Company a notice of assignment in a form acceptable to the Company. No transfer or assignment of the Option to or on behalf of a Family Member under this Section 5 will be effective until the Company has acknowledged such transfer or assignment in writing.]
(b) Any Shares delivered under the Option will be subject to the rights of the Company and its Affiliates under Sections 17.4 through 17.8 of the Plan (including rights of first refusal, rights of repurchase, and drag-along rights, and stockholders’ agreement and market standoff requirements) (or any successor provisions) and the transfer restrictions under Section 17.14 of the Plan (or any successor provision).
6.
Term of Option
. The Option may not be exercised after it expires and may only be exercised in accordance with this Agreement.
7.
Withholding
.
(a) Regardless of any action the Company may take that is related to any or all income tax, payroll tax, or other tax-related withholding (“
Tax-Related Items
”), the ultimate liability for all Tax-Related Items owed by you is and will remain your responsibility. The Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items under the Option, including the grant, vesting, or exercise of the Option or the subsequent sale of Shares acquired upon exercise and (ii) does not commit to structure the terms of the Option to reduce or eliminate your liability for Tax-Related Items.
(b) You will be required to meet any applicable tax withholding obligation in accordance with the tax withholding provisions of Section 17.3 of the Plan (or any successor provision).
[(c) If you make any disposition of Shares delivered under an Incentive Stock Option under the circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), you must notify the Company of that disposition within 10 days.]
8.
Adjustment
. Upon any event described in Section 15 of the Plan (or any successor provision) occurring after the Grant Date, the adjustment provisions of that section will apply to the Option.
9.
Bound by Plan and Committee Decisions
. By accepting the Option, you acknowledge that you have received a copy of the Plan, have had an opportunity to review the Plan, and agree to be bound by all of the terms of the Plan. If there is any conflict between this Agreement and the Plan, the Plan will control. The authority to manage and control the operation and administration of this Agreement and the Plan is vested in the Committee. The Committee has all powers under this Agreement that it has under the Plan. Any interpretation of this Agreement or the Plan by the Committee and any decision made by the Committee related to the Agreement or the Plan will be final and binding on all Persons.
10.
Your Representations
. You represent to the Company that you have read and fully understand this Agreement and the Plan and that your decision to participate in the Plan is completely voluntary. You also acknowledge that you are relying solely on your own advisors regarding the tax consequences of the Option.
11.
Regulatory and Other Limitations
. Notwithstanding anything else in this Agreement, the Committee may impose conditions, restrictions, and limitations on the issuance of Shares under the Option unless and until the Committee determines that the issuance complies with (a) all registration requirements under the Securities Act, (b) all listing requirements of any securities exchange or similar entity on which the Shares are listed, (c) all Company policies and administrative rules, and (d) all applicable laws.
12.
Miscellaneous
.
(a)
Notices
. Any notice that may be required or permitted under this Agreement must be in writing and may be delivered personally, by intraoffice mail, or by electronic mail or via a postal service (postage prepaid) to the electronic mail or postal address and directed to the person as the receiving party may designate in writing from time to time.
(b)
Waiver
. The waiver by any party to this Agreement of a breach of any provision of the Agreement will not operate or be construed as a waiver of any other or subsequent breach.
(c)
Entire Agreement
. This Agreement and the Plan constitute the entire agreement between you and the Company related to the Option. Any prior agreements, commitments, or negotiations concerning the Option are superseded.
(d)
Binding Effect; Successors
. The obligations and rights of the Company under this Agreement will be binding upon and inure to the benefit of the Company and any successor corporation or organization resulting from the merger, consolidation, sale, or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. Your obligations and rights under this Agreement will be binding upon and inure to your benefit and the benefit of your beneficiaries, executors, administrators, heirs, and successors.
(e)
Governing Law; Consent to Jurisdiction; Consent to Venue; Service of Process
. This Agreement will be construed and interpreted in accordance with the internal laws of the State of California without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction that could cause the application of the laws of any jurisdiction other than the State of California. For purposes of resolving any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Agreement, you hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that any related litigation must be conducted solely in the courts of Orange County, California or the federal courts for the United States for the Central District of California, where this Agreement is made and/or to be performed, and no other courts. You may be served with process in any manner permitted under State of California law, or by United States registered or certified mail, return receipt requested.
(f)
Amendment
. This Agreement may be amended at any time by the Committee, except that no amendment may, without your consent, materially impair your rights under the Option.
(g)
Severability
. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of the Agreement, and each other provision will be severable and enforceable to the extent permitted by law.
(h)
No Rights to Service
. Nothing in this Agreement will be construed as giving you any right to be retained in any position with the Company or its Affiliates. Nothing in this Agreement will interfere with or restrict the rights of the Company or its Affiliates—which are expressly reserved—to remove, terminate, or discharge you at any time for any reason whatsoever or for no reason, subject to the Company’s certificate of incorporation, bylaws, and other similar governing documents and applicable law.
(i)
Section 409A
. It is intended that the Option will be exempt from (or in the alternative will comply with) Section 409A, and this Agreement will be administered and interpreted accordingly. This paragraph is not a guarantee of any particular tax effect for your benefits under this Agreement and the Company does not guarantee that these benefits will satisfy Section 409A or any other provision of the Code.
(j)
Further Assurances
. You must, upon request of the Company or the Committee, do all acts and execute, deliver, and perform all additional documents, instruments, and agreements that may be reasonably required by the Company or the Committee to implement the provisions and purposes of this Agreement.
(k)
Clawback
. All awards, amounts, or benefits received or outstanding under the Plan will be subject to clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms of any Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time. You acknowledge and consent to the Company’s application, implementation, and enforcement of any applicable Company clawback or similar policy that may apply to you, whether adopted before or after the Grant Date (including the forfeiture, clawback, and detrimental conduct provisions contained in Section 3.3 of the Plan as of the Grant Date), and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.
(l)
Electronic Delivery and Acceptance
. The Company may deliver any documents related to current or future participation in the Plan by electronic means. You consent to receive those documents by electronic delivery and to participate in the Plan through any on-line or electronic system established and maintained by the Company or a third party designated by the Company.
DUELING OPTION AWARD AGREEMENT
EVOLUS, INC. 2017 OMNIBUS INCENTIVE PLAN
Evolus, Inc. (the “
Company
”) grants to the Grantee named below (“
you
”) [an Incentive/a Nonstatutory] Stock Option to purchase the number of Shares set forth below (the “
Option
”).
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Plan:
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Evolus, Inc. 2017 Omnibus Incentive Plan
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Defined Terms:
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As set forth in the Plan, unless otherwise defined in this Agreement
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Grantee:
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[Name]
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Type of Option:
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[Incentive/Nonstatutory] Stock Option
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Grant Date:
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[Date]
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Number of Shares Purchasable:
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[####]
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Option Price per Share:
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$[#.##], which is the Fair Market Value as of the Grant Date
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Expiration Date:
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[Date], which is [10] years from the Grant Date (or earlier if your Separation from Service occurs before this Expiration Date; see
Exercise after Separation from Service
below)
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Exercisability:
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Subject to the IPO Condition, the Option will become exercisable on the following schedule, as long as you do not have a Separation from Service before the applicable exercisability date:
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Exercisability Date
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% of Option Exercisable
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[1
st
] anniversary of Grant Date
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[25]%
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[2
nd
] anniversary of Grant Date
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Additional [25]%
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[3
rd
] anniversary of Grant Date
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Additional [25]%
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[4
th
] anniversary of Grant Date
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Remaining[25]%
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The “
IPO Condition
” means that the Option will not be exercisable before an IPO (unless a Change in Control has occurred and the Option has otherwise become exercisable per the schedule above or the Change in Control acceleration terms below).
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Change in Control:
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The Option will become fully exercisable if you incur a Separation from Service by the Company without Cause within two years after a Change in Control.
For purposes of this Agreement, “Change in Control” has the definition from the Plan;
provided
,
however
, that in no event will either of the following events constitute a Change in Control: (1) a Business Combination between the Company and ALPHAEON Corporation, a Delaware corporation (“
AEON
”), as constituent parties, or (2) a sale or other transfer of Shares held by AEON pursuant to a foreclosure effected by any lender of AEON.
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AEON Options:
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If you also hold options to purchase shares of common stock of AEON (“
AEON Options
”), the following terms will apply:
(1) The entire Option, including any exercisable and unexercisable portion, will expire immediately upon a “change in control” of AEON (as defined in the Alphaeon Corporation 2013 Stock Incentive Plan).
(2) All of your AEON Options, including any exercisable and unexercisable portions, will expire immediately upon an IPO or a Change in Control (for the avoidance of doubt, of the Company).
(3) The number of Shares purchasable under the Option will be reduced on a one-for-one basis to the extent you purchase any shares under your AEON Options.
(4) The number of shares purchasable under your AEON Options will be reduced on a one-for-one basis to the extent you purchase any Shares under the Option.
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Exercise after Separation from Service:
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Separation from Service for any reason other than death, Disability, or Cause
: any unexercisable portion of the Option expires immediately and any exercisable portion remains exercisable for [three] months after your Separation from Service for any reason other than death, Disability, or Cause.
Separation from Service due to death or Disability
: any unexercisable portion of the Option expires immediately and any exercisable portion remains exercisable for [12] months after your Separation from Service due to your death or Disability.
Separation from Service for Cause
: the entire Option, including any exercisable and unexercisable portion, expires immediately upon your Separation from Service for Cause.
THE OPTION MAY NOT BE EXERCISED AFTER THE ORIGINAL EXPIRATION DATE SET FORTH ABOVE.
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By signing below, you agree that the Option is granted under and governed by the terms of the Plan and this Option Award Agreement (including the attached Option Terms) (“
Agreement
”), as of the Grant Date.
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GRANTEE
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EVOLUS, INC.
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Sign Name:
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Sign Name:
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Print Name:
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Print Name:
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Title:
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Solely for purposes of the “AEON Options” section above:
ALPHAEON CORPORATION
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Sign Name:
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Print Name:
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Title:
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OPTION TERMS
1.
Grant of Option
.
(a) The Option is subject to the terms of the Plan. The terms of the Plan are incorporated into this Agreement by this reference.
(b) You must accept the terms of this Agreement by returning a signed copy to the Company within 60 days after the Agreement is presented to you for review. You may not exercise any portion of the Option before you have accepted the terms of this Agreement. The Committee may unilaterally cancel and forfeit the Option in its entirety at any time if you do not timely accept the terms of this Agreement.
(c) If designated above as an Incentive Stock Option, the Option is intended to qualify as an Incentive Stock Option. To the extent the Option fails to meet the requirements of an Incentive Stock Option or is not designated as an Incentive Stock Option, the Option will be a Nonstatutory Stock Option.
2.
Exercise of Option
.
(a)
Right to Exercise
. The Option will be exercisable in accordance with the Exercisability, Change in Control, AEON Options, and Exercise after Separation from Service terms provided above, and all the rest of the terms of this Agreement. The Option, to the extent exercisable, may be exercised in whole or in part[,
provided
that the minimum number of Option Shares that you may exercise at any time is the lesser of (i) [#] Shares and (ii) the entire exercisable portion of the Option]. The Option may not be exercised after it expires. No Shares will be issued upon the exercise of the Option unless the issuance and exercise comply with all applicable laws. For income tax purposes, Shares will be considered transferred to you on the date you properly exercise the Option. Until you have duly exercised the Option and Shares have been delivered, you will not have any rights as a Stockholder for those Shares (including voting or dividend rights).
(b)
Method of Exercise
. You may exercise the Option by delivering an exercise notice in a form approved by the Company (the “
Exercise Notice
”). The Exercise Notice must state your election to exercise the Option, the number of Option Shares that are being purchased, and any other representations and agreements that may be required by the Company. Together with the Exercise Notice, you must tender payment of the aggregate Option Price for all Shares exercised and all applicable withholding and other taxes. The Option will be deemed to be exercised upon receipt by the Company of a fully executed Exercise Notice and payment of the aggregate Option Price and all applicable withholding and other taxes.
3.
Method of Payment
. If you elect to exercise the Option, you must pay the aggregate Option Price, as well as any applicable withholding or other taxes, by cash or check. However, the Committee may—but is not required to—consent to payment in any of the following forms, or a combination of them together with cash or check:
(a) a “net exercise” under which the Company reduces the number of Shares issued upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate Option Price and any applicable withholding;
(b) other consideration received by the Company under a cashless exercise program approved by the Company;
(c) surrender of other Shares owned by you that have a Fair Market Value on the date of surrender equal to the aggregate Option Price of the exercised Shares and any applicable withholding; or
(d) any other consideration that the Committee deems appropriate.
4.
Restrictions on Exercise
.
(a) You may not exercise the Option (i) if it is an Incentive Stock Option and the Plan has not been approved by the Stockholders or (ii) if the issuance of Shares upon exercise or the method of payment for those Shares would constitute a violation of any applicable law, regulation, or Company policy.
(b) Any issuance of Shares under the Option may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
(c) If a certificate for Shares is delivered to you under the Option, the certificate may bear the following or a similar legend as determined by the Company:
The ownership and transferability of this certificate and the shares of stock represented hereby are subject to the terms (including forfeiture) of the Evolus, Inc. 2017 Omnibus Incentive Plan and an option award agreement entered into between the registered owner and Evolus, Inc. Copies of such plan and agreement are on file in the executive offices of Evolus, Inc.
In addition, any stock certificates for Shares will be subject to any stop-transfer orders and other restrictions as the Company may deem advisable under the rules, regulations, and other requirements of the SEC, any securities exchange or similar entity upon which the Shares are then listed, and any applicable federal or state securities law, and the Company may cause a legend or legends to be placed on any certificates to make appropriate reference to these restrictions.
5.
Transferability
.
(a) The Option may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised during your lifetime only by you [;
provided
,
however
, that you may transfer the Option (i) pursuant to a domestic relations order by a court of competent jurisdiction or (ii) to any Family Member in accordance with the “family transfers” provisions of the Plan by delivering to the Company a notice of assignment in a form acceptable to the Company. No transfer or assignment of the Option to or on behalf of a Family Member under this Section 5 will be effective until the Company has acknowledged such transfer or assignment in writing.]
(b) Any Shares delivered under the Option will be subject to the rights of the Company and its Affiliates under Sections 17.4 through 17.8 of the Plan (including rights of first refusal, rights of repurchase, and drag-along rights, and stockholders’ agreement and market standoff requirements) (or any successor provisions) and the transfer restrictions under Section 17.14 of the Plan (or any successor provision).
6.
Term of Option
. The Option may not be exercised after it expires and may only be exercised in accordance with this Agreement.
7.
Withholding
.
(a) Regardless of any action the Company may take that is related to any or all income tax, payroll tax, or other tax-related withholding (“
Tax-Related Items
”), the ultimate liability for all Tax-Related Items owed by you is and will remain your responsibility. The Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items under the Option, including the grant, vesting, or exercise of the Option or the subsequent sale of Shares acquired upon exercise and (ii) does not commit to structure the terms of the Option to reduce or eliminate your liability for Tax-Related Items.
(b) You will be required to meet any applicable tax withholding obligation in accordance with the tax withholding provisions of Section 17.3 of the Plan (or any successor provision).
[(c) If you make any disposition of Shares delivered under an Incentive Stock Option under the circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), you must notify the Company of that disposition within 10 days.]
8.
Adjustment
. Upon any event described in Section 15 of the Plan (or any successor provision) occurring after the Grant Date, the adjustment provisions of that section will apply to the Option.
9.
Bound by Plan and Committee Decisions
. By accepting the Option, you acknowledge that you have received a copy of the Plan, have had an opportunity to review the Plan, and agree to be bound by all of the terms of the Plan. If there is any conflict between this Agreement and the Plan, the Plan will control. The authority to manage and control the operation and administration of this Agreement and the Plan is vested in the Committee. The Committee has all powers under this Agreement that it has under the Plan. Any interpretation of this Agreement or the Plan by the Committee and any decision made by the Committee related to the Agreement or the Plan will be final and binding on all Persons.
10.
Your Representations
. You represent to the Company that you have read and fully understand this Agreement and the Plan and that your decision to participate in the Plan is completely voluntary. You also acknowledge that you are relying solely on your own advisors regarding the tax consequences of the Option.
11.
Regulatory and Other Limitations
. Notwithstanding anything else in this Agreement, the Committee may impose conditions, restrictions, and limitations on the issuance of Shares under the Option unless and until the Committee determines that the issuance complies with (a) all registration requirements under the Securities Act, (b) all listing requirements of any securities exchange or similar entity on which the Shares are listed, (c) all Company policies and administrative rules, and (d) all applicable laws.
12.
Miscellaneous
.
(a)
Notices
. Any notice that may be required or permitted under this Agreement must be in writing and may be delivered personally, by intraoffice mail, or by electronic mail or via a postal service (postage prepaid) to the electronic mail or postal address and directed to the person as the receiving party may designate in writing from time to time.
(b)
Waiver
. The waiver by any party to this Agreement of a breach of any provision of the Agreement will not operate or be construed as a waiver of any other or subsequent breach.
(c)
Entire Agreement
. This Agreement and the Plan constitute the entire agreement between you and the Company related to the Option. Any prior agreements, commitments, or negotiations concerning the Option are superseded.
(d)
Binding Effect; Successors
. The obligations and rights of the Company under this Agreement will be binding upon and inure to the benefit of the Company and any successor corporation or organization resulting from the merger, consolidation, sale, or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. Your obligations and rights under this Agreement will be binding upon and inure to your benefit and the benefit of your beneficiaries, executors, administrators, heirs, and successors.
(e)
Governing Law; Consent to Jurisdiction; Consent to Venue; Service of Process
. This Agreement will be construed and interpreted in accordance with the internal laws of the State of California without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction that could cause the application of the laws of any jurisdiction other than the State of California. For purposes of resolving any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Agreement, you hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that any related litigation must be conducted solely in the courts of Orange County, California or the federal courts for the United States for the Central District of California, where this Agreement is made and/or to be performed, and no other courts. You may be served with process in any manner permitted under State of California law, or by United States registered or certified mail, return receipt requested.
(f)
Amendment
. This Agreement may be amended at any time by the Committee, except that no amendment may, without your consent, materially impair your rights under the Option.
(g)
Severability
. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of the Agreement, and each other provision will be severable and enforceable to the extent permitted by law.
(h)
No Rights to Service
. Nothing in this Agreement will be construed as giving you any right to be retained in any position with the Company or its Affiliates. Nothing in this Agreement will interfere with or restrict the rights of the Company or its Affiliates—which are expressly reserved—to remove, terminate, or discharge you at any time for any reason whatsoever or for no reason, subject to the Company’s certificate of incorporation, bylaws, and other similar governing documents and applicable law.
(i)
Section 409A
. It is intended that the Option will be exempt from (or in the alternative will comply with) Section 409A, and this Agreement will be administered and interpreted accordingly. This paragraph is not a guarantee of any particular tax effect for your benefits under this Agreement and the Company does not guarantee that these benefits will satisfy Section 409A or any other provision of the Code.
(j)
Further Assurances
. You must, upon request of the Company or the Committee, do all acts and execute, deliver, and perform all additional documents, instruments, and agreements that may be reasonably required by the Company or the Committee to implement the provisions and purposes of this Agreement.
(k)
Clawback
. All awards, amounts, or benefits received or outstanding under the Plan will be subject to clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms of any Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time. You acknowledge and consent to the Company’s application, implementation, and enforcement of any applicable Company clawback or similar policy that may apply to you, whether adopted before or after the Grant Date (including the forfeiture, clawback, and detrimental conduct provisions contained in Section 3.3 of the Plan as of the Grant Date), and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.
(l)
Electronic Delivery and Acceptance
. The Company may deliver any documents related to current or future participation in the Plan by electronic means. You consent to receive those documents by electronic delivery and to participate in the Plan through any on-line or electronic system established and maintained by the Company or a third party designated by the Company.
RESTRICTED SHARES AWARD AGREEMENT
EVOLUS, INC. 2017 OMNIBUS INCENTIVE PLAN
Evolus, Inc. (the “
Company
”) grants to the Grantee named below (“
you
”) the number of Restricted Shares set forth below (the “
Award
”).
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Plan:
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Evolus, Inc. 2017 Omnibus Incentive Plan
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Defined Terms:
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As set forth in the Plan, unless otherwise defined in this Agreement
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Grantee:
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[Name]
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Grant Date:
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[Date]
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Number of Restricted Shares:
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[####]
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Vesting Schedule:
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The Restricted Shares will become vested on the following schedule, as long as you do not have a Separation from Service before the applicable vesting date:
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Vesting Date
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% or # of Restricted Shares Vested
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[1
st
] anniversary of Grant Date
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[25]%
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[2
nd
] anniversary of Grant Date
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Additional [25]%
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[3
rd
] anniversary of Grant Date
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Additional [25]%
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[4
th
] anniversary of Grant Date
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Remaining[25]%
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[Acceleration of Vesting:]
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All of the Restricted Shares will become vested immediately if [you have a Separation from Service due to your Disability or death.]
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By signing below, you agree that the Award is granted under and governed by the terms of the Plan and this Restricted Shares Award Agreement (including the attached Restricted Shares Terms) (“
Agreement
”), as of the Grant Date.
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GRANTEE
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EVOLUS, INC.
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Sign Name:
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Sign Name:
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Print Name:
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Print Name:
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Title:
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RESTRICTED SHARES TERMS
1.
Grant of Restricted Shares
.
(a) The Award is subject to the terms of the Plan. The terms of the Plan are incorporated into this Agreement by this reference.
(b) You must accept the terms of this Agreement by returning a signed copy to the Company within 60 days after the Agreement is presented to you for review. The Committee may unilaterally cancel and forfeit the Award in its entirety if you do not accept the terms of this Agreement.
(c) As soon as practicable after the Grant Date, the Company will direct that a stock certificate or certificates representing the Restricted Shares be registered in your name. Such certificate(s) will be held in the custody of the Company or its designee until the expiration of the Restricted Period. Upon the request of the Company, you will be required to deliver to the Company one or more stock powers endorsed in blank relating to the Restricted Shares.
(d) If a certificate for the Restricted Shares is delivered to you under the Award, the certificate may bear the following or a similar legend as determined by the Company:
The ownership and transferability of this certificate and the shares of stock represented hereby are subject to the terms (including forfeiture) of the Evolus, Inc. 2017 Omnibus Incentive Plan and a restricted shares award agreement entered into between the registered owner and Evolus, Inc. Copies of such plan and agreement are on file in the executive offices of Evolus, Inc.
In addition, any stock certificates for the Restricted Shares will be subject to any stop-transfer orders and other restrictions as the Company may deem advisable under the rules, regulations, and other requirements of the SEC, any securities exchange or similar entity upon which the Shares are then listed, and any applicable federal or state securities law, and the Company may cause a legend or legends to be placed on any certificates to make appropriate reference to these restrictions.
(e) Any issuance of Shares under the Award may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
2.
Restrictions
.
(a) You will have all rights and privileges of a Stockholder as to the Restricted Shares, including the right to vote and receive dividends, except that the following restrictions will apply:
(i) you will not be entitled to delivery of any Share certificates for the Restricted Shares until the expiration of the Restricted Period (if at all), and upon the satisfaction of all other terms;
(ii) you may not sell, transfer (other than by will or the laws of descent and distribution), assign, pledge, or otherwise encumber or dispose of the Restricted Shares during the Restricted Period; and
(iii) you will forfeit all of the Restricted Shares and all of your rights under the Restricted Shares will terminate in their entirety on the terms set forth in Section 4 below.
(b) Any attempt to dispose of the Restricted Shares or any interest in the Restricted Shares in a manner contrary to the terms of this Agreement will be void and of no effect.
(c) Any Shares (whether Restricted Shares or vested Shares) delivered under the Award will be subject to the rights of the Company and its Affiliates under Sections 17.4 through 17.8 of the Plan (including rights of first refusal, rights of repurchase, and drag-along rights, and stockholders’ agreement and market standoff requirements) (or any successor provisions) and the transfer restrictions under Section 17.14 of the Plan (or any successor provision).
3.
Restricted Period and Vesting
. The “
Restricted Period
” is the period beginning on the Grant Date and ending on the date the Restricted Shares, or such applicable portion of the Restricted Shares, are deemed vested under the terms set forth in table at the beginning of this Agreement.
4.
Forfeiture
. If, during the Restricted Period, (i) you incur a Separation from Service (for the avoidance of doubt, which does not otherwise result in the immediate—or continued—vesting of the Restricted Shares), (ii) you materially breach this Agreement, or (iii) you fail to meet the tax withholding obligations described in Section 6 below, all of your rights to any Restricted Shares will terminate immediately and be forfeited in their entirety.
5.
Withholding
.
(a) Regardless of any action the Company may take that is related to any or all income tax, payroll tax, or other tax-related withholding (“
Tax-Related Items
”), the ultimate liability for all Tax-Related Items owed by you is and will remain your responsibility. The Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items under the Award and (ii) does not commit to structure the terms of the Award to reduce or eliminate your liability for Tax-Related Items.
(b) You will be required to meet any applicable tax withholding obligation in accordance with the tax withholding provisions of Section 17.3 of the Plan (or any successor provision).
6.
Adjustment
. Upon any event described in Section 15 of the Plan (or any successor provision) occurring after the Grant Date, the adjustment provisions of that section will apply to the Award.
7.
Bound by Plan and Committee Decisions
. By accepting the Award, you acknowledge that you have received a copy of the Plan, have had an opportunity to review the Plan, and agree to be bound by all of the terms of the Plan. If there is any conflict between this Agreement and the Plan, the Plan will control. The authority to manage and control the operation and administration of this Agreement and the Plan is vested in the Committee. The Committee has all powers under this Agreement that it has under the Plan. Any interpretation of this Agreement or the Plan by the Committee and any decision made by the Committee related to the Agreement or the Plan will be final and binding on all Persons.
8.
Your Representations
. You represent to the Company that you have read and fully understand this Agreement and the Plan and that your decision to participate in the Plan is completely voluntary. You also acknowledge that you are relying solely on your own advisors regarding the tax consequences of the Award.
9.
Regulatory and Other Limitations
. Notwithstanding anything else in this Agreement, the Committee may impose conditions, restrictions, and limitations on the issuance of Shares under the Award unless and until the Committee determines that the issuance complies with (a) all registration requirements under the Securities Act, (b) all listing requirements of any securities exchange or similar entity on which the Shares are listed, (c) all Company policies and administrative rules, and (d) all applicable laws.
10.
Miscellaneous
.
(a)
Notices
. Any notice that may be required or permitted under this Agreement must be in writing and may be delivered personally, by intraoffice mail, or by electronic mail or via a postal service (postage prepaid) to
the electronic mail or postal address and directed to the person as the receiving party may designate in writing from time to time.
(b)
Waiver
. The waiver by any party to this Agreement of a breach of any provision of the Agreement will not operate or be construed as a waiver of any other or subsequent breach.
(c)
Entire Agreement
. This Agreement and the Plan constitute the entire agreement between you and the Company related to the Award. Any prior agreements, commitments, or negotiations concerning the Award are superseded.
(d)
Binding Effect; Successors
. The obligations and rights of the Company under this Agreement will be binding upon and inure to the benefit of the Company and any successor corporation or organization resulting from the merger, consolidation, sale, or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. Your obligations and rights under this Agreement will be binding upon and inure to your benefit and the benefit of your beneficiaries, executors, administrators, heirs, and successors.
(e)
Governing Law; Consent to Jurisdiction; Consent to Venue; Service of Process
. This Agreement will be construed and interpreted in accordance with the internal laws of the State of California without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction that could cause the application of the laws of any jurisdiction other than the State of California. For purposes of resolving any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Agreement, you hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that any related litigation must be conducted solely in the courts of Orange County, California or the federal courts for the United States for the Central District of California, where this Agreement is made and/or to be performed, and no other courts. You may be served with process in any manner permitted under State of California law, or by United States registered or certified mail, return receipt requested.
(f)
Amendment
. This Agreement may be amended at any time by the Committee, except that no amendment may, without your consent, materially impair your rights under the Award.
(g)
Severability
. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of the Agreement, and each other provision will be severable and enforceable to the extent permitted by law.
(h)
No Rights to Service
. Nothing in this Agreement will be construed as giving you any right to be retained in any position with the Company or its Affiliates. Nothing in this Agreement will interfere with or restrict the rights of the Company or its Affiliates—which are expressly reserved—to remove, terminate, or discharge you at any time for any reason whatsoever or for no reason, subject to the Company’s certificate of incorporation, bylaws, and other similar governing documents and applicable law.
(i)
Section 409A
. The Restricted Shares are intended to be exempt from (or in the alternative to comply with) Section 409A to the extent subject thereto, and this Agreement will be administered and interpreted consistently with that intent. This paragraph will not be construed as a guarantee of any particular tax effect for your benefits under this Agreement and the Company does not guarantee that any such benefits will satisfy the provisions of Section 409A or any other provision of the Code. Neither the Company nor the Committee will have any obligation to take any action to prevent the assessment of any additional tax or penalty on you under Section 409A and neither the Company nor the Committee will have any liability to you for such tax or penalty.
(j)
Further Assurances
. You must, upon request of the Company or the Committee, do all acts and execute, deliver, and perform all additional documents, instruments, and agreements that may be reasonably required by the Company or the Committee to implement the provisions and purposes of this Agreement.
(k)
Clawback
. All awards, amounts, or benefits received or outstanding under the Plan will be subject to clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms of any Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time. You acknowledge and consent to the Company’s application, implementation, and enforcement of any applicable Company clawback or similar policy that may apply to you, whether adopted before or after the Grant Date (including the forfeiture, clawback, and detrimental conduct provisions contained in Section 3.3 of the Plan as of the Grant Date), and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.
(l)
Electronic Delivery and Acceptance
. The Company may deliver any documents related to current or future participation in the Plan by electronic means. You consent to receive those documents by electronic delivery and to participate in the Plan through any on-line or electronic system established and maintained by the Company or a third party designated by the Company.
RSU AWARD AGREEMENT
EVOLUS, INC. 2017 OMNIBUS INCENTIVE PLAN
Evolus, Inc. (the “
Company
”) grants to the Grantee named below (“
you
”) the number of restricted stock units (“
RSUs
”) set forth below (the “
Award
”).
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Plan:
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Evolus, Inc. 2017 Omnibus Incentive Plan
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Defined Terms:
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As set forth in the Plan, unless otherwise defined in this Agreement
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Grantee:
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[Name]
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Grant Date:
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[Date]
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Number of Restricted Shares:
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[####]
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Definition of RSU:
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Each RSU will entitle you to receive one Share at such future date or dates and subject to such terms as set forth in this Agreement.
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Earning and Payment Schedule:
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The RSUs will become earned and payable on the following schedule, as long as you do not have a Separation from Service before the applicable payment date:
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Vesting Date
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% or # of Restricted Shares Vested
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[1st] anniversary of Grant Date
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[25]%
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[2nd] anniversary of Grant Date
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Additional [25]%
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[3rd] anniversary of Grant Date
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Additional [25]%
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[4th] anniversary of Grant Date
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Remaining[25]%
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[Acceleration of Earning and Payment:]
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All of the RSUs will become earned and payable immediately if [you have a Separation from Service due to your Disability or death.]
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By signing below, you agree that the Award is granted under and governed by the terms of the Plan and this RSU Award Agreement (including the attached RSU Terms) (“
Agreement
”), as of the Grant Date.
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GRANTEE
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EVOLUS, INC.
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Sign Name:
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Sign Name:
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Print Name:
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Print Name:
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Title:
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RSU TERMS
1.
Grant of RSUs
.
(a) The Award is subject to the terms of the Plan. The terms of the Plan are incorporated into this Agreement by this reference.
(b) You must accept the terms of this Agreement by returning a signed copy to the Company within 60 days after the Agreement is presented to you for review. The Committee may unilaterally cancel and forfeit the Award in its entirety if you do not accept the terms of this Agreement.
2.
Restrictions
.
(a) You will have no rights or privileges of a Stockholder as to the RSUs before settlement under Section 5 below (“
Settlement
”), including no right to vote or receive dividends or other distributions; in addition, the following terms will apply:
(i) you will not be entitled to delivery of any Share certificates for the RSUs until Settlement (if at all), and upon the satisfaction of all other terms;
(ii) you may not sell, transfer (other than by will or the laws of descent and distribution), assign, pledge, or otherwise encumber or dispose of the RSUs before Settlement; and
(iii) you will forfeit all of the RSUs and all of your rights under the RSUs will terminate in their entirety on the terms set forth in Section 4 below.
(b) Any attempt to dispose of the RSUs or any interest in the RSUs in a manner contrary to the terms of this Agreement will be void and of no effect.
(c) Any Shares delivered under the Award will be subject to the rights of the Company and its Affiliates under Sections 17.4 through 17.8 of the Plan (including rights of first refusal, rights of repurchase, and drag-along rights, and stockholders’ agreement and market standoff requirements) (or any successor provisions) and the transfer restrictions under Section 17.14 of the Plan (or any successor provision).
3.
Restricted Period and Payment
. The “
Restricted Period
” is the period beginning on the Grant Date and ending on the date the RSUs, or such applicable portion of the RSUs, are deemed earned and payable under the terms set forth in table at the beginning of this Agreement.
4.
Forfeiture
. If, during the Restricted Period, (i) you incur a Separation from Service (for the avoidance of doubt, which does not otherwise result in the immediate—or continued—earning and payment of the RSUs), (ii) you materially breach this Agreement, or (iii) you fail to meet the tax withholding obligations described in Section 6 below, all of your rights to the RSUs will terminate immediately and be forfeited in their entirety.
5.
Settlement of RSUs
. Delivery of Shares or other amounts under this Agreement will be subject to the following:
(a) The Company will deliver to you one Share for each RSU that has become earned and payable within 30 days after the end of the applicable Restricted Period.
(b) Any issuance of Shares under the Award may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
(c) If a certificate for Shares is delivered to you under the Award, the certificate may bear the following or a similar legend as determined by the Company:
The ownership and transferability of this certificate and the shares of stock represented hereby are subject to the terms (including forfeiture) of the Evolus, Inc. 2017 Omnibus Incentive Plan and an RSU award agreement entered into between the registered owner and Evolus, Inc. Copies of such plan and agreement are on file in the executive offices of Evolus, Inc.
In addition, any stock certificates for Shares will be subject to any stop-transfer orders and other restrictions as the Company may deem advisable under the rules, regulations, and other requirements of the SEC, any securities exchange or similar entity upon which the Shares are then listed, and any applicable federal or state securities law, and the Company may cause a legend or legends to be placed on any certificates to make appropriate reference to these restrictions.
6.
Withholding
.
(a) Regardless of any action the Company may take that is related to any or all income tax, payroll tax, or other tax-related withholding (“
Tax-Related Items
”), the ultimate liability for all Tax-Related Items owed by you is and will remain your responsibility. The Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items under the Award and (ii) does not commit to structure the terms of the Award to reduce or eliminate your liability for Tax-Related Items.
(b) You will be required to meet any applicable tax withholding obligation in accordance with the tax withholding provisions of Section 17.3 of the Plan (or any successor provision).
7.
Adjustment
. Upon any event described in Section 15 of the Plan (or any successor provision) occurring after the Grant Date, the adjustment provisions of that section will apply to the Award.
8.
Bound by Plan and Committee Decisions
. By accepting the Award, you acknowledge that you have received a copy of the Plan, have had an opportunity to review the Plan, and agree to be bound by all of the terms of the Plan. If there is any conflict between this Agreement and the Plan, the Plan will control. The authority to manage and control the operation and administration of this Agreement and the Plan is vested in the Committee. The Committee has all powers under this Agreement that it has under the Plan. Any interpretation of this Agreement or the Plan by the Committee and any decision made by the Committee related to the Agreement or the Plan will be final and binding on all Persons.
9.
Your Representations
. You represent to the Company that you have read and fully understand this Agreement and the Plan and that your decision to participate in the Plan is completely voluntary. You also acknowledge that you are relying solely on your own advisors regarding the tax consequences of the Award.
10.
Regulatory and Other Limitations
. Notwithstanding anything else in this Agreement, the Committee may impose conditions, restrictions, and limitations on the issuance of Shares under the Award unless and until the Committee determines that the issuance complies with (a) all registration requirements under the Securities Act, (b) all listing requirements of any securities exchange or similar entity on which the Shares are listed, (c) all Company policies and administrative rules, and (d) all applicable laws.
11.
Miscellaneous
.
(a)
Notices
. Any notice that may be required or permitted under this Agreement must be in writing and may be delivered personally, by intraoffice mail, or by electronic mail or via a postal service (postage prepaid) to the electronic mail or postal address and directed to the person as the receiving party may designate in writing from time to time.
(b)
Waiver
. The waiver by any party to this Agreement of a breach of any provision of the Agreement will not operate or be construed as a waiver of any other or subsequent breach.
(c)
Entire Agreement
. This Agreement and the Plan constitute the entire agreement between you and the Company related to the Award. Any prior agreements, commitments, or negotiations concerning the Award are superseded.
(d)
Binding Effect; Successors
. The obligations and rights of the Company under this Agreement will be binding upon and inure to the benefit of the Company and any successor corporation or organization resulting from the merger, consolidation, sale, or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. Your obligations and rights under this Agreement will be binding upon and inure to your benefit and the benefit of your beneficiaries, executors, administrators, heirs, and successors.
(e)
Governing Law; Consent to Jurisdiction; Consent to Venue; Service of Process
. This Agreement will be construed and interpreted in accordance with the internal laws of the State of California without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction that could cause the application of the laws of any jurisdiction other than the State of California. For purposes of resolving any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Agreement, you hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that any related litigation must be conducted solely in the courts of Orange County, California or the federal courts for the United States for the Central District of California, where this Agreement is made and/or to be performed, and no other courts. You may be served with process in any manner permitted under State of California law, or by United States registered or certified mail, return receipt requested.
(f)
Amendment
. This Agreement may be amended at any time by the Committee, except that no amendment may, without your consent, materially impair your rights under the Award.
(g)
Severability
. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of the Agreement, and each other provision will be severable and enforceable to the extent permitted by law.
(h)
No Rights to Service
. Nothing in this Agreement will be construed as giving you any right to be retained in any position with the Company or its Affiliates. Nothing in this Agreement will interfere with or restrict the rights of the Company or its Affiliates—which are expressly reserved—to remove, terminate, or discharge you at any time for any reason whatsoever or for no reason, subject to the Company’s certificate of incorporation, bylaws, and other similar governing documents and applicable law.
(i)
Section 409A
. The RSUs are intended to comply with Section 409A to the extent subject thereto, and this Agreement will be administered and interpreted consistently with that intent. For purposes of Section 409A, each installment payment under this Agreement or the Plan, or otherwise payable to you, will be treated as a separate payment. This paragraph will not be construed as a guarantee of any particular tax effect for your benefits under this Agreement and the Company does not guarantee that any such benefits will satisfy the provisions of Section 409A
or any other provision of the Code. Notwithstanding anything else in this Agreement, to the extent required to avoid accelerated taxation or tax penalties under Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided under this Agreement during the six-month period immediately following your Separation from Service will instead be paid on the first payroll date after the six-month anniversary of your Separation from Service (or your death, if earlier). Notwithstanding the foregoing, neither the Company nor the Committee will have any obligation to take any action to prevent the assessment of any additional tax or penalty on you under Section 409A and neither the Company nor the Committee will have any liability to you for such tax or penalty.
(j)
Further Assurances
. You must, upon request of the Company or the Committee, do all acts and execute, deliver, and perform all additional documents, instruments, and agreements that may be reasonably required by the Company or the Committee to implement the provisions and purposes of this Agreement.
(k)
Clawback
. All awards, amounts, or benefits received or outstanding under the Plan will be subject to clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms of any Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time. You acknowledge and consent to the Company’s application, implementation, and enforcement of any applicable Company clawback or similar policy that may apply to you, whether adopted before or after the Grant Date (including the forfeiture, clawback, and detrimental conduct provisions contained in Section 3.3 of the Plan as of the Grant Date), and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.
(l)
Electronic Delivery and Acceptance
. The Company may deliver any documents related to current or future participation in the Plan by electronic means. You consent to receive those documents by electronic delivery and to participate in the Plan through any on-line or electronic system established and maintained by the Company or a third party designated by the Company.
AIR COMMERCIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
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1. Basic Provisions ("Basic Provisions").
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1.1
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Parties:
This Lease ("
Lease
"), dated for reference purposes only
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February 5, 2015
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is made by and between
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J. Carol Duncan
and Tyler J. Duncan
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("
Lessor
")
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and, Evolus Inc.
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("
Lessee
")
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(collectively the "
Parties
," or individually a "
Party
").
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1.2
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Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease,
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and commonly known as
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1027 Garden Street, Santa Barbara
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located in the County of
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Santa Barbara
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, State of
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California
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and generally described as (describe briefly the nature of the property and, if applicable, the "Project", if the property is located within a Project)
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An approximately 4,448 square foot building.
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Lessee will be entitled to use of all
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parking spaces that are part of the property
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("Premises"). (See also Paragraph 2)
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1.3
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Term:
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Five (5)
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years and
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two (2)
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months ("Original Term") commencing
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April 1, 2015
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("Commencement Date") and ending
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May 31, 2020
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("Expiration Date").
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(See also Paragraph 3)
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1.4
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Early Possession:
If the Premises are available Lessee may have non-exclusive possession of the Premises commencing
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N/A
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("Early Possession Date").
(See also Paragraphs 3.2 and 3.3)
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1.5
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Base Rent:
$13,122.00
per month ("Base Rent"), payable on the
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first
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day
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of each month commencing
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May 15, 2015. Lessee will be providing amount due on Lease Execution noted in Paragraph 1.6(e). Next
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payment (in the amount of $13,122.00) will not be due until June 1, 2015
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. (See also Paragraph 4)
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þ
If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. See Paragraph
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55 & 56
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1.6
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Base Rent and Other Monies Paid Upon Execution:
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(a) Base Rent
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$6,561.00
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for the period
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May 15, 2015 - May 31, 2015
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(b) Security Deposit:
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$13,122
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("Security Deposit").
(See also Paragraph 5)
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(c) Association Fees:
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for the period
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(d) Other:
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$1,168
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for
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an accommodation for NNN/Operating Expenses
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for the period of 4/1/15-5/14/15 ($0.25/SF x 4,448 SF x 1.5 months)
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(e) Total Due Upon Execution of this Lease
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$20,851
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1.7
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Agreed Use:
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Office use
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(See also Paragraph 6)
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PAGE 1
OF 18
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INITIALS
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INITIALS
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©2001 - AIR COMMERCIAL REAL ESTATE ASSOCIATION
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FORM STG-20-07/14E
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1.8
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Insuring Party:
Lessor is the
"Insuring Party"
. The annual
"Base Premium"
is
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$
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(See also Paragraph 8)
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1.9
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Real Estate Brokers
: (See also Paragraph 15 and 25)
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(a) Representation:
The following real estate brokers (the
"Brokers"
) and brokerage relationships exist in this transaction (check applicable boxes):
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o
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represents Lessor exclusively (
"Lessor's Broker"
);
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þ
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Radius Commercial Real Estate
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represents Lessee exclusively (
"Lessee's Broker"
); or
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o
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represents both Lessor and Lessee (
"Dual Agency"
).
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(b) Payment to Brokers:
Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers the brokerage
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fee agreed to in a separate written agreement (or if there is no such agreement, the sum of
or
3
% of the total Base
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Rent) for the brokerage services rendered by the Brokers.
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1.10
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Guarantor
. The obligations of the Lessee under this Lease are to be guaranteed by
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("Guarantor").
(See also Paragraph 37)
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1.11
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Attachments.
Attached hereto are the following, all of which constitute a part of this Lease:
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þ
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an Addendum consisting of Paragraphs
55
through
56
;
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o
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a plot plan depicting the Premises;
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o
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current set of the Rules and Regulations;
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o
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Work Letter;
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o
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a energy disclosure addendum is attached;
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þ
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other (specify):
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Exhibit A: Premises
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PAGE 2
OF 18
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INITIALS
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INITIALS
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©2001 - AIR COMMERCIAL REAL ESTATE ASSOCIATION
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FORM STG-20-07/14E
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2.1
Letting.
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. While the approximate square footage of the Premises may have been used in the marketing of the Premises for purposes of comparison, the Base Rent stated herein is NOT tied to square footage and is not subject to adjustment should the actual size be determined to be different.
Note: Lessee is advised to verify the actual size prior to executing this Lease.
2.2
Condition.
Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs (
"Start Date"
), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (
"HVAC"
), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the surface and structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the
"Building"
) shall be free of material defects, and that the Unit does not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law. If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor's expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Building. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee's sole cost and expense, except for the roof, foundations, and bearing walls which are handled as provided in paragraph 7. Lessor also warrants, that unless otherwise specified in writing, Lessor is unaware of (i) any recorded Notices of Default affecting the Premise; (ii) any delinquent amounts due under any loan secured by the Premises; and (iii) any bankruptcy proceeding affecting the Premises.
2.3
Compliance.
Lessor warrants that to the best of its knowledge the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances (
"Applicable Requirements"
) that were in effect at the time that each improvement, or portion thereof, was constructed. Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee's use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. N
OTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed.
If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (
"Capital Expenditure"
), Lessor and Lessee shall allocate the cost of such work as follows:
(a)
Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.
(b)
If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor shall pay for such Capital Expenditure and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease or any extension thereof, on the date that on which the Base Rent is due, an amount equal to 1/144th of the portion
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PAGE 3
OF 18
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INITIALS
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INITIALS
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©2001 - AIR COMMERCIAL REAL ESTATE ASSOCIATION
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FORM STG-20-07/14E
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of such costs reasonably attributable to the Premises. Lessee shall pay Interest on the balance but may prepay its obligation at any time. If, however, such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.
(c)
Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not, however, have any right to terminate this Lease.
2.4
Acknowledgements.
Lessee acknowledges that: (a) it has been given an opportunity to inspect and measure the Premises, (b) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the size and condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee's intended use, (c) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, (d) it is not relying on any representation as to the size of the Premises made by Brokers or Lessor, (e) the square footage of the Premises was not material to Lessee's decision to lease the Premises and pay the Rent stated herein, and (f) neither Lessor, Lessor's agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.
2.5
Lessee as Prior Owner/Occupant.
The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective
work.
3.1
Term.
The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2
Early Possession.
Any provision herein granting Lessee Early Possession of the Premises is subject to and conditioned upon the Premises being available for such possession prior to the Commencement Date. Any grant of Early Possession only conveys a non-exclusive right to occupy the Premises. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such Early Possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such Early Possession shall not affect the Expiration Date.
3.3
Delay In Possession.
Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or change the Expiration Date. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, as the same may be extended under the terms of any Work Letter executed by Parties, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee's right to cancel shall terminate. If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.
3.4
Lessee Compliance.
Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.
4.1
.
Rent Defined.
All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (
"Rent"
).
4.2
Payment.
. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole dollar. In the event that any invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. Payments will be applied first to accrued late charges and attorney's fees, second to accrued interest, then to Base Rent, Insurance and Real Property Taxes, and any remaining amount to any other outstanding charges or costs.
4.3
Association Fees.
In addition to the Base Rent, Lessee shall pay to Lessor each month an amount equal to any owner's association or condominium fees levied or assessed against the Premises. Said monies shall be paid at the same time and in the same manner as the Base Rent.
5.
Security Deposit
. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount already due Lessor, for Rents which will be due in the future, and/ or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any
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portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 90 days after the expiration or termination of this Lease, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.
6.1
Use.
Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in the Agreed Use.
6.2
Hazardous Substances.
(a)
Reportable Uses Require Consent.
The term
"Hazardous Substance"
as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements.
"Reportable Use"
shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.
(b)
Duty to Inform Lessor.
If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.
(c)
Lessee Remediation.
Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.
(d)
Lessee Indemnification.
Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties not caused or contributed to by Lessee). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.
No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.
(e)
Lessor Indemnification.
Except as otherwise provided in paragraph 8.7, Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which result from Hazardous Substances which existed on the Premises prior to Lessee's occupancy or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.
(f)
Investigations and Remediations.
Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee's occupancy, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.
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(g)
Lessor Termination Option.
If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination.
6.3
Lessee's Compliance with Applicable Requirements.
Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the such Requirements, without regard to whether such Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odors that might indicate the presence of mold in the Premises. In addition, Lessee shall provide Lessor with copies of its business license, certificate of occupancy and/or any similar document within 10 days of the receipt of a written request therefor.
6.4
Inspection; Compliance.
Lessor and Lessor's
"Lender"
(as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (
MSDS
) to Lessor within 10 days of the receipt of a written request therefor.
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7.
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Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
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7.1
Lessee's Obligations.
(a)
In General.
Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the
Premises, Utility Installations (intended for Lessee's exclusive use, no matter where located), and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises),
including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire
protection system, fixtures, walls (interior and exterior), ceilings, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots,
fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee is also responsible for keeping the roof and
roof drainage clean and free of debris. Lessor shall keep the surface and structural elements of the roof, foundations, and bearing walls in good repair
(see paragraph 7.2). Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices,
specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g.
graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary,
the exterior repainting of the Building.
(b)
Service Contracts.
Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in
customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and
improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, and (v) clarifiers. However, Lessor reserves the right, upon notice
to Lessee, to procure and maintain any or all of such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.
(c)
Failure to Perform.
If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the
Premises after 10 days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such
obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115%
of the cost thereof.
(d)
Replacement.
Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee
of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost
thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is
one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay Interest on the unamortized balance but may prepay its
obligation at any time.
7.2
Lessor's Obligations.
Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee, except for the surface and structural elements of the roof, foundations and bearing walls, the repair of which shall be the responsibility of Lessor upon receipt of written notice that such a repair is necessary. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.
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7.3
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Utility Installations; Trade Fixtures; Alterations.
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(a)
Definitions.
The term
"Utility Installations"
refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term
"Trade Fixtures"
shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term
"Alterations"
shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion.
"Lessee Owned Alterations and/or Utility Installations"
are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
(b)
Consent.
Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Alterations or Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month's Base Rent in the aggregate or a sum equal to one month's Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month's Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.
(c)
Liens; Bonds.
Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs.
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7.4
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Ownership; Removal; Surrender; and Restoration.
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(a)
Ownership.
Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.
(b)
Removal.
By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.
(c)
Surrender; Restoration.
Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises) to the level specified in Applicable Requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.
8.1
Payment of Premium Increases.
(a)
Lessee shall pay to Lessor any insurance cost increase (
"Insurance Cost Increase"
) occurring during the term of this Lease. Insurance Cost Increase is defined as any increase in the actual cost of the insurance required under Paragraph 8.2(b), 8.3(a) and 8.3(b), over and above the Base Premium as hereinafter defined calculated on an annual basis. Insurance Cost Increase shall include but not be limited to increases resulting from the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of mortgage or deed of trust covering the Premises, increased valuation of the Premises and/or a premium rate increase. The parties are encouraged to fill in the Base Premium in paragraph 1.8 with a reasonable premium for the Required Insurance based on the Agreed Use of the Premises. If the parties fail to insert a dollar amount in Paragraph 1.8, then the Base Premium shall be the lowest annual premium reasonably obtainable for the Required Insurance as of the commencement of the Original Term for the Agreed Use of the Premises. In no event, however, shall Lessee be responsible for any portion of the increase in the premium cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence.
(b)
Lessee shall pay any such Insurance Cost Increase to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or other reasonable evidence of the amount due. If the insurance policies maintained hereunder cover other property besides the Premises, Lessor shall also deliver to Lessee a statement of the amount of such Insurance Cost Increase attributable only to the Premises showing in reasonable detail the manner in which such amount was computed. Premiums for policy periods commencing prior to, or extending beyond the term of this Lease, shall be prorated to correspond to the term of this Lease.
8.2
Liability Insurance.
(a)
Carried by Lessee.
Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as
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an additional insured by means of an endorsement at least as broad as the Insurance Service Organization's "Additional Insured-Managers or Lessors of Premises" Endorsement. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "
insured contract
" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.
(b)
Carried by Lessor.
Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.
8.3
Property Insurance - Building, Improvements and Rental Value.
(a)
Building and Improvements.
The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee not by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender or included in the Base Premium), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $5,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.
(b)
Rental Value.
The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ("
Rental Value insurance
"). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. Lessee shall be liable for any deductible amount in the event of such loss.
(c)
Adjacent Premises.
If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.
8.4
Lessee's Property; Business Interruption Insurance; Worker's Compensation Insurance.
(a)
Property Damage.
Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed
$1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations.
(b)
Business Interruption.
Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.
(c)
Worker's Compensation Insurance.
Lessee shall obtain and maintain Worker’s Compensation Insurance in such amount as may be required by Applicable Requirements. Such policy shall include a ‘Waiver of Subrogation’ endorsement. Lessee shall provide Lessor with a copy of such endorsement along with the certificate of insurance or copy of the policy required by paragraph 8.5.
(d)
No Representation of Adequate Coverage.
Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.
8.5
Insurance Policies.
Insurance required herein shall be by companies maintaining during the policy term a "General Policyholders Rating" of at least A-, VII, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates with copies of the required endorsements evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.
8.6
Waiver of Subrogation.
Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.
8.7
Indemnity.
Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.
8.8
Exemption of Lessor and its Agents from Liability
. Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease in the Project, or (iii) injury to Lessee's business or for any loss of income or profit therefrom. Instead, it is intended that Lessee's sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain
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pursuant to the provisions of paragraph 8.
8.9
Failure to Provide Insurance.
Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/ costs that Lessor will incur by reason of Lessee's failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee's Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.
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9.
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Damage or Destruction.
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9.1
Definitions.
(a)
"Premises Partial Damage"
shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(b)
"Premises Total Destruction"
shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(c)
"Insured Loss"
shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.
(d)
"Replacement Cost"
shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.
(e)
"Hazardous Substance Condition"
shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance, in, on, or under the Premises which requires restoration.
9.2
Partial Damage - Insured Loss.
If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.
9.3
Partial Damage - Uninsured Loss.
If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.
9.4
Total Destruction.
Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5
Damage Near End of Term.
If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by,
(a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished.
9.6
Abatement of Rent; Lessee's Remedies.
(a)
Abatement.
In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from
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the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.
(b)
Remedies.
If Lessor is obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect.
"Commence"
shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.
9.7
Termination; Advance Payments.
Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.
10.1
Definition.
As used herein, the term
"Real Property Taxes"
shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.
10.2
(a)
Payment of Taxes.
Lessor shall pay the Real Property Taxes applicable to the Premises provided, however, that Lessee shall pay to Lessor the amount, if any, by which Real Property Taxes applicable to the Premises increase over the fiscal tax year during which the Commencement Date Occurs (”Tax Increase“). Payment of any such Tax Increase shall be made by Lessee to Lessor within 30 days after receipt of Lessor’s written statement setting forth the amount due and computation thereof. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect. In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that the Tax Increase be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent. Such monthly payment shall be an amount equal to the amount of the estimated installment of the Tax Increase divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable Tax Increase is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable Tax Increase. If the amount collected by Lessor is insufficient to pay the Tax Increase when due, Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. Advance payments may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.
(b)
Additional Improvements.
Notwithstanding anything to the contrary in this Paragraph 10.2, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in Real Property Taxes assessed by reason of Alterations or Utility Installations placed upon the Premises by Lessee or at Lessee's request or by reason of any alterations or improvements to the Premises made by Lessor subsequent to the execution of this Lease by the Parties.
10.3
Joint Assessment.
If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Tax Increase for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.
10.4
Personal Property Taxes.
Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property.
11.
Utilities and Services.
Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor's reasonable control or in cooperation with governmental request or directions.
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12.
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Assignment and Subletting.
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12.1
Lessor's Consent Required.
(a)
Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively,
"assign or assignment"
) or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.
(b)
Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.
(c)
The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent.
"Net Worth of Lessee"
shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.
(d)
An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(d), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.
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(e)
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Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.
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(f)
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Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is
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requested.
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(g)
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Notwithstanding the foregoing, allowing a de minimis portion of the Premises, ie. 20 square feet or less, to be used by a third
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party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting.
12.2
Terms and Conditions Applicable to Assignment and Subletting.
(a)
Regardless of Lessor's consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.
(b)
Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.
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(c)
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Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.
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(d)
In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.
(e)
Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)
(f)
Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.
(g)
Lessor's consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)
12.3
Additional Terms and Conditions Applicable to Subletting.
The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a)
Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee's then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b)
In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.
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(c)
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Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.
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(d)
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No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.
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(e)
Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.
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13.
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Default; Breach; Remedies.
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13.1
Default; Breach.
A
"Default"
is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A
"Breach"
is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:
(a)
The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.
(b)
The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.
(c)
The failure of Lessee to allow Lessor and/or its agents access to the Premises or the commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee. In the event that Lessee commits waste, a nuisance or an illegal activity a second time then, the Lessor may elect to treat such conduct as a non-curable Breach rather than a Default.
(d)
The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate or financial statements, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.
(e)
A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee's Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.
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(f)
The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a
"debtor"
as defined in 11 U.S.C. §101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.
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(g)
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The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.
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(h)
If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2
Remedies.
If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:
(a)
Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover any damages to which Lessor is otherwise entitled. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.
(b)
Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.
(c)
Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3
Inducement Recapture.
Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as
"Inducement Provisions,"
shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.
13.4
Late Charges.
Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.
13.5
Interest.
Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due shall bear interest from the 31st day after it was due. The interest ("
Interest
") charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.
13.6
Breach by Lessor.
(a)
Notice of Breach.
Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.
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(b)
Performance by Lessee on Behalf of Lessor.
In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month's Base Rent or the Security Deposit, reserving Lessee's right to seek reimbursement from Lessor for any such expense in excess of such offset. Lessee shall document the cost of said cure and supply said documentation to Lessor.
14.
Condemnation.
If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively
"Condemnation"
), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation paid by the condemnor for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.
15.1
Additional Commission.
In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee or anyone affiliated with Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the fee schedule of the Brokers in effect at the time the Lease was executed.
15.2
Assumption of Obligations.
Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker for the limited purpose of collecting any brokerage fee owed.
15.3
Representations and Indemnities of Broker Relationships.
Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto.
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16.
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Estoppel Certificates.
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(a)
Each Party (as
"Responding Party"
) shall within 10 days after written notice from the other Party (the
"Requesting Party"
) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current
"Estoppel Certificate"
form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.
(b)
If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate. In addition, Lessee acknowledges that any failure on its part to provide such an Estoppel Certificate will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, should the Lessee fail to execute and/or deliver a requested Estoppel Certificate in a timely fashion the monthly Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater for remainder of the Lease. The Parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee's failure to provide the Estoppel Certificate. Such increase in Base Rent shall in no event constitute a waiver of Lessee's Default or Breach with respect to the failure to provide the Estoppel Certificate nor prevent the exercise of any of the other rights and remedies granted hereunder.
(c)
If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall within 10 days after written notice from Lessor deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
17.
Definition of Lessor.
The term
"Lessor"
as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.
18.
Severability.
The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
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19.
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Days.
Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.
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20.
Limitation on Liability.
The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability
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of Lessor with respect to this Lease, and shall not seek recourse against Lessor's partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.
21.
Time of Essence.
Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.
22.
No Prior or Other Agreements; Broker Disclaimer.
This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.
23.1
Notice Requirements.
All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, or by email, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.
23.2
Date of Notice.
Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices delivered by hand, or transmitted by facsimile transmission or by email shall be deemed delivered upon actual receipt. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.
(a)
No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent.
(b)
The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.
(c)
THE PARTIES AGREE THAT THE TERMS OF THIS LEASE SHALL GOVERN WITH REGARD TO ALL MATTERS RELATED THERETO AND HEREBY WAIVE THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE TO THE EXTENT THAT SUCH STATUTE IS INCONSISTENT WITH THIS LEASE.
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25.
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Disclosures Regarding The Nature of a Real Estate Agency Relationship.
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(a)
When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:
(i)
Lessor's Agent
. A Lessor's agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent has the following affirmative obligations:
To the Lessor
: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor.
To the Lessee and the Lessor
: a. Diligent exercise of reasonable skills and care in performance of the agent's duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.
(ii)
Lessee's Agent
. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor's agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations.
To the Lessee
: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee.
To the Lessee and the Lessor
: a. Diligent exercise of reasonable skills and care in performance of the agent's duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.
(iii)
Agent Representing Both Lessor and Lessee
. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.
(b)
Brokers have no responsibility with respect to any default or breach hereof by either Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty, error or omission relating to this Lease may be brought against Broker more than one year after the Start Date and that the liability (including court costs and attorneys' fees), of any Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.
(c)
Lessor and Lessee agree to identify to Brokers as "Confidential" any communication or information given Brokers that is considered by such Party to be confidential.
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26.
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No Right To Holdover.
Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of
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this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Holdover Base Rent shall be calculated on monthly basis. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.
27.
Cumulative Remedies.
No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28.
Covenants and Conditions; Construction of Agreement.
All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.
29.
Binding Effect; Choice of Law.
This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.
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30.
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Subordination; Attornment; Non-Disturbance.
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30.1
Subordination.
This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively,
"Security Device"
), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as
"Lender"
) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.
30.2
Attornment
. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor's obligations, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month's rent, or (d) be liable for the return of any security deposit paid to any prior lessor which was not paid or credited to such new owner.
30.3
Non-Disturbance.
With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a
"Non-Disturbance Agreement"
) from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall, if requested by Lessee, use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4
Self-Executing.
The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31.
Attorneys' Fees.
If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term,
"Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).
32.
Lessor's Access; Showing Premises; Repairs.
Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee's use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.
33.
Auctions.
Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.
34.
Signs.
Lessor may place on the Premises ordinary "For Sale" signs at any time and ordinary "For Lease" signs during the last 6 months of the term hereof. Except for ordinary "for sublease" signs, Lessee shall not place any sign upon the Premises without Lessor's prior written consent. All signs must comply with all Applicable Requirements.
35.
Termination; Merger.
Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.
36.
Consents.
Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an
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FORM STG-20-07/14E
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acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.
37.1
Execution.
The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association.
37.2
Default.
It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.
38.
Quiet Possession.
Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.
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39.
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Options.
If Lessee is granted any Option, as defined below, then the following provisions shall apply:
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39.1
Definition. "Option"
shall mean: (a) the right to extend
or reduce
the term of or renew this Lease
or to extend or reduce the term
of or renew any lease that Lessee has on other property of Lessor
; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase, the right of first offer to purchase or the right of first refusal to purchase the Premises or other property of Lessor.
39.2
Options Personal To Original Lessee.
Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.
39.3
Multiple Options.
In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.
39.4
Effect of Default on Options.
(a)
Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.
(b)
The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).
(c)
An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.
40.
Multiple Buildings.
If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.
41.
Security Measures.
Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.
42.
Reservations.
Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.
43.
Performance Under Protest.
If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who does not initiate suit for the recovery of sums paid "under protest" within 6 months shall be deemed to have waived its right to protest such payment.
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44.
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Authority; Multiple Parties; Execution.
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(a)
If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within 30 days after request, deliver to the other Party satisfactory evidence of such authority.
(b)
If this Lease is executed by more than one person or entity as "Lessee", each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.
(c)
This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
45.
Conflict.
Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.
46.
Offer.
Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.
47.
Amendments.
This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.
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48.
Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.
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49.
|
Arbitration of Disputes.
An Addendum requiring the Arbitration of disputes between the Parties and/or Brokers arising out of this Lease
☐
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is
þ
is not
attached to this Lease.
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50.
|
Accessibility; Americans with Disabilities Act.
|
(a)
The Premises:
þ
have not undergone an inspection by a Certified Access Specialist (CASp).
☐
have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises met all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq.
☐
have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises did not meet all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq.
(b)
Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee's specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee's use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee's expense.
51.
Gross Lease.
Lessor and Lessee intend for this Lease to be a true "gross lease" in which Lessee is only responsible for the payment of (i) Base Rent, (ii) the cost of the utilities Lessee utilizes within the Premises pursuant to Section 11, and (iii) the cost of janitorial service for the interior of the Premises, (collectively, the "Gross Lease Expenses"). Therefore, notwithstanding anything contained in this Lease to the contrary, Lessee shall only be responsible for the Gross Lease Expenses and any other costs, whether for operating costs, Real Property Taxes, insurance premiums, or the maintenance, repair or replacement of the structural elements, systems, installations or common areas serving the Project, shall be the sole responsibility of the Lessor.
52.
Maintenance and Repairs.
After the expiration of the warranty periods set for in Section 2.2, Lessee, at Lessee's sole expense, shall be responsible for maintaining in good order, condition and repair the interior of the Premises and Interior Utility Installations and Alterations intended for Lessee's exclusive use including, but not limited to, facilities such as plumbing, electrical, lighting facilities, ceilings, floors, windows, doors, plate glass and skylights but excluding any items which have exceeded their useful life or are the Lessor's responsibility pursuant to Section 7.2, or other sections of the Lease. In any addition, Lessor shall be solely responsible for the cost of the maintenance, repair or replacement of the HVAC and/or other equipment that does not exclusively serve the Premises.
53.
Lessee Improvement Work.
In lieu of free base rent for the period of April 1, 2015 to May 14, 2015, Lessee at Lessee's sole cost, shall do the following work:
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a.
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Add new water softener.
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b.
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Replace fan in bathroom.
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c.
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Enclose loft to improve noise and privacy.
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d.
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Paint and carpet upstairs and downstairs.
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In the event Lessee does c. above, Lessor at Lessor's sole discretion, shall have the right to require Lessee return the loft to its original condition upon Lease Expiration.
54.
The 3rd Floor was originally designed and approved to accommodate office space and a residence. In the event that Lessee / Lessor is informed the City that a portion of the 3rd floor can not be occupied as office space then Lessor (at Lessor's expense) will separate the 3rd floor office side from the 3rd floor residential side.
The work will involve building a wall where the bi-fold doors are currently located. In this event, Lessee will continue to lease the 3rd floor office side and Lessor would retain the right to lease the residential side to a new tenant. The prospective residential tenant will require and be granted the use of two parking spaces. If this were to occur, Lessor will reduce the Lessee's monthly rental obligation by the proportionate amount to include only the 2nd floor and the 3rd floor office spaces.
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©2001 - AIR COMMERCIAL REAL ESTATE ASSOCIATION
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FORM STG-20-07/14E
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
ATTENTION:
NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1.
SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2.
RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING:
IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.
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Executed at:
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Executed at:
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On:
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On:
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By
LESSOR:
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By
LESSOR:
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J. Carol Duncan
and Tyler J. Duncan
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Evolus, Inc.
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By:
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/s/ J. Carol Duncan
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By:
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/s/ Chris Marmo
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Name Printed:
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J. Carol Duncan
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Name Printed:
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Chris Marmo
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Title:
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Owner
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Title:
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CEO
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By:
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By:
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Name Printed:
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Tyler J. Duncan
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Name Printed:
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Title:
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Title:
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Address:
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Address:
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Telephone:
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( )
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|
Telephone:
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( )
|
Facsimile:
|
( )
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|
Facsimile:
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( )
|
Email:
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|
Email:
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Email:
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Email:
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Federal ID No.
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Federal ID No.
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BROKER:
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BROKER:
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Radius Commercial Real Estate
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Att:
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Att:
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Paul Gamberdella
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Title:
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Title:
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Partner
|
Address:
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Address:
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205 E. Carrillo Street, Suite 100
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Santa Barbara, CA 93101
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Telephone:
|
( )
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|
Telephone:
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(805)879-9622
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Facsimile:
|
( )
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|
Facsimile:
|
(805)965-1150
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Email:
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Email:
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pgamberdella@radiusgroup.com
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Federal ID No.
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Federal ID No.
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Broker/Agent BRE License #:
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Broker/Agent BRE License #:
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01267748
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PAGE 18
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©2001 - AIR COMMERCIAL REAL ESTATE ASSOCIATION
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FORM STG-20-07/14E
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NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR Commercial Real Estate Association, 500 N Brand Blvd, Suite 900, Glendale, CA 91203.
Telephone No. (213) 687-8777. Fax No.: (213) 687-8616.
© Copyright 2001 - By AIR Commercial Real Estate Association. All rights reserved. No part of these works may be reproduced in any form without permission in writing.
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PAGE 19
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©2001 - AIR COMMERCIAL REAL ESTATE ASSOCIATION
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FORM STG-20-07/14E
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RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
|
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By and Between (Lessor)
|
J. Carol Duncan
and Tyler J. Duncan
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|
Address of Premises:
|
1027 Garden Street
|
Santa Barbara, CA
Paragraph
55
A.
RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
☐
I. Cost of Living Adjustment(s) (COLA)
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a. On (Fill in COLA Dates):
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the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor
Statistics of the U.S. Department of Labor for (select one):
☐
CPI W (Urban Wage Earners and Clerical Workers) or
☐
CPI U (All Urban Consumers),
for (Fill in Urban Area):
(1982-1984 = 100), herein referred to as "CPI".
b. The monthly Base Rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set
forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month 2 months
prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is 2 months prior to (select one): the
☐
first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or
☐
(Fill in Other "Base Month"):
. The sum so calculated shall constitute the new monthly Base Rent hereunder, but in no event, shall any such new monthly Base Rent be less than the Base Rent payable for the month immediately preceding the Base Rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or
agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties
cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the
then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by
the Parties.
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FORM RA-5-04/14E
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☐
II. Market Rental Value Adjustment(s) (MRV)
a. On (Fill in MRV Adjustment Date(s):
the Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the
new MRV will be on the adjustment date. If agreement cannot be reached within thirty days, then:
(a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within
the next 30 days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such
determination, in writing, to arbitration in accordance with the following provisions:
(i) Within 15 days thereafter, Lessor and Lessee shall each select an
☐
appraiser or
☐
broker (
"Consultant"
-
check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act
as a third arbitrator.
(ii) The 3 arbitrators shall within 30 days of the appointment of the third arbitrator reach a decision as to what the
actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators
shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an arbitrator within the specified 15 days, the arbitrator timely appointed by
one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, i.e., the one
that is NOT the closest to the actual MRV.
2) When determining MRV, the Lessor, Lessee and Consultants shall consider the terms of comparable market transactions which shal
l
include, but no limited to, rent, rental adjustments, abated rent, lease term and financial condition of tenants.
3) Notwithstanding the foregoing, the new Base Rent shall not be less than the rent payable for the month immediately preceding the
rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new 'Base Month' for the purpose of calculating any further
Adjustments.
þ
III. Fixed Rental Adjustment(s) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth below:
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On (Fill in FRA Adjustment Date(s)):
|
The New Base Rent shall be:
|
June 1, 2016
|
$13,515.66
|
June 1, 2017
|
$13,921.13
|
June 1, 2018
|
$14,338.76
|
June 1, 2019
|
$14,768.92
|
☐
IV. Initial Term Adjustments.
The formula used to calculate adjustments to the Base Rate during the original Term of the Lease shall continue to be used during the extended term.
Unless specified otherwise herein, notice of any such adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.
The Brokers shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease or if applicable, paragraph 9 of the Sublease.
NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR Commercial Real Estate Association, 500 N Brand Blvd, Suite 900, Glendale, CA 91203.
Telephone No. (213) 687-8777. Fax No.: (213) 687-8616.
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PAGE 2
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INITIALS
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INITIALS
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©2000 - AIR COMMERCIAL REAL ESTATE ASSOCIATION
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FORM RA-5-04/14E
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OPTION(S) TO EXTEND
STANDARD LEASE ADDENDUM
|
|
By and Between (Lessor)
|
J. Carol Duncan
and Tyler J. Duncan
|
|
|
By and Between (Lessee)
|
Evolus, Inc.
|
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Address of Premises:
|
1027 Garden Street
|
Santa Barbara, CA
Paragraph
56
Lessor hereby grants to Lessee the option to extend the term of this Lease for
one (1)
additional
sixty (60)
month period(s) commencing when the prior term expires upon each and all of the following terms and conditions:
(i)
In order to exercise an option to extend, Lessee must give written notice of such election to Lessor and Lessor must receive the same at least
6
but not more than
9
months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of an option is not given and/or received, such option shall automatically expire. Options (if there are more than one) may only be exercised consecutively.
(ii)
The provisions of paragraph 39, including those relating to Lessee's Default set forth in paragraph 39.4 of this Lease, are conditions of this Option.
(iii)
Except for the provisions of this Lease granting an option or options to extend the term, all of the terms and conditions of this Lease except where specifically modified by this option shall apply.
(iv)
This Option is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and without the intention of thereafter assigning or subletting.
(v)
The monthly rent for each month of the option period shall be calculated as follows, using the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately)
☐
I. Cost of Living Adjustment(s) (COLA)
a. On (Fill in COLA Dates):
the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of LaborStatistics of the U.S. Department of Labor for (select one):
☐
CPI W (Urban Wage Earners and Clerical Workers) or
☐
CPI U (All Urban Consumers),
for (Fill in Urban Area):
All Items (1982-1984 = 100), herein referred to as "CPI".
b. The monthly Base Rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth
in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month 2 months prior to
the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the
calendar month which is 2 months prior to (select one):
¬
the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or
☐
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(Fill in Other "Base Month"):
The sum so calculated shall constitute the new monthly Base Rent hereunder, but in no event, shall any such new monthly Base Rent be less than the Base Rent payable for the month immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot
agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then
rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the
Parties.
þ
II. Market Rental Value Adjustment(s) (MRV)
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a. On (Fill in MRV Adjustment Date(s))
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June 1, 2020
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the Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:
1)
Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be reached, within thirty days, then:
(a)
Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next 30 days. Any associated costs will be split equally between the Parties, or
(b)
Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following provisions:
(i)
Within 15 days thereafter, Lessor and Lessee shall each select an
☐
appraiser or
þ
broker (
"Consultant"
- check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.
(ii)
The 3 arbitrators shall within 30 days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.
(iii)
If either of the Parties fails to appoint an arbitrator within the specified 15 days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.
(iv)
The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.
2)
When determining MRV, the Lessor, Lessee and Consultants shall consider the terms of comparable market transactions which shall include, but no limited to, rent, rental adjustments, abated rent, lease term and financial condition of tenants.
3)
Notwithstanding the foregoing, the new Base Rent shall not be less than the rent payable for the month immediately preceding the rent adjustment.
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a.
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Upon the establishment of each New Market Rental Value:
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1)
the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and
2)
the first month of each Market Rental Value term shall become the new "Base Month" for the purpose of calculating any further Adjustments.
þ
III. Fixed Rental Adjustment(s) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth below:
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On (Fill in FRA Adjustment Date(s)):
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The New Base Rent shall be:
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June 1, 2021
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3% increase from June 2020 Base Rent
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June 1, 2022
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3% increase from June 2021 Base Rent
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June 1, 2023
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3% increase from June 2022 Base Rent
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June 1, 2024
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3% increase from June 2023 Base Rent
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☐
IV. Initial Term Adjustments.
The formula used to calculate adjustments to the Base Rate during the original Term of the Lease shall continue to be used during the extended term.
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Unless specified otherwise herein, notice of any rental adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.
The Brokers shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease or if applicable, paragraph 9 of the Sublease.
NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR Commercial Real Estate Association, 500 N Brand Blvd, Suite 900, Glendale, CA 91203.
Telephone No. (213) 687-8777. Fax No.: (213) 687-8616.
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©2000 - AIR COMMERCIAL REAL ESTATE ASSOCIATION
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FORM OE-4-04/14E
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Exhibit A: Premises
1st Floor
Exhibit A: Premises
2nd Floor
Amended and Restated Intercreditor Agreement
This Amended and Restated Intercreditor Agreement (this
“Intercreditor Agreement”
), originally made as of July 26, 2016 and amended and restated as of April 19, 2017, by and among LONGITUDE VENTURE PARTNERS II, L.P., a Delaware limited partnership in its capacity as the holder of the Longitude Obligations (defined below) (in such capacity, together with its successors and assigns in such capacity, the “
Longitude Holder
”), DENTAL INNOVATIONS BVBA, a private limited liability company organized under the laws of Belgium, in its capacity as collateral agent for the DI Holders (defined below) (in such capacity, together with its successors and assigns in such capacity, the “
DI Collateral Agent
”), ALPHAEON CORPORATION, a Delaware corporation (the “
Borrower
”), and EVOLUS, INC., a Delaware corporation (the
“Guarantor”
).
RECITALS:
WHEREAS, reference is made to the Second Amended and Restated Secured Convertible Bridge Note, dated as of April 19, 2017, amending and restating that certain Amended and Restated Secured Convertible Bridge Note, dated as of May 27, 2016 and amended and restated as of July 26, 2016, which amended and restated that certain Secured Convertible Bridge Note and Warrant Agreement, dated as of May 27, 2016 (as so amended and restated, and as further amended, modified, supplemented or restated and in effect from time to time, as permitted hereby, the “
Longitude Note Agreement
”) by and between the Borrower and the Longitude Holder. Reference is also made to that certain Guaranty and Security Agreement, dated as of April 19, 2017, by the Guarantor in favor of the Longitude Holder (as amended, amended and restated, supplemented or otherwise modified from time to time as permitted hereby, the “
Evolus/Longitude Guaranty and Security Agreement
”). All of the Borrower's and Guarantor’s obligations under the Longitude Note Agreement, the Evolus/Longitude Guaranty and Security Agreement and the other Longitude Documents (as defined below) are secured by Liens in the Collateral (as defined below) granted to the Longitude Holder pursuant to the Longitude Security Documents (as defined below); and
WHEREAS, reference is also made to the Amended and Restated Secured Convertible Note Purchase Agreement, dated as of April 19, 2017, amending and restating that certain Secured Convertible Note Purchase Agreement, dated as of July 26, 2017 (as amended, modified, supplemented or restated and in effect from time to time as permitted hereby, the “
DI Note Agreement
”) by and among the Borrower, the DI Collateral Agent and the purchasers from time to time party thereto (the “
DI Holders
”). Reference is also made to that certain Guaranty and Security Agreement, dated as of April 19, 2017, by the Guarantor in favor of the DI Collateral Agent for the benefit of the DI Holders (as amended, amended and restated, supplemented or otherwise modified from time to time as permitted hereby, the “
Evolus/DI Guaranty and Security Agreement
”). All of the Borrower’s and the Guarantor’s obligations under the DI Note Agreement, the Evolus/DI Guaranty and Security Agreement and the other DI Documents (as defined below) are secured by Liens in the Collateral pursuant to the DI Security Agreement (defined below).
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
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1.
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Definitions and Interpretation
.
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1.1
Definitions
. The following terms shall have the following meanings in this Intercreditor Agreement.
“
Agreement
” means this Intercreditor Agreement, as amended, restated, renewed, extended, supplemented or otherwise modified from time to time.
“
Bankruptcy Code
” means Title 11 of the United States Code, as amended from time to time, or any similar federal or state law for the relief of debtors.
“
Collateral
” means all of the assets and other collateral granted by Borrower, the Guarantor and any other direct or indirect subsidiary of the Borrower under the Longitude Security Documents and the DI Security Documents.
“Conforming Amendment”
means (a) any amendment to a provision of a Longitude Document that is substantively identical to a corresponding amendment to a comparable provision of a comparable DI Document; or (b) any amendment to a provision of a DI Document that is substantively identical to a corresponding amendment to a comparable provision of a comparable Longitude Document.
“
DI Creditors
” means, collectively, the DI Collateral Agent, each DI Holder, and each other holder from time to time of the DI Obligations.
“DI Default Notice”
means a written notice delivered by the DI Collateral Agent to the Longitude Holder at any time that a DI Event of Default has occurred and is continuing, which notice describes the DI Event of Default in reasonable detail.
“DI Documents
” means the DI Note Agreement, each DI Note issued thereunder, the DI Security Documents, and all agreements, documents and instruments entered into in connection therewith.
“
DI Event of Default
” means any Event of Default described in the DI Note Agreement or in any other DI Document.
“DI Holder”
means each holder of a DI Note.
“DI Note”
means each Note, as such term is defined in the DI Note Agreement.
“
DI Obligations
” means all obligations, liabilities and indebtedness of every nature of the Borrower, the Guarantor or any other direct or indirect subsidiary of the Borrower from time to time owed to the DI Creditors under the DI Documents, together with (a) any amendments, modifications, renewals or extensions thereof to the extent permitted hereby, and (b) any interest, fees and other charges accruing thereon or due or to become due with respect thereto after the commencement of any Insolvency Proceeding, without regard to whether or not such interest, fees and other charges constitute an allowed claim.
“DI Pledge and Security Agreement”
means that certain Pledge and Security Agreement, dated as of July 26, 2016 and amended by a First Amendment to Pledge and Security Agreement, dated as of November 9, 2016 and by a Second Amendment to Pledge and Security Agreement, dated as of April 19, 2017, between the Borrower, as debtor thereunder, and the DI Collateral Agent, as secured party thereunder (as amended, modified, supplemented or restated and in effect from time to time, as permitted hereunder).
“DI Security Documents”
means the DI Pledge and Security Agreement, the Evolus/DI Guaranty and Security Agreement, and any other security agreement or other document granting to the DI Collateral Agent a Lien on any assets of the Borrower, the Guarantor or any other direct or indirect subsidiary of the Borrower to secure the DI Obligations.
“DI Series 2 Notes”
means the Series 2 Notes, as such term is defined in the DI Note Agreement.
“Enforcement Action”
means an action under applicable law:
(a) to foreclose, execute, levy, or collect on, take possession or control of, sell or otherwise realize upon (judicially or non-judicially), or lease, license, or otherwise dispose of (whether publicly or privately), Collateral, or otherwise exercise or enforce remedial rights with respect to Collateral under any Longitude Security Document or DI Security Document (including by way of set-off, recoupment notification of a public or private sale or other disposition pursuant to the UCC or other applicable law, notification to account debtors, notification to depositary banks under deposit account control agreements, or exercise of rights under landlord consents, if applicable);
(b) to solicit bids from third persons to conduct the liquidation or disposition of Collateral or to engage or retain sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers, or other third Persons for the purposes of valuing, marketing, promoting, and selling Collateral;
(c) to receive a transfer of Collateral in satisfaction of any obligation secured thereby; or
(d) to otherwise enforce a security interest or exercise another right or remedy, as a secured creditor or otherwise, pertaining to the Collateral at law, in equity, or pursuant to the Longitude Security Documents or the DI Security Documents.
“Evolus/DI Guaranty and Security Agreement”
has the meaning set forth in the recitals hereto.
“Evolus/Longitude Guaranty and Security Agreement”
has the meaning set forth in the recitals hereto.
“
Insolvency Proceeding
” means any proceeding in respect of bankruptcy, insolvency, winding up, receivership, dissolution or assignment for the benefit of creditors, for each of the foregoing events whether under the Bankruptcy Code or any similar federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law.
“Intercreditor Agreement”
has the meaning set forth in the introductory clause hereof.
“
Lien
” means any mortgage, pledge, hypothecation, assignment (as security), deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest, or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever having substantially the same economic effect as any of the foregoing (including any conditional sale or other title retention agreement and any capital lease).
“
Longitude Creditors
” means, collectively, the Longitude Holder and each other holder from time to time of the Longitude Obligations.
“Longitude Default Notice”
means a written notice delivered by the Longitude Holder to the DI Collateral Agent at any time that a Longitude Event of Default has occurred and is continuing, which notice describes the Longitude Event of Default in reasonable detail.
“Longitude Documents
” means the Longitude Note Agreement, the Longitude Security Documents, and all agreements, documents and instruments entered into in connection therewith.
“
Longitude Event of Default
” means any Event of Default described in the Longitude Note Agreement or in any other Longitude Document.
“Longitude Interest Payment Default
means any Event of Default under the Longitude Note Agreement in respect of a failure by the Borrower to pay an interest payment thereunder on the due date thereof.
“
Longitude Note Agreement
” has the meaning set forth in the Recitals.
“
Longitude Obligations
” means all obligations, liabilities and indebtedness of every nature of the Borrower, the Guarantor and any other direct or indirect subsidiary of the Borrower from time to time owed to the Longitude Creditors under the Longitude Documents, together with (a) any amendments, modifications, renewals or extensions thereof to the extent permitted hereby, and (b) any interest, fees and other charges accruing thereon or due or to become due with respect thereto after the commencement of any Insolvency Proceeding, without regard to whether or not such interest, fees and other charges constitute an allowed claim.
“Longitude Pledge and Security Agreement”
means that certain Amended and Restated Pledge and Security Agreement, dated as of May 27, 2016, amended and restated as of July 26, 2016, and amended as of April 19, 2017, amending and restating that certain Security Agreement, dated as of May 27, 2016, between the Borrower, as debtor thereunder, and the Longitude Holder, as secured party thereunder (as amended, modified, supplemented or restated and in effect from time to time).
“Longitude Principal Payment Default”
means any Event of Default under the Longitude Note Agreement in respect of a failure by the Borrower to pay any principal thereunder (including any required principal prepayment) on the due date thereof.
“Longitude Security Documents”
means the Longitude Pledge and Security Agreement, the Evolus/Longitude Guaranty and Security Agreement, and any other security agreement or other document granting to the Longitude Holder a Lien on any assets of the Borrower, the Guarantor or any other direct or indirect subsidiary of the Borrower to secure the Longitude Obligations.
“Longitude Standstill Period”
means the period commencing on the date of delivery by the Longitude Holder to the DI Collateral Agent of a Longitude Default Notice and ending on the date that is the earliest of:
(a) the commencement of an Insolvency Proceeding with respect to the Borrower or the Guarantor;
(b) the acceleration of the DI Obligations; or
(c) (i) with respect to a Longitude Interest Payment Default, 90 days after the delivery of such Standstill Notice, or (ii) with respect to a Longitude Principal Payment Default, 30 days after the delivery of such Standstill Notice.
“Permitted Protective Actions”
means any actions by the Longitude Holder to (a) prevent its claims under Longitude Documents or with respect to the Longitude Obligations from being time-barred; (b) preserve the perfection of its security interest in the Collateral and its rights to receive any proceeds from the disposition of the Collateral consistent with the terms of this Intercreditor Agreement; (c) file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person objecting to or otherwise seeking the disallowance of the claims of the
Longitude Collateral, including, without limitation, any claims secured by the Collateral; and (d) taking any action to seek and obtain specific performance or injunctive relief to compel the Borrower, the Guarantor or any other debtor under a Longitude Document to comply with (or not violate or breach) an obligation under the Longitude Documents.
“
Person
” means any individual, corporation, limited liability company, trust, joint venture, association, company, limited or general partnership, unincorporated organization, governmental authority or other entity.
“
UCC
” means the Uniform Commercial Code as in effect in the state of Delaware from time to time.
1.2
Terms Generally
.
(a)
All terms defined in the UCC, unless otherwise defined herein, shall have the meanings set forth therein.
(b)
The definitions of terms in this Intercreditor Agreement shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise:
(i)
any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented, modified, renewed, replaced or extended, to the extent permitted hereby;
(ii)
any reference herein to any Person shall be construed to include such Person's permitted successors and assigns;
(iii)
the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Intercreditor Agreement in its entirety and not to any particular provision hereof;
(iv)
any references to sections, subsections, clauses or paragraphs shall be references to sections, subsections, clauses and paragraphs in this Intercreditor Agreement;
(v)
the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or”; and
(vi)
the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
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2.
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Lien Priorities and Security Interests
.
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2.1
Pro Rata and Pari Pasu Liens
. The security interest in and Lien on the Collateral (i) granted to the DI Collateral Agent and each DI Creditor to secure the DI Obligations, and (ii) granted to the Longitude Holder and each Longitude Creditor to secure the Longitude Obligations, shall be and hereby are equal in
priority and pari passu for all purposes, regardless of the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting a Lien. The Lien priorities set forth in the immediately preceding sentence shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal or restatement of any of the Longitude Obligations or the DI Obligations, by any failure to perfect any security interest in the Collateral, the avoidance or invalidation of the any Lien or by any other action or inaction which any party may take or fail to take with respect to the Collateral.
2.2
Prohibition on Contesting Liens
. This Intercreditor Agreement shall not impose on the Longitude Holder or any other Longitude Creditor or the DI Collateral Agent or any other DI Creditor any obligations in respect of the disposition of proceeds of foreclosure of any Collateral which would conflict with prior perfected claims thereon in favor of any other Person or any order or decree of any court or other governmental authority or any applicable law. Subject to the terms and conditions of this Intercreditor Agreement (i) the DI Collateral Agent agrees for itself and on behalf of the DI Creditors that it will not at any time contest the validity, perfection, priority or enforceability of the Longitude Obligations, the Longitude Documents, or the liens and security interests of the Longitude Holder in the Collateral securing the Longitude Obligations; and (ii) the Longitude Holder agrees for itself and on behalf of the Longitude Creditors that it will not at any time contest the validity, perfection, priority or enforceability of the DI Obligations, the DI Documents, or the liens and security interests of the DI Collateral Agent in the Collateral securing the DI Obligations.
2.3
Requirement of Equal Liens
. It is the intention of the Longitude Holder, on behalf of the Longitude Creditors, and the DI Collateral Agent, on behalf of the DI Creditors, that they shall have an equivalent Lien granted on all Collateral to secure the Longitude Obligations and the DI Obligations. The parties hereto agree that any Lien granted by the Borrower, the Guarantor or any other of the Borrower’s subsidiaries on any assets to secure the Longitude Obligations or the DI Obligations shall be granted in an equal manner and by equivalent documents to each of the Longitude Holder and the DI Collateral Agent to secure all of the Longitude Obligations and the DI Obligations (subject to the obligation to allocate the proceeds thereof as provided under
Section 3(b)
hereof).
2.4
Perfection
.
(a)
Subject to
Section 7
, the Borrower and the Guarantor each covenants and agrees that upon any request of Longitude Holder or the DI Collateral Agent to perfect any Lien against any of the Collateral including, without limitation the filing of any intellectual property security agreements with the United States Patent and Trademark Office or the United States Copyright Office, or any successor thereto), its shall simultaneously take such perfection action in favor of both of the Longitude Holder and the DI Collateral Agent. The Longitude Holder and the DI Collateral Agent shall use reasonable efforts to provide notice to the other of taking such actions, provided that the failure to give any such notice shall not deprive the Longitude Holder or Longitude Creditor or DI Collateral Agent or any DI Creditor of any rights or remedies to which they are entitled hereunder or otherwise or subject any of them to any liabilities to the other party, the Borrower, the Guarantor or any other Person.
(b)
Notwithstanding
Section 2.4(a)
hereof,
(i)
The parties hereto acknowledge that a UCC financing statement has been filed with the Delaware Secretary of State against the Borrower in favor of the Longitude Holder perfecting a Lien against all personal property of the Borrower, and promptly upon the execution of the DI Security Documents, the DI Collateral Agent shall file an equivalent UCC financing statement with the Delaware Secretary of State;
(ii)
The parties hereto acknowledge that in connection with the execution of the Evolus/DI Guaranty and Security Agreement and the Evolus/Longitude Guaranty and Security Agreement, respectively, separate UCC financing statements will be filed with the Delaware Secretary of State against the Guarantor in favor of the DI Collateral Agent and in favor of the Longitude Holder, respectively, in each case perfecting a Lien against all personal property of the Guarantor;
(iii)
The DI Collateral Agent may obtain custody or control of any certificated securities, promissory notes, tangible chattel paper, negotiable documents or warehouse receipts or other possessory Collateral, which shall be held by the DI Collateral Agent for the benefit of the Longitude Creditors and the DI Creditors, as provided in
Section 7
hereof;
(iv)
The DI Collateral Agent may enter into a control agreement in respect of any Collateral with any depository or other holder of deposit accounts or security accounts or any other holder of investment property), which Collateral shall be held by the DI Collateral Agent for the benefit of the Longitude Creditors and the DI Creditors, as provided in
Section 7
hereof;
provided; however, that any proceeds obtained by the Longitude Holder and the DI Collateral Agent in connection with an Enforcement Action with respect to any and all the Collateral shall be allocated in accordance with
Section 3(b)
hereof.
2.5
Release of Lien With Respect to Series 2 Notes
. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence of a Qualified Transaction (as such term is defined in a DI Series 2 Note), in the event that the holder of such Series 2 Note elects to retain its Series 2 Note pursuant to Section 4.1(b) thereof, such Series 2 Note shall no longer be secured by the Collateral, and the provisions of Section 2.1, Section 2.2(ii), Section 2.3 and Section 2.4, shall no longer apply to the parties hereto with respect to such holder of such Series 2 Note. Such Series 2 Note that is unsecured as provided in this Section 2.5, shall not be entitled to the benefits of any Collateral and shall not share in the proceeds of any Collateral.
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3.
|
Application of Collateral Proceeds
.
|
(a)
Notwithstanding anything to the contrary contained in the Longitude Documents and the DI Documents, each of the Borrower, the Guarantor, the Longitude Holder (for itself and on behalf of each Longitude Creditor), and the DI Collateral Agent (for itself and on behalf of each DI Creditor) agree that (i) the occurrence of a DI Event of Default shall constitute a Longitude Event of Default, and (ii) the occurrence of a Longitude Event of Default shall constitute a DI Event of Default.
(b)
If a Longitude Event of Default or a DI Event of Default shall have occurred, whether or not any Insolvency Proceeding has been commenced by or against the Borrower, the Guarantor or any other debtor under any Longitude Document or any DI Document, the Collateral and any proceeds received in connection with any Enforcement Action upon, or other collection on, the Collateral upon the exercise of remedies shall be applied to the Longitude Obligations and the DI Obligations on a
pari passu
and
pro rata
basis, until the Longitude Obligations and the DI Obligations shall have been indefeasibly paid in full in cash. When the Longitude Obligations and DI Obligations have been indefeasibly paid in full in cash, the Longitude Holder and the DI Collateral Agent shall deliver promptly to the Borrower or the Guarantor (as applicable), or as a court of competent jurisdiction may direct, any Collateral or proceeds thereof held by it in the same form as received, with any necessary endorsements.
(c)
Should any proceeds of Collateral be received by the DI Collateral Agent that are owed to the Longitude Holder as provided in
Section 3(b)
, the DI Collateral Agent shall receive and hold
the same in trust for the benefit of the Longitude Holder and the other Longitude Creditors and shall forthwith deliver the same to the Longitude Holder for application to the Longitude Obligations, and, until so delivered, the same shall be held in trust by the DI Collateral Agent as the property of the Longitude Holder. Should any proceeds of Collateral be received by the Longitude Holder that are owed to the DI Collateral Agent or any DI Holder as provided in
Section 3(b)
, the Longitude Holder shall receive and hold the same in trust for the benefit of the DI Collateral Agent and the other DI Creditors and shall forthwith deliver the same to the DI Collateral Agent for application to the DI Obligations, and, until so delivered, the same shall be held in trust by the Longitude Holder as the property of the DI Collateral Agent (as agent for the DI Creditors).
(d)
Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence of a Qualified Transaction (as such term is defined in a DI Series 2 Note), in the event that the holder of such DI Series 2 Note elects to retain its DI Series 2 Note pursuant to Section 4.1(b) thereof, then such DI Series 2 Note shall no longer be secured by the Collateral, and provisions of this Section 3(b) and 3(c) including, without limitation, the provisions regarding the sharing of Collateral between the Longitude Holder, the DI Collateral Agent and the DI Creditors, shall no longer apply to the parties hereto with respect to such holder of such DI Series 2 Note. Such Series 2 Note that is unsecured as provided in this Section 3(d) shall not be entitled to the benefits of any Collateral and shall not share in the proceeds of any Collateral.
4.
Application of Certain Payments under the DI Notes and the Longitude Note Agreement
. The DI Collateral Agent (for itself and on behalf of all of the DI Holders, who shall each be bound by the provisions of this
Section 4
by their acceptance of their respective DI Note), the Longitude Holder, the Borrower and the Guarantor hereby agree as follows:
(a)
In the event that the Borrower (or the Guarantor, on behalf of the Borrower) does not make payment of all of the accrued and unpaid interest payable on the DI Notes as required under Section 1.2 of the DI Notes and all accrued and unpaid interest payable under the Longitude Note Agreement as required under Section 1.2 of the Longitude Note Agreement on any due date for the payment of such interest, then the interest payable by the Borrower (or the Guarantor, on behalf of the Borrower) under such sections of the DI Notes and the Longitude Note Agreement shall be paid to the DI Holders and the Longitude Holder entitled thereto on a
pari passu
and
pro rata
basis, until such interest is paid in full.
(b)
In the event that the Borrower (or the Guarantor, on behalf of the Borrower) does not make payment of (i) the entire Redemption Price (as defined in the DI Notes) plus accrued interest payable to all of the holders of the DI Notes on either the Maturity Date as required under Section 1.3 of the DI Notes or the date of prepayment under Section 1.4 of the DI Notes; and (ii) the entire Redemption Price (as defined in the Longitude Note Agreement) plus accrued interest payable to Longitude on either the Maturity Date as required under Section 1.3 of the Longitude Note Agreement or the date of prepayment under Section 1.4 of the Longitude Note Agreement; then such Redemption Price plus accrued interest thereon payable by the Borrower (or the Guarantor, on behalf of the Borrower) on the Maturity Date, as required under Section 1.3 of the DI Notes and Section 1.3 of the Longitude Note (or, if applicable, the date of prepayment under Sections 1.4 of each DI Note and Section 1.4 of the Longitude Note Agreement) shall be paid to the DI Holders and the Longitude Holder entitled thereto on a
pari passu
and
pro rata
basis, until such Redemption Price plus accrued interest is paid in full.
(c)
In the event that the Borrower (or the Guarantor, on behalf of the Borrower) does not make payment of all of the entire amounts payable to the holders of the DI Notes under Section 1.5 or Section 1.6 of the DI Notes and the entire amount payable to the Longitude Holder under Section 1.5 or Section 1.6 of the Longitude Note Agreement on the date required for such payment, as set forth therein, then such amounts payable by the Borrower (or the Guarantor, on behalf of the Borrower) to the DI Holders and the Longitude Holder under such sections of the DI Notes and the Longitude Note Agreement shall be
paid to such DI Holders and the Longitude Holder entitled thereto on a
pari passu
and
pro rata
basis, until such amounts are paid in full.
(d)
Should any amounts be received by DI Holders or the Longitude Holders in excess of amounts that may be received by such DI Holders or the Longitude Holder under Sections 4(a), (b) or (c), then the DI Holders or Longitude Holder that received such excess amounts shall receive and hold the same in trust for the benefit of the Longitude Holder (with respect to any excess amounts received by the DI Holders) or for the benefit of the DI Holders (with respect to any excess amounts received by the Longitude Holders) and shall forthwith deliver the same to the party entitled thereof, and, until so delivered, the same shall be held in trust by the DI Holders as the property of the Longitude Holder (with respect to any excess amounts received by the DI Holders) or shall be held in trust by the Longitude Holder as the property of the DI Holder (with respect to any excess amounts received by the Longitude Holder).
5.
Notices of Events of Default; Enforcement Actions
.
(a)
The Longitude Holder shall deliver to the DI Collateral Agent notice of any Longitude Event of Default promptly upon its knowledge thereof. The DI Collateral Agent shall deliver to the Longitude Holder notice of any DI Event of Default promptly upon its knowledge thereof. The failure to give any such notice under this clause (a) shall not deprive the Longitude Holder or Longitude Creditor or DI Collateral Agent or any DI Creditor of any rights or remedies to which they are entitled hereunder or otherwise or subject any of them to any liabilities to the other party, the Borrower, the Guarantor, or any other Person.
(b)
As long as any DI Note is secured by the Collateral, the Longitude Holder agrees that, upon the occurrence of any Longitude Event of Default and during the Longitude Standstill Period, it shall not pursue any Enforcement Action against the Collateral; provided, however, that nothing shall herein shall prevent the Longitude Holder from taking a Permitted Protective Action; provided further, that if a Longitude Event of Default is continuing at the end of the Longitude Standstill Period, the Longitude Holder may (but shall have no obligation to) pursue Enforcement Actions Against the Collateral (subject to the obligation to allocate the proceeds thereof as provided under
Section 3(b)
hereof). Notwithstanding the foregoing, in the event that all of the DI Notes have been either converted to equity pursuant to Section 4.1 of the applicable DI Note or, as applicable, retained as an unsecured DI Series 2 Note pursuant to Section 4.1(b) of the DI Series 2 Notes, then the provisions of this Section 4(b) shall no longer apply and Longitude shall have no restrictions on its pursuit of Enforcement Actions against the Collateral.
(c)
As long as any DI Note is secured by the Collateral, the DI Collateral Agent may (but shall have no obligation to) pursue Enforcement Actions against the Collateral at any time following a DI Event of Default (subject to the obligation to allocate the proceeds thereof as provided under
Section 3(b)
hereof). Notwithstanding the foregoing, in the event that all of the DI Notes have been either converted to equity pursuant to Section 4.1 of the applicable DI Note or, as applicable, retained as an unsecured DI Series 2 Note pursuant to Section 4.1(b) of the DI Series 2 Notes, then the provisions of this Section 4(c) shall no longer apply.
(d)
The obligations of the Longitude Holder under this
Section 5
shall be for the benefit of the DI Collateral Agent and the DI Creditors only, and neither the Borrower nor the Guarantor nor any other direct or indirect subsidiary of the Borrower shall have any rights under this
Section 5
including, without limitation, any rights to enforce any obligation of the Longitude Holder hereunder. The obligations of the DI Collateral Agent under this
Section 5
shall be for the benefit of the Longitude Holder and the Longitude Creditors only, and neither the Borrower nor the Guarantor nor any other direct or indirect
subsidiary of the Borrower shall have any rights under this
Section 5
including, without limitation, any rights to enforce any obligation of the DI Collateral Agent hereunder.
6.
Modifications to Loan Documents
. Until the Longitude Obligations and DI Obligations have been paid in full in cash,
(a)
The Borrower and the Longitude Holder shall not, without the prior written consent of the DI Collateral Agent, agree to any amendment, modification, or supplement to the Longitude Documents that would (i) increase the principal amount of the Longitude Obligations or the rate of interest applicable on the Longitude Obligations, (ii) change the dates for payment of interest under the Longitude Note Agreement, (iii) advance the final maturity date of the principal owing under the Longitude Note Agreement; (iv) impose on the Borrower or amend any representations, warranties, financial or operational covenants, events of default or remedies that are more restrictive or burdensome to Borrower than are contained in the Longitude Documents as in effect on the date of this Intercreditor Agreement. Subject to the foregoing, the Longitude Holder shall notify the DI Collateral Agent no less than five (5) Business Days prior to the date that any amendments are made to the Longitude Documents. At the election of the DI Collateral Agent, the DI Collateral Agent shall have the right to have a Conforming Amendment made to the DI Documents at the same time that such amendments are made to the Longitude Documents, and the Borrower hereby agrees that, upon the request of the DI Collateral Agent, it shall execute any and all documents necessary to cause such Conforming Amendment to be made to the DI Documents.
(b)
The DI Collateral Agent shall notify the Longitude Holder no less than five (5) Business Days prior to the date that any amendments are made to the DI Documents. At the election of the Longitude Holder, the Longitude Holder shall have the right to have a Conforming Amendment made to the Longitude Documents at the same time that such amendments are made to the DI Documents, and the Borrower hereby agrees that, upon the request of the Longitude Holder, it shall execute any and all documents necessary to cause such Conforming Amendment to be made to the Longitude Documents.
7.
Agent for Perfection
. The DI Collateral Agent agrees that, with respect to any Collateral for which a security interest may only be perfected by possession, custody or control of such Collateral (including, without limitation, by means of execution of a control agreement), to the extent that the DI Collateral Agent holds such Collateral, the DI Collateral Agent shall be deemed to serve as the agent of Longitude Holder solely for purposes of perfecting the Liens and security interests of the Longitude Holder (subject to the obligation to allocate the proceeds thereof as provided under
Section 3(b)
hereof). The DI Collateral Agent shall have no duty or liability to protect or preserve any rights pertaining to any of the Collateral for the Longitude Holder or otherwise under this sentence, and the Longitude Holder hereby waives and releases the DI Collateral Agent from all claims and liabilities arising pursuant to its role as such representative; provided, however, such waiver shall not apply with respect to any such claim and/or liability to the extent it arises from the gross negligence or willful misconduct. It is understood and agreed that this
Section 7
is intended solely to assure continuous perfection of the Liens granted to Longitude Holder under the Longitude Security Documents, and the DI Collateral Agent, on the one hand, and the Longitude Holder, on the other hand, shall not have by reason of this
Section 7
a fiduciary relationship in respect to the other.
8.
Representations and Warranties
.
8.1
DI Collateral Agent Representations and Warranties
. The DI Collateral Agent hereby represents and warrants to the Longitude Holder that as of the date hereof:
(a)
the DI Collateral Agent has the power and authority to enter into, execute, deliver, and carry out the terms of this Intercreditor Agreement, all of which have been duly authorized by all proper and necessary action;
(b)
the execution of this Intercreditor Agreement by the DI Collateral Agent will not violate or conflict with the organizational documents of the DI Collateral Agent, the DI Documents or any law, regulation or order or require any consent or approval that has not been obtained; and
(c)
this Intercreditor Agreement is the legal, valid, and binding obligation of the DI Collateral Agent, enforceable against the DI Collateral Agent in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by equitable principles.
8.2
Longitude Holder Representations and Warranties
. The Longitude Holder hereby represents and warrants to the DI Collateral Agent that as of the date hereof:
(a)
the Longitude Holder has the power and authority to enter into, execute, deliver, and carry out the terms of this Intercreditor Agreement, all of which have been duly authorized by all proper and necessary action;
(b)
the execution of this Intercreditor Agreement by the Longitude Holder will not violate or conflict with the organizational documents of the Longitude Holder, the Longitude Documents or any law, regulation or order or require any consent or approval that has not been obtained; and
(c)
this Intercreditor Agreement is the legal, valid, and binding obligation of the Longitude Holder, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by equitable principles.
9.
Miscellaneous
.
9.1
Conflict
. In the event of any conflict between any term, covenant, or condition of this Intercreditor Agreement and any term, covenant or condition of the Longitude Documents or the DI Documents, the provisions of this Intercreditor Agreement shall control and govern.
9.2
Amendments; Modifications
. This Intercreditor Agreement constitutes the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, whether oral or written, relating to the subject matter hereof. Any modification or waiver of any provision of this Intercreditor Agreement, or any consent to any departure by any party from the terms hereof, shall not be effective in any event unless the same is in writing and signed by the Longitude Holder and the DI Collateral Agent, and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given. Any notice to or demand on any party hereto in any event not specifically required hereunder shall not entitle the party receiving such notice or demand to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder.
9.3
Successors and Assigns
. This Intercreditor Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and assigns of the Longitude Creditors, the DI Collateral Agent, the DI Creditors, and shall be binding upon the successors and assigns of the Borrower.
9.4
Notices
.
(a)
Except in the case of notices and other communications expressly permitted to be given by telephone (or by e-mail as provided in paragraph (b) below), all notices and other communications provided for herein shall be made in writing and mailed by certified or registered mail, delivered by hand or overnight courier service as follows:
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(i)
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if to the Longitude Holder, to: Longitude Venture Partners II, L.P., 800 El Camino Real, Menlo Park, CA 94025, Attention: Carolyn Helms, e-mail: chelms@longitudecapital.com;
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(ii)
|
if to the DI Collateral Agent, to: Dental Innovations BVBA, Henri van Heurckstraat 15, 2000 Antwerp Belgium, Attention: Simone Blank, e-mail: simone.blank@a1.net;
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(iii)
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if to the Borrower, to: Alphaeon Corporation, 18191 Von Karman Ave., Suite 500, Irvine, CA 92612, Attention: Jeffrey Plumer, e-mail: jeff.plumer@alphaeon.com;
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(iv)
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If to the Guarantor, to: Evolus, Inc., 1027 Garden Street, Santa Barbara, CA 93101, Attention:
Murthy Simhambhatla
, email:
murthy.simhambhatla@alphaeon.com
.
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(b)
Each party hereto may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it;
provided
that approval of such procedures may be limited to particular notices or communications.
(c)
Notices and other communications (i) mailed by certified or registered mail or sent by hand or overnight courier service shall be deemed to have been given when received; (ii) sent by e-mail shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgment), and (iv) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (iii) of notification that such notice or communication is available and identifying the website address therefor;
provided that
, in the case of clauses (ii), (iii) and (iv) above, if such notice, e-mail or other communication is not sent during the recipient’s normal business hours, such notice, e-mail or communication shall be deemed to have been sent at the recipient’s opening of business on the next business day.
(d)
Any party hereto may change its address or email address for notices and other communications hereunder by notice to the other parties hereto.
9.5
Further Assurances
. Each party to this Intercreditor Agreement will promptly execute and deliver such further instruments and agreements and do such further acts and things as may be reasonably requested in writing by any other party hereto that may be necessary or desirable in order to effect fully the purposes of this Intercreditor Agreement.
9.6
Headings
. The section headings used in this Intercreditor Agreement are for convenience only and shall not affect the interpretation of any of the provisions hereof.
9.7
Counterparts; Integration; Effectiveness; Electronic Execution
. This Intercreditor Agreement and any amendments, waivers, consents or supplements hereto may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together shall constitute a single contract. This Intercreditor Agreement constitutes the entire contract among the parties with respect to the subject matter hereof and supersedes all previous agreements and understandings, oral or written, with respect thereto. This Intercreditor Agreement shall become effective when it shall have been executed by the Longitude Holder, the DI Collateral Agent, the Borrower and the Guarantor and when the Longitude Holder and the DI Collateral Agent shall have received counterparts hereof that together bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page to this Intercreditor Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Intercreditor Agreement.
9.8
Severability
. In the event that any provision of this Intercreditor Agreement is deemed to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, the validity, legality and enforceability of the remaining provisions of this Intercreditor Agreement shall not in any way be affected or impaired thereby, and the affected provision shall be modified to the minimum extent permitted by law so as to most fully achieve the intention of this Intercreditor Agreement.
9.9
Governing Law; Jurisdiction; Etc.
.
(a)
Governing Law
. This Intercreditor Agreement and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Intercreditor Agreement and the transactions contemplated hereby shall be governed by, and construed in accordance with, the laws of the State of Delaware.
(b)
Dispute Resolution
. The parties (i) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of California and to the jurisdiction of the United States District Court for the Central District for the purpose of any suit, action or other proceeding arising out of or based upon this Intercreditor Agreement, (ii) agree not to commence any suit, action or other proceeding arising out of or based upon this Intercreditor Agreement except in the state courts of California or the United States District Court for the Central District, and (iii) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Intercreditor Agreement or the subject matter hereof may not be enforced in or by such court.
(c)
WAIVER OF JURY TRIAL
: SOLELY TO THE EXTENT ALLOWABLE UNDER APPLICABLE LAW, EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS INTERCREDITOR AGREEMENT OR THE SUBJECT MATTER HEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS INTERCREDITOR AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
(d)
PRIVATE JUDGE.
Each party hereto hereby agrees that, if the above waiver of the right to a trial by jury is not enforceable, any and all disputes or controversies of any nature arising under this Intercreditor Agreement at any time shall be decided by a reference to a private judge, mutually selected by the Longitude Holder and the DI Collateral Agent (or, if they cannot agree, by the Presiding Judge in the Central District of the State of California) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in the Central District of the State of California; and each party hereto hereby submits to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the in the Central District of the State of California for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. Each party hereto shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. Each party hereto agrees that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact of law, and shall report a statement of decision thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of the Longitude Holder or the DI Collateral Agent at any time to exercise self-help remedies, foreclose against Collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation and enforceability of this paragraph.
(e)
No Third-Party Beneficiaries
. This Intercreditor Agreement is intended to define the rights and duties of the Longitude Holder and the other Longitude Creditors, on the one hand, and the DI Collateral Agent and the other DI Creditors, on the other hand; it is not intended that any third party (including the Borrower, the Guarantor, any other direct or indirect subsidiary of the Borrower, any other debtor under any DI Security Document or any Longitude Security Document, any bankruptcy trustee, receiver, or debtor-in-possession) shall benefit from it.
(f)
In Full Force and Effect After Insolvency Proceeding
. In the event of the occurrence of an Insolvency Proceeding involving Borrower, the Guarantor or any other debtor under any DI Security Document or any Longitude Security Document, (i) this Intercreditor Agreement shall remain in full force and effect in accordance with Section 510(a) of the United States Bankruptcy Code, and (ii) the Collateral shall include, without limitation, all Collateral arising during or after any such Insolvency Proceeding.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Intercreditor Agreement as of the date first above written.
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LONGITUDE VENTURE PARTNERS II, L.P.
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By: Longitude Capital Partners II, LLC, its General Partner
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By
/s/ Juliet Tammenoms Bakker
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Name: Juliet Tammenoms Bakker
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Title: Managing Member
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DENTAL INNOVATIONS BVBA
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By
/s/ Frank Laukoetter /s/ Didier Westen
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Name: Frank Laukoetter Didier Westen
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Title: Managing Director Managing Director
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By____________________________________
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Name:
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Title:
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ALPHAEON CORPORATION
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By
/s/ Robert Rhatigan
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Name: Robert Rhatigan
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Title: President
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EVOLUS, INC.
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By:
/s/ Robert Grant
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Name: Robert Grant
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Title: President
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Signature Page to Amended and Restated Intercreditor Agreement
FIRST AMENDMENT
TO
AMENDED AND RESTATED INTERCREDITOR AGREEMENT
This FIRST AMENDMENT (this “
Amendment
”), dated as of December 14, 2017, is made by and between LONGITUDE VENTURE PARTNERS II, L.P., a Delaware limited partnership in its capacity as the holder of the Longitude Obligations (in such capacity, together with its successors and assigns in such capacity, the “
Longitude Holder
”), DENTAL INNOVATIONS BVBA, a private limited liability company organized under the laws of Belgium, in its capacity as collateral agent for the DI Holders (in such capacity, together with its successors and assigns in such capacity, the “
DI Collateral Agent
”), ALPHAEON CORPORATION, a Delaware corporation (the “
Borrower
”), and EVOLUS, INC., a Delaware corporation (the “
Guarantor
”) and amends that certain Amended and Restated Intercreditor Agreement originally made as of July 26, 2016 as amended and restated as of April 19, 2017, by and among the Longitude Holder, DI Collateral Agent, the Borrower and the Guarantor (the “
Agreement
”; Capitalized terms used but not defined herein shall have the meanings ascribed to such terms as in the Agreement as amended by this Amendment).
RECITALS
WHEREAS
,
pursuant to the Agreement, the Longitude Holder and the DI Collateral Agent (on behalf of the DI Holders), entered into certain agreements regarding the DI Obligations, the Longitude Obligations, the Liens in the Collateral, and the certain rights and obligations of the parties under the DI Documents and the Longitude Documents;
WHEREAS
, the DI Note Agreement, the DI Notes, the Evolus/DI Longitude Guaranty and Security Agreement, the Evolus/Longitude Guaranty and Security Agreement and the Stratshpey Subordination Agreement have each been amended in certain respects as of the date hereof and the Stockholder Agreement and Marmo Subordination Agreement are being entered into, in each case in contemplation of circumstances relating to potential sales of the Guarantor’s securities, and the parties hereto desire to make conforming amendments to the Agreement.
WHEREAS
, pursuant to Section 9.2 of the Agreement, the Agreement may be amended, modified, supplemented or waived only by the Longitude Holder and DI Collateral Agent.
NOW, THEREFORE
, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good, fair and valuable consideration and reasonably equivalent value, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
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1.
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Amendment
. Subject to Section 2, the Agreement is hereby amended as follows:
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1.1.
|
The first recital of the Agreement is hereby amended by deleting the phrase beginning with “Whereas” and ending with “restating” where it first appears therein and replacing it in full as follows:
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“WHEREAS, reference is made to the Third Amended and Restated Secured Convertible Bridge Note, dated as of December 14, 2017, amending and restating that certain Second Amended and Restated Secured Convertible Bridge Note, dated as of April 19, 2017,
which amended and restated”
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1.2.
|
The following defined terms in Section 1 of the Agreement are hereby amended and restated in their entirety as follows:
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“
DI Documents
” means the DI Note Agreement, each DI Note issued thereunder, the DI Security Documents, the Stockholder Agreement, the Strathspey Subordination Agreement, the Marmo Subordination Agreement, and all agreements, documents and instruments entered into in connection therewith.
“
Longitude Documents
” means the Longitude Note Agreement, the Longitude Security Documents, the Stockholder Agreement, the Strathspey Subordination Agreement, the Marmo Subordination Agreement and all agreements, documents and instruments entered into in connection therewith.
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1.3.
|
Section 1 of the Agreement is hereby amended by adding thereto the following definitions in their entirety in alphabetical order:
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“
Marmo Subordination Agreement
” means that certain Subordination Agreement, dated as of December 14, 2017, by and between the Borrower, the Guarantor, the DI Collateral Agent and the Longitude Holder, as “Senior Creditors” thereunder, and David Marmo (as Contributor’s Representative to certain parties) as “Subordinated Creditor” thereunder.
“
Registerable Securities
” has the meaning set forth in the Stockholder Agreement.
“
Registration Rights
” has the meaning set forth in Section 3(e) hereof.
“
Stockholder Agreement
” means that certain Evolus, Inc., Stockholder Agreement, dated as of December 14, 2017, by and between the Guarantor, the Borrower, the DI Collateral Agent, and the Longitude Holder.
“
Strathspey Subordination Agreement
” means that certain Evolus, Inc., Subordination Agreement, dated as of December 14, 2017, by and between the Borrower, the DI Collateral Agent and the Longitude Holder, as “Senior Creditors” thereunder, and SCH-AEON, LLC (formerly known as Strathspey Crown Holdings, LLC), as “Subordinated Creditor” thereunder.
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1.4.
|
Section 2.5 of the Agreement is hereby deleted and amended and restated in its entirety as follows.
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“2.5 Release of Lien With Respect to Series 2 Notes
. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence of a Qualified Transaction (as such term is defined in a DI Series 2 Note), in the event that the holder of such Series 2 Note elects to retain its Series 2 Note pursuant to Section 4.1 thereof, such Series 2 Note shall no longer be secured by the Collateral, and the provisions of Section 2.1, Section 2.2(ii), Section 2.3 and Section 2.4, shall no longer apply to the parties hereto with respect to such holder of such Series 2 Note. Such Series 2 Note that is unsecured as provided in this Section 2.5, shall not be entitled to the benefits of any Collateral and shall not share in the proceeds of any Collateral.”
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1.5.
|
Section 3(d) of the Agreement is hereby deleted and amended and restated in its entirety as follows:
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“(d) Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence of a Qualified Transaction (as such term is defined in a DI Series 2 Note), in the event that the holder of such DI Series 2 Note elects to retain its DI Series 2 Note pursuant to Section 4.1 thereof, then such DI Series 2 Note shall no longer be secured by the Collateral, and provisions of Section 3(b) and 3(c) including, without limitation, the provisions regarding the sharing of Collateral between the Longitude Holder, the DI Collateral Agent and the DI Creditors, shall no longer apply to the parties hereto with respect to such holder of such DI Series 2 Note. Such Series 2 Note that is unsecured as provided in this Section 3(d) shall not be entitled to the benefits of any Collateral and shall not share in the proceeds of any Collateral.”
The following Section 3(e) is hereby added to the Agreement:
“(e) The parties hereto acknowledge and agree that the DI Collateral Agent and the Longitude Holder have the right to an assignment of the Borrower’s right, title and interest under the Stockholder Agreement including, without limitation, the Borrower’s registration rights thereunder in connection with the Registerable Securities, as set forth in Section 2.10 of the Stockholder Agreement (the “
Registration Rights
”). The DI Collateral Agent and the Longitude Holder hereby agree that such Registration Rights shall be exercised by the DI Collateral Agent on behalf of, and as agent for, the DI Holders and the Longitude Holders, provided that (i) the DI Collateral Agent shall exercise such Registration Rights in consultation with the Longitude Holder, including, without limitation, in connection with the timing of the sale of the Registerable Securities thereunder, and (ii) in the event that the DI Collateral Agent has not commenced the process to register such Registerable Securities within 20 days after the occurrence of a DI Event of Default or a Longitude Event of Default, the DI Collateral Agent shall, upon the request of the Longitude Holder, take such actions as may be necessary to register such Registerable Securities in accordance with the Stockholder Agreement on behalf of the DI Holders and the Longitude Holder; provided, however, that, in the case of clause (i) the duty to consult with the Longitude Holder shall not restrict the DI Collateral Agent from exercising the Registration Rights and taking other actions incidental thereto as the DI Collateral Agent deems appropriate in the event that the DI Collateral Agent and the Longitude Holder do not agree on any matter, and in the case of clause (ii), in no event shall the DI Collateral Agent be obligated to take any such actions prior to the expiration of the Longitude Standstill Period. Any proceeds received by the DI Collateral Agent or the Longitude Holder in respect of the Collateral, including with respect to the exercise of such Registration Rights, shall be applied to the Longitude Obligations and the DI Obligations on a pari passu and pro rata basis, until the Longitude Obligations and the DI Obligations shall have been indefeasibly paid in full in cash.”
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1.6.
|
Section 4(c) of the Agreement is hereby amended and restated in full as follows:
|
“(c) In the event that the Borrower (or the Guarantor, on behalf of the Borrower) does not make payment of all of the entire amounts payable to the holders of the DI Notes under Section 1.5, Section 1.6, Section 1.7, Section 1.8 or Section 1.9 of the
DI Notes and the entire amount payable to the Longitude Holder under Section 1.5, Section 1.6, Section 1.7, Section 1.8 or Section 1.9 of the Longitude Note Agreement on the date required for such payment, as set forth therein, then such amounts payable by the Borrower (or the Guarantor, on behalf of the Borrower) to the DI Holders and the Longitude Holder under such sections of the DI Notes and the Longitude Note Agreement shall be paid to such DI Holders and the Longitude Holder entitled thereto on a
pari passu
and
pro rata
basis, until such amounts are paid in full.”
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1.7.
|
The last sentence of Section 5(b) of the Agreement is hereby amended to read in full as follows.
|
“Notwithstanding the foregoing, in the event that all of the DI Notes have been either converted to equity pursuant to Section 4 of the applicable DI Note or, as applicable, retained as an unsecured DI Series 2 Note pursuant to Section 4 of the DI Series 2 Notes, then the provisions of this Section 4(b) shall no longer apply and Longitude shall have no restrictions on its pursuit of Enforcement Actions against the Collateral..”
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1.8.
|
The last sentence of Section 5(c) of the Agreement is hereby amended to read in full as follows.
|
“Notwithstanding the foregoing, in the event that all of the DI Notes have been either converted to equity pursuant to Section 4 of the applicable DI Note or, as applicable, retained as an unsecured DI Series 2 Note pursuant to Section 4of the DI Series 2 Notes, then the provisions of this Section 4(c) shall no longer apply.”
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1.9.
|
Section 7 of the Agreement is hereby amended to read in full as follows:
|
“7.
Agent for Perfection
. The DI Collateral Agent agrees that, with respect to (a) the Registration Rights, and (b) any Collateral for which a security interest may only be perfected by possession, custody or control of such Collateral (including, without limitation, by means of execution of a control agreement), to the extent that the DI Collateral Agent holds such Registration Rights or Collateral, the DI Collateral Agent shall be deemed to serve as the agent of Longitude Holder solely for purposes of registering the Registerable Securities and perfecting the Liens and security interests of the Longitude Holder (subject to the obligation to allocate the proceeds thereof as provided under
Section 3(b)
hereof). The DI Collateral Agent shall have no duty or liability to protect or preserve any rights pertaining to any of the Collateral for the Longitude Holder or otherwise under this sentence, and the Longitude Holder hereby waives and releases the DI Collateral Agent from all claims and liabilities arising pursuant to its role as such representative; provided, however, such waiver shall not apply with respect to any such claim and/or liability to the extent it arises from the gross negligence or willful misconduct. It is understood and agreed that this
Section 7
is intended solely to assure (i) the registration of the Registrable Securities pursuant to the Stockholder Agreement, and (ii) the continuous perfection of the Liens granted to Longitude Holder under the Longitude Security Documents, and the DI Collateral Agent, on the one hand, and the Longitude Holder, on the other hand, shall not have by reason of this
Section 7
a fiduciary relationship in respect to the other.”
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2.
|
Conditions Precedent to Effectiveness
. The satisfaction or waiver of each of the following shall constitute conditions precedent to the effectiveness of the amendments set forth in Section 1 above:
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|
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2.1.
|
This Amendment shall have been duly executed and delivered by the parties hereto, and the same shall be in full force and effect.
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2.2.
|
The Longitude Holder and DI Collateral Agent shall have received the Marmo Subordination Agreement, the Strathspey Subordination Agreement, the Stockholder Agreement and such other Longitude Documents or DI Documents as may be requested, duly executed and delivered by the parties thereto and in form and substance satisfactory to each of the Longitude Holder and DI Collateral Agent, and the same shall be in full force and effect.
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3.
|
Amendment and Ratification
. The parties agree that the Agreement is hereby amended in accordance with this Amendment. Except as specifically amended hereby, all terms, conditions, covenants, representations and warranties contained in the Agreement shall remain in full force and effect, and shall be binding upon each of the parties under the Agreement.
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4.
|
Counterparts
. This Amendment and any amendments, waivers, consents or supplements hereto may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Amendment by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Amendment.
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5.
|
Governing Law; Incorporation by Reference.
This Amendment and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Amendment and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the laws of the State of Delaware.
Section 9
of the Agreement is hereby incorporated into this Amendment by this reference,
mutatis mutandis.
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6.
|
Further Assurances
. Each party to this Amendment will promptly execute and deliver such further instruments and agreements and do such further acts and things as may be reasonably requested in writing by any other party hereto that may be necessary or desirable in order to effect fully the purposes of this Amendment and the transactions contemplated hereunder.
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7.
|
Headings.
The section headings used in this Amendment are for convenience only and shall not affect the interpretation of any of the provisions hereof.
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|
8.
|
Effect on the Agreement and the other Longitude Documents and DI Documents
.
|
|
|
8.1.
|
The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its terms and hereby is ratified and confirmed in all respects. The execution, delivery, and performance of this Amendment shall not operate, except as expressly set forth herein, as a modification or waiver of any right, power, or remedy of the Longitude Holder or DI Collateral Agent under the Agreement or any other Longitude Document or DI Document. The modifications set forth herein are limited to the specifics hereof.
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8.2.
|
Upon and after the effectiveness of this Amendment, each reference in the Agreement to “this Agreement”, “hereunder”, “herein”, “hereof” or words of like import referring to the Agreement, and each reference in the other Longitude Documents and DI Documents to “the Intercreditor Agreement”, “thereunder”, “therein”, “thereof” or words of like import referring to the Agreement, shall mean and be a reference to the Agreement as modified and amended hereby.
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8.3.
|
To the extent that any terms and conditions in any of the Longitude Documents or the DI Documents shall contradict or be in conflict with any terms or conditions of the Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Agreement as modified or amended hereby.
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8.4.
|
This Amendment is a Longitude Document and a DI Document.
|
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9.
|
Severability
. Any provision of this Amendment that is prohibited or unenforceable shall not invalidate the remaining provisions hereof, and any such provision or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
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[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first above written.
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LONGITUDE VENTURE PARTNERS II, L.P.
|
By:
|
Longitude Capital Partners II, LLC, its
General Partner
|
|
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By
|
/s/ Juliet Tammenoms Bakker
|
Name:
|
Juliet Tammenoms Bakker
|
Title:
|
Managing Member
|
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DENTAL INNOVATIONS BVBA
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|
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By
|
/s/ Frank Laukoetter
|
Name:
|
Frank Laukoetter
|
Title:
|
Managing Director
|
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By
|
/s/ Didier Westen
|
Name:
|
Didier Westen
|
Title:
|
Managing Director
|
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ALPHAEON CORPORATION
|
|
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By
|
/s/ Murthy V. Simhambhata
|
Name:
|
Murthy V. Simhambhata
|
Title:
|
President
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EVOLUS, INC.
|
|
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By
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/s/ Murthy V. Simhambhata
|
Name:
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Murthy V. Simhambhata
|
Title:
|
President
|
[Signature Page to First Amendment to A&R Intercreditor Agreement]
GUARANTY AND SECURITY AGREEMENT
[Evolus/Dental Innovations]
This GUARANTY AND SECURITY AGREEMENT, dated as of April 19, 2017 (as amended, supplemented or otherwise modified from time to time in accordance with the provisions hereof, this “
Agreement
”), made by and among EVOLUS, INC., a Delaware corporation (the “
Grantor
”), in favor of DENTAL INNOVATIONS BVBA, as collateral agent for the Secured Parties (defined below) (in such capacity, the “
Collateral Agent
”).
WHEREAS, Alphaeon Corporation, a Delaware corporation, as issuer (the “
Issuer
”), the Collateral Agent and certain purchasers party thereto have entered into that certain Amended and Restated Secured Convertible Note Purchase Agreement, dated as of April 19, 2017 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “
Purchase Agreement
”; capitalized terms used but not otherwise defined herein having the meanings given to them therein), which amends and restates that certain Secured Convertible Note Purchase Agreement, dated as of July 26, 2016, as amended, by which the Issuer has issued its Series 1 and Series 2 10.00% Convertible Promissory Notes due 2018 (collectively with any other Series of Notes that may be issued under the Purchase Agreement, the “
Notes
”); and
WHEREAS, the Issuer may issue additional Notes from time to time pursuant to the Purchase Agreement and the Purchasers of such Notes shall constitute Secured Parties hereunder and be entitled to all the benefits of a Secured Party hereunder; and
WHEREAS, the Grantor is a wholly-owned subsidiary of the Issuer and has received and will continue to receive, substantial tangible and intangible benefits from the issuance of the Notes; and
WHEREAS, it is a requirement under the terms of the Security Agreement that the Grantor execute and deliver this Agreement; and
WHEREAS, this Agreement is given by the Grantor in favor of the Collateral Agent, for the benefit of the Secured Parties, to secure the payment and performance of all of the Secured Obligations.
NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good, fair and valuable consideration and reasonably equivalent value, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1.
Definitions
.
(a)
Unless otherwise specified herein, all references to Sections and Schedules herein are to Sections and Schedules of this Agreement.
(b)
Unless otherwise defined herein, (i) terms used herein that are defined in the UCC shall have the meanings assigned to them in the UCC; provided, however, if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9, and (ii) terms used herein that are defined in the Purchase Agreement or the Notes shall have the meanings given to such terms in the Purchase Agreement or Notes, respectively.
(c)
For purposes of this Agreement, the following terms shall have the following meanings:
“
Collateral
” has the meaning set forth in
Section 3
.
“
Event of Default
” has the meaning set forth in the Notes and shall also include any default by Grantor hereunder.
“
First Priority
” means, with respect to any lien and security interest purported to be created in any Collateral pursuant to this Agreement, such lien and security interest is the most senior lien to which such Collateral is subject (subject only to liens in favor of Longitude Venture Partners II, L.P. securing the Longitude Note (as defined in the Notes) so long as such liens are subject to the Intercreditor Agreement).
“
Intercreditor Agreement
” means that certain Amended and Restated Intercreditor Agreement, dated as of July 26, 2016 and amended and restated as of April 19, 2017, between the Collateral Agent, Longitude Venture Partners II, L.P., the Issuer and the Grantor, which amends and restates that certain Intercreditor Agreement, dated as of July 26, 2016, between the Collateral Agent, Longitude Venture Partners II, L.P. and the Issuer, as amended, amended and restated, supplemented or otherwise modified from time to time pursuant to the terms thereof.
“Issuer Security Agreement”
means that certain Pledge and Security Agreement dated as of July 26, 2016 among the Issuer and the Collateral Agent, as amended and supplemented from time to time.
“Issuer Trademark Security Agreement”
means that certain Trademark Security Agreement, dated as of December 8, 2016, made by the Issuer in favor of the Collateral Agent, , as amended, amended and restated, supplemented or otherwise modified from time to time pursuant to the terms thereof.
“
Note Documents
” means this Agreement, the Issuer Security Agreement, the Issuer Trademark Security Agreement, the Notes, the Purchase Agreement, the Intercreditor Agreement and each other agreement or instrument executed and delivered in connection with the foregoing.
“Proceeds
” means “proceeds” as such term is defined in section 9-102 of the UCC and, in any event, shall include, without limitation, all dividends or other income from the Collateral, collections thereon or distributions with respect thereto.
“
Secured Obligations
” has the meaning set forth in
Section
4
.
“
Secured Party
” means the Collateral Agent and each of the Purchasers.
“
UCC
” means the Uniform Commercial Code as in effect from time to time in the State of California or, when the laws of any other state govern the method or manner of the perfection or enforcement of any security interest in any of the Collateral, the Uniform Commercial Code as in effect from time to time in such state.
2.
Guaranty
.
(a)
Grantor hereby absolutely, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, the full and punctual payment when due, whether at stated maturity or earlier, by reason of acceleration, mandatory prepayment or otherwise in accordance with any Note Document, of all the Secured Obligations (defined below) whether existing on the date hereof or hereinafter incurred or created. This Agreement by Grantor hereunder constitutes a guaranty of payment and not of collection.
(b)
Any term or provision of this Agreement or any other Note Document to the contrary notwithstanding, the maximum aggregate amount for which Grantor shall be liable hereunder shall not exceed the maximum amount for which Grantor can be liable without rendering this Agreement or any other Note Document, as it relates to Grantor, subject to avoidance under applicable law relating to fraudulent conveyance or fraudulent transfer (including the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act and Section 548 of Title 11 of the United States Code or any applicable provisions of comparable law) (collectively, “
Fraudulent Transfer Laws
”), as determined by a court of competent jurisdiction. Any payment by Grantor under this Agreement shall result in a dollar for dollar setoff and reduction in the amount of intercompany loans owing by Grantor to the Issuer, and the analysis of the provisions of this Agreement for purposes of Fraudulent Transfer Laws shall give effect to any discharge of intercompany debt as a result of any payment made under this Agreement.
(c)
The Secured Parties are hereby authorized, without notice to or demand upon Grantor and without discharging or otherwise affecting the obligations of Grantor hereunder and without incurring any liability hereunder, from time to time, to do each of the following:
|
|
a.
|
(A) modify, amend, supplement or otherwise change, (B) accelerate or otherwise change the time of payment or (C) waive or otherwise consent to noncompliance with, any Secured Obligation or any Note Document;
|
|
|
b.
|
apply to the Secured Obligations any sums by whomever paid or however realized to any Secured Obligation in such order as provided in the Note Documents;
|
|
|
c.
|
refund at any time any payment received by any Secured Party in respect of any Secured Obligation;
|
|
|
d.
|
(A) sell, exchange, enforce, waive, substitute, liquidate, terminate, release, abandon, fail to perfect, subordinate, accept, substitute, surrender, exchange, affect, impair or otherwise alter or release any collateral for any Secured Obligation or any other guaranty therefor in any manner, (B) receive, take and hold additional collateral to secure any Secured Obligation, (C) add, release or substitute any one or more other guarantors, makers or endorsers of any Secured Obligation or any part thereof and (D) otherwise deal in any manner with the Issuer and any other guarantor, maker or endorser of any Secured Obligation or any part thereof; and
|
|
|
e.
|
settle, release, compromise, collect or otherwise liquidate the Secured Obligations.
|
(d)
Grantor's liability is irrevocable absolute and unconditional and shall not be reduced, impaired or affected in any way by reason of (i) any failure to obtain, retain or preserve, or the lack of prior enforcement of, any rights against any Person or Persons (including Issuer and Grantor), or in any property, (ii) the invalidity or unenforceability of any of the Secured Obligations or rights in the Collateral or any other collateral for the Secured Obligations, (iii) any delay in making demand upon Issuer or Grantor or any delay in enforcing, or any failure to enforce, any rights against Issuer or Grantor or in any Collateral or any other collateral for the Secured Obligations, even if such rights are thereby lost, (iv) any failure, neglect or omission to obtain, perfect or retain any lien upon, protect, exercise rights against, or realize on, any property of Issuer or Grantor, or any other party securing the Secured Obligations, (v) the existence or non-existence of any defenses which may be available to Issuer or Grantor with respect to the Secured Obligations, or (vi) the commencement of any bankruptcy, reorganization, liquidation, dissolution, receivership, insolvency proceeding of any kind or case filed by or against Issuer or Grantor.
(e)
Grantor hereby unconditionally and irrevocably waives and agrees not to assert any claim, defense, setoff or counterclaim based on diligence, promptness, presentment, requirements for any demand or notice hereunder including any of the following: (i) any demand for payment or performance and protest and notice of protest; (ii) any notice of acceptance; (iii) any presentment, demand, protest or further notice or other requirements of any kind with respect to any Secured Obligation (including any accrued but unpaid interest thereon) becoming immediately due and payable; and (iv) any other notice in respect of any Secured Obligation or any part thereof, and any defense arising by reason of any disability or other defense of the Issuer or any other guarantor. Grantor further unconditionally and irrevocably agrees not to (A) enforce or otherwise exercise any right of subrogation or any right of reimbursement or contribution or similar right against the Issuer or any other guarantor by reason of any Note Document or any payment made thereunder or (B) assert any claim, defense, setoff or counterclaim (other than payment in full in cash of the Secured Obligations and termination of the Purchase Agreement) it may have against any Issuer or any other guarantor or pledgor or set off any of its obligations to Issuer or such other guarantor or pledgor against obligations of such Person to Grantor.
3.
Grant of Security Interest
. The Grantor hereby pledges and grants to the Collateral Agent, for the benefit of the Secured Parties, and hereby creates a continuing First Priority lien and security interest in favor of the Collateral Agent, for the benefit of the Secured Parties, in and to all of
its right, title and interest in and to the following, wherever located, whether now existing or hereafter from time to time arising or acquired (collectively, the “
Collateral
”):
(a)
all fixtures and personal property of every kind and nature including all accounts (including health-care-insurance receivables), goods (including inventory and equipment), documents (including, if applicable, electronic documents), instruments, promissory notes, chattel paper (whether tangible or electronic), letters of credit, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), securities and all other investment property, commercial tort claims described on
Schedule I
hereof as supplemented by any written notification given by the Grantor to the Collateral Agent pursuant to
Section
5(e)
, general intangibles (including all payment intangibles, patents, trademarks, copyrights, software, and other intellectual property), money, deposit accounts, and any other contract rights or rights to the payment of money, and in any event shall specifically include, without limitation, that certain License and Supply Agreement dated as of September 30, 2013 between the Grantor and Daewoong Pharmaceutical Co., Ltd., as amended, restated supplemented or otherwise modified from time to time (the “
License Agreement
”), including, without limitation, the exclusive right and license to import, distribute, promote, market, develop, offer for sale and otherwise commercialize or exploit Product in the Territory (as such terms are defined in the License Agreement) for aesthetic use and (subject to the terms of the License Agreement) Therapeutic Use (as defined in the License Agreement); and
(b)
all Proceeds and products of each of the foregoing, all books and records relating to the foregoing, all supporting obligations related thereto, and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, and any and all Proceeds of any insurance, indemnity, warranty or guaranty payable to the Grantor from time to time with respect to any of the foregoing.
4.
Secured Obligations
. The Collateral secures the due and prompt payment and performance of:
(a)
the obligations of the Issuer and the Grantor from time to time arising under the Purchase Agreement, the Notes, this Agreement or other Note Documents or otherwise with respect to the due and prompt payment of (i) the principal of and Redemption Price and interest on the Notes (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, attorneys’ fees and disbursements, reimbursement obligations, contract causes of action, expenses and indemnities, whether primary, secondary, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Issuer or the Grantor under or in respect of the Purchase Agreement or the Notes or other Note Documents; and
(b)
all other covenants, duties, debts, obligations and liabilities of any kind of the Grantor hereunder or the Issuer under or in respect of the Purchase Agreement, the Notes, the other Note Documents or any other document made, delivered or given in connection with any of the foregoing, in each case whether evidenced by a note or other writing, whether allowed in any bankruptcy, insolvency, receivership or other similar proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, and whether primary, secondary, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, fixed or otherwise (all such obligations, covenants, duties, debts, liabilities, sums and expenses set forth in
Section
4
being herein collectively called the “
Secured Obligations
”);
provided
,
however
, as to any portion of a Series 2 Note (as defined in the Purchase Agreement) that is not converted in conjunction with a Qualified Transaction (as defined in such Series 2 Note) pursuant to Section 4.1(a) of the Series 2 Note, upon the consummation of such Qualified Transaction, the obligations of the Issuer under such Series 2 Note shall cease to constitute Secured Obligations hereunder, the security interest in the Collateral granted pursuant to this Agreement shall no longer secure Series 2 Note, and all of the Issuer’s obligations under such Series 2 Note shall be unsecured.
5.
Perfection of Security Interest and Further Assurances
.
(a)
The Grantor shall, from time to time, as may be reasonably required by the Collateral Agent with respect to all or any portion of the Collateral, take all actions to perfect the security interest of the Collateral Agent, for the benefit of the Secured Parties, in the Collateral, including, without limitation, with respect to all Collateral over which control may be obtained within the meaning of sections 8-106, 9-104, 9-105, 9-106 and 9-107 of the UCC, as applicable, the Grantor shall take all actions as may be reasonably requested from time to time by the Collateral Agent so that control of such Collateral is obtained and at all times held by the Collateral Agent. All of the foregoing shall be at the sole cost and expense of the Grantor. In furtherance of the foregoing, but subject to the terms of the License Agreement and the applicable provisions of the UCC (including, without limitation, Sections 9‑406, 9‑407, 9‑408 and 9‑409 of the UCC), the Grantor hereby collaterally assigns and transfers to the Collateral Agent all of its rights and remedies under the License Agreement.
(b)
The Grantor hereby irrevocably authorizes the Collateral Agent at any time and from time to time to file in any relevant jurisdiction any financing statements and amendments thereto that contain the information required by Article 9 of the UCC of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Collateral, including any financing or continuation statements or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by the Grantor hereunder, without the signature of the Grantor where permitted by law, including the filing of a financing statement describing the Collateral as “all assets now owned or hereafter acquired by the Grantor,” or words of similar effect. The Grantor agrees to provide all information required by the Collateral Agent pursuant to this Section promptly to the Collateral Agent upon request.
(c)
The Grantor hereby further authorizes the Collateral Agent to file with the United States Patent and Trademark Office and the United States Copyright Office (and any successor office and any similar office in any state of the United States or in any other country) this Agreement and other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by the Grantor hereunder, without the signature of the Grantor where permitted by law, and upon request of Collateral Agent, Grantor shall promptly execute and deliver such patent, trademark and/or copyright security agreements as may be deemed necessary by Collateral Agent in its discretion to evidence the liens granted hereby in the United States Patent and Trademark Office and the United States Copyright Office.
(d)
If the Grantor shall at any time hold or acquire any certificated securities promissory notes, tangible chattel paper, negotiable documents or warehouse receipts relating to the Collateral, the Grantor shall endorse, assign and deliver the same to the Collateral Agent, accompanied by such
instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time specify.
(e)
If the Grantor shall at any time hold or acquire a commercial tort claim, the Grantor shall (i) notify the Collateral Agent in a writing signed by the Grantor of the particulars thereof and grant to the Collateral Agent in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Collateral Agent and (ii) deliver to the Collateral Agent an updated
Schedule I
.
(f)
The Grantor agrees that at any time and from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, obtain such agreements from third parties, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder or under any other agreement with respect to any Collateral.
6.
Representations and Warranties
. The Grantor represents and warrants as follows:
(a)
(i) the Grantor’s exact legal name is that indicated on the signature page hereof, (ii) the Grantor is a corporation, organized in the State of Delaware, (iii) the Grantor’s place of business (or, if more than one, its chief executive office), and its mailing address (if different) is set forth on the signature page hereof.
(b)
At the time the Collateral becomes subject to the lien and security interest created by this Agreement, the Grantor will be the sole, direct, legal and beneficial owner thereof, free and clear of any lien, security interest, encumbrance, claim, option or right of others except for the security interest created by this Agreement and the other liens permitted by the Intercreditor Agreement.
(c)
The pledge of the Collateral pursuant to this Agreement creates a valid and perfected First Priority security interest in the Collateral, securing the payment and performance when due of the Secured Obligations.
(d)
It has full power, authority and legal right to pledge the Collateral pursuant to this Agreement.
(e)
This Agreement has been duly authorized, executed and delivered by the Grantor and constitutes a legal, valid and binding obligation of the Grantor enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors’ rights generally and subject to equitable principles (regardless of whether enforcement is sought in equity or at law).
(f)
No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body or other person is required for the pledge by the Grantor of the Collateral pursuant to this Agreement or for the execution and delivery of this Agreement by the Grantor or the performance by the Grantor of its obligations hereunder.
(g)
The execution and delivery of this Agreement by the Grantor and the performance by the Grantor of its obligations hereunder, will not violate any provision of any applicable law or regulation or any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, applicable to the Grantor or any of its property, or the organizational or governing documents of the Grantor or any agreement or instrument to which the Grantor is party or by which it or its property is bound.
(h)
Grantor receives synergistic benefits by virtue of its affiliation with the Issuer and the other guarantors and pledgors and that it will receive direct and indirect benefits from the financing arrangements contemplated by the Purchase Agreement and that such benefits, together with the rights of contribution and subrogation that may arise in connection herewith are a reasonably equivalent exchange of value in return for providing this Agreement.
(i)
On the date hereof, Schedule II sets forth (i) each place of business of Grantor (including its chief executive office), (ii) all locations where Collateral is kept, and (iii) whether each such Collateral location and place of business (including Grantor’s chief executive office) is owned or leased (and if leased, specifies the complete name and notice address of each lessor). No Collateral is located outside the United States or in the possession of any lessor, bailee, warehouseman or consignee.
(j)
All deposit accounts and all other depositary and other accounts maintained by each Grantor are described on Schedule III hereto, which description includes for each such account the name of the account holder, the name, address, telephone and fax numbers of the financial institution at which such account is maintained.
7.
[Reserved]
.
8.
Covenants
. The Grantor covenants as follows:
(a)
The Grantor will not, without providing at least 30 days’ prior written notice to the Collateral Agent, change its legal name, identity, type of organization, jurisdiction of organization, corporate structure, or its principal place of business The Grantor will, prior to any change described
in the preceding sentence, take all actions reasonably requested by the Collateral Agent to maintain the perfection and priority of the Collateral Agent’s security interest in the Collateral.
(b)
The Grantor shall, at its own cost and expense, defend title to the Collateral and the First Priority lien and security interest of the Collateral Agent therein against the claim of any person claiming against or through the Grantor and shall maintain and preserve such perfected First Priority security interest for so long as this Agreement shall remain in effect.
(c)
The Grantor will not sell, offer to sell, dispose of, convey, assign or otherwise transfer, grant any option with respect to, restrict, or grant, create, permit or suffer to exist any mortgage, pledge, lien, security interest, option, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever on, any of the Collateral or any interest therein, except (x) with the prior written consent of the Collateral Agent or (y) sales of inventory in the ordinary course of business. Notwithstanding anything to the contrary contained herein or in any other Note Document (i) the consent of the Requisite Holders, along with the Collateral Agent, shall be required for any sale of any of the Collateral or any interest therein, if such sale does not result in a prepayment of the Notes in amount at least equal to the Face Amount (as such term is defined in the Notes) of the Notes, plus accrued interest thereon; and (ii) the Grantor may sell, sub-license or otherwise transfer rights to the therapeutic distribution rights in the License Agreement, subject to the prepayment requirements under the Notes (the “
Therapeutic License Disposition
”);
provided
, that on and after the date that an aggregate of at least US$20,000,000 of the Notes are purchased for cash and funded, and in any case prior to the date a definitive agreement with respect to a Therapeutic License Disposition is entered into, (A) such Therapeutic License Disposition must be approved in advance and in writing by the Collateral Agent or (B) the sales price with respect to a Therapeutic License Disposition must be supported by a valuation report of an independent consultant in form and substance reasonably satisfactory to the Collateral Agent.
(d)
The Grantor will keep the Collateral in good order and repair (subject to casualty and normal wear and tear) and will not use the same in violation of law or any policy of insurance thereon. The Grantor will permit the Collateral Agent, or its designee, to inspect the Collateral at any reasonable time, wherever located.
(e)
The Grantor will pay promptly when due all taxes, assessments, governmental charges, and levies upon the Collateral or incurred in connection with the use or operation of the Collateral or incurred in connection with this Agreement.
(f)
Whenever Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any intellectual property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof that relates to or is in furtherance
of the Collateral, Grantor shall report such filing to Collateral Agent. Grantor will take all reasonable and necessary steps to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of all intellectual property included in the Collateral.
(g)
Grantor will not amend the License Agreement without the prior written consent of the Collateral Agent.
(h)
The Grantor shall not create, assume, incur or have outstanding any debt for borrowed money, except for that certain Guaranty and Security Agreement, dated on or about the date hereof, by Grantor in favor of the Longitude Venture Partners II, L.P., subject, however, to the terms of the Intercreditor Agreement.
(i)
The Grantor shall promptly notify the Collateral Agent of any changes to the information contained in the Schedules hereof.
9.
Collateral Agent Appointed Attorney-in-Fact
. The Grantor hereby appoints the Collateral Agent the Grantor’s attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time during the continuance of an Event of Default in the Collateral Agent's discretion to take any action and to execute any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement (but the Collateral Agent shall not be obligated to and shall have no liability to the Grantor or any third party for failure to do so or take action). The Grantor further irrevocably authorizes and empowers the Collateral Agent or its agents to, after the occurrence and during the continuance of an Event of Default, assert either directly or on behalf of the Grantor, any claims the Grantor may, from time to time, have with respect to the License Agreement, as Collateral Agent may deem proper, and to apply the same on account of any of the Secured Obligations. This appointment, being coupled with an interest, shall be irrevocable. The Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. The Collateral Agent shall have no liability for exercising or not exercising its rights hereunder. The rights of the Collateral Agent set forth in this Agreement shall be in addition to, and not in lieu of, any rights or obligations set forth in the Purchase Agreement, the Notes or any other Note Document. All rights and remedies evidenced hereby, or evidenced or contemplated by the Purchase Agreement or any Note Document shall be cumulative and may be exercised separately or concurrently in the sole discretion of the Collateral Agent.
10.
Collateral Agent May Perform
. If the Grantor fails to perform any obligation contained in this Agreement, the Collateral Agent may itself perform, or cause performance of, such obligation, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by the Grantor;
provided that
the Collateral Agent shall not be required to perform or discharge any obligation of the Grantor.
11.
Reasonable Care
. The Collateral Agent shall have no duty with respect to the care and preservation of the Collateral beyond the exercise of reasonable care. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own property, it being understood that the Collateral Agent shall not have any responsibility for (a) ascertaining or taking action with respect to any claims, the nature or sufficiency of any payment or performance by any party under or pursuant to any agreement relating to the Collateral or other matters relative to any Collateral, whether or not the Collateral Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Nothing set forth in this Agreement, or the exercise by the Collateral Agent of any of the rights and remedies hereunder, shall relieve the Grantor from the performance of any obligation on the Grantor’s part to be performed or observed in respect of any of the Collateral.
12.
Remedies Upon Default
.
(a)
If any Event of Default shall have occurred and be continuing, the Collateral Agent, without any other notice to or demand upon the Grantor, may (and at the direction of the Requisite Holders shall), assert all rights and remedies of a secured party under the UCC or other applicable law, including, without limitation, the right to take possession of, hold, collect, sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose of all or any portion of the Collateral, in addition to all other rights and remedies granted to the Collateral Agent in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations. If notice prior to disposition of the Collateral or any portion thereof is necessary under applicable law, written notice mailed to the Grantor at its notice address as provided in
Section
15
hereof ten days prior to the date of such disposition shall constitute reasonable notice, but notice given in any other reasonable manner shall be sufficient. So long as the sale of the Collateral is made in a commercially reasonable manner, the Collateral Agent may sell such Collateral on such terms and to such purchaser(s) as the Collateral Agent in its absolute discretion may choose, without assuming any credit risk and without any obligation to advertise or give notice of any kind other than that necessary under applicable law. Without precluding any other methods of sale, the sale of the Collateral or any portion thereof shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of creditors disposing of similar property. At any sale of the Collateral, if permitted by applicable law, the Collateral Agent may be the purchaser, licensee, assignee or recipient of the Collateral or any part thereof and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold, assigned or licensed at such sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price of the Collateral or any part thereof payable at such sale. To the extent permitted by applicable law, the Grantor waives all claims, damages and demands it may acquire against the Collateral Agent arising out of the exercise by it of any rights
hereunder. The Grantor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Secured Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Collateral Agent may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. The Collateral Agent shall not be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing, nor shall it be under any obligation to take any action whatsoever with regard thereto. The Collateral Agent shall not be obligated to clean-up or otherwise prepare the Collateral for sale.
(b)
If any Event of Default shall have occurred and be continuing, any cash held by the Collateral Agent as Collateral and all cash Proceeds received by the Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied in whole or in part by the Collateral Agent to the payment of expenses incurred by the Collateral Agent in connection with the foregoing or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Collateral Agent hereunder, including reasonable attorneys’ fees, and the balance of such proceeds shall be applied or set off against all or any part of the Secured Obligations in such order as the Collateral Agent shall elect. Any surplus of such cash or cash Proceeds held by the Collateral Agent and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. The Grantor shall remain liable for any deficiency if such cash and the cash Proceeds of any sale or other realization of the Collateral are insufficient to pay the Secured Obligations and the fees and other charges of any attorneys employed by the Collateral Agent to collect such deficiency.
(c)
If the Collateral Agent shall determine to exercise its rights to sell all or any of the Collateral pursuant to this Section, the Grantor agrees that, upon request of the Collateral Agent, the Grantor will, at its own expense, do or cause to be done all such acts and things as may be necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law.
(d)
Neither Collateral Agent or any Purchasers nor any of their respective officers, directors, employees or agents shall be liable for any failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Grantor or any other person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on Collateral Agent hereunder are solely to protect Collateral Agent's and Purchasers' interests in the Collateral and shall not impose any duty upon Collateral Agent or any Purchaser to exercise any such powers. Collateral Agent shall be accountable only for amounts it actually receives as a result of the exercise
of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to Grantor for any act or failure to act under this Agreement.
13.
No Waiver and Cumulative Remedies
. The Collateral Agent shall not by any act (except by a written instrument pursuant to
Section
14
), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default. All rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law.
14.
Amendments
. None of the terms or provisions of this Agreement may be amended, modified, supplemented, terminated or waived, and no consent to any departure by the Grantor therefrom shall be effective unless the same shall be in writing and signed by the Collateral Agent with the consent of the Requisite Holders (as defined in the Notes) and (ii) and the Grantor, and then such amendment, modification, supplement, waiver or consent shall be effective only in the specific instance and for the specific purpose for which made or given.
15.
Notices
. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on the signature page or to such e-mail address, facsimile number or address as subsequently modified by written notice given in accordance with this
Section
.
16.
Continuing Security Interest; Further Actions
. This Agreement shall create a continuing First Priority lien and security interest in the Collateral and shall (a) subject to
Section 17
, remain in full force and effect until payment and performance in full of the Secured Obligations, (b) be binding upon the Grantor, its successors and assigns, and (c) inure to the benefit of the Collateral Agent, the Secured Parties and their respective successors, transferees and assigns;
provided that
the Grantor may not assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the Collateral Agent and the Requisite Holders.
17.
Termination; Release
. On the earlier of (a) the date on which all Secured Obligations have been paid and performed in full and (b) the date on which all of the Notes have been either converted to equity pursuant to Section 4.1 of the applicable Note or, as applicable, retained as an unsecured Series 2 Note pursuant to Section 4.1 (b) of the Series 2 Notes, the Collateral Agent will, at the request and sole expense of the Grantor, (a) duly assign, transfer and deliver to or at the direction
of the Grantor (without recourse and without any representation or warranty) such of the Collateral as may then remain in the possession of the Collateral Agent, together with any monies at the time held by the Collateral Agent hereunder, and (b) execute and deliver to the Grantor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, including without limitation appropriate UCC-3 termination statements to reflect the termination of the Collateral Agent's security interest pursuant to this Agreement.
18.
GOVERNING LAW
. This Agreement and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the laws of the State of Delaware. The provisions of Sections 7.2 and 7.15 of the Purchase Agreement are incorporated herein,
mutatis mutandis
, as if a part hereof
.
19.
Counterparts
. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement. This Agreement and the other Note Documents constitute the entire contract among the parties with respect to the subject matter hereof and supersede all previous agreements and understandings, oral or written, with respect thereto.
20.
Expenses
. Grantor agrees to pay or reimburse on demand Collateral Agent for all reasonable out-of-pocket costs and expenses (including reasonable legal fees) incurred in enforcing or preserving any rights under this Agreement.
21.
Severability
. If any part of this Agreement is contrary to, prohibited by, or deemed invalid under applicable laws or regulations or by a court of competent jurisdiction (as a result of merger doctrine or otherwise), such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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Evolus, Inc., as Grantor
|
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By
|
/s/ Murthy V. Simhambhatla
|
|
|
Name: Murthy V. Simhambhatla
|
Title: President & CEO
|
Address for Notices:
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1027 Garden Street
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Santa Barbara, CA 93101
|
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DENTAL INNOVATIONS BVBA, as
|
Collateral Agent
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By
|
/s/ Frank Laukoetter /s/ Didier Westen
|
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Name: Frank Laukoetter Didier Westen
|
Title: Managing Director Managing Director
|
Address for Notices:
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Wiegstraat 21
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2000 Antwerp, Belgium
|
SCHEDULE I
COMMERCIAL TORT CLAIMS
None.
SCHEDULE II
COLLATERAL LOCATIONS
1027 Garden Street, Santa Barbara, CA 93101
Landlord:
J Carol Duncan
3139 Cliff Drive
Santa Barbara, CA 93109-1027
SCHEDULE III
DEPOSIT ACCOUNTS
None.
AMENDMENT TO GUARANTY AND SECURITY AGREEMENT
[Evolus/Dental Innovations]
This AMENDMENT TO GUARANTY AND SECURITY AGREEMENT (this “
Amendment
”), dated as of December 14, 2017, is made by and between EVOLUS, INC., a Delaware corporation (the “
Grantor
”), and Dental Innovations BVBA, as Collateral Agent for the Secured Parties and amends that certain Guaranty and Security Agreement, dated as of April 19, 2017, by and between the Grantor in favor of the Collateral Agent (the “
Agreement
”).
RECITALS
WHEREAS, the Grantor and Collateral Agent desire to amend the Agreement to provide for the termination of the Agreement and the release of the First Priority lien and security interest in favor of the Secured Parties in and to the Collateral upon certain circumstances relating to sales of the Grantor’s securities; and
WHEREAS, pursuant to Section 14 of the Agreement, the Agreement may be amended, modified, supplemented, terminated or waived only by the Collateral Agent (with the consent of the Requisite Holders) and the Grantor.
NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good, fair and valuable consideration and reasonably equivalent value, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1.
Amendment to Section 17
. Section 17 of the Agreement is hereby amended and restated in its entirety as follows:
“
Termination; Release
. On the earlier of (a) the date on which all Secured Obligations have been paid and performed in full, (b) the date on which all of the Notes have been converted in full to equity pursuant to Section 4 of the Notes, and (c) the consummation of an initial public offering of the Grantor’s common stock pursuant to a registration statement filed under the Securities Act of 1933, then the Collateral Agent will, at the request and sole expense of the Grantor, execute and deliver to the Grantor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, including without limitation appropriate UCC-3 termination statements to reflect the termination of the Collateral Agent’s security interest pursuant to this Agreement.”
2.
Definitions
. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms as in the Agreement.
3.
Amendment and Ratification
. The parties agree that the Agreement is hereby amended in accordance with this Amendment. Except as specifically amended hereby, all terms, conditions, covenants, representations and warranties contained in the Agreement shall remain in full force and effect, and shall be binding upon each of the parties under the Agreement.
4.
Counterparts
. This Amendment and any amendments, waivers, consents or supplements hereto may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Amendment by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Amendment.
5.
Governing Law.
This Amendment and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Amendment and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the laws of the State of Delaware.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
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EVOLUS, INC., as Grantor
|
|
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By
|
/s/ Murthy Simhambhatla
|
|
Name:
|
Murthy Simhambhatla
|
Title:
|
CEO
|
Address for Notices:
|
1027 Garden Street
|
Santa Barbara, CA 93101
|
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|
DENTAL INNOVATIONS BVBA, as
Collateral Agent
|
|
By
|
/s/ Frank Laukoetter /s/ Didier Westen
|
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Name:
|
Frank Laukoetter Didier Westen
|
Title:
|
Managing Director Managing Director
|
Address for Notices:
|
|
Dental Innovations BVBA
|
Wiegstraat 21
|
2000 Antwerpen
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Belgium
|
Signature Page to Amendment to Guaranty and Security Agreement
GUARANTY AND SECURITY AGREEMENT
[Evolus/Longitude]
This GUARANTY AND SECURITY AGREEMENT, dated as of April 19, 2017 (as amended, supplemented or otherwise modified from time to time in accordance with the provisions hereof, this “
Agreement
”), made by and among EVOLUS, INC., a Delaware corporation (the “
Grantor
”), in favor of LONGITUDE VENTURE PARTNERS II, L.P., a Delaware limited partnership (in such capacity, the “
Secured Party
”.
WHEREAS, Alphaeon Corporation, a Delaware corporation, as issuer (the “
Issuer
”), and Secured Party are parties to that certain Second Amended and Restated Secured Convertible Bridge Note, originally dated May 27, 2016 and amended and restated on April 19, 2017, which amended and replaced in full that certain Amended and Restated Secured Convertible Bridge Note, dated May 27, 2016 and amended and restated on or about July 25, 2016 and that certain Secured Convertible Bridge Note and Warrant Agreement, dated as of May 27, 2016 (as so amended, and as further amended, amended and restated, supplemented or otherwise modified from time to time, the “
Note Agreement
”);
WHEREAS, the Issuer and Secured Party are parties to that certain Amended and Restated Pledge and Security Agreement, dated as of May 27, 2016 and amended and restated as of July 26, 2016, and as further amended as of April 19, 2017 (as so amended and restated, and as further amended, amended and restated, supplemented or otherwise modified from time to time, the
“Issuer Pledge and Security Agreement”
); and
WHEREAS, the Grantor is a wholly-owned subsidiary of the Issuer and has received and will continue to receive, substantial tangible and intangible benefits from the issuance of the Note Agreement; and
WHEREAS, it is a requirement under the terms of the Issuer Pledge and Security Agreement that the Grantor execute and deliver this Agreement; and
WHEREAS, this Agreement is given by the Grantor in favor of the Secured Party to secure the payment and performance of all of the Secured Obligations.
NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good, fair and valuable consideration and reasonably equivalent value, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1.
Definitions
.
(a)
Unless otherwise specified herein, all references to Sections and Schedules herein are to Sections and Schedules of this Agreement.
(b)
Unless otherwise defined herein, (i) terms used herein that are defined in the UCC shall have the meanings assigned to them in the UCC; provided, however, if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9, and (ii) terms used herein that are defined in the Note Agreement shall have the meanings given to such terms in the Note Agreement.
(c)
For purposes of this Agreement, the following terms shall have the following meanings:
“
Collateral
” has the meaning set forth in
Section 3
.
“
DI Collateral Agent
” means Dental Innovations BVBA, as collateral agent under the DI Note Purchase Agreement.
“
DI Note Purchase Agreement
” means that certain Amended and Restated Secured Convertible Note Purchase Agreement, dated as of April 19, 2017, by and among the Issuer, the purchasers listed on Schedule A and Schedule A-1 attached thereto, the DI Collateral Agent, and Strathspey Crown Holdings, LLC (with respect to Section 2.21 thereof), which amended and restated that certain Secured Convertible Note Purchase Agreement, dated as of July 26, 2016 and amended on November 9, 2016, by and among the Issuer, the purchasers a party thereof, the DI Collateral Agent, Alpha International Investment, Ltd, solely with respect to Sections 1.4 and 7.9 thereof, and Secured Party (solely with respect to Sections 1.5 and 7.9 thereof), in existence as of the date of this Agreement or as amended, amended and restated, supplemented or otherwise modified from time to time as permitted pursuant to the Intercreditor Agreement.
“
DI Notes
” means the Series 1 Notes and Series 2 Notes, as such terms are defined in the DI Note Purchase Agreement in effect as of the date hereof, or as amended, amended and restated, supplemented or otherwise modified from time to time as permitted pursuant to the Intercreditor Agreement.
“
Event of Default
” means any Event of Default, as defined in the Note Agreement; (b) any and shall also include any default by Grantor hereunder.
“
First Priority
” means, with respect to any lien and security interest purported to be created in any Collateral pursuant to this Agreement, such lien and security interest is the most senior lien to which such Collateral is subject (subject only to liens in favor of the DI Collateral Agent, in its capacity as collateral agent for the holders of the DI Notes so long as such liens are subject to the Intercreditor Agreement.
“
Intercreditor Agreement
” means that certain Amended and Restated Intercreditor Agreement, dated as of July 26, 2016 and amended and restated as of April 19, 2017, between the Secured Party, the DI Collateral Agent, the Issuer and the Grantor, which amends and restates that certain Intercreditor Agreement, dated as of July 26, 2016, between the Secured Party, the DI Collateral Agent and the Issuer, as amended, amended and restated, supplemented or otherwise modified from time to time pursuant to the terms thereof.
“
Issuer Pledge and Security Agreement
” has the meaning set forth in the recitals hereto.
“
Issuer Trademark Security Agreement
” means that certain Trademark Security Agreement, dated as of January 4, 2017, by the Issuer in favor of the Secured Party, as amended, amended and restated, supplemented or otherwise modified from time to time.
“
Note Agreement
” has the meaning set forth in the recitals hereto.
“
Note Documents
” means, this Agreement, the Note Agreement, the Issuer Pledge and Security Agreement, the Issuer Trademark Security Agreement, the Intercreditor Agreement, and each other agreement or instrument executed and delivered in connection with the foregoing.
“Proceeds
” means “proceeds” as such term is defined in section 9-102 of the UCC and, in any event, shall include, without limitation, all dividends or other income from the Collateral, collections thereon or distributions with respect thereto.
“
Secured Obligations
” has the meaning set forth in
Section 4
.
“
Secured Party
” has the meaning set forth in the recitals hereto.
“
UCC
” means the Uniform Commercial Code as in effect from time to time in the State of California or, when the laws of any other state govern the method or manner of the perfection or enforcement of any security interest in any of the Collateral, the Uniform Commercial Code as in effect from time to time in such state.
2.
Guaranty
.
(a)
Grantor hereby absolutely, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, the full and punctual payment when due, whether at stated maturity or earlier, by reason of acceleration, mandatory prepayment or otherwise in accordance with any Note Document, of all the Secured Obligations (defined below) whether existing on the date hereof or hereinafter incurred or created. This Agreement by Grantor hereunder constitutes a guaranty of payment and not of collection.
(b)
Any term or provision of this Agreement or any other Note Document to the contrary notwithstanding, the maximum aggregate amount for which Grantor shall be liable hereunder shall not exceed the maximum amount for which Grantor can be liable without rendering this Agreement or any other Note Document, as it relates to Grantor, subject to avoidance under applicable law relating to fraudulent conveyance or fraudulent transfer (including the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act and Section 548 of Title 11 of the United States Code or any applicable provisions of comparable law) (collectively, “
Fraudulent Transfer Laws
”), as determined by a court of competent jurisdiction. Any payment by Grantor under this Agreement shall result in a dollar for dollar setoff and reduction in the amount of intercompany loans owing by Grantor to the Issuer, and the analysis of the provisions of this Agreement for purposes of Fraudulent Transfer Laws shall give effect to any discharge of intercompany debt as a result of any payment made under this Agreement.
(c)
The Secured Party is hereby authorized, without notice to or demand upon Grantor and without discharging or otherwise affecting the obligations of Grantor hereunder and without incurring any liability hereunder, from time to time, to do each of the following:
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(i)
|
(A) modify, amend, supplement or otherwise change, (B) accelerate or otherwise change the time of payment or (C) waive or otherwise consent to noncompliance with, any Secured Obligation or any Note Document;
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(ii)
|
apply to the Secured Obligations any sums by whomever paid or however realized to any Secured Obligation in such order as provided in the Note Documents;
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(iii)
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refund at any time any payment received by Secured Party in respect of any Secured Obligation;
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(iv)
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(A) sell, exchange, enforce, waive, substitute, liquidate, terminate, release, abandon, fail to perfect, subordinate, accept, substitute, surrender, exchange, affect, impair or otherwise alter or release any collateral for any Secured Obligation or any other guaranty therefor in any manner, (B) receive, take and hold additional collateral to secure any Secured Obligation, (C) add, release or substitute any one or more other guarantors, makers or endorsers of any Secured Obligation or any part thereof and (D) otherwise deal in any manner with the Issuer and any other guarantor, maker or endorser of any Secured Obligation or any part thereof; and
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(v)
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settle, release, compromise, collect or otherwise liquidate the Secured Obligations.
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(d)
Grantor's liability is irrevocable, absolute and unconditional and shall not be reduced, impaired or affected in any way by reason of (i) any failure to obtain, retain or preserve, or the lack of prior enforcement of, any rights against any Person or Persons (including Issuer and Grantor), or in any property, (ii) the invalidity or unenforceability of any of the Secured Obligations or rights in the Collateral or any other collateral for the Secured Obligations, , (iii) any delay in making demand upon Issuer or Grantor or any delay in enforcing, or any failure to enforce, any rights against Issuer or Grantor or in any Collateral or any other collateral for the Secured Obligations, even if such rights are thereby lost, (iv) any failure, neglect or omission to obtain, perfect or retain any lien upon, protect, exercise rights against, or realize on, any property of Issuer or Grantor, or any other party securing the Secured Obligations, (v) the existence or non-existence of any defenses which may be available to Issuer or Grantor with respect to the Secured Obligations, or (vi) the commencement of any bankruptcy, reorganization, liquidation, dissolution, receivership, insolvency proceeding of any kind or case filed by or against Issuer or Grantor.
(e)
Grantor hereby unconditionally and irrevocably waives and agrees not to assert any claim, defense, setoff or counterclaim based on diligence, promptness, presentment, requirements for any demand or notice hereunder including any of the following: (i) any demand for payment or performance and protest and notice of protest; (ii) any notice of acceptance; (iii) any presentment, demand, protest or further notice or other requirements of any kind with respect to any Secured Obligation (including any accrued but unpaid interest thereon) becoming immediately due and payable; and (iv) any other notice in respect of any Secured Obligation or any part thereof, and any defense arising by reason of any disability or other defense of the Issuer or any other guarantor. Grantor further unconditionally and irrevocably agrees not to (A) enforce or otherwise exercise any right of subrogation or any right of reimbursement or contribution or similar right against the Issuer or any other guarantor by reason of any Note Document or any payment made thereunder or (B) assert any claim, defense, setoff or counterclaim (other than payment in full in cash of the Secured Obligations and termination of the Note Agreement) it may have against any Issuer or any other guarantor or pledgor or set off any of its obligations to Issuer or such other guarantor or pledgor against obligations of such Person to Grantor.
3.
Grant of Security Interest
.
The Grantor hereby pledges and grants to the Secured Party, and hereby creates a continuing First Priority lien and security interest in favor of the Secured Party, in and to all of
its right, title and interest in and to the following, wherever located, whether now existing or hereafter from time to time arising or acquired (collectively, the “
Collateral
”):
(a)
all fixtures and personal property of every kind and nature including all accounts (including health-care-insurance receivables), goods (including inventory and equipment), documents (including, if applicable, electronic documents), instruments, promissory notes, chattel paper (whether tangible or electronic), letters of credit, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), securities and all other investment property, commercial tort claims described on
Schedule I
hereof as supplemented by any written notification given by the Grantor to the Secured Party pursuant to
Section 5(e)
, general intangibles (including all payment intangibles, patents, trademarks, copyrights, software, and other intellectual property), money, deposit accounts, and any other contract rights or rights to the payment of money, and in any event shall specifically include, without limitation, that certain License and Supply Agreement dated as of September 30, 2013 between the Grantor and Daewoong Pharmaceutical Co., Ltd., as amended, restated supplemented or otherwise modified from time to time (the “
License Agreement
”), including, without limitation, the exclusive right and license to import, distribute, promote, market, develop, offer for sale and otherwise commercialize or exploit Product in the Territory (as such terms are defined in the License Agreement) for aesthetic use and (subject to the terms of the License Agreement) Therapeutic Use (as defined in the License Agreement); and
(b)
all Proceeds and products of each of the foregoing, all books and records relating to the foregoing, all supporting obligations related thereto, and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, and any and all Proceeds of any insurance, indemnity, warranty or guaranty payable to the Grantor from time to time with respect to any of the foregoing.
4.
Secured Obligations
.
The Collateral secures the due and prompt payment and performance of:
(a)
the obligations of the Issuer and the Grantor from time to time arising under the Note Agreement, this Agreement and the other Note Documents or otherwise with respect to the due and prompt payment of (i) the principal of and Redemption Price and interest under the Note Agreement (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, attorneys’ fees and disbursements, reimbursement obligations, contract causes of action, expenses and indemnities, whether primary, secondary, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Issuer or the Grantor under or in respect of the Note Agreement, this Agreement and the other Note Documents; and
(b)
all other covenants, duties, debts, obligations and liabilities of any kind of the Grantor hereunder or the Issuer under or in respect of the Note Agreement, this Agreement, the other Note Documents or any other document made, delivered or given in connection with any of the foregoing, in each case whether evidenced by a note or other writing, whether allowed in any bankruptcy, insolvency, receivership or other similar proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, and whether primary, secondary, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, fixed or otherwise (all such obligations, covenants, duties, debts,
liabilities, sums and expenses set forth in
Section 4
being herein collectively called the “
Secured Obligations
”);
provided
,
however
, as to any portion of the amounts payable to Secured Party under the Note Agreement that is not converted in conjunction with a Qualified Transaction (as defined in such Note Agreement) pursuant to Section 4.1(a) of the Note Agreement, upon the consummation of such Qualified Transaction, the obligations of the Issuer under such Note Agreement shall cease to constitute Secured Obligations hereunder, the security interest in the Collateral granted pursuant to this Agreement shall no longer secure the Note Agreement, and all of the Issuer’s obligations under the Note Agreement shall be unsecured.
5.
Perfection of Security Interest and Further Assurances
.
(a)
The Grantor shall, from time to time, as may be reasonably required by the Secured Party with respect to all or any portion of the Collateral, take all actions to perfect the security interest of the Secured Party in the Collateral, including, without limitation, with respect to all Collateral over which control may be obtained within the meaning of sections 8-106, 9-104, 9-105, 9-106 and 9-107 of the UCC, as applicable, the Grantor shall take all actions as may be reasonably requested from time to time by the Secured Party so that control of such Collateral is obtained and at all times held by the Secured Party. All of the foregoing shall be at the sole cost and expense of the Grantor. In furtherance of the foregoing, but subject to the terms of the License Agreement and the applicable provisions of the UCC (including, without limitation, Sections 9‑406, 9‑407, 9‑408 and 9‑409 of the UCC), the Grantor hereby collaterally assigns and transfers to the Secured Party all of its rights and remedies under the License Agreement.
(b)
The Grantor hereby irrevocably authorizes the Secured Party at any time and from time to time to file in any relevant jurisdiction any financing statements and amendments thereto that contain the information required by Article 9 of the UCC of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Collateral, including any financing or continuation statements or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by the Grantor hereunder, without the signature of the Grantor where permitted by law, including the filing of a financing statement describing the Collateral as “all assets now owned or hereafter acquired by the Grantor,” or words of similar effect. The Grantor agrees to provide all information required by the Secured Party pursuant to this Section promptly to the Secured Party upon request.
(c)
The Grantor hereby further authorizes the Secured Party to file with the United States Patent and Trademark Office and the United States Copyright Office (and any successor office and any similar office in any state of the United States or in any other country) this Agreement and other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by the Grantor hereunder, without the signature of the Grantor where permitted by law, and upon request of Secured Party, Grantor shall promptly execute and deliver such patent, trademark and/or copyright security agreements as may be deemed necessary by Secured Party in its discretion to evidence the liens granted hereby in the United States Patent and Trademark Office and the United States Copyright Office.
(d)
If the Grantor shall at any time hold or acquire any certificated securities promissory notes, tangible chattel paper, negotiable documents or warehouse receipts relating to the Collateral, the Grantor shall endorse, assign and deliver the same to the Secured Party (or, as permitted under
the Intercreditor Agreement, the DI Collateral Agent), accompanied by such instruments of transfer or assignment duly executed in blank as the Secured Party (or, as permitted under the Intercreditor Agreement, the DI Collateral Agent) may from time to time specify.
(e)
If the Grantor shall at any time hold or acquire a commercial tort claim, the Grantor shall (i) notify the Secured Party in a writing signed by the Grantor of the particulars thereof and grant to the Secured Party in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Secured Party and (ii) deliver to the Secured Party an updated
Schedule I
.
(f)
The Grantor agrees that at any time and from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, obtain such agreements from third parties, and take all further action, that may be necessary or desirable, or that the Secured Party may reasonably request, in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder or under any other agreement with respect to any Collateral.
6.
Representations and Warranties
.
The Grantor represents and warrants as follows:
(a)
(i) the Grantor’s exact legal name is that indicated on the signature page hereof, (ii) the Grantor is a corporation, organized in the State of Delaware, (iii) the Grantor’s place of business (or, if more than one, its chief executive office), and its mailing address (if different) is set forth on the signature page hereof.
(b)
At the time the Collateral becomes subject to the lien and security interest created by this Agreement, the Grantor will be the sole, direct, legal and beneficial owner thereof, free and clear of any lien, security interest, encumbrance, claim, option or right of others except for the security interest created by this Agreement and the other liens permitted by the Intercreditor Agreement.
(c)
The pledge of the Collateral pursuant to this Agreement creates a valid and perfected First Priority security interest in the Collateral, securing the payment and performance when due of the Secured Obligations.
(d)
It has full power, authority and legal right to pledge the Collateral pursuant to this Agreement.
(e)
This Agreement has been duly authorized, executed and delivered by the Grantor and constitutes a legal, valid and binding obligation of the Grantor enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and subject to equitable principles (regardless of whether enforcement is sought in equity or at law).
(f)
No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body or other person is required for the pledge by the Grantor of the Collateral pursuant to this Agreement or for the execution and delivery of this Agreement by the Grantor or the performance by the Grantor of its obligations hereunder.
(g)
The execution and delivery of this Agreement by the Grantor and the performance by the Grantor of its obligations hereunder, will not violate any provision of any applicable law or regulation or any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, applicable to the Grantor or any of its property, or the organizational or governing documents of the Grantor or any agreement or instrument to which the Grantor is party or by which it or its property is bound.
(h)
Grantor receives synergistic benefits by virtue of its affiliation with the Issuer and the other guarantors and pledgors and that it will receive direct and indirect benefits from the financing arrangements contemplated by the Note Agreement and that such benefits, together with the rights of contribution and subrogation that may arise in connection herewith are a reasonably equivalent exchange of value in return for providing this Agreement.
(i)
On the date hereof,
Schedule II
sets forth (i) each place of business of Grantor (including its chief executive office), (ii) all locations where Collateral is kept, and (iii) whether each such Collateral location and place of business (including Grantor’s chief executive office) is owned or leased (and if leased, specifies the complete name and notice address of each lessor). No Collateral is located outside the United States or in the possession of any lessor, bailee, warehouseman or consignee.
(j)
All deposit accounts and all other depositary and other accounts maintained by each Grantor are described on
Schedule III
hereto, which description includes for each such account the name of the account holder, the name, address, telephone and fax numbers of the financial institution at which such account is maintained.
7.
[Reserved]
.
8.
Covenants
. The Grantor covenants as follows:
(a)
The Grantor will not, without providing at least 30 days’ prior written notice to the Secured Party, change its legal name, identity, type of organization, jurisdiction of organization, corporate structure, or its principal place of business The Grantor will, prior to any change described in the preceding sentence, take all actions reasonably requested by the Secured Party to maintain the perfection and priority of the Secured Party’s security interest in the Collateral.
(b)
The Grantor shall, at its own cost and expense, defend title to the Collateral and the First Priority lien and security interest of the Secured Party therein against the claim of any person claiming against or through the Grantor and shall maintain and preserve such perfected First Priority security interest for so long as this Agreement shall remain in effect.
(c)
The Grantor will not sell, offer to sell, dispose of, convey, assign or otherwise transfer, grant any option with respect to, restrict, or grant, create, permit or suffer to exist any mortgage, pledge, lien, security interest, option, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever on, any of the Collateral or any interest therein except (x) with the prior written consent of the Secured Party or (y) sales of inventory in the ordinary course of business;
provided, however
, that the Grantor may sell, sub-license or otherwise transfer rights to the therapeutic distribution rights in the License Agreement, subject to the prepayment requirements under the Note Agreement (the “
Therapeutic License Disposition
”);
provided, further
, that on and after the date that an aggregate of at least US$20,000,000 of the DI Notes are
purchased for cash and funded, and in any case prior to the date a definitive agreement with respect to a Therapeutic License Disposition is entered into, (i) such Therapeutic License Disposition must be approved in advance and in writing by the Secured Party, or (ii) the sales price with respect to a Therapeutic License Disposition must be supported by a valuation report of an independent consultant in form and substance reasonably satisfactory to Secured Party.
(d)
The Grantor will keep the Collateral in good order and repair (subject to casualty and normal wear and tear) and will not use the same in violation of law or any policy of insurance thereon. The Grantor will permit the Secured Party, or its designee, to inspect the Collateral at any reasonable time, wherever located.
(e)
The Grantor will pay promptly when due all taxes, assessments, governmental charges, and levies upon the Collateral or incurred in connection with the use or operation of the Collateral or incurred in connection with this Agreement.
(f)
Whenever the Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any intellectual property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof that relates to or is in furtherance of the Collateral, Grantor shall report such filing to Secured Party. Grantor will take all reasonable and necessary steps to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of all intellectual property included in the Collateral.
(g)
The Grantor will not amend the License Agreement without the prior written consent of the Secured Party.
(h)
The Grantor shall not create, assume, incur or have outstanding any debt for borrowed money, except for that certain Guaranty and Security Agreement, dated on or about the date hereof, by Grantor in favor of the DI Collateral Agent and the holders of the DI Notes, subject, however, to the terms of the Intercreditor Agreement.
(i)
The Grantor shall promptly notify the Secured Party of any changes to the information contained in the Schedules hereof.
9.
Secured Party Appointed Attorney-in-Fact
. The Grantor hereby appoints the Secured Party the Grantor’s attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time during the continuance of an Event of Default in the Secured Party's discretion to take any action and to execute any instrument which the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement (but the Secured Party shall not be obligated to and shall have no liability to the Grantor or any third party for failure to do so or take action). The Grantor further irrevocably authorizes and empowers the Secured Party or its agents to, after the occurrence and during the continuance of an Event of Default, assert either directly or on behalf of the Grantor, any claims the Grantor may, from time to time, have with respect to the License Agreement, as Secured Party may deem proper, and to apply the same on account of any of the Secured Obligations. This appointment, being coupled with an interest, shall be irrevocable. The Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. The Secured Party shall have no liability for exercising or not exercising its rights hereunder. The rights of the Secured Party set forth in this Agreement shall be in addition to, and not in lieu of, any rights or obligations set forth in the Note Agreement and each other Note
Document. All rights and remedies evidenced hereby, or evidenced or contemplated by the Note Agreement and each other Note Document shall be cumulative and may be exercised separately or concurrently in the sole discretion of the Secured Party.
10.
Secured Party May Perform
. If the Grantor fails to perform any obligation contained in this Agreement, the Secured Party may itself perform, or cause performance of, such obligation, and the expenses of the Secured Party incurred in connection therewith shall be payable by the Grantor;
provided that
the Secured Party shall not be required to perform or discharge any obligation of the Grantor.
11.
Reasonable Care
. The Secured Party shall have no duty with respect to the care and preservation of the Collateral beyond the exercise of reasonable care. The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Secured Party accords its own property, it being understood that the Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to any claims, the nature or sufficiency of any payment or performance by any party under or pursuant to any agreement relating to the Collateral or other matters relative to any Collateral, whether or not the Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Nothing set forth in this Agreement, or the exercise by the Secured Party of any of the rights and remedies hereunder, shall relieve the Grantor from the performance of any obligation on the Grantor’s part to be performed or observed in respect of any of the Collateral. Notwithstanding anything contained herein or in the Intercreditor Agreement to the contrary, Secured Party shall have no obligation to Grantor with respect to any actions taken by the DI Collateral Agent in respects of the Collateral.
12.
Remedies Upon Default
.
(a)
If any Event of Default shall have occurred and be continuing, the Secured Party, without any other notice to or demand upon the Grantor, may assert all rights and remedies of a secured party under the UCC or other applicable law, including, without limitation, the right to take possession of, hold, collect, sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose of all or any portion of the Collateral, in addition to all other rights and remedies granted to the Secured Party in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations. If notice prior to disposition of the Collateral or any portion thereof is necessary under applicable law, written notice mailed to the Grantor at its notice address as provided in
Section 15
hereof ten days prior to the date of such disposition shall constitute reasonable notice, but notice given in any other reasonable manner shall be sufficient. So long as the sale of the Collateral is made in a commercially reasonable manner, the Secured Party may sell such Collateral on such terms and to such purchaser(s) as the Secured Party in its absolute discretion may choose, without assuming any credit risk and without any obligation to advertise or give notice of any kind other than that necessary under applicable law. Without precluding any other methods of sale, the sale of the Collateral or any portion thereof shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of creditors disposing of similar property. At any sale of the Collateral, if permitted by applicable law, the Secured Party may be the purchaser, licensee, assignee or recipient of the Collateral or any part thereof and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold, assigned or licensed at such sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price of the Collateral or any part
thereof payable at such sale. To the extent permitted by applicable law, the Grantor waives all claims, damages and demands it may acquire against the Secured Party arising out of the exercise by it of any rights hereunder. The Grantor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Secured Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Secured Party may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. The Secured Party shall not be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing, nor shall it be under any obligation to take any action whatsoever with regard thereto. The Secured Party shall not be obligated to clean-up or otherwise prepare the Collateral for sale.
(b)
If any Event of Default shall have occurred and be continuing, any cash held by the Secured Party as Collateral and all cash Proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied in whole or in part by the Secured Party to the payment of expenses incurred by the Secured Party in connection with the foregoing or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Secured Party hereunder, including reasonable attorneys’ fees, and the balance of such proceeds shall be applied or set off against all or any part of the Secured Obligations in such order as the Secured Party shall elect. Any surplus of such cash or cash Proceeds held by the Secured Party and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. The Grantor shall remain liable for any deficiency if such cash and the cash Proceeds of any sale or other realization of the Collateral are insufficient to pay the Secured Obligations and the fees and other charges of any attorneys employed by the Secured Party to collect such deficiency.
(c)
If the Secured Party shall determine to exercise its rights to sell all or any of the Collateral pursuant to this Section, the Grantor agrees that, upon request of the Secured Party, the Grantor will, at its own expense, do or cause to be done all such acts and things as may be necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law.
(d)
Neither the Secured Party nor any of its officers, directors, employees or agents shall be liable for any failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Grantor or any other person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Secured Party hereunder are solely to protect the Secured Party's interest in the Collateral and shall not impose any duty upon Secured Party to exercise any such powers. Secured Party shall be accountable only for amounts it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to Grantor for any act or failure to act under this Agreement.
13.
No Waiver and Cumulative Remedies
. The Secured Party shall not by any act (except by a written instrument pursuant to
Section 14
), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default. All rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law.
14.
Amendments
.
None of the terms or provisions of this Agreement may be amended, modified, supplemented, terminated or waived, and no consent to any departure by the Grantor therefrom shall be effective unless the same shall be in writing and signed by the Secured Party and the Grantor, and then such amendment, modification, supplement, waiver or consent shall be effective only in the specific instance and for the specific purpose for which made or given.
15.
Notices
.
All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on the signature page or to such e-mail address, facsimile number or address as subsequently modified by written notice given in accordance with this
Section
.
16.
Continuing Security Interest; Further Actions
.
This Agreement shall create a continuing First Priority lien and security interest in the Collateral and shall (a) subject to
Section 17
, remain in full force and effect until payment and performance in full of the Secured Obligations, (b) be binding upon the Grantor, its successors and assigns, and (c) inure to the benefit of the Secured Party and its successors, transferees and assigns;
provided that
the Grantor may not assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the Secured Party.
17.
Termination; Release
.
On the earlier of (a) the date on which all Secured Obligations have been paid and performed in full and (b) the date on the entire Note Agreement has been either converted to equity pursuant to Section 4.1 of the Note Agreement or, as applicable, retained as an unsecured Note Agreement pursuant to Section 4.1(b) of the Note Agreement, the Secured Party will, at the request and sole expense of the Grantor, (a) duly assign, transfer and deliver to or at the direction of the Grantor (without recourse and without any representation or warranty) such of the Collateral as may then remain in the possession of the Secured Party, together with any monies at the time held by the Secured Party hereunder, and (b) execute and deliver to the Grantor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, including without limitation appropriate UCC-3 termination statements to reflect the termination of the Secured Party's security interest pursuant to this Agreement.
18.
GOVERNING LAW
.
This Agreement and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the laws of the State of Delaware. The other provisions of Sections 9.2 and 9.9 of the Note Agreement are incorporated herein, mutatis mutandis, as if a part hereof.
19.
Counterparts
.
This Agreement and any amendments, waivers, consents or supplements hereto may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement. This Agreement, the Note Agreement and the other Note Documents constitute the entire
contract among the parties with respect to the subject matter hereof and supersede all previous agreements and understandings, oral or written, with respect thereto.
20.
Expenses
.
Grantor agrees to pay or reimburse on demand Secured Party for all reasonable out-of-pocket costs and expenses (including reasonable legal fees) incurred in preparing, enforcing and preserving any rights under this Agreement.
21.
Severability
.
If any part of this Agreement is contrary to, prohibited by, or deemed invalid under applicable laws or regulations or by a court of competent jurisdiction (as a result of merger doctrine or otherwise), such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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EVOLUS, INC., as Grantor
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By
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/s/ Murthy V. Simhambhatla
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Name: Murthy V. Simhambhatla
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Title: President
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Address for Notices:
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1027 Garden Street
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Santa Barbara, CA 93101
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LONGITUDE VENTURE PARTNERS
|
II, L.P., as Secured Party
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By:
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Longitude Capital Partners II, LLC,
|
its General Partner
|
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By
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/s/ Juliet Tammenoms Bakker
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Name: Juliet Tammenoms Bakker
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Title: Managing Member
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Address for Notices:
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800 El Camino Real, Suite 220
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Menlo Park, CA 94025
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Attn: Carolyn Helms
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Email: chelms@longitudecapital.com
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and jbakker@longitudecapital.com
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Signature Page to Guaranty and Security Agreement
SCHEDULE I
COMMERCIAL TORT CLAIMS
None.
SCHEDULE II
COLLATERAL LOCATIONS
1027 Garden Street, Santa Barbara, CA 93101
Landlord:
J Carol Duncan
3139 Cliff Drive
Santa Barbara, CA 93109-1027
SCHEDULE III
DEPOSIT ACCOUNTS
None.
AMENDMENT TO GUARANTY AND SECURITY AGREEMENT
[Evolus/Longitude]
This AMENDMENT TO GUARANTY AND SECURITY AGREEMENT (this “
Amendment
”), dated as of December 14, 2017, is made by and between EVOLUS, INC., a Delaware corporation (the “
Grantor
”), and LONGITUDE VENTURE PARTNERS II, L.P., a Delaware limited partnership (in such capacity, the “
Secured Party
”), and amends that certain Guaranty and Security Agreement, dated as of April 19, 2017, by and between the Grantor in favor of the Secured Party (the “
Agreement
”).
RECITALS
WHEREAS, the Grantor and Secured Party desire to amend the Agreement to provide for the termination of the Agreement and the release of the First Priority lien and security interest in favor of the Secured Party in and to the Collateral upon certain circumstances relating to sales of the Grantor’s securities; and
WHEREAS, pursuant to Section 14 of the Agreement, the Agreement may be amended, modified, supplemented, terminated or waived only by the Secured Party and the Grantor.
NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good, fair and valuable consideration and reasonably equivalent value, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1.
Amendment to Section 17
. Section 17 of the Agreement is hereby amended and restated in its entirety as follows:
“
Termination; Release
.
On the earlier of (a) the date on which all Secured Obligations have been paid and performed in full, (b) the date on which the entire Third Amended and Restated Secured Convertible Bridge Note, originally issued May 27, 2016 and amended and restated by the Third Amendment and Restatement on December 14, 2017, by the Issuer in favor of Secured Party (as amended, amended and restated, supplemented or otherwise modified, the “Note”) has been converted in full to equity pursuant to Section 4 of the terms of the Note, and (c) the consummation of an initial public offering of the Grantor’s common stock pursuant to a registration statement filed under the Securities Act of 1933, then the Secured Party will, at the request and sole expense of the Grantor, execute and deliver to the Grantor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, including without limitation appropriate UCC-3 termination statements to reflect the termination of the Secured Party's security interest pursuant to this Agreement.”
2.
Definitions
. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms as in the Agreement.
3.
Amendment and Ratification
. The parties agree that the Agreement is hereby amended in accordance with this Amendment. Except as specifically amended hereby, all terms, conditions, covenants, representations and warranties contained in the Agreement shall remain in full force and effect, and shall be binding upon each of the parties under the Agreement.
4.
Counterparts
. This Amendment and any amendments, waivers, consents or supplements hereto may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Amendment by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Amendment.
5.
Governing Law.
This Amendment and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Amendment and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the laws of the State of Delaware.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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EVOLUS, INC., as Grantor
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By
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/s/ Murthy Simhambhatla
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Name:
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Murthy Simhambhatla
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Title:
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CEO
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Address for Notices:
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1027 Garden Street
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Santa Barbara, CA 93101
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LONGITUDE VENTURE PARTNERS
II, L.P., as Secured Party
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By: Longitude Capital Partners II, LLC,
its General Partner
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By
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/s/ Juliet Tammenoms Bakker
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Name:
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Juliet Tammenoms Bakker
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Title:
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Managing Member
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Address for Notices:
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800 El Camino Real, Suite 220
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Menlo Park, CA 94025
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Attn: Carolyn Helms
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Email: chelms@longitudecapital.com
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and jbakker@longitudecapital.com
|
Signature Page to Amendment to Guaranty and Security Agreement
Second Amendment to Stock Purchase Agreement
This Second Amendment to Stock Purchase Agreement (this “
Amendment
”) is made and entered into as of December 14, 2017 among SCH-AEON, LLC (f/k/a STRATHSPEY CROWN HOLDINGS, LLC), a Delaware limited liability company (“
Seller
”), ALPHAEON CORPORATION, a Delaware corporation (“
Purchaser
”), Evolus, Inc. (“
Evolus
”), and J Christopher Marmo, in his capacity as Contributors’ Representative (the “
Contributors’ Representative
”), with the acknowledgment and consent of the parties listed as “Contributors” on the signature pages hereto (the “
Contributors
”).
RECITALS
A.
WHEREAS, pursuant to the Contribution Agreement (the “
Contribution Agreement
”) by and among Seller, the Contributors, and the Contributors’ Representative, the Contributors contributed to Seller 10,000,000 shares of common stock and 1,250,000 shares of series A preferred stock of Evolus, representing one hundred percent (100%) of the outstanding capital stock of Evolus, of which (i) 125,000 shares of the series A preferred stock of Evolus and 1,000,000 shares of common stock of Evolus (the “
Class D Shares
”) were contributed in exchange for Class D Units of Seller (the “
Class D Units
”) and (ii) the remaining shares were contributed in exchange for Class AA Units of Seller.
B.
WHEREAS, pursuant to the Contribution Agreement, the Contributors were given the right to require that Seller sell all of the Class D Shares to Alphaeon, and the Contributors subsequently exercised such right.
C.
WHEREAS, Seller and Purchaser entered into that certain Stock Purchase Agreement, dated as of September 30, 2014, as amended by
that certain Amendment to Stock Purchase Agreement (undated)
(so amended, the “
Original Agreement
”), of which the Contributors are express third party beneficiaries, pursuant to which and subject to the terms and conditions of which, Seller sold to Purchaser, and Purchaser purchased from Seller, all of the Class D Shares of Evolus, in exchange for the consideration including the payments specified in Sections 2(a) and 2(b) thereof (the “
Contingent Payments
”);
D.
WHEREAS, pursuant to the terms of that certain Second Amended and Restated Limited Liability Company Agreement of Seller, dated August 15, 2013, as amended by that certain Amendment No. 1 dated October 3, 2013, the Contributors, through their ownership of the Class D Units, are entitled, subject to certain conditions, to the distribution of all cash received by Seller directly attributable to the Class D Shares, including dividends on the Class D Shares, sales of the Class D Shares and redemptions of the Class D Shares and, accordingly, are entitled, subject to such conditions, to the distribution of all proceeds that may be received by Seller on account of its sale of the Class D Shares pursuant to the Original Agreement, including the Contingent Payments;
E.
WHEREAS, the Original Agreement may be amended by written instrument signed by Purchaser, Seller and Contributors’ Representative on behalf of the Contributors;
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
F.
WHEREAS, as of the date hereof, Evolus is a wholly-owned subsidiary of Purchaser;
G.
WHEREAS, Evolus is currently contemplating corporate transactions including the offering of its equity;
H.
WHEREAS, the parties agree that Evolus has received and will receive substantial tangible and intangible benefits, including the increased ability to conduct such corporate transactions, by entering into this Amendment;
I.
WHEREAS, Contributors’ Representative is the representative of the Contributors under the Contribution Agreement;
J.
WHEREAS, Seller and Purchaser now desire to amend certain portions of the Original Agreement, including the terms of the Contingent Payments (the Original Agreement, as amended by this Amendment, the “
Amended Agreement
”), and Evolus and the Contributors’ Representative, with the consent of the Contributors, agree to enter into this Amendment, on the terms and subject to the conditions set forth herein;
K.
WHEREAS, the Contributors and the Seller desire that the Contributors surrender their respective Class D Units to Seller in consideration of the Contributors’ Representative becoming the direct beneficiary, on the Contributors’ behalf, of the Contingent Obligations and related rights under the Amended Agreement; and
L.
WHEREAS, as a condition to the willingness of the Contributors to consent this Amendment, Evolus, the Contributors and the Contributors’ Representative are entering into a Tax Indemnity Agreement of even date herewith (the “
Tax Indemnity Agreement
”).
NOW, THEREFORE,
in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by all signatories hereto, it is agreed as follows:
AGREEMENT
1.
Defined Terms
. Capitalized terms used but not defined in this Amendment shall have the meaning set forth in the Original Agreement.
2.
Amendment of Definitions
. Section 1 of the Original Agreement is hereby amended to add the following defined terms:
“ ‘
Change of Control
’ means: (a) the sale of all or substantially all the assets of the Purchaser (at any time prior to the assignment of its obligations to Evolus pursuant to Section 7 of this Agreement) or Evolus; (b) the exclusive license in whole of the Product or the business related to the Product to a third party (other than the sub-license (or similar arrangement) of any rights under the Daewoong Agreement to a third party for a given territory(ies) or indication(s) shall not constitute an exclusive license of the Product so long
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
as, under such arrangement, Purchaser or Evolus (as the case may be) shall continue to make sales to such third party); (c) any merger, consolidation or acquisition of Purchaser (at any time prior to the assignment of its obligations to Evolus pursuant to Section 7 of this Agreement) or Evolus with, by or into another corporation, entity or person (except a merger or consolidation in which the holders of capital stock of such entity immediately prior to such merger or consolidation continue to hold at least fifty percent (50%) of the voting power of the capital stock of such entity or the surviving or acquiring entity; or (d) any change in the ownership of more than fifty percent (50%) of the voting capital stock of Purchaser (at any time prior to the assignment of its obligations to Evolus pursuant to Section 7 of this Agreement) or Evolus in one or more related transactions; provided, however that a Change of Control shall expressly not include any public offering of Evolus’ capital stock.”
“ ‘
Class D Pro Rata Share
’ means, with respect to each Contributor, (i) the number of Class D Units of Seller owned by such Contributor immediately prior to the Second Amendment Effective Date, divided by (ii) the aggregate number of Class D Units of Seller owned by all Contributors immediately prior to the Second Amendment Effective Date.”
“ ‘
Second Amendment
’ means that certain Second Amendment to this Agreement, dated as of the Second Amendment Effective Date, among Seller, Purchaser, Evolus and Contributors’ Representative.”
“ ‘
Second Amendment Effective Date
’ means December 14, 2017.”
3.
Amendment of Section 2
.
a.
Sections 2(b) and 2(c) of the Original Agreement are hereby amended and restated in their entirety to read as follows:
“(b)
“In consideration for the Class D Shares, Purchaser shall do the following:
(i)
on the Second Amendment Effective Date, issue to Contributors’ Representative, for the benefit of the Contributors, a promissory note in the principal amount of twenty million ($20,000,000) in the form of
Exhibit A
to the Second Amendment (the “
Promissory Note
”); and
(ii)
make the following payments to Contributors’ Representative, for the benefit of the Contributors: (A) a payment in an aggregate amount equal to Nine Million Two-Hundred Twelve Thousand Five Hundred United States Dollars ($9,212,500) upon U.S. Approval (the “
Milestone Payment
”); (B) quarterly payments in an aggregate amount equal to [***] percent ([***]%) of the Net Sales of the Product in the United States and its territories and possessions for each quarter (or portion thereof) following the U.S. Approval; and (C) quarterly payments in an aggregate amount equal to [***] percent ([***]%) of the Net Sales of the Product in any region, territory or jurisdiction other than the United States and its territories and possessions for each quarter (or portion thereof) for
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
any indication in such non-United States region, territory or jurisdiction for which Purchaser or any of its Affiliates has the right to market or sell the Product.
(c)
The obligation to make the payments set forth in Clauses 2(b)(ii)(B) and 2(b)(ii)(C) shall terminate with respect to any quarter commencing after the 10-year anniversary of the first commercial sale of the Product in the United States after the receipt of U.S. Approval.”
b.
Section 2 of the Original Agreement is hereby amended to add the following clauses (d) and (e) thereto:
“(d)
Except as may otherwise be agreed among the Contributors and Contributors’ Representative, any payments received by Contributors’ Representative in respect of the Promissory Note or pursuant to Section (2)(b)(ii) of this Agreement shall be distributed by Contributors’ Representative to the Contributors in accordance with their respective Class D Pro Rata Shares.
(e)
Notwithstanding any provision of any agreement to the contrary, Purchaser agrees that it shall be solely responsible for any obligations to make payments to Rui Avelar, Adelbert Stagg, Gregg Peterson and/or Barb Lagerquist upon U.S. Approval or on account of the payment of the Milestone Payment (“
Employee Milestone Payments
”). Without limiting the foregoing, Purchaser shall indemnify, defend and hold harmless Contributors’ Representative, each Contributor and Seller from and against any and all losses, claims, liabilities, demands, charges, costs, awards, penalties, fines and expenses (including reasonable fees and disbursements of legal counsel) arising from or relating to any Employee Milestone Payments or any allegation that Employee Milestone Payments may be due or payable.”
4.
Payments
. All payments to be made under Section 2 hereof shall be made by wire transfer to an account designated by the Contributor Representative. Contributor Representative shall be responsible for the allocation of all such funds pursuant to the Contributors.
5.
Continuation and Powers of Contributors’ Representative
. The Contributors’ Representative represents and warrants that he still has the powers set forth in Article VIII of the Contribution Agreement. In the event that Purchaser or Evolus shall make a payment under Section 2 to Contributors’ Representative, Contributors’ Representative shall indemnify, defend and hold harmless Evolus, Seller and Purchaser from any allegation or claim related to failure to properly allocate such payment to a Contributor. Without limiting any other provision of the Amended Agreement, Seller, Purchaser, Evolus hereby acknowledge and agree that (a) Contributors are express third party beneficiaries of Sellers’ rights and Purchaser’s obligations under the Amended Agreement, (b) Contributors’ Representative shall have the power to enforce any and all such rights and obligations on behalf of Contributors as if Contributors’ Representative were an original party thereto and (c) Seller shall have no right to amend, waive, settle or otherwise compromise any such rights or obligations without the express written consent of Contributors’ Representative.
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
6.
Termination of Development Budget Default and Non-Competition Clause
. Immediately upon execution of this Agreement, each of Evolus, Seller and Purchaser agree that (a) the terms of Sections 2.2(g) and (h) and Sections 6.6(a)(i) and (iii) of the Contribution Agreement are hereby terminated and shall be of no further force and effect and (b) any communications among any of the Contributors shall not be deemed to contravene Section 6.6(a)(ii) of the Contribution Agreement.
7.
Additional Amendments to Original Agreement
.
a.
The Original Agreement is hereby amended to add the following new Section 7 thereto:
“7.
Assignment of Obligations to Evolus upon Public Offering
. Evolus is hereby joined as a party to this Agreement and agrees to be bound by this Agreement as if an original party hereto. Concurrent with and contingent upon the closing of a public offering of the capital stock of Evolus pursuant to a registration statement under the Securities Act of 1933, as amended (the “
Triggering Event
”); without any further action on the parts of the parties hereto or the Contributors, Purchaser shall immediately and automatically be deemed to have assigned to Evolus, and Evolus shall immediately and automatically be deemed to have accepted and directly assume and undertake, all obligations of Purchaser set forth in this Agreement (including, but not limited to the payment obligations set forth in Section 2 hereof), and as a result Evolus shall concurrently and immediately become the “Borrower” under the Promissory Note;
provided
, that the foregoing shall not relieve Purchaser of any breach of this Agreement or default under the Promissory Note that may have occurred prior to such assignment. From and after the Triggering Event, Purchaser shall have no further obligations under this Agreement or the Promissory Note and the Contributors’ Representative and the Contributors shall look solely to Evolus to fulfill the obligations set forth in this Agreement and the Promissory Note, except that the foregoing shall not relieve Purchaser or any breach of this Agreement or default under the Promissory Note that may have occurred prior to such assignment.”
b.
The Original Agreement is hereby amended to add the following new Section 8 thereto:
“8.
Binding Effect
. This Agreement shall be binding on any successor or permitted assign of this Agreement. Except in accordance with Section 7 hereof, neither Purchaser nor Evolus shall be permitted to directly or indirectly assign, transfer or delegate this Agreement or any of its obligations hereunder by transfer or assets or liabilities, Change of Control or otherwise;
provided
,
however
, that Purchaser or Evolus shall be permitted to effect a Change of Control provided that, as a condition to such Change of Control, the acquiring Person expressly agrees to assume all obligations of Purchaser or Evolus (as the case may be) hereunder in a writing in form and substance reasonably satisfactory to Contributors’ Representative.”
c.
The Original Agreement is hereby amended to add the following new Section 9 thereto:
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
“9.
Further Assurances
. Each party agrees to take such further actions, and execute and deliver such additional documents, as may be reasonably requested by any other party to effectuate the intent and purposes of this Agreement.”
8.
Consideration to Alphaeon and Evolus
. The parties acknowledge and agree that the economic concessions of the Contributors reflected herein, together with the other consideration being provided by the Contributors, are fair and provide reasonably equivalent value to Alphaeon in exchange for the benefits being provided to the Contributors hereunder. In exchange for the agreement by Evolus to enter into this Amendment and to undertake, concurrent and contingent upon the Triggering Event, all obligations of Purchaser set forth in the Amended Agreement and pursuant to the Promissory Note (as defined therein) (the “
Obligations
”), Purchaser shall, on a dollar for dollar basis, setoff and reduce the amount of intercompany loans owing by Evolus to the Purchaser (taking into account the fair value of all the Obligations), and the analysis of the provisions of this Amendment for purposes of Fraudulent Transfer Laws shall give effect to any discharge of intercompany debt as a result of the assumption by Evolus of the Obligations. “
Fraudulent Transfer Laws
” shall mean applicable law relating to fraudulent conveyance or fraudulent transfer (including the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act and Section 548 of Title 11 of the United States Code or any applicable provisions of comparable law). Purchaser and Evolus shall have the fair value of the Obligations valued by a third-party accounting firm for purposes of the foregoing offset.
9.
Tax Matters
. The parties intend that for U.S. federal income tax purposes the Contributors shall be treated as receiving a distribution from Seller of the right to receive payments from Purchaser under the Amended Agreement in a transaction in which no gain or loss is recognized, such that the Contributors may continue reporting of the consideration payable under the Amended Agreement under the installment sale method of Internal Revenue Code section 453 (“
Installment Sale Reporting
”) to the same extent that Installment Sale Reporting was available to Seller prior to the execution of this Amendment. In connection with the foregoing, upon the Second Amendment Effective Date, (a) each Contributor hereby contributes, transfers and assigns to Seller all of its right, title and interest in and to such Contributor’s Class D Units and (b) Seller accepts the contribution, transfer and assignment of such Class D Units, which Class D Units shall henceforth be deemed cancelled, and hereby irrevocably waives any claim that it may otherwise have to any of the proceeds of the Contingent Payments.
10.
Expenses
. Regardless of whether this Amendment is executed, Purchaser will reimburse Contributors’ Representative for its out of pocket legal fees and related disbursements incurred in connection with this Amendment, against reasonable evidence thereof, and subject to a maximum aggregate cap of $41,500.
11.
Continuing Effect
. This Amendment shall be deemed to form an integral part of the Original Agreement and construed in connection with and as part of the Original Agreement, and all terms, conditions, covenants and agreements set forth in the Original Agreement and each other instrument or agreement referred to therein, as applicable, except as explicitly set forth herein, are hereby ratified and confirmed and shall remain in full force and effect, unmodified in any way. In the event of any inconsistency or conflict between the provisions of the Original Agreement and this Amendment, the provisions of this Amendment will prevail and govern. All references to the
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
“Agreement” in the Original Agreement shall hereinafter refer to the Agreement as amended and supplemented by this Amendment.
12.
Counterparts
. This Amendment may be executed in two (2) or more counterparts (any of which may be delivered by electronic transmission), each of which will be deemed an original, but all of which together will constitute one and the same instrument.
[Remainder of Page Left Intentionally Blank]
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF,
the undersigned have executed this Amendment as of the date first set forth above.
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SELLER:
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SCH-AEON, LLC
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By:
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/s/ Robert Grant
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Name: Robert Grant
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Title: Manager
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PURCHASER:
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ALPHAEON CORPORATION
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By:
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/s/ Murthy Simhambhatla
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Name: Murthy Simhambhatla
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Title: CEO
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EVOLUS:
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Evolus, Inc.
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By:
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/s/ Murthy Simhambhatla
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Name: Murthy Simhambhatla
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Title: CEO
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CONTRIBUTORS’ REPRESENTATIVE:
|
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/s/ J. Christopher Marmo
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J. Christopher Marmo,
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as the Contributors’ Representative
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Acknowledged and Agreed by the Contributors:
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/s/ J. Christopher Marmo
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J. Christopher Marmo
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/s/ Scott Cannizzaro
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Scott Cannizzaro
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/s/ John Gross
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John Gross
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The Gordon and Dona Crawford Trust UTD
|
8/23/77
|
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By:
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/s/ Gordon Crawford
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Trustee
|
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Exhibit A
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF DECEMBER 14, 2017 (THE “SUBORDINATION AGREEMENT”) IN FAVOR DENTAL INNOVATION BVBA, AS COLLATERAL AGENT AND LONGITUDE VENTURE PARTNERS II, L.P., WHICH SUBORDINATION AGREEMENT (AS AMENDED IN ACCORDANCE WITH ITS TERMS) IS INCORPORATED HEREIN BY REFERENCE.
Form of Promissory Note
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$20,000,000
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December 14, 2017
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PROMISSORY NOTE
Obligation
. For value received, Alphaeon Corporation (“
Alphaeon
”) (and after the Triggering Event, Evolus, Inc. (“
Evolus
”)) (“
Borrower
”) promises to pay to the order of J. Christopher Marmo, as Contributors’ Representative under the Contribution Agreement
(as defined in the SPA) (“
Lender
”), the Principal Amount in the manner and upon the terms and conditions set forth herein. Capitalized terms used herein, but not otherwise defined shall have the meaning set forth in that certain Stock Purchase Agreement, dated as of September 30, 2014, as amended by that certain Amendment to Stock Purchase Agreement (undated) and that certain Second Amendment, dated December 14, 2017, by and among SCH, Alphaeon, Evolus and Lender (so amended, the “
SPA
”).
Amount, Interest and Payment
. The principal amount (“
Principal Amount
”) of this Promissory Note (the “
Note
”) is twenty million and 00/100 Dollars ($20,000,000). The Principal Amount shall not bear interest. The Principal Amount shall be due and payable on: the two-year, six-month anniversary of the first commercial sale of the Product in the United States after the receipt of U.S. Approval (the “
Due Date
”). Payments of the Principal Amount on the Due Date shall be made in lawful money of the United States of America by check or wire transfer to an account designated by the Lender. Upon payment in full of the Principal Amount, this Note shall be surrendered to Borrower for cancellation.
Prepayment
. Borrower shall have the right, at its option, to prepay this Note, in part or in full, at any time and from time to time, prior to maturity, without penalty, bonus or charge.
Events of Default
. Any of the following shall be an “
Event of Default
” (i) the Borrower shall fail to meet its obligation to timely make the required principal payments hereunder; (ii) the Borrower (or Evolus, if it is not then the Borrower) shall be dissolved or liquidated; (iii) the Borrower (or Evolus, if it is not then the Borrower) shall make an assignment for the benefit of creditors or shall be unable to, or shall admit in writing its inability to pay its debts as they become due; (iv) the Borrower (or Evolus, if it is not then the Borrower) shall commence any case, proceeding, or other action under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors, or any such action shall be commenced against the Borrower (or Evolus, if it is not then the Borrower) and shall not be
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
discharged within 60 days; (v) the Borrower (or Evolus, if it is not then the Borrower) shall suffer a receiver to be appointed for it or for any of its property or shall suffer a garnishment, attachment, levy or execution, (vi) a material breach of the SPA or Tax Indemnity Agreement, in which Alphaeon or Evolus (as the case may be) fails to cure such breach within thirty (30) days after receipt of written notice describing the breach in reasonable detail; or (vii) so long as Alphaeon is the Borrower under this Note, if there is an event of default with respect to its Senior Debt or Subordinated Debt, which event of default is not cured during the applicable cure period or waived in writing by the requisite holders and which event of default results in the acceleration of such Senior Debt or Subordinated Debt and the holders of the Senior Debt shall have exercised their rights under any of the Senior Collateral Documents. “
Senior Debt
” of Alphaeon means the indebtedness evidenced by (i) those certain Secured Convertible Promissory Notes issued under that certain Amended and Restated Secured Convertible Promissory Note Purchase Agreement, dated as of April 19, 2017, by and among Alphaeon, Dental Innovations BVBA (as collateral agent) (the
“Collateral Agent”
) and the other purchasers party thereto, and any amendment or refinancing thereof; and (ii) that certain Third Amended and Restated Secured Convertible Bridge Note, dated as of December 14, 2017, amending and restating that certain Second Amended and Restated Secured Convertible Bridge Note, dated as of April 19, 2017, between Alphaeon and Longitude Venture Partners II, L.P. (
“Longitude”
), and any amendment or refinancing thereof, as secured by the following (the
“Senior Collateral Documents”
); (w) the Pledge and Security Agreement by and between Alphaeon and the Collateral Agent, as amended on April 19, 2017 and as further amended from time to time, or (x) that certain Guaranty and Security Agreement dated as of April 19, 2017, by and between Evolus and the Collateral Agent, dated as of April 19, 2017, as the same may be amended or restated from time to time; (y) that certain Amended and Restated Pledge and Security Agreement, dated as of May 27, 2016, amended and restated as of July 26, 2016, and amended as of April 19, 2017, between Alphaeon and Longitude, as the same may be amended or restated from time to time; or (z) that certain Guaranty and Security Agreement, dated as of April 19, 2017, by Evolus in favor of Longitude, as the same may be amended or restated from time to time.. “
Subordinated Debt
” means the indebtedness of Alphaeon evidenced by that certain Third Amended and Restated Intercompany Credit Line Promissory Note, dated October 30, 2015, between Alphaeon and SCH-AEON, LLC (formerly known as Strathspey Crown Holdings, LLC), as amended by that certain Amendment dated July 26, 2016, as the same may be further amended or restated from time to time.
Acceleration Upon Event of Default
. If an Event of Default occurs and is continuing, the then unpaid Principal Amount will, at the option and upon written demand of Lender, become immediately due and payable;
provided
,
however
, in case of the occurrence of an Event of Default under clause (ii), (iii), (iv) or (v) thereof, such amounts shall become immediately due and payable without any declaration or other action by the Lender and without further presentment, notice, protest or demand for payment of any kind, all of which are hereby waived.
Acceleration Upon Change of Control
. Upon a Change of Control (as defined below), the then unpaid Principal Amount will, without further action, become due and payable immediately, without further presentment, notice, protest or demand for payment of any kind, all of which are hereby waived. For purposes of this Promissory Note, “
Change of Control
” means: (a) the sale
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
of all or substantially all the assets of the Borrower (or Evolus, if it is not then the Borrower); (b) the exclusive license in whole of the Product or the business related to the Product to a third party (provided that the sub-license (or similar arrangement) of any rights under the Daewoong Agreement to a third party for a given territory(ies) or indication(s) shall not constitute an exclusive license of the Product so long as, under such arrangement, Alphaeon or Evolus (as the case may be) shall continue to make sales to such third party); or (c) any merger, consolidation or acquisition of the Borrower (or Evolus, if it is not then the Borrower) with, by or into another corporation, entity or person (except a merger or consolidation in which the holders of capital stock of such entity immediately prior to such merger or consolidation continue to hold at least fifty percent (50%) of the voting power of the capital stock of such entity or the surviving or acquiring entity;
provided
,
however
that a Change of Control shall expressly not include any public offering of Evolus’ capital stock or any merger with or acquisition by Alphaeon or any of its subsidiaries or Affiliates.
Expenses of Enforcement
. Borrower agrees to pay all out-of-pocket costs and expenses, including, without limitation, reasonable attorneys’ fees, which Lender shall incur in connection with any legal action or legal proceeding commenced for the collection of this Note or the exercise, preservation or enforcement of Lender’s rights and remedies under this Note.
Severability
. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of this Note shall be interpreted as if such provisions were so excluded, and the remainder of this Note shall be enforceable in accordance with its terms.
Assignment and Delegation
. Borrower shall have no right to assign its rights hereunder, or to delegate any of its obligations hereunder; provided, however, that for the sake of clarity, after the Triggering Event the obligations hereunder will be automatically delegated to Evolus without any further action. Without the consent of Borrower, Lender shall be entitled to delegate its obligations hereunder and to assign this Note in whole or in part to (a) any Person that assumes its responsibility as Contributors’ Representative under the Contribution Agreement in accordance with the terms thereof or (b) the Contributors in accordance with their respective Class D Pro Rata Shares; provided that such assignee complies with the obligations under the Subordination Agreement with respect to executing a joinder of such Subordination Agreement.
Cumulative Rights and Remedies
. If Lender delays in exercising or fails to exercise any of its rights under this Note, that delay or failure will not constitute a waiver of any of Lender’s rights or of any breach, default, or failure of condition under this Note. No waiver by Lender of any of its rights or of any breach, default or failure of a condition under this Note shall be effective unless it is stated in writing signed by Lender. All rights and remedies of Lender under this Note shall be cumulative and not alternative and shall be in addition to all rights and remedies available to Lender under applicable law. Time is expressly made of the essence with respect to every provision hereof.
Additional Documents and Acts
. Borrower will execute and deliver such additional documents and instruments, and perform such additional acts, as are commercially reasonable and necessary to carry out and perform its obligations in this Note.
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Loss, Theft, Destruction or Mutilation of Note
. Upon receipt of evidence reasonably satisfactory to Borrower of the loss, theft, destruction or mutilation of this Note, and, in the case of any such loss, theft or destruction, upon receipt of an affidavit of loss and indemnity from Lender reasonably satisfactory to Borrower, or, in the case of any such mutilation, upon surrender and cancellation of this Note, Borrower will make and deliver, in lieu of this Note, a new Note of like tenor.
Governing Law
. This Note shall be governed by and interpreted and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and delivered as of the day and year first above written.
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BORROWER
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ALPHAEON Corporation
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By:
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/s/ Murthy Simhambhatla
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Name: Murthy Simhambhatla
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Title: CEO
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Evolus, Inc. (as Borrower effective upon the Triggering Event)
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By:
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/s/ Murthy Simhambhatla
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Name: Murthy Simhambhatla
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Title: CEO
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
TAX INDEMNITY AGREEMENT
This Tax Indemnity Agreement (“
Agreement
”) is made as of December 14, 2017 by and among Evolus, Inc., a Delaware corporation (“
Evolus
”), each of the individuals listed on the signature pages hereto as “Contributors” (each, a “
Contributor
” and collectively the “
Contributors
”), and J. Christopher Marmo, as the Contributors’ representative (the “
Contributors’ Representative
”). Each signatory hereto may be referred to hereinafter individually as a “
Party
” and collectively as the “
Parties
.”
RECITALS
A.
WHEREAS, pursuant to the Contribution Agreement (the “
Contribution Agreement
”) by and among SCH-AEON, LLC (f/k/a Strathspey Crown Holdings, LLC), a Delaware limited liability company (“
SCH
”), the Contributors, and the Contributors’ Representative, the Contributors contributed to SCH 10,000,000 shares of common stock and 1,250,000 shares of series A preferred stock of Evolus, representing one hundred percent (100%) of the outstanding capital stock of Evolus, of which (i) 125,000 shares of the series A preferred stock of Evolus and 1,000,000 shares of common stock of Evolus (the “
Class D Shares
”) were contributed in exchange for Class D Units of SCH and (ii) the remaining shares were contributed in exchange for Class AA Units of SCH.
B.
WHEREAS, pursuant to the Contribution Agreement, the Contributors were given the right to require that SCH sell all of the Class D Shares to Alphaeon Corporation, a Delaware corporation (“
Alphaeon
”), and the Contributors subsequently exercised such right.
C.
WHEREAS, SCH and Alphaeon entered into that certain Stock Purchase Agreement, dated as of September 30, 2014, as amended by that certain Amendment to Stock Purchase Agreement (undated) (so amended, the “
SPA
”), pursuant to which, and subject to the terms and conditions of which, SCH agreed to sell to Alphaeon, and Alphaeon agreed to purchase from SCH, all of the Class D Shares.
D.
WHEREAS, under Section 2 of the SPA, Alphaeon is obligated to make certain contingent payments (the “
Original Contingent Payments
”) eligible for installment sale reporting under Section 453 of the Internal Revenue Code of 1986, as amended (together with any corresponding provisions of any superseding law, the “
Code
”), and the regulations (“
Regulations
”) promulgated by the U.S. Department of Treasury thereunder (“
Installment Sale Reporting
”).
E.
WHEREAS, pursuant to that certain Second Amendment to Stock Purchase Agreement dated as of even date herewith by and among SCH, Evolus, Alphaeon, the Contributors and the Contributors’ Representative (the “
SPA Amendment
”), the Original Contingent Payments were modified in certain respects, as set forth in Section 2 thereof (as so modified, the “
Contingent Payments
”), and the Contributors’ Representative, on behalf of the Contributors, became entitled to receive the Contingent Payments thereunder.
F.
WHEREAS, the parties to the SPA Amendment intended that the execution of the SPA Amendment would cause the Contributors to be treated for U.S.
federal income tax purposes as receiving a distribution from SCH of the right to receive the Contingent Payments in a transaction in which no gain or loss is recognized such that the Contributors may continue Installment Sale Reporting with respect to the Contingent Payments to the same extent that Installment Sale Reporting was available to SCH with respect to the Original Contingent Payments prior to the execution of the SPA Amendment.
G.
WHEREAS, as of the date hereof, Evolus is a wholly-owned subsidiary of Alphaeon.
H.
WHEREAS, Evolus is currently contemplating an initial public offering of its capital stock pursuant to a registration statement under the Securities Act of 1933 (the “
Evolus IPO
”).
I.
WHEREAS, certain of the Contingent Payments are contingent on, among other things, FDA approval and Net Sales of the Product, which relates to the business conducted by Evolus.
J.
WHEREAS, pursuant to the SPA Amendment, concurrent with and contingent upon the consummation of the Evolus IPO and for valid business reasons, Evolus will immediately and automatically assume and undertake all obligations with respect to the Contingent Payments, and Alphaeon will have no further obligations with respect thereto (the “
Assumption
”).
K.
WHEREAS, in consideration of the Assumption, Alphaeon agreed to set-off and reduce, on a dollar-for-dollar basis, the amount of certain intercompany loans owing by Evolus to Alphaeon (taking into account the fair value of all the obligations with respect to the Contingent Payments).
L.
WHEREAS, the Parties believe that the intercompany loans may be characterized as equity for U.S. federal income tax purposes.
M.
WHEREAS, the Parties believe that under case law and certain Internal Revenue Service (“IRS”) administrative guidance, the availability of Installment Sale Reporting by the Contributors with respect to the Contingent Payments will continue following the Assumption, and the Assumption will not be treated as a “payment” within the meaning of the applicable Regulations under Section 453 of the Code.
N.
WHEREAS, pursuant to the SPA Amendment, the parties thereto agreed to enter into a separate tax indemnification agreement, to be effective as of the consummation of the Evolus IPO, providing certain indemnification payments by Evolus to the Contributors in the event the IRS or other taxing authority were to finally determine that the Assumption rendered continued Installment Sale Reporting unavailable to the Contributors, subject to certain terms and conditions to be agreed.
NOW, THEREFORE,
in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by all signatories hereto, it is hereby agreed as follows:
AGREEMENT
ARTICLE 1
DEFINITIONS AND USAGE
Section 1.1
Specified Definitions
. For purposes of this Agreement, the following terms have the meanings specified in this Section 1.1:
“
Defense Costs
” means any costs of defense (including any attorney and accounting fees), audits costs, costs of further proceedings and similar costs and liabilities related to a Tax Matter for which indemnification is available under this Agreement (i) incurred by Evolus on behalf of any Contributor or (ii) incurred directly by such Contributor, except in the case of this clause (ii) to the extent incurred during such period of time that Evolus (A) controls such Tax Matter pursuant to Section 3.1 and (B) is not in material breach of any provision of this Agreement.
“
Final Determination
” means (i) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all allowable appeals by either party to the action have been exhausted or the time for filing such appeals has expired and is not subject to further review or modification, (ii) entry into a closing agreement under Section 7121 of the Code or any other settlement or other final agreement in connection with an administrative or judicial proceeding, (iii) execution of an Internal Revenue Service Form 870-AD, or (iv) the expiration of the time for instituting suit with respect to a claimed tax deficiency.
“
Tax Liability
” means, with respect to a Contributor, any income tax, together with applicable interest and penalties, if any, actually assessed against such Contributor by a Taxing Authority that is attributable to a Final Determination that the Assumption constitutes a “payment” as defined in Regulations Section 15A.453-1(b)(3)(i) (for the avoidance of doubt, without regard to any Contingent Payments actually made in cash or other property), and, for state and local tax purposes only, as defined in any comparable or corresponding provision of state or local law, in each case solely for the taxable year of such Contributor in which the Assumption occurs.
“
Tax Return
” means any report, return, document, statement, election, disclosure, schedule, form, declaration or other information or filing (including any amendments) required to be supplied to any Taxing Authority with respect to taxes.
“
Taxing Authority
” means any governmental authority responsible for the administration or imposition of any tax.
Section 1.2
Other Definitions
. For purposes of this Agreement, any other capitalized terms have the meanings ascribed to such terms in the SPA (as amended) or the SPA Amendment, as the case may be.
ARTICLE 2
INDEMNIFICATION; REMEDIES
Section 2.1
Indemnification
. On the terms and subject to the provisions of this Agreement, Evolus shall indemnify and hold harmless each Contributor from such Contributor’s Tax Liability and Defense Costs, if any;
provided
,
however
, that following any indemnification payments hereunder by Evolus to a Contributor, in the event that such Contributor’s Tax Liability is reduced (including without limitation any reduction by virtue of a refund, offer in compromise, or other determination of a Taxing Authority subsequent to the relevant Final Determination) (a “
Tax Liability Reduction
”), then such Contributor shall not be entitled to apply any such Tax Liability Reduction toward any other tax liability of such Contributor and shall provide notice to Evolus of such Tax Liability Reduction as soon as reasonably practicable after receipt thereof and repay as instructed by Evolus an amount equal to such Tax Liability Reduction in immediately available funds within fifteen (15) days of the Contributor’s receipt of such instruction. For the avoidance of doubt and notwithstanding anything to the contrary herein, (a) the consummation of the Evolus IPO shall be a condition to any indemnification obligation under this Section 2.1, and (b) no indemnification obligation shall arise under this Section 2.1 other than by virtue of a Tax Liability or Defense Costs, including without limitation with respect to any tax liability resulting from any aspect of the SPA Amendment other than the Assumption.
Section 2.2
Certain Limitations
. Notwithstanding Section 2.1, Evolus have no liability (for indemnification or otherwise) under this Agreement:
(a)
with respect to any Tax Liability resulting from a Final Determination finally entered into or otherwise finally determined after the later to occur of (x) payment in full of the Principal Amount (as defined in the Promissory Note) under the Promissory Note (for this purpose, treating any amounts Evolus is entitled to offset under Section 2.3 as payments under the Promissory Note) or (y) the 42 month anniversary of the first commercial sale of the Product (as defined in the SPA) in the United States after U.S. Approval (as defined in the SPA);
(b)
with respect to any Tax Liability resulting from a Final Determination except to the extent that such Tax Liability exceeds the Contributor’s incremental tax liability resulting from any Contingent Payments actually received by such Contributor prior to the date of such Final Determination (determined on a “with and without” basis by measuring the difference between the amount of taxes that the Contributor would pay to a Taxing Authority without taking into account such Contingent Payments and the amount of taxes that such Contributor actually is liable to pay taking into account such Contingent Payments, assuming (i) that such Contingent Payments are the last item of income on any Tax Return, and (ii) that such Final Determination was not made); or
(c)
with respect to any Contributor’s Tax Liability relating to a particular Tax Matter, in the case of any breach by such Contributor or the Contributors’ Representative (in respect of such Contributor) of an obligation of the Contributor or the Contributors’ Representative under this Agreement which (i) such Contributor or the Contributors’ Representative fails to cure within thirty (30) days of written notice thereof and which breach materially prejudices Evolus’ ability to defend the Tax Matter or (ii) is a breach of Section 3.4.
Section 2.3
Offset Rights
. Evolus shall be entitled to reduce the amount of any payments to be made to a Contributor or to the Contributors’ Representative for the benefit of such Contributor under the Promissory Note or under Sections 2(b)(ii)(B) or 2(b)(ii)(C) of the SPA (as amended by the SPA Amendment) by the amount of any indemnification payments previously made to such Contributor or to the Contributors’ Representative for such Contributor’s benefit (and not subsequently repaid to Evolus in accordance with the proviso of Section 2.1) in respect of a Tax Liability hereunder; provided, however, that Evolus shall not be entitled to any reduction related to any Defense Costs or for any interest or penalties included in any Tax Liability. Notwithstanding the immediately preceding sentence, in the event that the Contributor to whom indemnification is to be provided under this Agreement breaches Section 3.3 of this Agreement, Evolus shall be entitled to further reduce the amount of any payments to be made to a Contributor or to the Contributors’ Representative for the benefit of such Contributor under the Promissory Note or under Sections 2(b)(ii)(B) or 2(b)(ii)(C) of the SPA (as amended by the SPA Amendment) by the amount of any interest or penalties included in any Tax Liability and any by the amount of any Defense Costs incurred by Evolus or its affiliates in connection with the defense or resolution of any Tax Matter to which such indemnification payment relates. The Contributors and the Contributors’ Representative hereby agree that, in the event of any offset pursuant to this Section 2.3 in respect of a Tax Liability relating to a Tax Matter, (a) such offset is intended to be borne solely by the Contributor whom is the subject of such Tax Matter, (b) the amount of any distributions from the Contributors’ Representative on account of Contingent Payments to which such Contributor would otherwise be entitled shall be reduced by the amount of such offset, and (c) the Contributors’ Representative shall distribute the proceeds of any Contingent Payments consistent with the foregoing.
Section 2.4
Remedies Exclusive
. The remedies provided in this Agreement shall be the sole and exclusive remedies of the Parties hereto and their heirs, successors, and assigns with respect to any Tax Liability or any other matters contemplated by this Agreement. No Party may bring or commence any action with respect to this Agreement or the matters contemplated hereby, whether in contract, tort or otherwise, except to enforce such Party’s express rights under this Agreement.
ARTICLE 3
PROCEDURAL MATTERS
Section 3.1
Tax Controversies.
The applicable Contributor shall promptly notify Evolus and the Contributors’ Representative of any inquiries, claims, assessments, audits, litigation, proceeding or similar events with respect to a potential Tax Liability of such Contributor for which Evolus may be liable under this Agreement (such inquiry, claim, assessment, audit, litigation, proceeding or similar event, a “
Tax Matter
” and such notice, the “
Tax Matter Notice
”), describing the Tax Matter in
reasonable detail. Upon providing written notice to the applicable Contributor and the Contributors’ Representative within thirty days of receipt of the Tax Matter Notice unconditionally and irrevocably acknowledging Evolus’ responsibility to indemnify and hold harmless such Contributor from its Tax Liabilities and Defense Costs relating to the Tax Matter in accordance herewith (the “
Defense Notice
”), except as otherwise provided in this Section 3.1, Evolus shall have the authority to control, in whole and with counsel of its choosing, any Tax Matter, including without limitation the authority to resolve and defend against any assessment, notice of deficiency, or other adjustment or proposed adjustment and to consent to any extension or waiver of the limitations period applicable to any Tax Matter, in each case solely to the extent relating to Tax Liabilities for which Evolus may be liable hereunder. The Contributors and the Contributors’ Representative agree to provide to the relevant Taxing Authority such duly executed powers of attorney or such other documents as shall be requested by Evolus to permit Evolus or its representatives to carry out the purposes of this Section 3.1. In the event that Evolus controls a Tax Matter, Evolus shall (a) diligently defend such Tax Matter, (b) keep the applicable Contributor and the Contributors’ Representative timely informed of the status of such Tax Matter; and (c) provide the applicable Contributor and the Contributors’ Representative with copies of any pleadings, correspondence, and other documents prior to the submission thereof. In the event that Evolus controls a Tax Matter, the applicable Contributor and counsel of its own choosing shall have the right to participate in, but not direct, the prosecution or defense of such Tax Matter at the sole expense of such Contributor. Evolus shall not agree to settle, compromise, consent to judgment with respect to or otherwise resolve any Tax Matter unless such settlement, compromise, or resolution (1) does not involve a finding or admission of wrongdoing by the applicable Contributor, (2) unconditionally releases such Contributor from all liability in respect of such Tax Matter, (3) imposes no equitable remedies on, and does not otherwise purport to limit, such Contributor, (4) does not subject such Contributor to any Tax Liabilities not fully indemnified and timely satisfied by Evolus hereunder and (5) has been consented to in writing by such Contributor, which consent shall not be unreasonably withheld. In the event that Evolus fails to timely provide the Defense Notice, declines to control a Tax Matter described in a Tax Matter Notice, breaches any provision of this Agreement in any material respect or ends its control of such a Tax Matter, the Contributor whom is subject of the Tax Matter may assume control with counsel of its choosing (and shall have complete and sole discretion with respect thereto, including as to settlement, compromise, consent to judgment or other resolution thereof, or extension or waiver of any limitations period or applicable thereto, or any other action affecting such Tax Matter) and Evolus shall be responsible for and promptly pay upon request all out of pocket Defense Costs incurred from time to time by such Contributor or the Contributors’ Representative related to such Tax Matter that are reasonably documented and submitted to Evolus.
Section 3.2
Cooperation Regarding Tax Matters.
The Parties shall cooperate fully, as and to the extent reasonably requested by any other Party, in connection with any Tax Matter. Such cooperation shall include the retention and (upon any other Party’s request) the provision of records and information reasonably relevant to any Tax Matter or filing of Tax Returns and making employees and other personnel available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Parties agree to retain all books and records with respect to taxes as may be pertinent to any Tax Matter.
Section 3.3
Tax Returns
. Each Contributor shall prepare or cause to be prepared, and shall timely file or cause to be timely filed (taking into account any applicable extensions), all Tax Returns required to be filed by such Contributor, for the taxable year in which the Assumption occurs and each subsequent taxable year. Each Contributor shall pay (or cause to be paid), promptly and when due, whether at the original time fixed therefor or pursuant to any extension of time to pay, any and all Taxes that are due and payable as shown on any such Tax Returns, taking into account the provisions of Section 3.4 hereof. For purposes of this Section 3.3, any Taxes relating to amounts reflected in any IRS Form 1099 or IRS Form W-2 (or any corresponding state or local tax form) issued to a Contributor for a taxable year shall be deemed to be shown as due and payable on the applicable income Tax Return(s) of the Contributor for such taxable year regardless of whether such Taxes are actually shown as due and payable thereon. Notwithstanding the foregoing, a Contributor shall not be deemed to have breached this Section 3.3 if its failure to so comply is a result of either (i) SCH delivering completed Schedule K-1s to such Contributor less than 30 days prior to the last applicable Tax Return filing extension allowed to such Contributor or (ii) Evolus delivering all required information returns related to payments under the SPA (as amended by the SPA Amendment) less than 30 days prior to the last applicable Tax Return filing extension allowed to such Contributor.
Section 3.4
Consistent Reporting
. Notwithstanding any provision of this Agreement to the contrary, unless otherwise required by a Final Determination, the Parties to this Agreement shall not take any position in any Tax Return or other document or communication submitted to any Taxing Authority inconsistent with the continued application of Installment Sale Reporting with respect to the Contingent Payments following the Assumption, including for the avoidance of doubt and without limitation any position that the Assumption constitutes a “payment” within the meaning of Regulations Section 15A.453-1(b)(3)(i) (or any position to a similar effect).
Section 3.5
Withholding
. Evolus shall be entitled to deduct and withhold (or cause to be deducted and withheld) from any payments contemplated by this Agreement such amount, if any, as Evolus determines in good faith is required to be deducted and withheld with respect to the making of such payment under applicable law, and to collect any necessary Tax forms for avoiding such withholding, including without limitation IRS Form W-9, or any similar information, from the Contributors, the Contributors’ Representative, and any other recipient of any payment hereunder. To the extent that amounts are so withheld (or caused to be withheld), such withheld amounts shall be treated for all purposes as having been paid to the Contributors or such other recipient, as applicable, in respect of which such deduction and withholding was made.
ARTICLE 4
GENERAL PROVISIONS
Section 4.1
Notices
. All notices, consents, waivers and other communications required or permitted by this Agreement shall be in writing and shall be deemed given to a party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile or e-mail, with confirmation of transmission; or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses, facsimile numbers or e-mail addresses and marked to the attention of the person (by
name or title) designated below (or to such other address, facsimile number, e-mail address or person as a party may designate by notice to the other parties):
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Contributors or
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Contributors’
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Representative:
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1270 Via Brigitte
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Santa Barbara, CA 93111
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Attention: J. Christopher Marmo
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E-mail: j.chrismarmo@gmail.com
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With a copy to:
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Irell & Manella LLP
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1800 Avenue of the Stars, Suite 900
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Los Angeles, CA 90067
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Attention: Elliot Freier, Esq. and Michael Kaplan, Esq.
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Fax: (310) 203-7199
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Email: efreier@irell.com; mkaplan@irell.com
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Evolus:
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Evolus Inc.
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17901Von Karman Ave, Suite 150
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Irvine, CA 92614
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Attention: Murthy Simhambhatla
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E-mail: murthy.simhambhatla@evolus.com
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with a copy to:
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K&L Gates LLP
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1 Park Plaza
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Irvine, CA 92614
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Attention: Frank W. Dworak, Esq.
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Fax: (949) 253-0902
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E-mail address: frank.dworak@klgates.com
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Section 4.2
Jurisdiction; Service of Process
. Any proceeding arising out of or relating to this Agreement may be brought in the courts of the State of California, County of Orange, or in the United States District Court for the Central District of California, and each of the parties irrevocably submits to the exclusive jurisdiction of each such court in any such proceeding, waives any objection it may now or hereafter have to venue or to convenience of forum, agrees that all claims in respect of the proceeding shall be heard and determined only in any such court and agrees not to bring any proceeding arising out of or relating to this Agreement in any other court. The Parties agree that any or all of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained agreement among the Parties irrevocably to waive any objections to venue or to convenience of forum. Process
in any proceeding referred to in the first sentence of this section may be served on any Party anywhere in the world.
Section 4.3
Enforcement of Agreement
. Each Party hereto acknowledges and agrees that the other Parties would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that any breach of this Agreement could not be adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any other right or remedy to which such Party may be entitled, at law or in equity, such Party shall be entitled to enforce any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement, without posting any bond or other undertaking.
Section 4.4
Waiver; Remedies Cumulative
. The rights and remedies of the Parties to this Agreement are cumulative and not alternative. Neither any failure nor any delay by any Party in exercising any right, power or privilege under this Agreement or any of the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or any of the documents referred to in this Agreement can be discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other Party; (b) no waiver that may be given by a Party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one Party will be deemed to be a waiver of any obligation of that Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.
Section 4.5
Entire Agreement and Modification
. This Agreement supersedes all prior agreements, whether written or oral, between the Parties with respect to the subject matter hereof and together with the SPA (as amended) constitutes a complete and exclusive statement of the terms of the agreement between the Parties with respect to the subject matter hereof. This Agreement may not be amended, supplemented, or otherwise modified except by a written agreement executed by Evolus and the Contributors’ Representative, on behalf of the Contributors.
Section 4.6
Assignments, Successors and No Third Party Rights
. No Party may assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other Parties, except that Evolus may assign any of its rights and delegate any of its obligations under this Agreement to any subsidiary of Evolus, provided that Evolus fully and unconditionally guarantees the performance of such assignee pursuant to documentation in form and substance satisfactory to Contributors’ Representative in its sole discretion. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the Parties. Nothing expressed or referred to in this Agreement will be construed to give any person other than the Parties to this Agreement any legal or equitable right, remedy or claim under
or with respect to this Agreement or any provision of this Agreement, except such rights as shall inure to a successor or permitted assignee pursuant to this Section.
Section 4.7
Severability
. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. Upon such determination that any term or other provision of this Agreement is invalid, illegal or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
Section 4.8
Time of Essence
. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
Section 4.9
Governing Law
. This Agreement has been entered into in the State of California and shall be construed and enforced, along with any rights, remedies, or obligations provided for hereunder, in accordance with the laws of the State of California without giving effect to its principles of choice of law or conflicts of law.
Section 4.10
Execution of Agreement
. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission or e-mail shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the Parties transmitted by facsimile or e-mail shall be deemed to be their original signatures for all purposes.
Section 4.11
Headings.
The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
Section 4.12
Contributors’ Representative
. The Contributors hereby constitute and appoint J. Christopher Marmo as their representative and their true and lawful attorney in fact, with full power and authority in each of their names and on behalf of each of them to act on behalf of each of them in the absolute discretion of the Contributors’ Representative with respect to any matter as to which the Contributors have obligations under this Agreement. This appointment and grant of power and authority is coupled with an interest and is in consideration of the mutual covenants made herein and is irrevocable and shall not be terminated by any act of the Contributors or by operation of law, whether by the death or incapacity of a Contributor or by the occurrence of any other event. Each Contributor hereby consents to the taking of any and all actions and the making of any decisions required or permitted to be taken or made by the Contributors’ Representative under this Agreement. Each of the Contributors agrees that the Contributors’ Representative shall have no obligation or liability to any person for any action or omission taken or omitted by the Contributors’ Representative in good faith hereunder, and each Contributor shall indemnify and hold the Contributors’ Representative harmless from and against any and all loss, damage,
expense or liability (including reasonable counsel fees and expenses) which the Contributors’ Representative may sustain as a result of any such action or omission by the Contributors’ Representative hereunder in respect of such Contributor. Evolus shall be entitled to rely upon any document or other paper delivered by the Contributors’ Representative as (a) genuine and correct and (b) having been duly signed or sent by the Contributors, and Evolus shall not be liable to any of the Contributors for any action taken or omitted to be taken by Evolus in such reliance.
[
signatures appear on the following page
]
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.
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Evolus:
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EVOLUS, INC., a Delaware corporation
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By:
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/s/ Murthy Simhambhatla
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Name: Murthy Simhambhatla
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Title: CEO
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Contributors’ Representative:
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/s/ J. Christopher Marmo
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J. Christopher Marmo
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Contributors
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/s/ J. Christopher Marmo
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Name: J. Christopher Marmo
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/s/ Scott Cannizzaro
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Name: Scott Cannizzaro
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/s/ Gordon Crawford
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Name: Gordon Crawford
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/s/ John Gross
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Name: John Gross
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Signature Page to Tax Indemnity Agreement
EXCLUSIVE DISTRIBUTION AND SUPPLY AGREEMENT
This
E
XCLUSIVE
D
ISTRIBUTION AND
S
UPPLY
A
GREEMENT
(this “
Agreement
”) is entered into as of November 30, 2017 (the “
Effective Date
”) by and between
EVOLUS, I
NC
.
a Delaware Corporation (“
EVOLUS
”), and
C
LARION
M
EDICAL
T
ECHNOLOGIES
I
NC
.
, a body corporate, incorporated under the Ontario Business Corporations Act (“
DISTRIBUTOR
”).
B
ACKGROUND
W
HEREAS
,
EVOLUS is party to that certain License and Supply Agreement, dated as of September 30, 2013, by and between Daewoong Pharmaceutical Co., Ltd. (“
Daewoong
”) and EVOLUS, as amended from time to time (the “
Daewoong Agreement
”) pursuant to which it has an exclusive right and license to import, distribute, promote, market, develop, offer for sale and otherwise commercialize or exploit Agreement Products in territories including the Territory (as defined below);
W
HEREAS
,
EVOLUS desires to grant to DISTRIBUTOR, and DISTRIBUTOR desires to receive from EVOLUS, an exclusive sublicense to distribute Agreement Products (as defined below) in the Territory (as defined below) and in the Field (as defined below), under the terms and conditions set forth herein.
W
HEREAS
, ALPHAEON Corporation (“
Alphaeon
”), the sole stockholder of EVOLUS as of the Effective Date, was previously a party to a Shareholders’ Agreement (the “
Shareholders’ Agreement
”), dated as of December 1, 2014, by and among Alphaeon, the DISTRIBUTOR, the Strathspey Group (as defined in the Shareholders’ Agreement) and the other parties thereto, and pursuant to such Shareholders’ Agreement the Strathspey Group is obligated to pay an “Unwind Fee” (as defined in the Shareholders’ Agreement) equal to US$9,550,000 to certain shareholders of the DISTRIBUTOR.
W
HEREAS
, Alphaeon and the other members of the Strathspey Group and EVOLUS desire to settle the Unwind Fee obligation partially or entirely through this Agreement.
W
HEREAS
, ALPHAEON and the other members of the Strathspey Group have agreed to guarantee the payment of the Unwind Fee in the event that it is not paid in full pursuant to this Agreement.
N
OW
, T
HEREFORE
,
in consideration of the mutual representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties agree as follows:
A
GREEMENT
1.
D
EFINITIONS
. Capitalized terms used in this Agreement and not otherwise defined when used shall have the meanings specified in this Section 1:
1.1 “Adverse Event”
means adverse experiences, as defined by 21 CFR Section 600.80 or any comparable law in the Territory, including any noxious and unintended response to a biologic which occurs at doses normally used or tested for the diagnosis, treatment, or prevention of a disease or the modification of an organic function and any untoward medical occurrence in a patient or clinical investigation subject administered a biological product and which does not necessarily have to have a causal relationship with the treatment.
1.2
“
Affiliate
” means, with respect to a party, any person or entity that is directly or indirectly controlled by, under common control with, or that controls such party. For the avoidance of
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
doubt, any such person or entity shall cease to be an “Affiliate” of such party under this Agreement when such person or entity (as the case may be) is no longer directly or indirectly controlled by, under common control with, or controlling such party. For purposes of this definition, “controls,” “control” and “controlling” mean in the case of corporate entities, the direct or indirect ownership or control (whether through contract or otherwise) of shares entitled to more than fifty percent (50%) of the vote for the election of directors, and in the case of non-corporate entities, more than fifty percent (50%) of the equity interest with the power to direct management policies, or the direct or indirect power to direct or cause the direction of the management or policies of the party.
1.3
“
Agreement Products
” means (a) each Initial Agreement Product (as defined below) and (b) each Additional Agreement Product (as defined below) that is added to this Agreement in accordance with Section 2.3.
1.4
“
Applicable Law
” means any applicable domestic or foreign federal, state, provincial or local statute, law (including common law), ordinance, regulation, rule, code or governmental order, or any other requirement or rule of law.
1.5
“
Commercial Launch Date
” means, for each Agreement Product, the date, following receipt of all necessary Governmental Approvals (as defined below), on which DISTRIBUTOR commences with the promotion and distribution of such Agreement Product.
1.6
“
Commercialization Year(s)
” means, for each Agreement Product, the twelve (12) month period following the applicable Commercial Launch Date and each twelve (12) month period thereafter (e.g. “Commercialization Year 1” refers to the twelve (12) month period immediately following the Commercial Launch Date; and “Commercialization Year 2” refers to the twelve (12) month period immediately following Commercialization Year 1, etc.).
1.7
“
Daewoong Marks”
means the trademarks and trade names of Daewoong, which are licensed to EVOLUS and subject to sublicense under the Daewoong Agreement, and which are utilized in connection with the marketing and distribution of Agreement Products as listed in
Exhibit B
within one hundred twenty (120) days following the Effective Date (as such list may be updated from time to time by EVOLUS upon written notice to DISTRIBUTOR).
1.8
“
DISTRIBUTOR Marks
” means the trademarks and trade names of DISTRIBUTOR utilized in connection with the marketing and distribution of Agreement Products as listed in
Exhibit B
within one hundred twenty (120) days following the Effective Date (as such list may be updated from time to time by DISTRIBUTOR upon written notice to EVOLUS,
provided, however
, that no trademarks or trade names may be changed from the category of exclusive to the Agreement Products to the category of not exclusive to the Agreement Products without EVOLUS’ written consent).
1.9
“
EVOLUS Marks
” means the trademarks and trade names of EVOLUS utilized in connection with the marketing and distribution of Agreement Products as listed in
Exhibit B
within one hundred twenty (120) days following the Effective Date (as such list may be updated from time to time by EVOLUS upon written notice to DISTRIBUTOR
1.10
“
Field
” means neurotoxins and neuromodulators for aesthetic indications, including Glabellar Lines.
1.11
“
Governmental Approvals
” means all governmental authorizations, registrations and approvals as may be necessary with respect to the promotion and sale of Agreement Products in the Territory (as defined below).
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
1.12
“
Health Canada
” means Health Canada and any successor agency having substantially the same functions.
1.13
“
Initial Agreement Products
” means each of the products listed on
Exhibit A
.
1.14
“
Labeling
” has the same meaning as defined in the United States Food, Drug, and Cosmetic Act of 1938, as amended, and the rules and regulations promulgated thereunder, or any successor act, as the same shall be in effect from time to time, and as interpreted by the FDA, and any analogous Applicable Laws as interpreted by an applicable regulatory authority in the Territory.
1.15 “Regulatory Authority”
means, in a particular country or regulatory jurisdiction, any applicable governmental authority involved in granting Governmental Approval and/or, to the extent required in such country or regulatory jurisdiction, pricing or reimbursement approval of an Agreement Product in such country or regulatory jurisdiction.
1.16 “Regulatory Submissions”
means all applications, filings, dossiers, modifications, amendments, supplements, revisions, reports, submissions, authorizations and approvals, and any reports or amendments necessary to maintain Governmental Approvals.
1.17
“
Territory
” means the entire country of Canada.
2.
A
PPOINTMENT
.
2.1 Exclusive Rights of Distribution
. During the Term (as defined in Section 9.1) and subject to the terms and conditions of this Agreement and the Daewoong Agreement, EVOLUS hereby:
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(a)
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appoints DISTRIBUTOR to act as its exclusive distributor of Agreement Products, in the Territory and in the Field to promote, sell and deliver the Agreement Products, and
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(b)
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grants to DISTRIBUTOR a sublicense to the Daewoong Marks, and DISTRIBUTOR accepts such appointments and sublicenses.
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During the Term, EVOLUS shall not knowingly:
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(i)
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solicit or accept orders for distribution of Agreement Products to a third party for sale or distribution in the Field in the Territory;
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(ii)
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distribute any Agreement Products for sale or use in the Field in the Territory; or
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(iii)
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supply any Third Party with Agreement Products in the Field in the Territory.
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The term “distribution” includes all alternative methods of distribution in the Territory including without limitation, resellers, wholesalers, any person engaged in commercial business or to any user or a consumer in the Territory, to the extent that no other methods of the supply of Agreement Products are available from EVOLUS other than the DISTRIBUTOR.
EVOLUS will refer to DISTRIBUTOR all orders received directly or through the internet or otherwise for purchase of Products by persons resident in and for deliver to Canada to DISTRIBUTOR for fulfillment and without charge. In no event will EVOLUS sell Products directly or indirectly to a person or persons resident in Canada.
2.2
Sub-Distributors
. Subject to the terms and conditions of this Agreement and the Daewoong Agreement, DISTRIBUTOR may promote and distribute the Agreement Products through one
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
or more third-party distributors and/or resellers (including Affiliates of DISTRIBUTOR) (each a “
Sub-Distributor
”), provided that DISTRIBUTOR shall notify EVOLUS in writing of the name and address of each appointed Sub-Distributor prior to any such engagement. Prior to engaging any Sub-Distributor, DISTRIBUTOR shall enter into a written agreement with the Sub-Distributor that, at minimum, is consistent with terms and conditions of this Agreement. DISTRIBUTOR shall retain fully executed copies of each such agreement and provide one copy to EVOLUS for its records. Notwithstanding the appointment of any Sub-Distributors, DISTRIBUTOR shall remain fully responsible for the performance of all of its covenants and obligations hereunder. Any sales by EVOLUS of Agreement Products that are delivered to a Sub-Distributor or its customers pursuant to an order placed by DISTRIBUTOR upon EVOLUS, shall be understood to be a sale by EVOLUS to DISTRIBUTOR, and DISTRIBUTOR shall be solely responsible for payment for such Agreement Products. and such order shall be shipped directly by EVOLUS to the Sub-Distributor. DISTRIBUTOR shall be liable to and shall indemnify, defend and hold harmless EVOLUS for any act or omission of a Sub-Distributor that would constitute a breach of this Agreement if it had been committed by DISTRIBUTOR.
2.3 Additional Agreement Products
. In the event EVOLUS desires to commercialize a product in the Field in the Territory that is a modification or extension of the Initial Agreement Product and that is not included as part of the Initial Agreement Products (each an “
Additional Agreement Product
”), EVOLUS shall provide DISTRIBUTOR written notice of such desire along with pre-clinical and clinical scientific data supporting the commercialization of such Additional Agreement Product (“
Additional Agreement Product Notice
”). DISTRIBUTOR shall, within [***] days after its receipt of the Additional Agreement Product Notice, notify EVOLUS in writing whether DISTRIBUTOR desires to distribute the Additional Agreement Product under this Agreement (“
Additional Agreement Product Acceptance Notice
”) or whether DISTRIBUTOR “rejects” the applicable Additional Agreement Product (i.e. has no interest in distributing the Additional Agreement Product under this Agreement). Failure by DISTRIBUTOR to provide an Additional Agreement Product Acceptance Notice within the aforementioned [***] day period shall be deemed to constitute rejection by DISTRIBUTOR of such Additional Agreement Product. If DISTRIBUTOR timely provides an Additional Agreement Product Acceptance Notice, the parties shall negotiate, in good faith during the [***] day period following EVOLUS’ receipt of such Additional Agreement Product Acceptance Notice (the “
Additional Agreement Product Negotiation Period
”), the terms and conditions for the applicable Additional Agreement Product(s) to be added to this Agreement as Agreement Product(s) hereunder, including a reasonable split of any pricing for the Additional Agreement Product to satisfy the Unwind Fee (“
Additional Agreement Product Terms and Conditions
”). In the event an Additional Agreement Product is rejected by DISTRIBUTOR, or the parties are unable to agree upon the Additional Agreement Product Terms and Conditions prior to the expiration of the Additional Agreement Product Negotiation Period, then DISTRIBUTOR shall not have any rights to such Additional Agreement Product.
2.4 Modifications to Products
. From time to time, EVOLUS may in its sole discretion modify without increase of cost to the DISTRIBUTOR the Agreement Products or the Labeling thereto as a result of changes to the Daewoong Agreement, manufacturing, sourcing or regulatory requirements or product improvements or modifications. Any such improvements or modifications shall be made in compliance with all Applicable Laws, including any notice requirements thereof. EVOLUS shall notify DISTRIBUTOR in writing not less than [***] days in advance of any such planned change.
2.5 Competitive Products
. For so long as DISTRIBUTOR retains rights of distribution for any Agreement Product under this Agreement, DISTRIBUTOR shall not and shall ensure its Affiliates and Sub-Distributors do not at any time develop, license, market, promote or distribute any Competitive Products in the Territory in the Field without EVOLUS’ prior written consent on a case-by-case basis. As used herein, “
Competitive Products
” is defined in
Exhibit D
.
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
2.6 No Diversion
. DISTRIBUTOR shall not itself divert, and shall use reasonable efforts to ensure that third parties, including Sub-Distributors, their customers and DISTRIBUTOR’s customers do not divert, Agreement Products for sale or use outside of the Territory or the Field. Without limiting the generality of the previous sentence, DISTRIBUTOR shall not advertise, promote or solicit customers for Agreement Products outside the Territory (including through internet ordering systems) or establish any office through which orders are solicited or any facility at which inventories of Agreement Products are stored outside the Territory. DISTRIBUTOR shall notify EVOLUS within [***] business days after it learns of any known or suspected diversion by Sub-Distributors or any other third party.
2.7 Ownership
. Except for the limited licenses granted herein, DISTRIBUTOR acknowledges and agrees that EVOLUS and Daewoong, as the case may be, are and shall at all times remain the sole and exclusive owner of all right, title and interest in and to all intellectual property rights embedded in or used in connection with the Agreement Products, including the Labeling, the EVOLUS Marks and the Daewoong Marks, all other materials provided by EVOLUS under this Agreement and all improvements, modifications and derivative works of the foregoing. DISTRIBUTOR shall not, and shall ensure that its Affiliates and Sub-Distributors do not, disassemble or reverse engineer the Agreement Products, including any Agreement Products that may be removed from this Agreement.
2.8 Suggestions
. EVOLUS shall have a royalty-free, worldwide, transferable, sub-licensable, irrevocable, perpetual license to use or incorporate into EVOLUS’ products and services any suggestions, enhancement requests, recommendations or other feedback provided by DISTRIBUTOR or Sub-Distributors. DISTRIBUTOR shall provide terms in any agreement with a Sub-Distributor consistent with this Section.
2.9
Rights Reserved
. All rights not expressly granted hereunder are reserved by EVOLUS.
3.
G
OVERNMENTAL
A
PPROVALS.
3.1 Securing Initial Governmental Approvals
. EVOLUS shall, at its sole cost and expense, use commercially reasonable efforts to secure all Governmental Approvals for the Initial Agreement Products in the Territory, prior to the offering or sale of any Agreement Products. DISTRIBUTOR shall consult with and provide guidance to EVOLUS regarding the Governmental Approvals, and DISTRIBUTOR shall render all reasonable assistance to EVOLUS in securing and maintaining such Governmental Approvals. DISTRIBUTOR shall at all times during the term of this Agreement pay any and all annual and maintenance fees and maintain any and all licenses, permits, authorizations, registrations and qualifications required by such laws, statutes, regulations and other legal requirements in order to perform its obligations under this Agreement.
(a)
Monetary Penalty for Failure to Obtain Governmental Approval
s. In the event that EVOLUS does not receive Governmental Approvals for the Initial Agreement Products by October 31, 2018, EVOLUS and DISTRIBUTOR agree that undue hardship would be caused to DISTRIBUTOR, and therefore EVOLUS shall pay liquidated damages to DISTRIBUTOR of US$1,000,000 within 30 days of December 31, 2018, which damages and payment shall not reduce the Unwind Fee.
3.2
Regulatory Submissions
. With respect to the Governmental Approvals of the Agreement Products in the Territory:
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(a)
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Unless otherwise required by Applicable Law, any Governmental Approvals and any Regulatory Submissions relating to Agreement Products in the Territory shall be filed, owned and held in the name of EVOLUS or its Affiliates.
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(b)
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EVOLUS shall be solely responsible, at its expense, and shall use commercially
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
reasonable efforts to timely prepare, file, prosecute, and maintain all Regulatory Submissions relating to Agreement Products in the Territory, including any reports or amendments necessary to maintain Governmental Approvals, and for seeking any revisions of the conditions of each Governmental Approval.
(c)
EVOLUS shall have sole authority and responsibility and shall use commercially reasonable efforts to develop, modify, seek and/or obtain any necessary Governmental Approvals of any Labeling, packaging, advertising or other promotional or informational materials used in connection with Agreement Products in the Territory, and Promotional Materials and for determining whether the same requires Regulatory Approval.
(d)
EVOLUS will be the primary contact with the Regulatory Authorities in the Territory and shall be solely responsible for all communications with such Regulatory Authorities that relate to any Regulatory Submission relating to Agreement Products in the Territory prior to and after any Governmental Approval.
(e)
Subject to the terms and conditions of this Agreement, EVOLUS may file any submissions that are intended to change or modify Labeling or prescribing information approved by Health Canada for the Agreement Products in the field for the Territory; provided that, except as required by Applicable Laws, EVOLUS will provide to the DISTRIBUTOR a draft of such submission at least ten (10) business days prior to a planned submission to the applicable Regulatory Authority and EVOLUS will give reasonable consideration to any comments the DISTRIBUTOR may have. For greater certainty it is acknowledged and agreed that the labeling with respect to Products for distribution in Canada will be different than labeling for Products for distribution in the United States, as a result of among other things, the requirement in Canada to have the label in both English and French languages.
4.
D
ISTRIBUTOR
O
BLIGATIONS
4.1
Marketing and Distribution Efforts
.
(a) Promotion
. DISTRIBUTOR shall, at its own expense, use commercially reasonable efforts to promote the Agreement Products throughout the Territory through publicity, advertising, trade shows (e.g. having a presence at major dermatology or plastic surgery conference in the Territory) and other means on a basis reasonably acceptable to EVOLUS but consistent with current market standards in the Territory. Without limiting the foregoing, the parties agree to jointly collaborate, in good faith, on marketing and public relations campaigns related to the. Agreement Products. For greater certainty it is acknowledged and agreed that the marketing materials with respect to Products for distribution in Canada will be different than marketing materials for Products for distribution in the United States, as a result of among other things, the requirement in Canada to have the marketing materials in both English and French languages
(b) Marketing Materials
. DISTRIBUTOR may not utilize promotional or advertising materials related to the Agreement Products or referencing the EVOLUS Marks or the Daewoong Marks other than those materials supplied by EVOLUS unless:
(i) it has furnished EVOLUS with complete copies, together with an English translation, for EVOLUS’ prior review and has received EVOLUS’ prior written approval to use such material such approval, which may be withheld for any reason or no reason by EVOLUS; and
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
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(ii)
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any copyright notice on the original EVOLUS text has been accurately reproduced on DISTRIBUTOR’s materials.
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Once advertising copy has been approved, it can be used repeatedly in the same approved form without need for new approval for each use, unless EVOLUS notifies DISTRIBUTOR that such prior approval has been withdrawn.
(c) Business Plans and Reports
. EVOLUS shall participate with DISTRIBUTOR in regular reviews of DISTRIBUTOR’s activities under this Agreement. DISTRIBUTOR, at such times as DISTRIBUTOR shall determine in DISTRIBUTOR’s reasonable discretion, shall provide EVOLUS with regular, but no less than annual: (a) plans for the marketing and distribution of the Agreement Products (including pricing strategies and promotional activities), and (b) reports of its activities with respect to the Agreement Products in the Territory. The parties acknowledge and agree that such plans and reports shall be considered Confidential Information under Section 10 of this Agreement (to the extent not excluded by Section 10.3).
(d) No Additional Warranties
. DISTRIBUTOR will not make or publish any representations, warranties or guarantees concerning any Agreement Product that are inconsistent with the applicable Agreement Product’s Specifications, Governmental Approvals and documentation published by EVOLUS.
(e) No Off-Label Promotion
. DISTRIBUTOR shall only promote the Agreement Products in accordance with the Labeling approved by Health Canada and materials provided or approved by EVOLUS. DISTRIBUTOR shall inform EVOLUS in writing within thirty (30) days of becoming aware of use of the Agreement Products beyond the Labeling approved by Health Canada.
4.2
Legal Requirements
(a) Compliance with Anti-Bribery Laws
. DISTRIBUTOR acknowledges that certain laws of the United States of America and other countries, including, without limitation, the Foreign Corrupt Practices Act (collectively, the “
anti-bribery laws
”), make it unlawful for DISTRIBUTOR or anyone acting on DISTRIBUTOR’s behalf to offer, pay, promise, or authorize to pay any money, gift, or anything of value directly or indirectly to any Foreign Official with the intent of causing the Foreign Official to misuse such official’s position to obtain or retain business for EVOLUS or DISTRIBUTOR. For the purposes of this Agreement, the term “
Foreign Official
” includes not only traditional government officials and those employed by government agencies, departments, or ministries, but also employees of companies that are owned or controlled by national, regional, or local governments such as doctors employed by state-owned hospitals. DISTRIBUTOR acknowledges and confirms its understanding of the anti-bribery laws and agrees to comply with those provisions and not to take or fail to take any action that might in any way cause EVOLUS to be in violation of the anti-bribery laws. Additionally, DISTRIBUTOR represents and warrants that neither it nor any person employed by DISTRIBUTOR is a Foreign Official and that no government entity has an ownership interest in DISTRIBUTOR’s business. DISTRIBUTOR further represents, warrants, and covenants to EVOLUS that it has not, and covenants and agrees that it will not, in connection with the transactions contemplated by this Agreement or in connection with any other business transactions involving EVOLUS, make or promise to make any payment or transfer of anything of value, directly or indirectly to any Foreign Official with the intent of causing Foreign Official to misuse such official’s position to obtain or retain business for the EVOLUS or any of its subsidiaries or affiliates or for any other improper purpose that would be an advantage for EVOLUS. It is the intent of the parties that no payments or transfers of value shall be made which have the purpose or effect of public or commercial bribery, acceptance of or acquiescence in extortion, kickbacks, or other unlawful or improper means of obtaining business. DISTRIBUTOR agrees to use good judgment, high ethical standards and honesty in DISTRIBUTOR’s
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
dealings with customers, end-users, employees and Foreign Officials, recognizing that even the appearance of unethical actions is not acceptable.
(b) Training of Employees
. DISTRIBUTOR agrees to provide training to its employees and representatives regarding compliance with anti-bribery laws and any other Applicable Laws, as well as any additional training offered by EVOLUS. DISTRIBUTOR also agrees to furnish to EVOLUS by affidavit or other reasonable means from time to time at EVOLUS’ request, and to EVOLUS’ reasonable satisfaction, assurances that (i) the appointment of DISTRIBUTOR and DISTRIBUTOR’s activities under this Agreement, and the payment to DISTRIBUTOR of any commissions, discounts, or any monies or consideration contemplated in this Agreement, are proper and lawful under said laws and regulations, and (ii) it is in compliance with all anti-bribery laws.
(c) Export Controls
. DISTRIBUTOR acknowledges that U.S. export control and economic sanctions laws prohibit the export or re-export or any U.S.-origin goods, services, or technologies to certain countries, entities, and individuals, or for certain prohibited end users. These laws include, without limitation, the Arms Export Control Act and International Traffic in Arms Regulations administered by the U.S. Department of State, the Export Administration Regulations administered by the U.S. Department of Commerce, and the various economic sanctions programs enforced by the U.S. Treasury Department’s Office of Foreign Assets Control and the U.S. State Department’s Office of Terrorism Finance and Economic Sanctions Policy. DISTRIBUTOR represents, warrants, and covenants to EVOLUS that it has not, and covenants and agrees that it will not, in connection with the transactions contemplated by this Agreement or in connection with any other business transactions involving the EVOLUS, violate or otherwise cause any party to violate any of the foregoing export control and economic sanctions laws.
(d) Compliance with Laws
. DISTRIBUTOR agrees to comply with all other laws, statutes, regulations and other legal requirements and not to place EVOLUS in jeopardy of not complying with any such requirements. DISTRIBUTOR shall provide EVOLUS with prompt written notice of any changes in any applicable law, rule, regulation or governmental order, which comes to DISTRIBUTOR’s attention that may affect either party’s performance of its obligations hereunder.
(e) Compliance Review.
DISTRIBUTOR shall allow EVOLUS and any authorized agent of EVOLUS or any third party licensor of EVOLUS (a “
Compliance Reviewer
”), at EVOLUS’ sole expense, to access DISTRIBUTOR’s books and records for the purpose of verifying compliance with Applicable Laws including, without limitation, the Foreign Corrupt Practices Act, U.S. export controls and economic sanctions, and other U.S. laws with extraterritorial effect, at any time during the Term upon at least 48 hours prior notice, in order to conduct a compliance review.
(f) Quality Agreement
. EVOLUS has, and requires of its distributors, a primary commitment to patient safety and product quality. To this end, DISTRIBUTOR agrees to enter into EVOLUS’ Quality Agreement regarding the Agreement Products within 120 days of the Effective Date to be attached as Annex A hereto (the “
Quality Agreement
”) or as they may be further communicated to DISTRIBUTOR from time to time. These include, without limitation, requirements regarding appropriate storage of the Agreement Products, maintaining traceability, prompt reporting and handling of complaints, and implementation of recalls and other field actions. These requirements shall survive the expiration or other termination of this Agreement. In addition to, and in no way limiting the foregoing in this Section 4, DISTRIBUTOR agrees to maintain ongoing quality assurance sufficient to satisfy applicable regulatory requirements at all times during the term of this Agreement.
(g) Adverse Events
. DISTRIBUTOR shall advise EVOLUS within twenty-four (24) hours of any Adverse Event of which it becomes aware. DISTRIBUTOR shall also, within five (5) days thereafter, provide EVOLUS with a written report stating the full facts known to it about the Adverse
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Event, including but not limited to customer name, address, telephone number and lot or serial number of the Agreement Product. EVOLUS shall from time to time provide DISTRIBUTOR with written procedures regarding the information required by EVOLUS in the event of any Adverse Event. Within three (3) months prior to the Commercial Launch Date, DISTRIBUTOR shall implement appropriate written procedures established for processing any Adverse Event, and shall provide the same to EVOLUS upon request. DISTRIBUTOR shall maintain such written procedures (as may be reasonably modified by DISTRIBUTOR from time to time upon written notice to EVOLUS) throughout the Term. As part of such procedures, DISTRIBUTOR shall establish a means for properly (a) tracking delivery of Agreement Products to customers (including all customers who receive Agreement Products from Sub-Distributors) and (b) maintaining its distribution records for Agreement Products for a reasonable time period, but no shorter than the time period required by Applicable Law. All information related to any Adverse Event shall be the Confidential Information of EVOLUS, and shall not be disclosed by DISTRIBUTOR to any third party or used by DISTRIBUTOR except as required by Applicable Laws.
(h) Section Breach.
Breach of this Section 4.2, or reasonable grounds for EVOLUS to believe it has been breached (in EVOLUS’ sole discretion), if such breach is not cured within a reasonable grace period of thirty (30) days from the time that the DISTRIBUTOR becomes aware of such breach will result in immediate termination of this Agreement.
5. T
RADEMARKS
.
5.1 Registration and Ownership
. DISTRIBUTOR shall, at its cost and expense, file and endeavor in good faith to obtain the registration of the DISTRIBUTOR Marks in the Territory (to the extent necessary), and thereafter to use commercially reasonable efforts to maintain such DISTRIBUTOR Marks in the Territory. DISTRIBUTOR shall keep EVOLUS advised of the status of such registration(s). EVOLUS acknowledges that, as between the parties, the DISTRIBUTOR Marks are owned exclusively by DISTRIBUTOR. EVOLUS shall not take any action inconsistent with such ownership and shall cooperate, at DISTRIBUTOR’s request and expense, in any action (including the conduct of legal proceedings) that DISTRIBUTOR deems necessary or desirable to establish or preserve DISTRIBUTOR’s rights in and to the DISTRIBUTOR Marks. EVOLUS will not adopt, use or attempt to register any trademarks, trade names, domain names or social media accounts that are confusingly similar to the DISTRIBUTOR Marks or in such a way as to create combination marks with the DISTRIBUTOR Marks.
5.2 Branding
. EVOLUS agrees that if, upon prior written approval of EVOLUS, an Agreement Product, or any labeling, advertising and promotional materials in connection therewith, may feature the applicable DISTRIBUTOR Mark(s) as designated by DISTRIBUTOR. Accordingly, DISTRIBUTOR grants to EVOLUS a non-exclusive, non-transferable (except for permitted assignments under Section 13.4), sub-licensable (solely to EVOLUS Affiliates) license to use and reproduce the DISTRIBUTOR Marks solely in connection with EVOLUS’ manufacturing and supplying Agreement Products under this Agreement. DISTRIBUTOR shall use the DISTRIBUTOR Mark(s) that are designated on Exhibit B as exclusive to the Agreement Products solely in connection with the Agreement Products. All goodwill arising as a result of the use of the DISTRIBUTOR Marks shall inure to the benefit of DISTRIBUTOR.
6. M
ANUFACTURE AND
S
UPPLY
.
6.1 Purchase Orders
. Subject to the terms and conditions of this Agreement, EVOLUS shall, subject to the terms of the Daewoong Agreement, during the Term, supply Agreement Products to DISTRIBUTOR pursuant to individual and/or blanket purchase orders (each a “Purchase Order”) issued by DISTRIBUTOR. Each Purchase Order will specify the Agreement Product(s) to be supplied and the quantities, delivery dates and any special instructions relative to each such Purchase Order. The minimum
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
order size for each Purchase Order shall be [***] units of Agreement Products with each unit being [***]IU of Agreement Product. DISTRIBUTOR shall not place more than one Purchase Order per month. Each such Purchase Order is subject to the terms of the Daewoong Agreement, during the Term (as defined below), supply Agreement Products to DISTRIBUTOR pursuant to individual and/or blanket purchase orders (each a “Purchase Order”) shall be subject to EVOLUS’ written acceptance. To the extent that any terms on DISTRIBUTOR’s Purchase Order or on EVOLUS’ invoices or acknowledgement documents are inconsistent with or contrary to the terms set forth in this Agreement, the terms of this Agreement shall prevail.
6.2 Forecasts
. Within [***] days of the Effective Date, DISTRIBUTOR shall provide to EVOLUS a non-binding forecast for the Initial Agreement Products for Commercialization Year 1. Beginning on the first day of each calendar quarter following the receipt of all required Governmental Approvals for each Agreement Product, DISTRIBUTOR shall provide EVOLUS with a written twelve (12) month rolling forecast of DISTRIBUTOR’s estimated requirements for delivery of the Agreement Product in each month of such twelve (12) month period (starting with the calendar month immediately following the delivery of the forecast). The first [***] months of each such forecast shall represent a binding purchase commitment by DISTRIBUTOR (“Forecast Commitment”), and the remaining forecast shall be a non-binding estimate. EVOLUS shall use commercially reasonable efforts to accept Purchase Orders issued by DISTRIBUTOR within plus or minus [***] percent ([***]%) of the Forecast Commitment in Commercial Year 1 and [***] percent ([***] %) of the Forecast Commitment thereafter, provided that in the event the DISTRIBUTOR is short shipped, the DISTRIBUTOR shall only pay for the number of units received
.
6.3
Prices and Payment Terms.
(a)
Pricing
. The purchase price payable by DISTRIBUTOR to EVOLUS for the Initial Agreement Products under any Purchase Order shall be the prices set forth in
Exhibit C
, or such other pricing as mutually agreed upon, from time to time, by the parties in writing. Pricing shall be exclusive of taxes (on import or otherwise), duties, tariffs and other governmental charges (including the cost attributable to analytical testing in the Territory as invoiced by EVOLUS where EVOLUS undertakes such testing for the DISTRIBUTOR) arising from DISTRIBUTOR’s receipt of Agreement Products from EVOLUS (collectively “
Taxes
”), and DISTRIBUTOR shall be responsible for such Taxes (other than taxes based on EVOLUS’ income). In addition, all payments by DISTRIBUTOR under this Agreement (purchase price of Agreement Products, and Taxes if payable to EVOLUS) are to be made in immediately available funds in US Dollars to such accounts as EVOLUS may from time to time select, free and clear of and without any withholding or deduction whatsoever, whether in respect of present or future Taxes. If DISTRIBUTOR is compelled by law or by any authority to make any such withholding or deduction, DISTRIBUTOR undertakes (i) to immediately notify EVOLUS, (ii) to immediately pay to EVOLUS such additional amounts as are necessary for EVOLUS to receive the amount which would have been received if no such withholding or deduction had been required, (iii) to immediately pay the amount so deducted or withhold to the relevant taxing authority when due and (iv) to provide EVOLUS with evidence immediately when available that such Taxes have been paid.
(b)
Payment Terms
. EVOLUS shall invoice DISTRIBUTOR for Agreement Products at the time of shipment to Toronto and DISTRIBUTOR shall pay each undisputed invoice and, if applicable, direct payment of the Unit Payment to the ES Shareholder, within [***] days of invoice.
(c)
Late Payments
. Payments that are not received by EVOLUS when due, which are not paid within [***] business days following receipt of written notice of such nonpayment, shall accrue interest at a rate of [***] percent ([***]%) per month or the highest rate permitted by law, whichever is
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
less. Such interest shall be calculated from the date payment was due until payment is actually received by EVOLUS. Payments will be considered timely paid if postmarked as of the date on which payment is due.
(d)
DISTRIBUTOR Pricing.
Subject to Applicable Law, nothing contained herein shall be deemed to limit in any way the right of DISTRIBUTOR to determine the prices at which or the terms on which the Agreement Products purchased by DISTRIBUTOR may be resold.
6.4 Delivery
. The lead-time for delivery of Agreement Products shall be mutually agreed to by the parties, and EVOLUS shall attempt to minimize such lead-time as reasonably requested by DISTRIBUTOR, subject to Daewoong’s ability to produce Agreement Products and EVOLUS’ reasonable exercise of discretion to allocate inventory and production resources to meet other demands. EVOLUS will promptly notify DISTRIBUTOR of any circumstances for delay in delivery and EVOLUS will use commercially reasonable efforts to minimize such delay. At the request of DISTRIBUTOR, EVOLUS agrees to assume the burden of bearing all additional costs associated with premium freight for corrective action as a result of delays caused by events under the reasonable control of EVOLUS, including failure to order materials in a timely fashion to accommodate required lead times. Partial deliveries may not be made without DISTRIBUTOR’s prior written approval. Unless otherwise specified in individual Purchase Orders, all Agreement Products sold by EVOLUS to DISTRIBUTOR hereunder will be delivered CIF (Incoterms 2010), named place: Toronto), or any other place that may be mutually agreed upon by EVOLUS and the DISTRIBUTOR from time to time. Except as provided below, DISTRIBUTOR will pay all freight, shipping, insurance, duties, forwarding and handling charges, taxes, storage and all other charges applicable to the items after they are delivered by EVOLUS to the named place. To minimize delays, DISTRIBUTOR shall use the same delivery service as used by EVOLUS to deliver to the named place, provided, that if DISTRIBUTOR uses an alternative delivery service, DISTRIBUTOR shall be responsible for all fees related to any additional paperwork, delivery charges or other fees. EVOLUS shall make all shipping arrangements and prepare all necessary documentation and declarations. DISTRIBUTOR shall assume all risk of loss for the Agreement Products upon CIF delivery by EVOLUS, except to the extent any such loss is directly attributable to any act or omission on the part of EVOLUS prior to such delivery. DISTRIBUTOR shall be the importer of record for all shipments of Agreement Products hereunder.
6.5 Acceptance and Rejection.
DISTRIBUTOR may inspect any or all shipments of Agreement Products within [***] days of DISTRIBUTOR’s receipt of each shipment. During the inspection period, DISTRIBUTOR has the right to reject, via written notification to EVOLUS, any Agreement Products that do not conform to the applicable Purchase Order (e.g. wrong product or wrong quantity or Agreement Products do not pass analytical test).
6.6 Storage of Inventory
. DISTRIBUTOR shall ensure that all Agreement Products are stored pursuant to the specifications set forth in the Quality Agreement and any other storage requirements required by the applicable Governmental Approvals and under Applicable Law.
6.7 Expired Products
. DISTRIBUTOR shall not sell any Agreement Products beyond their stated expiration date;
provided, however
, EVOLUS shall only deliver Agreement Products to DISTRIBUTOR that have: (a) during Commercialization Year 1 at least [***] months of their useful life remaining and (b) after Commercialization Year 1 at least [***] years of their useful life remaining.
6.8 Recalls
. EVOLUS shall have the right to reasonably declare any recall of, field corrective action to, or advisory letter of any Agreement Product (a “
Recall
”). DISTRIBUTOR shall provide EVOLUS reasonable assistance in connection with any Recall and EVOLUS shall reimburse
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
DISTRIBUTOR for all expenses reasonably incurred by DISTRIBUTOR in connection therewith. If a party becomes aware of any Agreement Product defect or any action by a governmental authority requiring a Recall, then such party shall notify the other party within [***] hours of becoming aware of such event.
6.9 Samples.
In each of Commercialization Year 1 and Commercialization Year 2, DISTRIBUTOR shall have the right to purchase samples of the Initial Agreement Products at the discounted prices set forth on Exhibit C under the heading “Sample Pricing”; provided, however, (a) the quantity of samples of Initial Agreement Products available to be purchased by Distributor during Commercialization Year 1 shall not exceed [***]% of units of such Initial Agreement Products ordered by the DISTRIBUTOR during such 12 month period and [***]% in Commercialization Year 2. Purchases of any such samples shall be pursuant to the terms of Section 6 (other than with respect to pricing). Samples may not be sold by DISTRIBUTOR and shall be provided free of cost to physicians. If Distributor sells any sample products or exchanges them for other valuable consideration, they shall immediately remit to EVOLUS the difference between the Transfer Price and the sample price.
7. R
EPRESENTATIONS AND
W
ARRANTIES
.
7.1 Mutual Representations and Warranties
. Each party represents and warrants that (a) it has full right, power and authority to enter into this Agreement and to perform its obligations and duties under this Agreement, (b) the performance of such obligations and duties does not and will not conflict with or result in a breach of any other agreements of such party or any judgment, order or decree by which such party is bound, and (c) it will comply with all Applicable Laws in connection with its performance under this Agreement. Without limiting the generality of the foregoing, each party represents and warrants that it will comply with all applicable export and import control laws and regulations, and all applicable anti-bribery laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended.
7.2
Representations and Warranties of EVOLUS
(a)
EVOLUS has taken all necessary corporate actions to authorize the execution, delivery and performance of this Agreement.
(b)
The Daewoong Agreement (i) is in full force and effect, enforceable in accordance with its terms, except to the extent enforceability is limited by bankruptcy, insolvency or similar laws affecting creditors’ rights and remedies or equitable principles, and (ii) has not been terminated; and EVOLUS has not taken any action to terminate the Daewoong Agreement.
(c)
EVOLUS shall provide DISTRIBUTOR with (i) written notice within five (5) business days of any alleged material breach of the Daewoong Agreement or written (including by email) threat of termination of the Daewoong Agreement received by EVOLUS from Daewoong thereunder, and (ii) written notice not less than seven (7) Business Days of the proposed adoption of any amendment to the Daewoong Agreement relating to the Territory or DISTRIBUTOR’s rights under this Agreement, in each case, in any material respect.
(d)
EVOLUS has not received any notice that the manufacture, sale or use of the Sublicensed Products in the Territory infringes upon any intellectual property rights of any Third Party(ies) in the Territory.
7.3
Product Specifications.
(a)
The Agreement Products will be manufactured pursuant to the terms set forth in the Daewoong Agreement. Agreement Products that conform to the terms set forth in the Daewoong
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Agreement are referred to herein as “conforming” Agreement Products, and Agreement Products that do not conform to the terms set forth in the Daewoong Agreement are referred to herein as “nonconforming” Agreement Products.
(b)
Remedy.
DISTRIBUTOR shall notify EVOLUS in writing within [***] days if DISTRIBUTOR has determined, after reasonable investigation, that an Agreement Product is nonconforming. DISTRIBUTOR shall deliver the nonconforming Agreement Product(s), according to EVOLUS’ instructions and at EVOLUS’ expense, to EVOLUS for review. If EVOLUS determines, in its reasonable discretion, that the Agreement Product(s) are nonconforming, EVOLUS shall, at its option, either credit DISTRIBUTOR for the purchase price of the nonconforming Agreement Products or provide a replacement Agreement Product. DISTRIBUTOR shall permit EVOLUS to inspect DISTRIBUTOR’s facilities (and, if applicable, the facilities of Sub-Distributors) to examine the inventory management system at such facility. All nonconforming Agreement Products that are replaced or for which a credit is given to DISTRIBUTOR shall become EVOLUS’ property. The replacement or credit provided hereunder is DISTRIBUTOR’s sole and exclusive remedy for nonconforming Agreement Products; provided, however, nothing herein shall limit or waive EVOLUS’ indemnity obligations hereunder. This remedy shall not apply to any Agreement Product that has been misused, improperly stored, adulterated or modified by DISTRIBUTOR or any of its Sub-Distributors.
7.4 Disclaimer.
EXCEPT AS SET FORTH IN THIS SECTION 7, EVOLUS DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS, STATUTORY, OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT SAVE AND EXCEPT AS SET FORTH IN SECTION 8.1. EVOLUS NEITHER ASSUMES NOR AUTHORIZES DISTRIBUTOR OR ANY THIRD PARTY TO ASSUME FOR EVOLUS ANY OTHER LIABILITIES IN CONNECTION WITH THE AGREEMENT PRODUCTS.
8. I
NDEMNITY AND
I
NSURANCE
.
8.1
EVOLUS Indemnity
. Subject to DISTRIBUTOR’s indemnity obligations under Section 8.2, EVOLUS agrees to defend DISTRIBUTOR, its Affiliates and each of their respective officers, directors, employees, contractors, agents and customers (each a “
DISTRIBUTOR Indemnified Party
”) from and against any claim, suit or other proceeding brought by DISTRIBUTOR or a third party (a “
DISTRIBUTOR Claim
”) to the extent such DISTRIBUTOR Claim arises out of (a) EVOLUS’ breach of this Agreement, including any representations and/or warranties hereunder, (b) the negligence, recklessness or willful misconduct on the part of EVOLUS, its officers, directors, employees, agents or other representatives in their performance of this Agreement; and (c) an allegation that the Agreement Products infringe or misappropriate any rights, including intellectual property rights (e.g. trademark, copyright, or patent), of such third party in the Territory. EVOLUS will indemnify and hold harmless each DISTRIBUTOR Indemnified Party from any losses, damages, judgments, awards, fines, penalties, costs and expenses (including reasonable attorneys’ fees and costs of defense) (collectively, “
Losses
”) incurred by or levied against such DISTRIBUTOR Indemnified Party as a result of such DISTRIBUTOR Claim.
8.2
DISTRIBUTOR Indemnity
. Subject to EVOLUS’s indemnity obligations under Section 8.1, DISTRIBUTOR agrees to defend EVOLUS, its Affiliates and each of their respective officers, directors, employees, contractors and agents (each a “
EVOLUS Indemnified Party
”) from and against any claim, suit or other proceeding brought by EVOLUS or a third party (a “
EVOLUS Claim
”) to the extent such EVOLUS Claim arises out of (a) DISTRIBUTOR’s breach of this Agreement, including any representations and/or warranties hereunder, (b) the negligence, recklessness or willful misconduct on the part of DISTRIBUTOR, its officers, directors, employees, agents or other representatives in their
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
performance of this Agreement; and (c) an allegation that the DISTRIBUTOR Marks or any other materials prepared by DISTRIBUTOR, its agents or representatives for use in connection with this Agreement infringe or misappropriate any rights, including intellectual property rights (e.g. trademark, copyright, or patent), of such third party in the Territory. DISTRIBUTOR will indemnify and hold harmless each EVOLUS Indemnified Party from any Losses incurred by or levied against such EVOLUS Indemnified Party as a result of such EVOLUS Claim. For the purpose of Section 8.3 and 8.4 the term “
Claim
” means, collectively an EVOLUS Claim or a DISTRIBUTOR Claim, as appropriate.
8.3 General Conditions of Indemnification
. The indemnifying party’s (the “
Indemnifying Party
”) obligations under Sections 8.1 and 8.2 are conditioned upon the party to be indemnified (the “
Indemnified Party
”) (a) providing written notice to the Indemnifying Party of any purported covered Claim within thirty (30) days after the Indemnified Party has knowledge of such purported Claim (except that failure to timely provide such notice will relieve the Indemnifying Party of its obligations only to the extent the Indemnifying Party is materially prejudiced as a direct result of such delay); (b) giving the Indemnifying Party sole control over the defense thereof and any related settlement negotiations; and (c) cooperating and, at the Indemnifying Party’s request and expense, assisting in such defense. Notwithstanding the foregoing, the Indemnified Party may participate at its own expense in the defense and any settlement discussions, and will have the right to approve any settlement agreement that involves an admission of fault by the Indemnified Party or imposes non-monetary obligations on the Indemnified Party;
provided, however
, that such approval will not be unreasonably withheld.
8.4 Infringement Remedies
. If an Agreement Product is found to infringe any such third party’s intellectual property rights or if EVOLUS reasonably believes that an infringement claim is likely, at EVOLUS’ sole discretion and expense, EVOLUS may (a) obtain a license from such third party for the benefit of DISTRIBUTOR; or (b) replace or modify the Agreement Product so that it is no longer infringing without any loss in features or functionality. If neither of the foregoing is commercially feasible, EVOLUS may, at EVOLUS’ sole discretion, remove the allegedly infringing Agreement Product from this Agreement or terminate this Agreement with no further liability to DISTRIBUTOR if such Agreement Product is then the only Agreement Product under this Agreement;
provided, however
, EVOLUS shall accept return of, and promptly issue a refund for, any such Agreement Product previously purchased by DISTRIBUTOR.
8.5 Insurance
. Each party, at its sole cost and expense, will maintain appropriate insurance during the Term and for a period of not less than [***] years following the termination or expiration of this Agreement. Such insurance shall include, but not be limited to, Commercial General Liability Insurance with Broad Form Contractual Liability; premises, operations coverage including products and completed operations and Personal Injury/Property Damage Coverage, with limits of not less than $1,000,000 per occurrence, $5,000,000 annual aggregate. A Certificate of Insurance indicating such coverage will be delivered to the other party upon request. The Certificate will (a) indicate that the policy will not change or terminate without at least thirty (30) days’ prior written notice to the other party, (b) list the other party as an additional insured on the commercial general liability policy.
9. T
ERM AND
T
ERMINATION
.
9.1
Effective Date and Term
.
(a)
Initial Term
. The initial term of this Agreement shall commence on the Effective Date and, unless terminated earlier as provided herein, shall continue through the earlier to occur of:
(i) the fifth anniversary of the receipt of all Governmental Approvals for the Initial
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Agreement Product, and
(ii) the payment in full of the Unwind Fee (the “
Initial Term
”).
(b)
Extension Term
. Following the Initial Term of this Agreement, unless terminated earlier as provided herein, this Agreement may be renewed by mutual agreement of the parties.
9.2
Termination
.
(a)
Termination for Cause
. Each party may terminate this Agreement upon written notice to the other party if the other party (a) materially breaches any provision of this Agreement and fails to cure such breach within sixty (60) days after receipt of written notice describing the breach in reasonable detail, or (b) becomes insolvent or seeks protection under any bankruptcy, receivership, trust deed, creditors arrangement or comparable proceeding, or if any such proceeding is instituted against the other party and not dismissed within sixty (60) days. Each party may also terminate this Agreement as expressly set forth elsewhere in this Agreement.
9.3 Effect of Termination
. On the effective date of termination of this Agreement (the “
Termination Date
”), subject to Section 9.3(a), all rights and licenses granted by EVOLUS to DISTRIBUTOR under this Agreement and all rights and licenses granted by DISTRIBUTOR to EVOLUS under this Agreement shall cease and DISTRIBUTOR will cease all further marketing, promotion and distribution of any and all Agreement Product(s). Except as set forth in Section 9.3(a), all outstanding Purchase Orders shall be automatically cancelled as of the Expiration or Termination Date, whichever occurs the earlier. Notwithstanding the foregoing, but subject to Section 9.3(a), within [***] days following the Termination Date, EVOLUS shall have the right, but not the obligation, to purchase from DISTRIBUTOR its inventory (in part or in whole) of Agreement Product(s) at a price equal to DISTRIBUTOR’s acquisition costs of such Agreement Product(s). EVOLUS shall be solely responsible for all transportation costs and any importation taxes and duties for the delivery of the purchased inventory back to EVOLUS or EVOLUS’ designee. All Governmental Approvals or Regulatory Submissions for the Agreement Products, which are held in the name of DISTRIBUTOR as a result of Applicable Law requiring DISTRIBUTOR to be so named on such Governmental Approval or Regulatory Submission, shall be transferred to EVOLUS or, if such transfer is prohibited under Applicable Law, shall be held for the beneficial use by EVOLUS if such is not contrary to Applicable Law. For the avoidance of doubt, to the extent that the Unwind Fee is not paid in full prior to termination of this Agreement, the Strathspey Group shall remain liable for the balance of the Unwind Fee
(a)
Bundled Sales
. Notwithstanding Section 9.3 above, after the completion of Commercialization Year 1 and at any time Evolus may determine thereafter, Evolus, at its sole discretion, may allow DISTRIBUTOR to enter into multi-year “bundling” agreements (“
Bundle Agreements
”) with customers of the Agreement Products in the Territory whereby customers would purchase a bundle of products that include the Agreement Products. During Commercialization Year 1, DISTRIBUTOR may expressly enter into Bundle Agreements with a maximum term of three years and EVOLUS shall have the obligations to deliver the Agreement Products at the Transfer Price set forth on Exhibit C regardless of whether the Term of this Agreement has ended. After Commercialization Year 1, EVOLUS, in its sole discretion , may allow DISTRIBUTOR to enter into additional Bundle Agreements, the parties will mutually agree on, among other things, (a) the length of such Bundle Agreements, which may extend beyond the Term of the Agreement, (b) the purchase price of the Agreement Products after the expiration of the Term (for the avoidance of doubt, during the Term of the Agreement, the purchase price for the Agreement Products shall be the Transfer Price as set forth on Exhibit C), and (c) any terms and conditions for the Bundle Agreements. In the Event that DISTRIBUTOR and EVOLUS mutually agree to the terms of a Bundle Agreement beyond Commercialization Year 1, EVOLUS shall have the
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
obligation to deliver the Agreement Products on the terms agreed to by the parties. For the avoidance of doubt, samples shall expressly not be available for bundling in any Bundle Agreements.
9.4 Survival
. Except as otherwise expressly set forth herein, the following provisions will survive expiration or termination of this Agreement pursuant to their terms, together with any other provisions necessary for their construction and enforcement: Sections 1, 6.7, 6.8, 6.9, 6.10, 7, 8, 9.3, 9.4, 10, 11, 12 and 13, along with the Quality Agreement and any payment obligations hereunder and any other provision of this Agreement that by its terms would survive expiration or termination.
10.
C
ONFIDENTIALITY
.
10.1 Definition
. “
Confidential Information
” means the terms of this Agreement and any and all information related to a party’s (“
Discloser
”) business (including trade secrets, technical and scientific information, business forecasts and strategies, marketing plans, customer and supplier lists, product information, research and development information, study results, personnel information, financial data and proprietary information of third parties provided to Discloser in confidence) that is labeled or identified as “confidential” or “proprietary” or that the other party (“
Recipient
”) otherwise knows, or would reasonably be expected to know under the circumstances, Discloser considers to be confidential or proprietary or Discloser has a duty to treat as confidential.
10.2 Nondisclosure Obligations
. Recipient agrees that it will (a) hold Discloser’s Confidential Information in confidence using the same standard of care as it uses to protect its own confidential information of a similar nature, but in no event less than reasonable care; (b) not disclose the Confidential Information of Discloser to any third party without Discloser’s prior written consent, except as expressly permitted under this Agreement; and (c) limit access to Discloser’s Confidential Information to those of its officers, directors, representatives, employees or agents having a need to know for purposes of performance hereunder who are bound by confidentiality obligations at least as restrictive as those set forth herein. Notwithstanding the foregoing, Recipient may make disclosures as required by a court of law or any governmental entity or agency, provided that Recipient provides Discloser with reasonable prior notice to enable Discloser to seek confidential treatment of such information.
10.3 Exclusions
. The restrictions on the use and disclosure of Confidential Information shall not apply to any of Discloser’s Confidential Information (or portion thereof) which (a) is or becomes publicly known through no act or omission of Recipient; (b) is lawfully received from a third party without restriction on disclosure; (c) is already known by Recipient at the time it is disclosed by Discloser, as shown by Recipient’s written records; or (d) is independently developed by Recipient without reference to Discloser’s Confidential Information, as shown by Recipient’s written records.
10.4 Return of Confidential Information
. Upon Discloser’s request and upon any termination or expiration of this Agreement, Recipient will promptly (a) return to Discloser or, if so directed by Discloser, destroy all tangible embodiments of Discloser’s Confidential Information (in every form and medium); (b) permanently erase all electronic files containing or summarizing any of Discloser’s Confidential Information (except for any computer records or files that have been created pursuant to Recipient’s automatic archiving and back-up procedures and the removal of which is not technically reasonable); and (c) if so directed by Discloser, certify to Discloser in writing that Recipient has fully complied with the foregoing obligations. Notwithstanding the foregoing, Recipient shall be permitted to retain one (1) copy of Discloser’s Confidential Information (subject to a continuing obligation of confidentiality) as required by Applicable Laws.
10.5 Survival
. Recipient’s confidentiality obligations as set forth above shall continue in full force and effect for so long as the Discloser treats such information as confidential and proprietary and does not fall under one of the exclusions under Section 10.3.
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
11. L
IMITATION OF
L
IABILITY
.
11.1 Exclusion of Consequential Damages
. TO THE EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY, SPECIAL OR PUNITIVE DAMAGES, INCLUDING ANY DAMAGES FOR LOSS OF PROFIT OR INCOME, ARISING FROM OR RELATING TO THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11.2 Cap on Damages
. EXCEPT FOR OBLIGATIONS TO MAKE PAYMENT UNDER THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY’S AGGREGATE, CUMULATIVE LIABILITY TO THE OTHER PARTY EXCEED THE GREATER OF (A) $5,000,000 AND (B) THE AMOUNTS PAID/PAYABLE BY DISTRIBUTOR TO EVOLUS UNDER THIS AGREEMENT IN THE TWELVE (12) MONTH PERIOD PRIOR TO THE ACT OR OMISSION GIVING RISE TO LIABILITY.
11.3 Exceptions
. THE FOREGOING LIMITATIONS OF LIABILITY SET FORTH IN THIS SECTION 11 SHALL NOT APPLY TO (A) EACH PARTY’S INDEMNIFICATION OBLIGATIONS UNDER SECTION 8; (B) EACH PARTY’S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS UNDER SECTION 10; (C) DISTRIBUTOR’S BREACH OF ITS NON-COMPETE OBLIGATIONS UNDER SECTION 2.5; (D) EACH PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
12. A
UDITS
. During the Term and for a period of [***] years thereafter (“
Audit Period
”), each party (the “
Audited Party
”) will keep and maintain accurate and detailed books and records adequate for the other party (the “
Auditing Party
”) to verify the Audited Party’s compliance with this Agreement, including all amounts due and payable hereunder. At its sole expense, the Auditing Party will have the right, no more than once each calendar year during the Audit Period, upon [***] business days’ prior written notice to the Audited Party, to designate an independent and accredited third-party accounting firm reasonably acceptable to the Audited Party (the
“Auditor
”) to inspect and audit the Audited Party’s books and records for the sole purpose of verifying the Audited Party’s compliance with this Agreement. The Auditor shall be subject to a nondisclosure agreement with the Audited Party that is reasonably satisfactory to the Audited Party, and shall be authorized to disclose confidential information of the Audited Party to communicate its findings from its audit only in the most limited fashion possible in order to preserve the confidentiality of such information, including vis-à-vis the Auditing Party. The Audited Party may, at its sole expense, challenge the Auditing Party’s audit results by engaging a second independent and accredited third-party accounting firm reasonably acceptable to the Auditing Party, which will reconcile its results with the results of the first audit conducted by the Auditing Party. In the event that the Auditing Party’s and Audited Party’s audit results differ, and the parties are unable to reach a mutual agreement with respect thereto within [***] days following the completion of the Audited Party’s reconciliation audit, then the parties shall engage an independent auditor mutually selected by the parties to conduct a third audit, the findings of which shall be final and binding on the parties and the costs of which shall be borne by the party that was found to be incorrect unless the amount of the difference is less than [***]% in which event the party that initiated the audit shall pay such costs. Each audit engaged by the Auditing Party will be conducted at the Auditing Party’s expense;
provided, however
, if any unchallenged or reconciled audit reveals that the Audited Party has failed to comply with this Agreement in any material respect, the Audited Party will reimburse the Auditing Party for all costs and expenses incurred by the Auditing Party in connection with its audit(s). For the sake of clarity, the parties expressly acknowledge that, in relation to any audit foreseen by this Section 12, EVOLUS shall have no obligation whatsoever to disclose or otherwise give access to any data or information that EVOLUS considers, in its sole and absolute discretion, as being confidential, and the DISTRIBTOR shall have no
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
obligation whatsoever to disclose or otherwise give access to any data or information that the DISTRIBUTOR considers, in its sole and absolute discretion, as being confidential.
13.
G
ENERAL
.
13.1 Publicity
. Neither party may issue a press release or make any other public announcement concerning this Agreement or with respect to its business relationship with the other party without such other party’s prior written approval, except that each party may make such disclosure(s) as required by Applicable Laws.
13.2
Non-solicitation of employees and sub distributors.
(a)
At all times during this Agreement and for a period of [***] months after termination of this Agreement howsoever caused
(“Period of Non -Solicitation”)
, each party hereto agrees that it shall not, and each party shall cause its respective subsidiaries, affiliates, shareholders, officers and directors to not, directly or indirectly: (i) solicit or attempt to solicit for employment or consulting engagement or independent contractor engagement or contract, (ii) offer employment to, or (iii) engage the related business services of any person who is or was an officer, employee, independent contractor, consultant or distributor of the other Party during the Term of this Agreement or during such Period of Non-Solicitation. In addition to the foregoing, each party hereto agrees that it shall not and each party shall cause its respective subsidiaries, affiliates, shareholders, officers and directors to not, directly or indirectly persuade or attempt to persuade any such officer, employee, independent contractor, consultant, distributor to cease doing business or to reduce the amount of business which any such officer, employee, independent contractor, consultant, distributor has historically done or contemplates doing in connection with the party in question and shall not do or cause or permit to be done any acts which may impair the relationship between the party in question and its officer, employee, independent contractor, consultant, distributor or any other Person.
(b)
Each party agrees that the provisions of this Section 13.2 are reasonable and necessary for each such party to protect and preserve its goodwill in its business and relationships with its respective officers, employees, independent contractors, consultants and distributors.
(c)
Each party is relying on this Section 13.2 in entering into this Agreement
(d)
A breach or threatened breach by either party its respective subsidiaries, affiliates, shareholders, officers and directors of any provision of this Section 13 will result in the other party suffering immediate and irreparable harm and damage which cannot be calculated or fully or adequately compensated by recovery of damages alone. Accordingly, in the event of a breach or threatened breach of this Agreement, in addition to such other remedies as may be available to them, at law or in equity, or as provided in this Agreement, the party who is the subject of the breach or threatened breach shall be entitled to interim and permanent injunctive relief, specific performance and other equitable remedies.
13.3
Governing Law and Dispute Resolution
.
(a)
Choice of Law
. This Agreement shall for all purposes be governed by and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein, without giving effect to conflicts of laws principles. The parties agree that the United Nations Convention on Contracts for the International Sale of Goods is specifically excluded from application to this Agreement.
(b)
Dispute Process; Arbitration
. If a dispute or controversy regarding any matter
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
under this Agreement arises between the parties which they are unable to resolve (a “
Dispute
”), each of the parties will (subject to any applicable cure period as set forth in this Agreement), be entitled to submit to the other party written notice of such Dispute, with such notice setting forth in reasonable detail the nature of the Dispute (the “
Dispute Notice
”). For a period of [***] days after the date of the receiving party’s receipt of the Dispute Notice, the parties will seek to resolve such Dispute by good faith negotiations between the President of EVOLUS or his/her designee and the President of DISTRIBUTOR or his/her designee. If at the end of such [***] day period the Dispute remains unresolved, the Dispute shall be submitted to final and binding arbitration under the rules of
the Arbitration Act of the Province of Ontario
. The seat, or legal place, of arbitration shall be Ontario, and the arbitration shall be conducted in English. The arbitration tribunal shall be composed of three members. The parties covenant that they will participate in the arbitration in good faith, and that they will share equally in its costs. The provisions of this Section may be enforced by any court of competent jurisdiction, and the successful party shall be entitled to an award of costs, fees and expenses, including legal fees, to be paid by the unsuccessful party against whom enforcement is ordered and as determined by the arbitration panel.
13.4 Relationship of Parties
. The relationship of the parties established under this Agreement is that of independent contractors and neither party is a partner, employee, agent or joint venture partner of or with the other, and neither party has the right or authority to assume or create any obligation on behalf of the other party.
13.5 Change of Control and Assignment
. Neither party shall have the right to assign this Agreement or any of the rights or obligations hereunder without the prior written consent of the other party. Notwithstanding the foregoing, EVOLUS may assign all of its interests in this Agreement without prior consent if such assignment is to an Affiliate of EVOLUS or if the assignment is in connection with a Change in Control. A “
Change in Control
” means the sale of all or substantially all the assets related to the Agreement Product (including this Agreement); any merger, consolidation or acquisition of a party with, by or into another corporation, entity or person; or any change in the ownership of more than fifty percent (50%) of the voting capital stock of EVOLUS in one or more related transactions; provided however that an initial public offering of EVOLUS’ capital stock shall not constitute a Change in Control. This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their successors and permitted assigns.
13.6 Notices
. All notices required in connection with this Agreement will be in writing and deemed effectively given: (a) upon personal delivery on a business day prior to 5:00 pm local time to the party to be notified; or (b) one (1) business day after deposit with a nationally/internationally recognized overnight courier that provides tracking and verification of delivery. All notices shall be sent to the following addresses or at such other address(es) as a party may designate by advance written notice to the other party.
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If to EVOLUS:
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If to DISTRIBUTOR
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17901 Von Karman Ave., Suite 150
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Clarion Medical Technologies Inc.
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Irvine, CA 92614
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125 Fleming Dr, Cambridge,
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Attn: CEO
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ON N1T 2B8, Canada
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Attn: President
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Attn: President
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13.7 Force Majeure
. Neither party shall be liable for any breach of this Agreement or for any delay or failure of performance resulting from any cause beyond such party’s reasonable control, including acts of God, the weather, civil disturbances, epidemics, acts of civil or military authorities, governmental or regulatory actions, strikes, lockouts, slowdowns, telecommunications breakdowns or
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
shortages of energy or other supplies. The party claiming relief under this Section 13.6 shall promptly notify the other party in writing, but in no event later than [***] calendar days of the occurrence, should any such cause arise and shall promptly take steps to remedy any delay or failure in performance upon removal of the circumstances causing such delay or failure.
13.8 Severability
. If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable, such provision will be deemed modified and will be interpreted to accomplish the objectives of such provision to the greatest extent possible under applicable law and the remaining provisions of this Agreement will continue in full force and effect.
13.9 Waiver
. Any waiver or failure to enforce any provision of this Agreement on one occasion will not be deemed a waiver of any other provision or of such provision on any other occasion.
13.10 Construction
. The headings used for the sections of this Agreement are for information purposes and convenience only and in no way define, limit, construe or describe the scope or extent of the sections. The words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The word “including” or any variation thereof means “including, without limitation” and will not be construed to limit any general statement that such word or variation thereof follows. Unless otherwise set forth in this Agreement or agreed to by the parties, all amounts and payments under this Agreement shall be in United States Dollars ($). The language used in this Agreement will be deemed to be the language chosen by the parties to express the parties’ collective mutual intent, and no rule of strict construction will be applied against any party.
13.11 Entire Agreement
. This Agreement, together with the schedules and exhibits attached hereto and thereto, each of which is incorporated herein, collectively constitutes the entire agreement between the parties and supersedes any prior and contemporaneous understandings, agreements or representations by or among the parties, written or oral, that may have related in any way to the subject matter hereof.
13.12 Third Party Beneficiaries
. Other than with respect to the Unit Payment which is for the benefit of the ES Shareholders and the Strathspey Group, there are no third party beneficiaries under this Agreement.
13.13 Amendment
. This Agreement may only be amended by the execution and delivery of a written instrument by or on behalf of each of the parties hereto.
13.14 Further Assurances
. Each party hereto shall execute and deliver to the other party hereto such instruments and other documents, and shall take such other actions, as such other party may reasonably request at any time for the purpose of carrying out or evidencing any of the transactions contemplated hereby.
13.15 Remedies
. Except as expressly set forth herein, the exercise of any remedies hereunder shall be cumulative and in addition to, and not in limitation of, any other remedies available to such party at law or in equity.
13.16 Counterparts
. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. Signatures to this Agreement transmitted by facsimile, email, portable document format (.pdf) or by any other electronic means intended to preserve the original graphic and pictorial appearance of this Agreement shall have the same effect as the physical delivery of the paper document bearing original signatures.
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
[
S
IGNATURES ON
F
OLLOWING
P
AGE
]
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
In Witness Whereof,
the parties have executed this Agreement as of the Effective Date.
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Clarion Medical Technologies Inc,
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EVOLUS, Inc.
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By:
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/s/ Samson Ling
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By:
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/s/ Murthy Simhambhatla
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Name:
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Samson Ling
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Name:
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Murthy Simhambhatla
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Title:
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President & CEO
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Title:
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CEO
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Date:
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Date:
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11/30/2017
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
A
NNEX
A
Q
UALITY
A
GREEMENT
T
O BE ENTERED INTO WITHIN
120
DAYS OF THE
E
FFECTIVE
D
ATE
A-
1
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
E
XHIBIT
A
I
NITIAL
A
GREEMENT
P
RODUCTS
The following are the Initial Agreement Products:
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•
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Botulinum Toxin Type A (prabotulinumtoxinA) with clinical identifier DWP-450
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Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
E
XHIBIT
B
DISTRIBUTOR M
ARKS
1. EVOLUS Marks:
**[to be inserted within 120 days following the Effective Date]
2. DAEWOONG Marks:
**[to be inserted within 120 days following the Effective Date]
3. DISTRIBUTOR Marks:
**[to be inserted within 120 days following the Effective Date]
B-
1
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
E
XHIBIT
C
P
RICE
Transfer Price
For the Initial Agreement products, initially US$[***] per [***]IU vial (the “
Transfer Price
”).
Direction of Certain Portion of Transfer Price to DISTRIBUTOR Shareholders
Until the Unwind Fee is paid in full, EVOLUS hereby irrevocably directs that the DISTRIBUTOR pay US$[***] of the Transfer Price for each [***]IU vial purchased directly to the ES Shareholders (as defined in the Shareholders’ Agreement) (the “
Unit Payment
”) and each such Unit Payment shall reduce the amount of the Unwind Fee on a dollar for dollar basis. Provided that, notwithstanding the foregoing, if the Transfer Price is reduced in accordance with this Exhibit C to something less than US$[***] per [***]IU vial on account of changes to the ASP (as defined below) or on account of currency fluctuations as provided below, the amount of any such reduction to the Transfer Price shall create an equal and corresponding reduction in the Unit Payment amount that the Distributor is directed to pay to the ES Shareholders for each [***]IU vial purchased
Adjustment to Transfer Price based on Changes to Average Selling Price
Within 90 days of the end of each Commercialization Year, the parties will conduct a survey, at their joint expense, of the average selling price (“
ASP
”) of the Initial Agreement Product in the Territory. In the event the ASP falls [***]% or more, EVOLUS agrees to adjust the Transfer Price as follows;
Adjustment to Transfer Price based on Currency Fluctuations
The Transfer Price will be adjusted to take into account material year over year changes in currency value (as a percentage) between the Canadian Dollar (CAD) and the United States Dollar (USD) beginning as of the Effective Date. Such Transfer Price shall be comparing the CAD/USD currency exchange rate as at Commercial Launch Date and the applicable Commercialization Year(s) (as of December 31
st
for such year as listed by the United States Internal Revenue Service) (the “Currency Change Percentage”). Specifically, if the Currency Change Percentage is less than [***] percent ([***]%) then no adjustment will be made. If the Currency Change Percentage is equal to or greater than [***] percent ([***]%) (up or down) then the Transfer Price (if any) will be adjusted by such Currency Change Percentage, provided however, that at no time with the Transfer Price be less than US$[***].
By way of example only, assume DISTRIBUTOR commercialized the Initial Agreement Products in 2014 and the Canadian Dollar converted into the dollar at CAD $1.149 to USD $1 as of the Commercial
E-
1
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Launch Date and the Canadian Dollar converted into the dollar at $1.379 in 2016, the Transfer Price would be adjusted as follows:
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Transfer Price
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2014
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$[***]
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Exchange rate
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2014
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CAD $1.149
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2016
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CAD $1.379
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Currency Change %
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2016/2014
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[***]% (weakening of CAD)
|
In the formula below a Currency Change which yields as a positive number will be presented as a negative number in the formula below to express the weakening of the Canadian Dollar vis-à-vis the U.S. Dollar and vice versa.
Example Formula:
Transfer price for 2017 = [***] + ([***]% (negative number used to express weakening of CAD) * $[***]) = USD$[***]
Sample Pricing
:
-Samples of the Initial Agreement Product will be sold to Distributor at US$[***] per [***]IU vial, which amount includes $[***] plus [***] the Unit Payment (US$[***] or the “Reduced Unit Payment”). The Reduced Unit Payment shall be paid to the ES Shareholders as set forth above under “Direction of Certain Portion of Transfer Price to DISTRIBUTOR Shareholders”. Shipping terms for samples will be CIF Toronto, with additional charges for analytical testing undertaken on behalf of DISTRIBUTOR payable by DISTRIBUTOR. For the avoidance of doubt, each sample [***]IU vial delivered to DISTRIBUTOR shall reduce the Unwind Fee by the amount of the Reduced Unit Payment. Pricing for samples of the Initial Agreement Products will not be subject to any adjustment, including any currency adjustments.
E-
2
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
E
XHIBIT
D C
OMPETITIVE
P
RODUCTS
Neurotoxin and neuromodulator products including, but not limited to, botulinum toxins.
G-
1
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Exhibit 10.23
Alphaeon Corporation
17901 Von Karman Avenue, Suite 150
Irvine, CA 92614
December 18, 2017
Evolus, Inc.
1027 Garden Street
Santa Barbara, CA 93101
Attn: Murthy Simhambhatla, CEO
Re: Therapeutic Option
Dear Murthy:
Reference is made to that certain License and Supply Agreement (the “
License Agreement
”), dated as of September 30, 2013, by and between Daewoong Pharmaceutical Co., Ltd (“
Daewoong
”) and Evolus, Inc. (“
Evolus
”), as amended by that certain First Amendment, dated as of February 26, 2014, as further amended by that certain Second Amendment, dated as of July 15, 2014. Capitalized terms used but not defined herein have the meanings given to such terms in the License Agreement.
Evolus (a wholly-owned subsidiary of Alphaeon Corporation (“
Alphaeon
”)), is a medical aesthetic company, with the business strategy of selling products only in the self-pay aesthetic market. Pursuant to and as set forth in more detail in the License Agreement, Evolus has the right to distribute Product for aesthetic use in the Territory, among other things. In addition, under the License Agreement, Evolus has the option to expand permitted uses of the Product to include Therapeutic Use (the “
Option
”). Prior to the date hereof, Evolus paid Daewoong One Million Dollars ($1,000,000) for the Option.
Given the importance of a self-pay only strategy to Evolus, Evolus has decided not to pursue any business plans related to the Option. Accordingly, Evolus agrees that, without the prior written consent of Alphaeon (which consent may be withheld for any or no reason), it shall (i) not exercise, sell, sub-license or otherwise dispose of (in whole or in part) the Option or the underlying rights, (ii) hold the Option and the underlying rights in trust for Alphaeon, and (iii) not develop or make plans to develop any Therapeutic Use for the Product (clauses (i)-(iii) collectively, the “
Standstill
”).
Evolus agrees that Alphaeon may have discussions with Daewoong regarding a separate agreement between Alphaeon and Daewoong covering distribution of the Product for Therapeutic Use (the “
Aeon Tx Agreement
”). Such Aeon Tx Agreement would be separate and distinct from the License Agreement. Evolus will consent to Alphaeon and Daewoong’s entry into the Aeon Tx Agreement so long as the terms do not diminish, interfere with, or adversely affect Evolus’ ability to distribute the Product for aesthetic use under the License Agreement.
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
To the extent that sales under the Aeon Tx Agreement require royalty payments to be made to the Contributors (as hereinafter defined), Alphaeon shall either (i) enter into a direct agreement with the Contributors for such royalty payments, or (ii) make quarterly payments to Evolus equal to [***] percent ([***]%) of Net Sales (as hereinafter defined) of the Product for Therapeutic Use (net of any taxes) to be paid solely to the Contributors. The term “
Contributors
” as used herein shall have the meaning given to such term in that certain Second Amendment to Stock Purchase Agreement, dated as of December 14, 2017, among SCH-Aeon, LLC (f/k/a Strathspey Crown Holdings, LLC) (“
SCH-Aeon
”), Alphaeon, Evolus, and the other signatories thereto. The term “
Net Sales
” as used herein shall have the meaning given to such term in that certain Stock Purchase Agreement, dated as of September 30, 2014, by and between SCH-Aeon and Alphaeon, as amended by that certain Amendment to Stock Purchase Agreement, dated as of September 30, 2014;
provided
,
however
, that for the purposes of the royalty payments described herein, all references to the Product in the definition of Net Sales shall be read as referring to the Product only as sold for Therapeutic Use. For the avoidance of doubt, any calculations of “
Net Sales
” herein shall not include any sales of the Product for aesthetic use.
In exchange for the Standstill, Alphaeon agrees to, on a dollar for dollar basis, setoff and reduce the amount of intercompany loans owing by Evolus to Alphaeon by the amount of the Two Million Five Hundred Thousand Dollars ($2,500,000), effective as of the date hereof.
If, prior to December 31, 2018, Alphaeon desires that Evolus exercise the Option in whole or in part, it shall wire all funds necessary for the exercise of the Option (which shall be the amounts set forth in Sections 2.4(a) and/or 2.4(b) of the License Agreement) to Evolus, and Evolus shall apply those funds solely to the exercise of the Option on behalf of Alphaeon. From and after the exercise of the Option, Evolus shall continue to hold the rights underlying the option in trust for the benefit of Alphaeon on the terms set forth herein.
Evolus’ obligations set forth in this letter agreement shall terminate only upon the prior written consent of Alphaeon, which Alphaeon may withhold in its sole and absolute discretion.
To the fullest extent permitted by applicable law, Alphaeon shall defend, indemnify, and hold harmless Evolus, its affiliates (other than Alphaeon), and its and their respective employees, officers, directors, partners, shareholders, agents, contractors, consultants, and advisors (each, an “
Evolus Indemnified Party
”) from, and pay and reimburse each Evolus Indemnified Party for, all Losses (as hereinafter defined) directly or indirectly relating to or arising from (i) this letter agreement, or (ii) the Aeon Tx Agreement if such agreement is entered into. The term “
Losses
” as used herein shall mean any direct or indirect loss, damage, penalty, fine, cost (including reasonable attorneys’ fees and court costs), or settlement payment.
As a condition to the right to receive indemnification under this letter agreement, Evolus shall:
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
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(i)
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notify Alphaeon promptly upon becoming aware of a claim for which indemnification may be sought pursuant hereto (but in no event later than thirty (30) days after such awareness, it being understood that any failure to make or delay in making such notification shall not relieve Alphaeon of its obligations hereunder except to the extent Alphaeon is materially prejudiced by such failure or delay);
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(ii)
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cooperate with Alphaeon in the defense, compromise, or settlement of such claim; and
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(iii)
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permit Alphaeon to control the defense, compromise, or settlement of such claim, including, without limitation, the right to select defense counsel. In no event, however, may Alphaeon compromise or settle any such claim in a manner which admits fault or negligence on the part of Evolus or includes injunctive relief or includes the payment of money or other property by Evolus without the prior written consent of Evolus. Evolus shall have no liability under this letter agreement with respect to claims settled or compromised without its express prior written consent.
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Each party agrees to keep confidential this letter agreement, and any information and data provided by one party to the other in connection with the transactions contemplated herein. Each party further agrees that (i) it will not use any portion of the information or data provided to such party by the other party for any purpose other than the transactions contemplated herein, and (ii) except as contemplated by this letter agreement, it will not disclose any portion of the information or data provided to such party by the other party to any persons or entities other than the officers, directors, board members, employees, or consultants of such party who reasonably need to have access to such information or data for purposes of the transactions contemplated herein.
Each party shall pay its own fees and expenses (including legal fees and expenses) incurred in connection with the negotiation and execution of this letter agreement.
This letter agreement is governed by the laws of the State of Delaware, without giving effect to any choice or conflict of law provision.
This letter agreement may be executed in one or more counterparts and transmitted electronically (including in PDF form), and each counterpart will be deemed to be an original copy of this letter agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.
[Signature page follows]
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
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Sincerely,
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Alphaeon Corporation
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By:
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/s/ Simone Blank
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Name: Simone Blank
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Title: Chair
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Accepted and Agreed:
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Evolus, Inc.
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By:
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/s/ Murthy Simhambhatla
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Name: Murthy Simhambhatla
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Title: Chief Executive Officer
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[Signature Page to Therapeutic Option Letter Agreement]
Confidential treatment has been requested for portions of this exhibit under 17 C.F.R. Sections §§ 200.80(b)(4) and 230.406. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this “
Agreement
”) is made and entered into as of December 14, 2017, by and among DENTAL INNOVATIONS BVBA (“
DI
”), as collateral agent for the holders of the DI Notes, as defined below, LONGITUDE VENTURE PARTNERS II, L.P. (“
Longitude
,” and together with DI, the “
Senior Creditors
”), ALPHAEON CORPORATION (“
Alphaeon
”), EVOLUS, INC., (“Evolus”), and J. CHRISTOPHER MARMO as Contributors’ Representative (“
Subordinated Creditor
”).
W I T N E S S E T H:
WHEREAS
, DI, as collateral agent, Alphaeon, as issuer, and certain purchasers party thereto, entered into the Secured Convertible Note Purchase Agreement dated July 26, 2016 and amended and restated April 19, 2017, (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof, the “
Note Purchase Agreement
”) by which the Alphaeon has issued[, and may issue after the date hereof, ]its 10% Convertible Promissory Notes due 2018 (collectively, the “
DI Notes
”);
WHEREAS
,
Longitude is the holder of that certain Third Amended and Restated Secured Convertible Bridge Note originally issued by the Alphaeon on May 27, 2016, and first amended and restated on July 26, 2016, second amended and restated on April 19, 2017, and third amended and restated on December 14, 2017 (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof, the “
Longitude Note,
” and together with the DI Notes, the “
Senior Notes
”);
WHEREAS
, the Alphaeon entered into a Pledge and Security Agreement with DI dated July 26, 2016 (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof, the “
DI Pledge
”), and a Pledge and Security Agreement with Longitude, dated May 27, 2016 (as amended, the ”
Longitude Pledge
” and together with the DI Pledge the “
Pledge Agreements
”), whereby Alphaeon granted first priority liens in and to all assets of Alphaeon to the Senior Creditors;
WHEREAS
, Evolus guaranteed and secured the Senior Debt by entering into those certain Guaranty and Security Agreements with DI and Longitude, each dated April 19, 2017 and amended December 14, 2017 (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof, the “
Evolus Guaranty and Security Agreements
”);
WHEREAS
, Subordinated Creditor is the holder of that certain unsecured Promissory Note, originally an obligation of Alphaeon and, upon the occurance of a Triggering Event (as defined therein, an obligation of Evolus, which Promissory Note is dated December 14, 2017 in the original principal amount of $20,000,000 (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof and as permitted hereby, the “
Subordinated Note
”);
WHEREAS,
in order to induce Senior Creditors to (i) agree to terminate the Evolus Guaranty and Security Agreements and release all Liens thereby conveyed upon an initial public offering of the equity securities of Evolus, (ii) release the Liens on certain equity interests of Evolus granted under the Pledge Agreements to facilitate an initial public offering of such interests, and (iii) to permit
the issuance of the Subordinated Note, Senior Creditors require the execution and delivery of this Agreement.
NOW, THEREFORE
, in consideration of these premises and the terms and conditions set forth in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:
1.
Definitions
.
Capitalized terms used but not defined in this Agreement shall have the meanings specified in the DI Pledge or the Longitude Pledge, as applicable. In addition, capitalized terms defined in this
Section 1
and in other Sections of this Agreement, shall have the meanings specified herein.
“
Alphaeon
” shall mean Alphaeon Corporation, a Delaware corporation.
“
Bankruptcy Code
” shall mean the Bankruptcy Reform Act of 1978 (11 U.S.C. § 101,
et seq.
), as amended and in effect from time to time.
“
Collateral
” shall mean the Collateral and all other presently existing or future collateral or other security held by Senior Creditors for all or any part of the Senior Debt, including but not limited to all outstanding shares of Evolus, to the extent the Lien encumbering such shares is not otherwise released.
“
Collateral Action
” shall mean (a) any action to enforce or foreclose on, whether by judicial action or otherwise, a Lien on any Collateral or other assets of any Obligor, (b) any action to take control or possession of, or sell or otherwise realize upon, or to exercise any other rights or remedies with respect to, any Collateral or other assets of any Obligor, (c) the taking of any other actions against any Collateral or other assets of any Obligor, including the taking of control or possession of, or the exercise of any right of setoff with respect to, any Collateral or other assets of any Obligor, or (d) to commence (or join with another Person in commencing) any action or proceeding to facilitate any of the actions described in clauses (a) through (c) of this definition.
“
Collection Action
” shall mean (a) to demand, sue for, take or receive from or on behalf of any one or more of the Obligors, by payment (in cash, property, by setoff or otherwise), recoupment or in any other manner, the whole or any part of any moneys that now or hereafter may be owing by any one or more of the Obligors, (b) to initiate or participate with others in any suit, action or proceeding against any one or more of the Obligors, including, but not limited to, any petition, suit, action or proceeding commencing any Insolvency Proceeding, to (1) enforce payment of or to collect the whole or any part of the Subordinated Debt or (2) enforce any rights and remedies under the Subordinated Debt Agreements or applicable law with respect to the Subordinated Debt or the Subordinated Debt Agreements, (c) to accelerate any Subordinated Debt, (d) to exercise any put or similar option against any of the Obligors with respect to the Subordinated Debt or to cause any one or more of the Obligors to honor any redemption, repurchase or mandatory prepayment obligation under any Subordinated Debt Agreement,
or (e) any Collateral Action;
provided
, that filing any notices or proofs of claim and voting, in compliance with the provisions of this Agreement, any such claim in any Insolvency Proceeding, shall not be a Collection Action.
“
Contributors
” shall mean J. Christopher Marmo, Scott Cannizzaro, John Gross, the Gordon and Dona Crawford Trust UTD 8/23/77, and each of their respective heirs, successors and permitted assigns.
“
Disposition
” shall mean any sale, lease, exchange, transfer or other disposition, and “
Dispose
” and “
Disposed of
” shall have correlative meanings.
“
Distribution
” shall mean, with respect to any indebtedness or obligation, (a) any payment or distribution by any Person of cash, securities or other property, by setoff or in any other manner or form, on account of such indebtedness or obligation, or (b) any redemption, purchase or other acquisition of such indebtedness or obligation by any Person.
“
Insolvency Proceeding
” shall mean any receivership, conservatorship, insolvency or bankruptcy proceeding, assignment for the benefit of creditors or any proceeding or action by or against any one or more of the Obligors for any relief under any bankruptcy or insolvency law or other laws relating to the relief of debtors, readjustment of indebtedness, reorganization, dissolution, winding up, liquidation, composition or extensions, or the appointment of any receiver, intervenor, custodian or conservator of, or trustee, or similar officer for, any one or more of the Obligors or any substantial part of its or their respective properties or assets, including, without limitation, proceedings under the Bankruptcy Code, or under other federal, state or local statute, laws, rules and regulations, all whether now or hereafter in effect.
“
Lien
” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including, but not limited to, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the UCC or any comparable law), and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under a lease which is not a capital lease.
“
Obligors
” shall mean Alphaeon, Evolus and each other Person, that guarantees, otherwise is or becomes liable in respect of, or provides collateral or other credit support for, any Senior Debt or any Subordinated Debt.
“
Paid in Full
” shall mean, with respect to the Senior Debt, and subject to the provisions of
Section 16
of this Agreement, that (i) the aggregate amount of all Senior Debt owing to Senior Creditors has been indefeasibly paid in full in cash or by such other consideration as Senior Creditors, in their sole discretion, have accepted in writing as full payment (other than in connection with a refinancing of Senior Debt in accordance with
Section 22
of this Agreement), and (ii) all commitments and obligations of Senior Creditors to make loans or other extensions of credit under the Senior Debt Agreements have been terminated.
“
Person
” shall mean any individual, partnership, joint venture, trust, limited liability company, business trust, joint stock company, unincorporated association, corporation, governmental authority, or any other legal entity.
“
Post-Petition Charges
” means fees, costs, expenses and other charges that are incurred or paid pursuant to the Senior Debt Agreements or the Subordinated Debt Agreements after the commencement of any Insolvency Proceeding, whether or not such fees, costs, expenses and other charges are allowed or allowable in any such Insolvency Proceeding.
“
Post-Petition Interest
” shall mean interest that accrues in respect of Senior Debt or Subordinated Debt after the commencement of an Insolvency Proceeding by or against any one or more of the Obligors, whether or not allowed or allowable as a claim in any such Insolvency Proceeding, and any such interest that would have accrued but for the commencement of such Insolvency Proceeding.
“
Senior Creditors
” shall mean DI, as collateral agent and Longitude and their respective successors and assigns, and any Person who becomes a creditor of or lender to the Obligors pursuant to a refinancing in conformity with the provisions of
Section 22
. To the extent a term or provision of this Agreement is applicable to a “Senior Creditor”, it is applicable to each and all of the Senior Creditors unless the context expressly indicates otherwise.
“
Senior Debt
” shall mean all existing and future Secured Obligations as defined in the DI Pledge, together and
parri
passu
with all existing and future Secured Obligations as defined in the Longitude Pledge, including, without limitation, the principal of (including, without limitation, the Redemption Price, as such term is defined in the respective Senior Notes) and interest (including Post-Petition Interest and Post-Petition Charges) on the Senior Notes.
“
Senior Debt Agreements
” shall mean, collectively, the Note Purchase Agreement, the Senior Notes, the Pledge Agreements, the Evolus Guaranty and Security Agreements and all other documents, instruments and agreements evidencing or pertaining to any portion of the Senior Debt, in each case, as originally executed and as amended, modified, restated, extended, renewed from time to time, and any agreements, documents and/or instruments entered into in connection with a refunding, refinancing, or replacement of all or any portion of the Senior Debt in accordance with
Section 22
of this Agreement, whether by the same or any other group of lenders, as such refunding, refinancing or replacement agreements are originally executed or may be amended, modified, restated, renewed or otherwise modified from time to time or refinanced or replaced in accordance with
Section 22
of this Agreement.
“
Senior Default
” shall mean any Event of Default as defined in any Senior Debt Agreement.
“
Subordinated Creditor
” shall have the meaning specified in the introductory paragraph of this Agreement.
“
Subordinated Debt
” shall mean all indebtedness, obligations, and liabilities at any time owing by any one or more of the Obligors to Subordinated Creditor pursuant to the Subordinated Debt Agreements, including, without limitation, all principal, interest (including Post-Petition Interest and
Post-Petition Charges), rights to Distributions in respect of “put rights” or similar rights with respect to equity interests, and all expenses, fees and other amounts of every kind and nature, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, and however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether now existing or hereafter arising, and whether arising before, during or after the commencement of any Insolvency Proceeding.
“
Subordinated Debt Agreements
” shall mean the Subordinated Note, that certain Stock Purchase Agreement dated September 30, 2014, between Alphaeon and SCH-AEON, LLC (f/k/a) Strathspey Crown Holdings, LLC (“
Strathspey
”), as amended by that certain Amendment to Stock Purchase Agreement (undated), as amended by that certain Second Amendment to Stock Purchase Agreement, by and among Alphaeon, Strathspey, Evolus, and Subordinated Creditor (as further amended and restated, supplemented or otherwise modified from time to time, the “
SPA
”), and all other notes, documents, agreements and instruments entered into by any of the parties to any of the foregoing in connection therewith, all as originally executed and as amended, modified, extended, renewed, refinanced or replaced from time to time in compliance with the terms of this Agreement.
“
Subordinated Default
” shall mean the occurrence and continuance of any “Event of Default”, as such term currently is defined in the Subordinated Note, and any default under any of the other Subordinated Debt Agreements.
“
UCC
” means the Uniform Commercial Code of any applicable jurisdiction and, if the applicable jurisdiction shall not have any Uniform Commercial Code, the Uniform Commercial Code as in effect in the State of Delaware.
2.
Subordination
.
All of the Subordinated Debt is hereby made expressly subordinate and junior to the Payment in Full of the Senior Debt to the extent and in the manner set forth in this Agreement. The payment by any Obligor of any and all of the Subordinated Debt shall be subordinate and subject in right of payment, to the extent and in the manner hereafter set forth, to the Senior Debt until the Senior Debt has been Paid in Full. Notwithstanding Subordinated Creditor’s waiver of any and all rights to any Liens in and to any assets of any Obligor, as provided in
Sections 15
and
17
of this Agreement, and irrespective of (a) the date, time, method, manner or order of attachment or perfection of any Lien that Subordinated Creditor at any time may acquire on, in, or in respect of, any property or asset of any of the Obligors, (b) the usual application of the priority provisions of the UCC or any other applicable laws or agreements, (c) whether the Liens granted to Senior Creditors are properly perfected, (d) whether arising pre-petition or post-petition, (e) whether granted pursuant to a debtor-in-possession financing provided to any one or more of the Obligors by Senior Creditors and/or by any other Person, or the post-petition use of cash collateral by any Obligor, (f) any understanding between Subordinated Creditor and any one or more of the Obligors, or (g) any other priority provided by law or by any other agreement or any other matter, any Lien securing any Subordinated Debt that Subordinated Creditor at any time may acquire on, in, or in respect of, any property or assets of any of the Obligors is hereby expressly made subordinate and junior in priority and right of enforcement to any and all Liens on, in, or in respect of, the Collateral or any other property or asset of the Obligors, whether now existing or arising in the future, securing any of the Senior Debt.
3.
Payment Limitations
.
Until the Senior Debt has been Paid in Full, (i) no Subordinated Creditor, directly or indirectly, shall take or accept from any Obligor any Distribution of, or on account of, the whole or any part of any Subordinated Debt, and (ii) no Obligor, directly or indirectly, shall remit, make, or pay, any Distribution of, or an account of, the whole or any part of the Subordinated Debt.
5.
Insolvency Proceeding
.
(a) Upon the occurrence of any Insolvency Proceeding:
(i) the Senior Debt shall be Paid in Full before any Distribution shall be made on account of or applied with respect to any Subordinated Debt;
(ii) any Distribution which, but for the provisions of
clause 5(a)(i)
above, would be payable or deliverable with respect to any Subordinated Debt, shall be paid or delivered directly to Senior Creditors on a pro rata basis, until the Senior Debt has been Paid in Full (after giving effect to any concurrent payment to Senior Creditors with respect to the Senior Debt); and
(iii) Subordinated Creditor irrevocably authorizes, empowers, and directs, and shall be deemed to have authorized, empowered, and directed, (x) all receivers, trustees, liquidators, custodians, conservators and others having authority in the premises to effect all such Distributions, and (y) Senior Creditors to demand, sue for, collect, and receive all such Distributions.
(b) In the event of any Insolvency Proceeding involving any Obligor, the Subordinated Creditor shall not, without Senior Creditors’ prior written consent, propose any plan of reorganization, liquidation, arrangement or proposal or file any motion, pleading or material in support of any motion or plan of reorganization, liquidation, arrangement or proposal, or encourage other Persons to do any of the foregoing that would impair the rights of Senior Creditors, is in conflict with the terms of this Agreement, or is opposed by Senior Creditors, or oppose any plan of reorganization, liquidation, arrangement or motion filed by or proposed or supported by Senior Creditors. Subordinated Creditor irrevocably authorizes, empowers, and appoints Senior Creditors, and shall be deemed to have authorized, empowered, and appointed Senior Creditors, as its agent and attorney-in-fact to (1) execute, verify, deliver and file such proofs of claim upon the failure of Subordinated Creditor to do so prior to 30 days before the expiration of the time to file any such proof of claim and (2) vote such claim in any such Insolvency Proceeding upon the failure of Subordinated Creditor to do so prior to 10 days before the expiration of the time to vote any such claim;
provided,
that Senior Creditors shall have no obligation to execute, verify, deliver and/or file any such proof of claim or to vote any such claim; and
provided
,
further
, that if, following the voting or filing of any such proof of claim by Senior Creditors, Subordinated Creditor timely votes or files a proper proof of claim, such vote or filing by Subordinated Creditor shall, from and after the time of such vote or filing, supersede any such previous vote or filing by Senior Creditors and, upon the written request of Subordinated Creditor, Senior Creditors, to the extent legally permissible, shall withdraw such previous vote or filing.
(c) During any Insolvency Proceeding, Subordinated Creditor hereby consents and agrees that Senior Creditors or any Obligor (with Senior Creditors’ consent) may, and authorizes Senior Creditors or any Obligor (with Senior Creditors’ consent) to (i) sell, assign or otherwise dispose of the Collateral by private or public sale with or without notice (other than any UCC Notice required to be provided pursuant to
Section 6
hereof), pursuant to court order, under Section 363 of Bankruptcy Code, or otherwise, and by any means, all free and clear of any interest or claim of Subordinated Creditor with respect thereto, and (ii) apply all proceeds thereof to the Senior Debt until the Senior Debt has been Paid in Full. Subordinated Creditor hereby further consents and agrees that Senior Creditors shall be entitled to credit bid at any sale of the Collateral, under Section 363 of the Bankruptcy Code, or otherwise.
(d) During any Insolvency Proceeding, Subordinated Creditor waives, with respect to each Obligor’s assets, and with respect to Senior Creditors’ enforcement of any right or remedy arising under any of the Senior Debt Agreements, or at law or in equity, any requirement regarding, and agrees not to demand, request, plead, or otherwise claim the benefit of, any marshaling, foreclosure, appraisement, valuation, or any other right (including without limitation, under Section 1111(b) or any other section of the Bankruptcy Code and the right to seek adequate protection, contemplated at law or in equity (whether or not relating to notice (other than any UCC Notice required to be provided pursuant to
Section 6
)), diligence, presentment, demand, protest, setoff, reliance, defense, counterclaim, or election) that otherwise may be available to Subordinated Creditor.
(e) During any Insolvency Proceeding, Subordinated Creditor agrees not to object to, or seek adequate protection in respect of, any use of cash or noncash collateral by any or more of the Obligors under Section 363 of the Bankruptcy Code permitted by Senior Creditors, or any borrowing by any one or more of the Obligors from Senior Creditors or any borrowing by any one or more of the Obligors from any other Person permitted by Senior Creditors (“
DIP Financing
”), or to any grant of a Lien by any Person in favor of Senior Creditors and/or any other Person under Section 364 of the Bankruptcy Code in connection with such DIP Financing (“
DIP Liens
”). Subordinated Creditor agrees that adequate notice to Subordinated Creditor for such DIP Financing or use of cash collateral shall have been delivered to Subordinated Creditor if Subordinated Creditor receives notice at least two (2) Business Days prior to the entry of the order approving such DIP Financing or use of cash collateral. No Subordinated Creditor will oppose Senior Creditors’ motions or other requests to receive or to have allowed to it adequate protection payments, Post-Petition Interest or Post-Petition Charges, or additional collateral in connection with any use of cash collateral or DIP Financing. Subordinated Creditor agrees not to seek to provide, or participate with or support any other Person seeking to provide, financing under section 364 of the Bankruptcy Code to any one or more of the Obligors secured by Liens equal or senior in priority to the Liens securing the Senior Debt without the prior written consent of the Senior Creditors.
(f) Subordinated Creditor agrees that Senior Creditors shall have no liability to Subordinated Creditor for, and Subordinated Creditor waives any claim it now or hereafter may have against Senior Creditors arising out of, (i) Senior Creditors’ election, in any Insolvency Proceeding, of the application of Section 1111(b)(2) of the Bankruptcy Code, or (ii) any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code by any Obligor, as debtor in possession.
(g) The parties hereto acknowledge and agree that (i) the claims and interests of Senior Creditors under the Senior Debt Agreements are substantially different from the claims and interests of the Subordinated Creditor under the Subordinated Debt Agreements and (ii) such claims and interests should be treated as separate classes for purposes of Section 1122 of the Bankruptcy Code and, in any Insolvency Proceeding, no Subordinated Creditor will make any assertion to the contrary or object to the assertion that the claims and interests of Senior Creditors under the Senior Debt Agreements are substantially different from the claims of the Subordinated Creditor under the Subordinated Debt Agreements. In the event that it is held, contrary to the intent of the parties hereto, that the claims and interests of Senior Creditors and the Subordinated Creditor should be classified together, then the Subordinated Creditor hereby agrees that all Distributions shall be made as if the claims and interests of Senior Creditors and the Subordinated Creditor were classified separately, such that, to the extent that the value of the Collateral is sufficient (for this purpose, without regard to the claims of the Subordinated Creditor), Senior Creditors shall be entitled to receive all amounts owing to it in respect of Post-Petition Interest and Post-Petition Charges before any Distribution is made in respect of the claims of the Subordinated Creditor, and the Subordinated Creditor shall turn over to Senior Creditors any amounts received by them to the extent necessary to satisfy Senior Creditors’ entitlement to all such amounts.
(h) This Agreement shall be applicable both before and after the filing of any petition by or against any Obligor under the Bankruptcy Code or the commencement of any other Insolvency Proceeding and all converted or succeeding cases in respect thereof, and all references herein to any Obligor shall be deemed to apply to the trustee for such Obligor and to such Obligor as a debtor-in-possession. The relative rights of Senior Creditors and the Subordinated Creditor in respect of any Collateral or any other assets or proceeds thereof shall continue after any such filing or commencement on the same basis as prior to the date of such filing or commencement, subject to any court order approving the financing of, or use of cash collateral by, any Obligor. This Agreement shall constitute a “subordination agreement” for the purposes of Section 510(a) of the Bankruptcy Code and shall be enforceable in any Insolvency Proceeding in accordance with its terms.
6.
Limitation on Rights of Action
.
Without implying any limitation on the obligation of Subordinated Creditor to turn over to Senior Creditors all Distributions in respect of the Subordinated Debt until the Senior Debt has been Paid in Full, no Subordinated Creditor shall, without the prior written consent of Senior Creditors, take any Collection Action or Collateral Action.
In addition, to the extent that any provision of any Subordinated Debt Agreement provides rights, remedies, powers, or benefits to the Subordinated Creditor or imposes obligations or duties on any Obligor with respect to the Collateral that are in conflict with or exceed the rights, remedies, powers, or benefits provided to Senior Creditors under any Senior Debt Agreement, such provision of the applicable Subordinated Debt Agreement shall not be enforced or given effect by the Subordinated Creditor or the Obligors until after the Senior Debt has been Paid in Full. Moreover, no Subordinated Creditor will, directly or indirectly, oppose, object to, interfere with, or hinder or delay, by judicial proceeding or by any other manner, any foreclosure, sale, lease, exchange, transfer, or other Disposition of Collateral by Senior Creditors (or any Obligor with the consent of Senior Creditors), or the exercise by Senior Creditors of any other right or remedy relative to the Collateral;
provided
, that the foregoing provisions of this sentence shall not preclude the Subordinated Creditor from initiating or prosecuting
any claim against Senior Creditors that is based directly upon Senior Creditors’ breach of this Agreement. Subordinated Creditor agrees that it shall not directly or indirectly seek to prevent, interfere or otherwise take any action that would adversely affect (i) the exercise by Alphaeon, any other Obligor and/or the Senior Creditors of their respective rights under, and the performance by Evolus of its obligations pursuant to, that certain Stockholders’ Agreement by and among Evolus, Alphaeon and the Senior Creditors, dated December 14, 2017, including, without limitation, any right by Alphaeon, any other Obligor, and/or the Senior Creditors to demand that Evolus file a registration statement with the Securities and Exchange Commission with respect to the shares of Evolus common stock owned by Alphaeon and the performance by Evolus of its obligations upon the exercise of such rights, or (ii) any sale by Alphaeon, any other Obligor and/or the Senior Creditors of shares of Evolus common stock, whether before or after a Senior Default.
Without limiting the generality of the foregoing, Subordinated Creditor and Alphaeon agree that Senior Creditors shall have the exclusive right to manage, perform and enforce the terms of the Senior Debt Agreements with respect to the Collateral, to exercise and enforce all privileges and rights thereunder according to its sole discretion and the exercise of its sole business judgment, including the exclusive right to take or retake control or possession of the Collateral and to hold, prepare for sale, foreclose on, offer for public or private sale, process, Dispose of, liquidate, or to take some or all of the Collateral in partial or total satisfaction of the Senior Debt, to incur expenses in connection with such Disposition and to exercise all the rights and remedies of a secured lender under the UCC. In conducting any public or private sale under the UCC, Senior Creditors shall give the Subordinated Creditor such notice (a “
UCC Notice
”) of such sale as Senior Creditors are required by the UCC;
provided,
that 10 days’ notice shall be deemed to be commercially reasonable notice. Subordinated Creditor further agrees that Senior Creditor may;
(a)
dispose of all or any portion of the Collateral free and clear of the Liens securing the Senior Debt in connection with any Disposition pursuant to the applicable provisions of the Bankruptcy Code, including Section 363 thereof;
(b)
credit bid all or any portion of the Senior Debt, or purchase all or any portion of the Collateral (in each case, either directly or through one or more acquisition vehicles), in connection with any Disposition of all or any portion of the Collateral pursuant to the applicable provisions of the Bankruptcy Code, including under Section 363 thereof;
(c)
credit bid all or any portion of the Senior Debt, or purchase all or any portion of the Collateral (in each case, either directly or through one or more acquisition vehicles), in connection with any Disposition of all or any portion of the Collateral pursuant to the applicable provision of the UCC, including pursuant to Sections 9-610 or 9-620 of the UCC; and
(d)
credit bid all or any portion of the Senior Debt, or purchase all or any portion of the Collateral (in each case, either directly or through one or more acquisition vehicles), in connection with any foreclosure or other Disposition conducted in accordance with applicable law following the occurrence of a Senior Default, including the power of sale, judicial action or otherwise.
7.
Release of Liens
.
In the event that Senior Creditors are required, pursuant to the terms of any Senior Debt Agreement, to release their Liens in any of the Collateral securing the
Senior Debt, or in the event Senior Creditors voluntarily elect to release their Liens in any of the Collateral securing the Senior Debt in connection with the sale, assignment or other Disposition of any such Collateral, then, in any such instances, Subordinated Creditor shall be deemed to contemporaneously have released, without any further action, any Liens that it may have in such Collateral. Subordinated Creditor from time to time promptly shall execute and deliver to Senior Creditors such releases and additional documents of termination or release with respect to any Liens of the Subordinated Creditor as Senior Creditors may request pursuant to this Agreement to effect any release of Liens of the Subordinated Creditor described in this Agreement. The Subordinated Creditor agrees that if, in any instance, it fails to timely deliver any of the documents called for in the prior sentence, Senior Creditors shall be authorized, at its election and in its name, as attorney in fact for Subordinated Creditor, to prepare and execute any such documents and to file the same of record; and Subordinated Creditor hereby appoints Senior Creditors as its attorney in fact for such limited purposes. Subordinated Creditor shall be deemed to have consented under the Subordinated Debt Agreements to any Disposition of Collateral pursuant to this
Section 7
and to have waived the provisions of the Subordinated Debt Agreements to the extent necessary to permit such Disposition. The provisions of this
Section 7
do not affect, waive or change Subordinated Creditor’s waiver of any and all rights to any Liens in and to any assets of any Obligor, as provided in
Sections 15
and
17
of this Agreement.
8.
Payments in Respect of Collateral or in Contravention of this Agreement
.
Any Collateral or proceeds thereof that are received by Subordinated Creditor, and any Distribution that is received by Subordinated Creditor (a) in connection with the exercise of any right or remedy (including any right of setoff or recoupment) with respect to the Collateral, (b) in connection with any insurance policy claim or any condemnation award (or deed in lieu of condemnation), (c) from the collection or other Disposition of, or realization on, any Collateral, whether or not pursuant to an Insolvency Proceeding or (d) in violation of any provision of this Agreement (without the written consent of Senior Creditors), in each case, shall be held in trust by Subordinated Creditor for Senior Creditors and promptly shall be delivered, in kind, to Senior Creditors to the extent necessary to cause the Senior Debt to be Paid in Full. The foregoing shall not be construed as any consent by Senior Creditors to the exercise by Subordinated Creditor of any right or remedy with respect to the Collateral. The provisions of this
Section 7
do not affect, waive or change Subordinated Creditor’s waiver of any and all rights to any Liens in and to any assets of any Obligor, as provided in
Sections 15
and
17
of this Agreement.
9.
Subrogation
.
Subordinated Creditor hereby waives all right of subrogation until the Senior Debt shall have been Paid in Full.
10.
Legend
. Until the Senior Debt has been Paid in Full, the Obligors and the Subordinated Creditor shall cause the Subordinated Note and any Subordinated Debt Agreement to be conspicuously marked with the following legend:
“THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF DECEMBER 14, 2017 IN FAVOR DENTAL INNOVATION BVBA, as collateral agent and LONGITUDE VENTURE PARTNERS II, L.P., WHICH SUBORDINATION AGREEMENT (AS AMENDED IN
ACCORDANCE WITH ITS TERMS) IS INCORPORATED HEREIN BY REFERENCE.”
11.
No Impairment of Obligation
.
Nothing contained in this Agreement shall (a) impair, as between the Subordinated Creditor and the Obligors, the obligation of the applicable Obligor, which is unconditional and absolute, to pay any Subordinated Debt to the Subordinated Creditor as and when all or any portion thereof shall become due and payable in accordance with its terms, (b) prevent the Subordinated Creditor, upon any default or event of default under any Subordinated Debt, from exercising all rights, powers and remedies otherwise provided therein or by applicable law (except as expressly limited hereby) or (c) affect the rights of the Subordinated Creditor with respect to any other creditors of the Obligors. The failure of the applicable Obligor to make a Distribution with respect to the Subordinated Debt or to comply with any term of any Subordinated Debt Agreement by reason of operation of this Agreement shall not be construed as preventing the occurrence of a Subordinated Default under the applicable Subordinated Debt Agreements.
12.
Cumulative Rights, No Waivers
.
Subject to the terms of this Agreement, each and every right, remedy and power granted to Senior Creditors hereunder shall be cumulative and in addition to any other right, remedy or power specifically granted in this Agreement, or any Senior Debt Agreement or now or hereafter existing in equity, at law, by virtue of statute or otherwise, and may be exercised by Senior Creditors from time to time, concurrently or independently and as often and in such order as such Person may deem expedient. Any failure or delay on the part of Senior Creditors in exercising any such right, remedy or power, or abandonment or discontinuance of steps to enforce the same, shall not operate as a waiver thereof or affect the rights of Senior Creditors thereafter to exercise the same, and any single or partial exercise of any such right, remedy or power shall not preclude any other or further exercise thereof or the exercise of any other right, remedy or power, and no such failure, delay, abandonment or single or partial exercise of the rights of Senior Creditors hereunder shall be deemed to establish a custom or course of dealing or performance among the parties hereto.
13.
Duration
.
This Agreement is of a continuing nature, and it shall continue in force until the Senior Debt is Paid in Full and thereafter as provided in
Section 16
.
14.
Senior Debt Agreement Amendments
.
Notwithstanding anything to the contrary contained herein or in any other agreement executed and delivered in connection with the Subordinated Debt, Subordinated Creditor hereby acknowledges and agrees that, without any further consent of or notice to Subordinated Creditor, without incurring responsibility to Subordinated Creditor, and without in any manner affecting, impairing, or lessening the subordination arrangements provided for in this Agreement, any of the obligations of the Subordinated Creditor under this Agreement, or any of the provisions of this Agreement, Senior Creditors may at any time and from time to time (a) renew, extend, change the manner, time, place and terms of payment of, sell, exchange, release, increase, substitute, surrender, realize upon, modify, waive, alter, grant indulgences with respect to, and otherwise deal with in any manner: (i) all or any part of the Senior Debt; (ii) all or any of the Senior Debt Agreements; (iii) all or any part of any property that at any time secures any part of the Senior Debt; or (iv) any Person at any time primarily or secondarily liable for any part of the Senior Debt and/or any Collateral and security therefor, all as if any interest the Subordinated Creditor has with respect to such Persons or property did not exist; and (b) exercise or refrain from exercising any rights and remedies
against any one or more of the Obligors or any other Person, including, without limitation, those with respect to any Collateral securing payment of the Senior Debt. At any time and from time to time, Senior Creditors may waive any Senior Default and, upon such waiver, any Subordinated Default arising solely by virtue of such Senior Default shall be deemed to have never occurred.
15.
Subordinated Debt Agreements Amendments; No Liens
.
Notwithstanding anything to the contrary contained in the Subordinated Debt Agreements or the Senior Debt Agreements, neither the Subordinated Creditor nor any Obligor shall, without the prior written consent of Senior Creditors, agree (whether or not in writing) to any amendment, modification or supplement to any Subordinated Debt Agreement. Until the Senior Debt has been Paid in Full, the parties hereto agree that no Liens shall be granted or permitted on any asset of any Obligor or any other Person to secure any Subordinated Debt.
16.
Payment Set Aside
.
If, after receipt of any payment or application of the proceeds of any Collateral to payment of all or any part of the Senior Debt, Senior Creditors are compelled to surrender or voluntarily surrender such payment or proceeds to any Person, because such payment or application of proceeds is or may be avoided, invalidated, declared fraudulent, set aside, declared to be void or voidable as a preference, fraudulent conveyance, fraudulent transfer, impermissible setoff, diversion of trust funds, or any other void or voidable transfer or payment, or because of any settlement or compromise of such claim, then, the Senior Debt shall be deemed to have not been Paid in Full, and this Agreement shall be reinstated and shall continue to be in full force and effect, as if such payment or proceeds had not been received by Senior Creditors, notwithstanding any revocation thereof, or the surrender of any promissory note, or the return or cancellation of any instrument or document relating to the Senior Debt Agreements. This
Section 16
shall survive the termination of this Agreement.
17.
Waivers
.
(a) Subordinated Creditor expressly waives all notice of the acceptance by Senior Creditors of the subordination and other provisions of this Agreement and all other notices whatsoever not specifically required pursuant to the terms of this Agreement or (except to the extent not waiveable by Subordinated Creditor under applicable law) applicable law, and expressly waives reliance by Senior Creditors upon the subordination and other agreements as herein provided. Subordinated Creditor agrees that Senior Creditors have not made any warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of any Senior Debt Agreement, or the collectability of any Senior Debt, that Senior Creditors shall be entitled to manage and supervise their loans to and affairs with any one or more of the Obligors in accordance with applicable law and their usual practices, modified from time to time as they deem appropriate under the circumstances, without regard to the existence of any rights that Subordinated Creditor may now or hereafter have in or to any of the assets of any Obligor.
(b) Senior Creditors shall have no liability to Subordinated Creditor for, and Subordinated Creditor waives, any claim which it may now or hereafter have against Senior Creditors arising out of, any actions Senior Creditors take or omit to take (including, without limitation, actions with respect to the creation, perfection or continuation of Liens in the Collateral and other security for the Senior Debt, actions with respect to the occurrence of any default, actions with respect to the foreclosure upon, sale, release, or depreciation of, or failure to realize upon, any of the Collateral and
actions with respect to the collection of any claim for all or any part of the Senior Debt from any account debtor, guarantor or any other party, any purchase, sale, assignment, release, abandonment or Disposition of the Collateral, whether by private or public sale or otherwise with or without notice, but without waiver of any obligation of Senior Creditors to provide any UCC Notice required to be provided pursuant to
Section 6
hereof, pursuant to court order, or by any means) with respect to any of the Senior Debt Agreements, any other agreement related thereto, or the exercise of one or more rights or remedies thereunder, or with respect to the collection of the Senior Debt, or the valuation, use, protection or release of the Collateral or other security for the Senior Debt. Until the Senor Debt has been Paid in Full, Subordinated Creditor agrees, with respect to each Obligor’s assets and the enforcement of any rights or remedies of Senior Creditors arising under this Agreement or any of the Senior Debt Agreements or at law or in equity, not to demand, request, plead or otherwise claim the benefit of, any marshaling, foreclosure, appraisement, valuation or any other right contemplated at law or in equity (whether or not relating to notice, other than the right to receive any UCC Notice required to be provided pursuant to
Section 6
, diligence, presentment, demand, protest, setoff, reliance, defense, counterclaim or election) that may otherwise be available to Subordinated Creditor with respect to Senior Creditors, or their rights and remedies in the Collateral, or any Collection Action by Senior Creditors.
(c) Subordinated Creditor acknowledges and agrees that the Liens of Senior Creditor in and to the Collateral are valid, perfected, and enforceable first priority Liens. Subordinated Creditor agrees not to initiate or prosecute or encourage any other Person to initiate or prosecute (and will not participate on any creditor’s committee with respect to the initiation or prosecution of) any claim, action, objection or other proceeding (i) challenging or contesting the validity, attachment, perfection, priority or enforceability of the Senior Debt, any Senior Debt Agreement, any Lien securing the Senior Debt, or any adequate protection rights granted by any bankruptcy court in favor of Senior Creditors or the allowance of any claim for Senior Debt (including any portion thereof consisting of Post-Petition Interest or Post-Petition Charges), (ii) opposing, interfering with, or delaying any Collateral Action by Senior Creditors, (iii) asserting any claims which the Obligors may hold with respect to the Senior Creditors, (iv) seeking to lift the automatic stay to the extent that such action is opposed by Senior Creditors, or (v) opposing a motion or other request by Senior Creditors for adequate protection or an objection by Senior Creditors, based on a claim of lack of adequate protection, to any motion or other request. If any Senior Debt or Lien securing or claim for any Senior Debt is held to be invalid or not perfected or is set aside or disallowed, the provisions of this Agreement shall remain in effect with respect to such Senior Debt or Lien securing the Senior Debt and such Senior Debt and such Liens shall continue to be entitled to the benefits contemplated by this Agreement to the same extent as if still outstanding.
(d) Subordinated Creditor acknowledges that it has no Liens in the assets of Evolus, Alphaeon or any other person in respect of the Subordinated Debt and waives any rights to acquire any such Liens until the Senior Debt is Paid in Full.
(e) Until the Senior Debt has been Paid in Full, as between Senior Creditors on the one hand, and the Subordinated Creditor on the other, Senior Creditors shall have the exclusive right to settle and adjust claims in respect of Collateral under policies of insurance and to approve any award granted in any condemnation or similar proceeding, or any deed in lieu of condemnation, in respect of the Collateral.
(f) Senior Creditors agree not to initiate any claim, action, objection or other proceeding challenging or contesting the validity or enforceability of the Subordinated Debt or any Subordinated Debt Agreement, in each case, to the extent not in violation of this Agreement.
(g) Notwithstanding the foregoing provisions of this Section, the Subordinated Creditor in no event shall be precluded from initiating or prosecuting against Senior Creditors any claim that is based solely and directly upon Senior Creditors’ breach of this Agreement.
(h) Subordinated Creditor and Evolus agree that the existence of the Subordinated Debt shall not prohibit or limit the rights of Evolus to declare dividends with respect to the equity shares in Evolus, if otherwise appropriate and in compliance with applicable law, and Subordinated Creditor waives any and all legal rights and remedies against any Obligor or Senior Creditor, and their respective board members, shareholders and officers to prohibit, challenge or seek damages as a result of, such dividend declaration.
18.
Representations and Warranties
.
Subordinated Creditor hereby represents and warrants to Senior Creditors as follows:
(a) Subordinated Creditor has full power and authority to enter into, execute, deliver and carry out the terms of this Agreement, to fully bind and obligate the Contributors, and to incur the obligations provided for herein, all of which have been duly authorized by all proper and necessary action and are not prohibited by any Subordinated Debt Agreement or other agreement, document or obligation of Subordinated Creditor.
(b) This Agreement, when executed and delivered, will constitute the valid and legally binding obligation of Subordinated Creditor and the Contributors enforceable in accordance with its terms.
(c) No provisions of any mortgage, indenture, contract, agreement, statute, rule, regulation, judgment, decree or order binding on Subordinated Creditor or any Contributor or affecting the property of Subordinated Creditor or Contributor conflicts with, or requires any consent which has not already been obtained under, or would in any way prevent the execution, delivery or performance of the terms of this Agreement. No pending, or, to the best of such Subordinated Creditor’s knowledge, threatened, litigation, arbitration or other proceedings against such Subordinated Creditor, or any Contributor if adversely determined, would in any way prevent the performance of the terms of this Agreement.
19.
Subordinated Debt Owed Only to the Subordinated Creditor
.
Subordinated Creditor represents and warrants that it has not previously assigned any interest in the Subordinated Debt or any security interest in connection therewith, that no other party owns an interest in the Subordinated Debt or any security therefor other than the Subordinated Creditor (whether as joint holders of the Subordinated Debt, participants or otherwise) and that the entire Subordinated Debt is owing only to the Subordinated Creditor.
20.
Information; Application of Payments
.
Subordinated Creditor hereby assumes responsibility for keeping itself informed of the financial condition of each Obligor, any and all endorsers
and any and all guarantors of the Senior Debt and Subordinated Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Subordinated Debt that diligent inquiry would reveal, and Subordinated Creditor hereby agrees that Senior Creditors shall have no duty to advise Subordinated Creditor of information known to them regarding such condition or any such circumstances. In the event Senior Creditors, in their sole discretion, at any time or from time to time undertakes to provide any such information to Subordinated Creditor, Senior Creditors shall not be under any obligation (i) to provide any such information on any subsequent occasion, (ii) to undertake any investigation, or (iii) to disclose any information Senior Creditors wish to maintain confidential. Subordinated Creditor hereby agrees that all payments received by Senior Creditors may be applied, in whole or in part, to any of the Senior Debt, as Senior Creditors, in their sole discretion, deem appropriate.
21.
No Fiduciary Relationship
.
Subordinated Creditor agrees that Senior Creditors shall not (a) be deemed or otherwise considered to be acting as an agent or in any other fiduciary capacity on behalf of Subordinated Creditor or the Subordinated Debt by virtue of this Agreement or otherwise, or (b) have any liability to Subordinated Creditor for, and Subordinated Creditor hereby waives, any claim Subordinated Creditor at any time may have against Senior Creditors arising out of any actions Senior Creditors may take or omit to take not (i) in violation of this Agreement or (ii) constituting inequitable or willful misconduct or actual fraud, as determined by a final non-appealable judgment by a court of competent jurisdiction, including, without limitation, with respect to (x) any Senior Debt Agreement, (y) collection of Senior Debt, or (z) foreclosure upon and sale, liquidation or other Disposition, or valuation, use, protection or release, of any Obligor’s assets.
22.
Successors and Assigns
.
This Agreement shall be binding upon each Obligor and its respective successors and assigns, and shall be binding upon and inure to the benefit of each Senior Creditor, the Subordinated Creditor, and their respective successors and permitted assigns. Subordinated Creditor agrees not to sell, assign, pledge, grant a security interest, dispose of or otherwise transfer all or any portion of any Subordinated Debt, any Subordinated Debt Agreement or any Lien securing the Subordinated Debt: (i) without giving prior written notice of such action to Senior Creditors, and (ii) unless prior to the consummation of any such action, the transferee thereof shall execute and deliver to Senior Creditors a joinder to this Agreement pursuant to which such transferee agrees to be bound by and subject to the terms hereof. Notwithstanding the failure to execute or deliver any such joinder, the subordination effected hereby shall survive any sale, assignment, pledge, disposition or other transfer of all or any portion of the Subordinated Debt, and the terms of this Agreement shall be binding upon any such transferee. No Obligor may assign any of its rights or obligations under this Agreement without the prior written consent of Senior Creditors and the Subordinated Creditor. This Agreement also shall be binding upon and inure to the benefit of each other holder of Senior Debt that exists as a result of a refinancing of the Senior Debt so long as (i) each such other holder of Senior Debt signs a joinder hereto and agrees to be bound by the terms hereof, and (ii) such refinancing and the terms of such refinancing are no more unfavorable with respect to the Obligors than those contained in the Senior Debt Agreements, as in effect on the date hereof or as the Senior Debt Agreements could be amended without violating this Agreement. Upon such event, each such other holder of Senior Debt shall be deemed to be included in the term “Senior Creditors” for all purposes hereunder.
23.
Governing Law; Remedies; Entire Agreement
.
This Agreement shall in all respects be governed by, and construed and enforced in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. In furtherance of the foregoing, the internal law of the State of Delaware shall control the interpretation and construction of this Agreement, even though under that jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. The parties hereto acknowledge that the provisions of this Agreement are unique and money damages may not provide an adequate remedy for any breach thereof, and each party may seek specific performance and other equitable remedies for any breaches under this Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OR PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
24.
Amendments and Waivers
.
Notwithstanding anything herein to the contrary, this Agreement may be changed, modified or waived only by a writing signed by the Subordinated Creditor and Senior Creditors, each in its capacity as such.
25.
Notices
.
All notices to be given under this Agreement must be in writing and shall be addressed to the addresses and to the attention of the Persons stated on the signature pages hereof, or at such other address or to the attention of such other Person as the recipient has designated after the date hereof in a written notice given by the recipient in conformity with the provisions of this Section. No party is obligated to give any other party any notices under this Agreement except as expressly set forth herein. Any communication or notice so addressed and mailed shall be deemed to be given three days after mailing by first class, certified or registered mail, return receipt requested and postage prepaid. Any communication or notice otherwise delivered shall be deemed to be given when receipt is acknowledged if sent by facsimile transmission, when personally delivered, or on the next Business Day after sending by overnight courier, if sent by a nationally recognized overnight courier service for next Business Day delivery.
26.
Counterparts
.
This Agreement may be executed in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement.
27.
Severability
.
In the event that any provision of this Agreement is deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, this Agreement shall be construed as not containing such provision and the invalidity of such provision shall not affect the validity of any other provisions hereof, and any and all other provisions hereof which otherwise are lawful and valid shall remain in full force and effect.
28.
Conflict
. In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Subordinated Debt Agreements or the Senior Debt Agreements, the provisions of this Agreement shall control and govern.
29.
Waiver of Jury Trial
.
AS A SPECIFICALLY BARGAINED INDUCEMENT FOR SENIOR CREDITORS TO ENTER INTO THIS AGREEMENT, SENIOR CREDITORS AND SUBORDINATED CREDITOR EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF EITHER OR BOTH OF THIS AGREEMENT OR THE CONDUCT OF THE RELATIONSHIP BETWEEN SENIOR CREDITORS AND SUBORDINATED CREDITOR.
30.
Descriptive Headings
.
The section headings of this Agreement are for convenience only and shall have no legal effect.
[
Signature Pages Follow
]
IN WITNESS WHEREOF
, the parties hereto have executed this Subordination Agreement as of the day and year first above written.
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DENTAL INNOVATIONS BVBA as collateral agent
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By:
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/s/ Frank Laukoetter
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/s/ Didier Westen
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Name:
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Frank Laukoetter
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Didier Westen
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Title:
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Managing Director
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Managing Director
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Notice address:
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Dental Innovations BVBA
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Wiegstraat 21
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2000 Antwerpen
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Belgium
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with a copy to:
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David Kalson, Esquire
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Cohen & Grigsby, P.C.
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625 Liberty Avenue
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Pittsburgh, PA 15222-3152
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Telephone: (412) 297-4975
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Facsimile: (412) 209-0672
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Email: dkalson@cohenlaw.com
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SIGNATURE PAGE 1 OF 4 TO
SUBORDINATION AGREEMENT
(__________)
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LONGITUDE VENTURE PARTNERS II, L.P.
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By:
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Longitude Capital Partners II, LLC
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Its:
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General Partner
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By:
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/s/ Juliet Tammenoms Bakker
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Name:
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Juliet Tammenoms Bakker
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Title:
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Managing Member
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Notice address:
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800 El Camino Real, Suite 220
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Menlo Park, CA 94025
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Attention: Juliet Bakker
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Email: jbakker@longitudecapital.com and to
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chelms@longitudecapital.com
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with a copy to:
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Jill Feldman, Esquire
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Morrison & Foerster LLP
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425 Market Street
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San Francisco, CA 94105-2482
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Telephone: (415) 268-6474
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Facsimile: (415) 268-7522
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Email: jfeldman@mofo.com
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SIGNATURE PAGE 2 OF 4 TO
SUBORDINATION AGREEMENT
(__________)
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CONTRIBUTORS’ REPRESENTATIVE
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By:
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/s/ J. Christopher Marmo
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Name:
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J. Christopher Marmo, as the Contributors Representative
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Notice address:
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[________________]
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[________________]
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Attention:
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[________________]
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Facsimile:
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(___) ___-____
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with a copy to:
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SIGNATURE PAGE 3 OF 4 TO
SUBORDINATION AGREEMENT
(__________)
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EVOLUS, INC.
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By:
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/s/ Murthy Simhambhata
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Name:
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Murthy Simhambhatla
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Title:
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CEO
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Notice address:
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Evolus, Inc.
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17901 Von Karman Ave., Suite 150
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Irvine, CA 92614
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Attention: CEO
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Facsimile:
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with a copy to:
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Evolus, Inc.
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17901 Von Karman Ave., Suite 150
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Irvine, CA 92614
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Attention: Legal
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SIGNATURE PAGE 4 OF 4 TO
SUBORDINATION AGREEMENT
(__________)
ACKNOWLEDGMENT
ALPHAEON Corporation , a Delaware Corporation, and Evolus, Inc., a Delaware Corporation (each an “
Obligor
” and collectively, the “
Obligors
”), each acknowledges receipt of a copy of the above Subordination Agreement by and between DENTAL INNOVATIONS BVBA (“
DI
”), as collateral agent for the holders of the DI Notes, as defined below, LONGITUDE VENTURE PARTNERS II, L.P. (“
Longitude
,” and together with DI, the
Senior Creditors
”), and J. CHRISTOPHER MARMO as Contributors’ Representative (“
Subordinated Creditor
”), dated as of December 14, 2017 (as amended from time to time, the “
Subordination Agreement
”), and each agrees that (a) such Obligor will not (i) pay or perform, or provide any security or collateral for, Subordinated Creditor, other than as expressly permitted by the Subordination Agreement, until all of the Senior Debt has been paid in full, (ii) take or omit from taking any action that would cause a breach of the Subordination Agreement, or (iii) consent to any assignment, or transfer of, or give any security for, the Subordinated Debt except to the extent expressly permitted by the Subordination Agreement; (b) no Obligor nor any successor or assignee of any Obligor by operation of law or otherwise is a party to the Subordination Agreement, and such Obligor will not have (i) any right in or to enforcement of the Subordination Agreement as against Senior Creditors or Subordinated Creditor, (ii) any claim of damage if either of Senior Creditors or Subordinated Creditor default under the Subordination Agreement, or (iii) any right to object to any amendment, modification, or supplement to, or any restatement or replacement of, the Subordination Agreement undertaken by Senior Creditors and Subordinated Creditor; (c) Senior Creditors are authorized to give Subordinated Creditor copies of all notices of a Senior Debt Default and to otherwise communicate with Subordinated Creditor from time to time regarding Obligors and the administration of the Senior Debt; (d) Subordinated Creditor is authorized to give Senior Creditors copies of all notices of a Subordinated Debt Default and to otherwise communicate with Senior Creditors from time to time regarding Obligors and the administration of the Subordinated Debt; (e) as between the Obligors and the Senior Creditors and the Obligors and the Subordinated Creditor, none of the provisions of the Subordination Agreement limits or impairs Senior Creditors’ or Subordinated Creditor’s rights against Obligors or Obligors’ obligations, indebtedness, or liabilities to Senior Creditors or Subordinated Creditor under the Senior Debt Documents, the Subordinated Debt Documents, or otherwise; and (f) the Subordination Agreement is a “subordination agreement” within the meaning of Section 510(a) of the Bankruptcy Code and shall be interpreted and construed accordingly in any proceeding under the Bankruptcy Code in which an Obligor is a debtor.
All capitalized terms used in this Acknowledgment which are defined in the Subordination Agreement and not otherwise defined in this Acknowledgment will have the meanings given in the Subordination Agreement.
Dated: December 14, 2017
[
Signature Page Follows
]
IN WITNESS WHEREOF, Obligors have duly executed this Acknowledgment to Subordination Agreement as of the date set forth above.
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ALPHAEON Corporation
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By:
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/s/ Murthy Simhambhata
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Name:
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Murthy Simhambhatla
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Title:
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CEO
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Evolus, Inc.
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By:
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/s/ Murthy Simhambhata
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Name:
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Murthy Simhambhatla
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Title:
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CEO
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SIGNATURE PAGE TO ACKNOWLEDGMENT
OF SUBORDINATION AGREEMENT
(____________)
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this “
Agreement
”) is made and entered into as of December 14, 2017, by and among DENTAL INNOVATIONS BVBA (“
DI
”), as collateral agent for the holders of the DI Notes, as defined below, LONGITUDE VENTURE PARTNERS II, L.P. (“
Longitude
,” and together with DI, the “
Senior Creditors
”), ALPHAEON CORPORATION (“
Borrower
”) and SCH-AEON, LLC (formerly known as Strathspey Crown Holdings, LLC) (“
Subordinated Creditor
”).
W I T N E S S E T H:
WHEREAS
, DI, as collateral agent, Borrower, as issuer, and certain purchasers party thereto, entered into the Secured Convertible Note Purchase Agreement dated July 26, 2016 and amended and restated April 19, 2017, (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof, the “
Note Purchase Agreement
”) by which the Borrower has issued[, and may issue after the date hereof, ]its 10% Convertible Promissory Notes due 2018 (collectively, the “
DI Notes
”);
WHEREAS
,
Longitude is the holder of that certain Third Amended and Restated Secured Convertible Bridge Note originally issued by the Borrower on May 27, 2016, and first amended and restated on July 26, 2016, second amended and restated on April 19, 2017, and third amended and restated on December 14, 2017 (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof, the “
Longitude Note,
” and together with the DI Notes, the “
Senior Notes
”);
WHEREAS
, the Borrower entered into a Pledge and Security Agreement with DI dated July 26, 2016 (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof, the “
DI Pledge
”), and a Pledge and Security Agreement with Longitude, dated May 27, 2016 (as amended, the ”
Longitude Pledge
” and together with the DI Pledge the “
Pledge Agreements
”), whereby Borrower granted first priority liens in and to all assets of Borrower to the Senior Creditors;
WHEREAS
, Evolus, Inc. (“
Evolus
”) guaranteed and secured the Senior Debt by entering into those certain Guaranty and Security Agreements with DI and Longitude, each dated April 19, 2017 and amended December 14, 2017 (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof, the “
Evolus Guaranty and Security Agreements
”);
WHEREAS
, Subordinated Creditor is the holder of that certain Third Amended and Restated Intercompany Credit Line Promissory Note dated October 30, 2015 (as amended, amended and restated, supplemented or otherwise modified pursuant to the terms thereof and as permitted hereby, the “
Subordinated Note
”), the aggregate principal amount currently outstanding under which is $50,778,322.76 as of the date hereof;
WHEREAS,
in order to induce Senior Creditors to (i) agree to terminate the Evolus Guaranty and Security Agreements and release all Liens thereby conveyed upon an initial public offering of the equity securities of Evolus, and (ii) release the Liens on certain equity interests of Evolus granted under the Pledge Agreements to facilitate an initial public offering of such interests, Senior Creditors require the execution and delivery of this Agreement.
NOW, THEREFORE
, in consideration of these premises and the terms and conditions set forth in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:
1.
Definitions
.
Capitalized terms used but not defined in this Agreement shall have the meanings specified in the DI Pledge or the Longitude Pledge, as applicable. In addition, capitalized terms defined in this
Section 1
and in other Sections of this Agreement, shall have the meanings specified herein.
“
Bankruptcy Code
” shall mean the Bankruptcy Reform Act of 1978 (11 U.S.C. § 101,
et seq.
), as amended and in effect from time to time.
“
Borrower
” shall mean Alphaeon Corporation, a Delaware corporation.
“
Collateral
” shall mean the Collateral and all other existing or future collateral or other security held by Senior Creditors for all or any part of the Senior Debt, including but not limited to all outstanding shares of Evolus, to the extent the Lien encumbering such shares is not otherwise released.
“
Collateral Action
” shall mean (a) any action to enforce or foreclose on, whether by judicial action or otherwise, a Lien on any Collateral or other assets of any Obligor, (b) any action to take control or possession of, or sell or otherwise realize upon, or to exercise any other rights or remedies with respect to, any Collateral or other assets of any Obligor, (c) the taking of any other actions against any Collateral or other assets of any Obligor, including the taking of control or possession of, or the exercise of any right of setoff with respect to, any Collateral or other assets of any Obligor, or (d) to commence (or join with another Person in commencing) any action or proceeding to facilitate any of the actions described in clauses (a) through (c) of this definition.
“
Collection Action
” shall mean (a) to demand, sue for, take or receive from or on behalf of any one or more of the Obligors, by payment (in cash, property, by setoff or otherwise), recoupment or in any other manner, the whole or any part of any moneys that now or hereafter may be owing by any one or more of the Obligors, (b) to initiate or participate with others in any suit, action or proceeding against any one or more of the Obligors, including, but not limited to, any petition, suit, action or proceeding commencing any Insolvency Proceeding, to (1) enforce payment of or to collect the whole or any part of the Subordinated Debt or (2) enforce any rights and remedies under the Subordinated Debt Agreements or applicable law with respect to the Subordinated Debt or the Subordinated Debt Agreements, (c) to accelerate any Subordinated Debt, (d) to exercise any put or similar option against any of the Obligors with respect to the Subordinated Debt or to cause any one or more of the Obligors to honor any redemption, repurchase or mandatory prepayment obligation under any Subordinated Debt Agreement,
or (e) any Collateral Action;
provided
, that filing any notices or proofs of claim and voting, in compliance with the provisions of this Agreement, any such claim in any Insolvency Proceeding, shall not be a Collection Action.
“
Disposition
” shall mean any sale, lease, exchange, transfer or other disposition, and “
Dispose
” and “
Disposed of
” shall have correlative meanings.
“
Distribution
” shall mean, with respect to any indebtedness or obligation, (a) any payment or distribution by any Person of cash, securities or other property, by setoff or in any other manner or form, on account of such indebtedness or obligation, or (b) any redemption, purchase or other acquisition of such indebtedness or obligation by any Person.
“
Insolvency Proceeding
” shall mean any receivership, conservatorship, insolvency or bankruptcy proceeding, assignment for the benefit of creditors or any proceeding or action by or against any one or more of the Obligors for any relief under any bankruptcy or insolvency law or other laws relating to the relief of debtors, readjustment of indebtedness, reorganization, dissolution, winding up, liquidation, composition or extensions, or the appointment of any receiver, intervenor, custodian or conservator of, or trustee, or similar officer for, any one or more of the Obligors or any substantial part of its or their respective properties or assets, including, without limitation, proceedings under the Bankruptcy Code, or under other federal, state or local statute, laws, rules and regulations, all whether now or hereafter in effect.
“
Lien
” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including, but not limited to, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the UCC or any comparable law), and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under a lease which is not a capital lease.
“
Obligors
” shall mean Borrower and each other Person, if any, that guarantees, otherwise becomes liable in respect of, or provides collateral or other credit support for, any Senior Debt or any Subordinated Debt.
“
Paid in Full
” shall mean, with respect to the Senior Debt, and subject to the provisions of
Section 17
of this Agreement, that (i) the aggregate amount of all Senior Debt owing to Senior Creditors has been indefeasibly paid in full in cash or by such other consideration as Senior Creditors, in their sole discretion, have accepted in writing as full payment (other than in connection with a refinancing of Senior Debt in accordance with
Section 24
of this Agreement), and (ii) all commitments and obligations of Senior Creditors to make loans or other extensions of credit under the Senior Debt Agreements have been terminated.
“
Person
” shall mean any individual, partnership, joint venture, trust, limited liability company, business trust, joint stock company, unincorporated association, corporation, governmental authority, or any other legal entity.
“
Post-Petition Charges
” means fees, costs, expenses and other charges that are incurred or paid pursuant to the Senior Debt Agreements or the Subordinated Debt Agreements after the commencement of any Insolvency Proceeding, whether or not such fees, costs, expenses and other charges are allowed or allowable in any such Insolvency Proceeding.
“
Post-Petition Interest
” shall mean interest that accrues in respect of Senior Debt or Subordinated Debt after the commencement of an Insolvency Proceeding by or against any one or more of the Obligors, whether or not allowed or allowable as a claim in any such Insolvency Proceeding, and any such interest that would have accrued but for the commencement of such Insolvency Proceeding.
“
Senior Creditors
” shall mean DI, as collateral agent and Longitude and their respective successors and assigns, and any Person who becomes a creditor of or lender to the Obligors pursuant to a refinancing in conformity with the provisions of
Section 24
. To the extent a term or provision of this Agreement is applicable to a “Senior Creditor”, it is applicable to each and all of the Senior Creditors unless the context expressly indicates otherwise.
“
Senior Debt
” shall mean all existing and future Secured Obligations as defined in the DI Pledge, together and
parri
passu
with all existing and future Secured Obligations as defined in the Longitude Pledge, including, without limitation, the principal of (including, without limitation, the Redemption Price, as such term is defined in the respective Senior Notes) and interest (including Post-Petition Interest and Post-Petition Charges) on the Senior Notes.
“
Senior Debt Agreements
” shall mean, collectively, the Note Purchase Agreement, the Senior Notes, the Pledge Agreements, the Evolus Guaranty and Security Agreements and all other documents, instruments and agreements evidencing or pertaining to any portion of the Senior Debt, in each case, as originally executed and as amended, modified, restated, extended, renewed from time to time, and any agreements, documents and/or instruments entered into in connection with a refunding, refinancing, or replacement of all or any portion of the Senior Debt in accordance with
Section 24
of this Agreement, whether by the same or any other group of lenders, as such refunding, refinancing or replacement agreements are originally executed or may be amended, modified, restated, renewed or otherwise modified from time to time or refinanced or replaced in accordance with
Section 24
of this Agreement.
“
Senior Default
” shall mean any Event of Default as defined in any Senior Debt Agreement.
“
Subordinated Creditor
” shall have the meaning specified in the introductory paragraph of this Agreement.
“
Subordinated Debt
” shall mean all indebtedness, obligations, and liabilities at any time owing by any one or more of the Obligors to Subordinated Creditor pursuant to the Subordinated Debt Agreements, including, without limitation, all principal, interest (including Post-Petition Interest and Post-Petition Charges), rights to Distributions in respect of “put rights” or similar rights with respect to equity interests, and all expenses, fees and other amounts of every kind and nature, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, and however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether now existing or hereafter arising, and whether arising before, during or after the commencement of any Insolvency Proceeding.
“
Subordinated Debt Agreements
” shall mean the Subordinated Note and all other notes, documents, agreements and instruments entered into by any of the parties to any of the foregoing in
connection therewith, all as originally executed and as amended, modified, extended, renewed, refinanced or replaced from time to time in compliance with the terms of this Agreement.
“
Subordinated Default
” shall mean the occurrence and continuance of any “[Default]”, as such term currently is defined in the Subordinated Debt Agreements.
“
UCC
” means the Uniform Commercial Code of any applicable jurisdiction and, if the applicable jurisdiction shall not have any Uniform Commercial Code, the Uniform Commercial Code as in effect in the State of Delaware.
2.
Subordination
.
All of the Subordinated Debt is hereby made expressly subordinate and junior to the Payment in Full of the Senior Debt to the extent and in the manner set forth in this Agreement. The payment by any Obligor of any and all of the Subordinated Debt shall be subordinate and subject in right of payment, to the extent and in the manner hereafter set forth, to the Senior Debt until the Senior Debt has been Paid in Full. Notwithstanding Subordinated Creditor’s waiver of any and all rights to any Liens in and to any assets of any Obligor, as provided in
Sections 16
and
19
of this Agreement, and irrespective of (a) the date, time, method, manner or order of attachment or perfection of any Lien that Subordinated Creditor at any time may acquire on, in, or in respect of, any property or asset of any of the Obligors, (b) the usual application of the priority provisions of the UCC or any other applicable laws or agreements, (c) whether the Liens granted to Senior Creditors are properly perfected, (d) whether arising pre-petition or post-petition, (e) whether granted pursuant to a debtor-in-possession financing provided to any one or more of the Obligors by Senior Creditors and/or by any other Person, or the post-petition use of cash collateral by any Obligor, (f) any understanding between Subordinated Creditor and any one or more of the Obligors, or (g) any other priority provided by law or by any other agreement or any other matter, any Lien securing any Subordinated Debt that Subordinated Creditor at any time may acquire on, in, or in respect of, any property or assets of any of the Obligors is hereby expressly made subordinate and junior in priority and right of enforcement to any and all Liens on, in, or in respect of, the Collateral or any other property or asset of the Obligors, whether now existing or arising in the future, securing any of the Senior Debt.
3.
Payment Limitations
.
Until the Senior Debt has been Paid in Full, (i) no Subordinated Creditor, directly or indirectly, shall take or accept from any Obligor any Distribution of, or on account of, the whole or any part of any Subordinated Debt, and (ii) no Obligor, directly or indirectly, shall remit, make, or pay, any Distribution of, or an account of, the whole or any part of the Subordinated Debt.
4.
[Reserved]
.
5.
Insolvency Proceeding
.
(a) Upon the occurrence of any Insolvency Proceeding:
(i) the Senior Debt shall be Paid in Full before any Distribution shall be made on account of or applied with respect to any Subordinated Debt;
(ii) any Distribution which, but for the provisions of
clause 5(a)(i)
above, would be payable or deliverable with respect to any Subordinated Debt, shall be paid or delivered directly to Senior Creditors on a pro rata basis, until the Senior Debt has been Paid in Full (after giving effect to any concurrent payment to Senior Creditors with respect to the Senior Debt); and
(iii) Subordinated Creditor irrevocably authorizes, empowers, and directs, and shall be deemed to have authorized, empowered, and directed, (x) all receivers, trustees, liquidators, custodians, conservators and others having authority in the premises to effect all such Distributions, and (y) Senior Creditors to demand, sue for, collect, and receive all such Distributions.
(b) In the event of any Insolvency Proceeding involving any Obligor, the Subordinated Creditor shall not, without Senior Creditors’ prior written consent, propose any plan of reorganization, liquidation, arrangement or proposal or file any motion, pleading or material in support of any motion or plan of reorganization, liquidation, arrangement or proposal, or encourage other Persons to do any of the foregoing that would impair the rights of Senior Creditors, is in conflict with the terms of this Agreement, or is opposed by Senior Creditors, or oppose any plan of reorganization, liquidation, arrangement or motion filed by or proposed or supported by Senior Creditors. Subordinated Creditor irrevocably authorizes, empowers, and appoints Senior Creditors, and shall be deemed to have authorized, empowered, and appointed Senior Creditors, as its agent and attorney-in-fact to (1) execute, verify, deliver and file such proofs of claim upon the failure of Subordinated Creditor to do so prior to 30 days before the expiration of the time to file any such proof of claim and (2) vote such claim in any such Insolvency Proceeding upon the failure of Subordinated Creditor to do so prior to 10 days before the expiration of the time to vote any such claim;
provided,
that Senior Creditors shall have no obligation to execute, verify, deliver and/or file any such proof of claim or to vote any such claim; and
provided
,
further
, that if, following the voting or filing of any such proof of claim by Senior Creditors, Subordinated Creditor timely votes or files a proper proof of claim, such vote or filing by Subordinated Creditor shall, from and after the time of such vote or filing, supersede any such previous vote or filing by Senior Creditors and, upon the written request of Subordinated Creditor, Senior Creditors, to the extent legally permissible, shall withdraw such previous vote or filing.
(c) During any Insolvency Proceeding, Subordinated Creditor hereby consents and agrees that Senior Creditors or any Obligor (with Senior Creditors’ consent) may, and authorizes Senior Creditors or any Obligor (with Senior Creditors’ consent) to (i) sell, assign or otherwise dispose of the Collateral by private or public sale with or without notice (other than any UCC Notice required to be provided pursuant to
Section 6
hereof), pursuant to court order, under Section 363 of Bankruptcy Code, or otherwise, and by any means, all free and clear of any interest or claim of Subordinated Creditor with respect thereto, and (ii) apply all proceeds thereof to the Senior Debt until the Senior Debt has been Paid in Full. Subordinated Creditor hereby further consents and agrees that Senior Creditors shall be entitled to credit bid at any sale of the Collateral, under Section 363 of the Bankruptcy Code, or otherwise.
(d) During any Insolvency Proceeding, Subordinated Creditor waives, with respect to each Obligor’s assets, and with respect to Senior Creditors’ enforcement of any right or remedy
arising under any of the Senior Debt Agreements, or at law or in equity, any requirement regarding, and agrees not to demand, request, plead, or otherwise claim the benefit of, any marshaling, foreclosure, appraisement, valuation, or any other right (including without limitation, under Section 1111(b) or any other section of the Bankruptcy Code and the right to seek adequate protection, contemplated at law or in equity (whether or not relating to notice (other than any UCC Notice required to be provided pursuant to
Section 6
)), diligence, presentment, demand, protest, setoff, reliance, defense, counterclaim, or election) that otherwise may be available to Subordinated Creditor.
(e) During any Insolvency Proceeding, Subordinated Creditor agrees not to object to, or seek adequate protection in respect of, any use of cash or noncash collateral by any or more of the Obligors under Section 363 of the Bankruptcy Code permitted by Senior Creditors, or any borrowing by any one or more of the Obligors from Senior Creditors or any borrowing by any one or more of the Obligors from any other Person permitted by Senior Creditors (“
DIP Financing
”), or to any grant of a Lien by any Person in favor of Senior Creditors and/or any other Person under Section 364 of the Bankruptcy Code in connection with such DIP Financing (“
DIP Liens
”). Subordinated Creditor agrees that adequate notice to Subordinated Creditor for such DIP Financing or use of cash collateral shall have been delivered to Subordinated Creditor if Subordinated Creditor receives notice at least two (2) Business Days prior to the entry of the order approving such DIP Financing or use of cash collateral. No Subordinated Creditor will oppose Senior Creditors’ motions or other requests to receive or to have allowed to it adequate protection payments, Post-Petition Interest or Post-Petition Charges, or additional collateral in connection with any use of cash collateral or DIP Financing. Subordinated Creditor agrees not to seek to provide, or participate with or support any other Person seeking to provide, financing under section 364 of the Bankruptcy Code to any one or more of the Obligors secured by Liens equal or senior in priority to the Liens securing the Senior Debt without the prior written consent of the Senior Creditors.
(f) Subordinated Creditor agrees that Senior Creditors shall have no liability to Subordinated Creditor for, and Subordinated Creditor waives any claim it now or hereafter may have against Senior Creditors arising out of, (i) Senior Creditors’ election, in any Insolvency Proceeding, of the application of Section 1111(b)(2) of the Bankruptcy Code, or (ii) any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code by any Obligor, as debtor in possession.
(g) The parties hereto acknowledge and agree that (i) the claims and interests of Senior Creditors under the Senior Debt Agreements are substantially different from the claims and interests of the Subordinated Creditor under the Subordinated Debt Agreements and (ii) such claims and interests should be treated as separate classes for purposes of Section 1122 of the Bankruptcy Code and, in any Insolvency Proceeding, no Subordinated Creditor will make any assertion to the contrary or object to the assertion that the claims and interests of Senior Creditors under the Senior Debt Agreements are substantially different from the claims of the Subordinated Creditor under the Subordinated Debt Agreements. In the event that it is held, contrary to the intent of the parties hereto, that the claims and interests of Senior Creditors and the Subordinated Creditor should be classified together, then the Subordinated Creditor hereby agrees that all Distributions shall be made as if the claims and interests of Senior Creditors and the Subordinated Creditor were classified separately, such that, to the extent that the value of the Collateral is sufficient (for this purpose, without regard to the claims of the Subordinated Creditor), Senior Creditors shall be entitled to receive all amounts owing
to it in respect of Post-Petition Interest and Post-Petition Charges before any Distribution is made in respect of the claims of the Subordinated Creditor, and the Subordinated Creditor shall turn over to Senior Creditors any amounts received by them to the extent necessary to satisfy Senior Creditors’ entitlement to all such amounts.
(h) This Agreement shall be applicable both before and after the filing of any petition by or against any Obligor under the Bankruptcy Code or the commencement of any other Insolvency Proceeding and all converted or succeeding cases in respect thereof, and all references herein to any Obligor shall be deemed to apply to the trustee for such Obligor and to such Obligor as a debtor-in-possession. The relative rights of Senior Creditors and the Subordinated Creditor in respect of any Collateral or any other assets or proceeds thereof shall continue after any such filing or commencement on the same basis as prior to the date of such filing or commencement, subject to any court order approving the financing of, or use of cash collateral by, any Obligor. This Agreement shall constitute a “subordination agreement” for the purposes of Section 510(a) of the Bankruptcy Code and shall be enforceable in any Insolvency Proceeding in accordance with its terms.
6.
Limitation on Rights of Action
.
Without implying any limitation on the obligation of Subordinated Creditor to turn over to Senior Creditors all Distributions in respect of the Subordinated Debt until the Senior Debt has been Paid in Full, no Subordinated Creditor shall, without the prior written consent of Senior Creditors, take any Collection Action or Collateral Action.
In addition, to the extent that any provision of any Subordinated Debt Agreement provides rights, remedies, powers, or benefits to the Subordinated Creditor or imposes obligations or duties on any Obligor with respect to the Collateral that are in conflict with or exceed the rights, remedies, powers, or benefits provided to Senior Creditors under any Senior Debt Agreement, such provision of the applicable Subordinated Debt Agreement shall not be enforced or given effect by the Subordinated Creditor or the Obligors until after the Senior Debt has been Paid in Full. Moreover, no Subordinated Creditor will, directly or indirectly, oppose, object to, interfere with, or hinder or delay, by judicial proceeding or by any other manner, any foreclosure, sale, lease, exchange, transfer, or other Disposition of Collateral by Senior Creditors (or any Obligor with the consent of Senior Creditors), or the exercise by Senior Creditors of any other right or remedy relative to the Collateral;
provided
, that the foregoing provisions of this sentence shall not preclude the Subordinated Creditor from initiating or prosecuting any claim against Senior Creditors that is based directly upon Senior Creditors’ breach of this Agreement. Subordinated Creditor agrees that it shall not directly or indirectly seek to prevent, interfere or otherwise take any action that would adversely affect (i) the exercise by Borrower, any other Obligor and/or the Senior Creditors of their respective rights under, and the performance by Evolus of its obligations pursuant to, that certain Stockholders’ Agreement by and among Evolus, ALPHAEON and the Senior Creditors, dated December 14, 2017, including, without limitation, any right by Borrower, any other Obligor, and/or the Senior Creditors to demand that Evolus file a registration statement with the Securities and Exchange Commission with respect to the shares of Evolus common stock owned by Borrower and the performance by Evolus of its obligations upon the exercise of such rights, or (ii) any sale by Borrower, any other Obligor and/or the Senior Creditors of shares of Evolus common stock, whether before or after a Senior Default.
Without limiting the generality of the foregoing, Subordinated Creditor and Borrower agree that Senior Creditors shall have the exclusive right to manage, perform and enforce the terms of the Senior Debt Agreements with respect to the Collateral, to exercise and enforce all privileges and rights thereunder according to its sole discretion and the exercise of its sole business judgment, including the exclusive right to take or retake control or possession of the Collateral and to hold, prepare for sale, foreclose on, offer for public or private sale, process, Dispose of, liquidate, or to take some or all of the Collateral in partial or total satisfaction of the Senior Debt, to incur expenses in connection with such Disposition and to exercise all the rights and remedies of a secured lender under the UCC. In conducting any public or private sale under the UCC, Senior Creditors shall give the Subordinated Creditor such notice (a “
UCC Notice
”) of such sale as Senior Creditors are required by the UCC;
provided,
that 10 days’ notice shall be deemed to be commercially reasonable notice. Subordinated Creditor further agrees that Senior Creditor may;
(a)
dispose of all or any portion of the Collateral free and clear of the Liens securing the Senior Debt in connection with any Disposition pursuant to the applicable provisions of the Bankruptcy Code, including Section 363 thereof;
(b)
credit bid all or any portion of the Senior Debt, or purchase all or any portion of the Collateral (in each case, either directly or through one or more acquisition vehicles), in connection with any Disposition of all or any portion of the Collateral pursuant to the applicable provisions of the Bankruptcy Code, including under Section 363 thereof;
(c)
credit bid all or any portion of the Senior Debt, or purchase all or any portion of the Collateral (in each case, either directly or through one or more acquisition vehicles), in connection with any Disposition of all or any portion of the Collateral pursuant to the applicable provision of the UCC, including pursuant to Sections 9-610 or 9-620 of the UCC; and
(d)
credit bid all or any portion of the Senior Debt, or purchase all or any portion of the Collateral (in each case, either directly or through one or more acquisition vehicles), in connection with any foreclosure or other Disposition conducted in accordance with applicable law following the occurrence of a Senior Default, including the power of sale, judicial action or otherwise.
7.
Release of Liens
.
In the event that Senior Creditors are required, pursuant to the terms of any Senior Debt Agreement, to release their Liens in any of the Collateral securing the Senior Debt, or in the event Senior Creditors voluntarily elect to release their Liens in any of the Collateral securing the Senior Debt in connection with the sale, assignment or other Disposition of any such Collateral, then, in any such instances, Subordinated Creditor shall be deemed to contemporaneously have released, without any further action, any Liens that it may have in such Collateral. Subordinated Creditor from time to time promptly shall execute and deliver to Senior Creditors such releases and additional documents of termination or release with respect to any Liens of the Subordinated Creditor as Senior Creditors may request pursuant to this Agreement to effect any release of Liens of the Subordinated Creditor described in this Agreement. The Subordinated Creditor agrees that if, in any instance, it fails to timely deliver any of the documents called for in the prior sentence, Senior Creditors shall be authorized, at its election and in its name, as attorney in fact for Subordinated Creditor, to prepare and execute any such documents and to file the same of record; and Subordinated Creditor hereby appoints Senior Creditors as its attorney in fact for such limited purposes.
Subordinated Creditor shall be deemed to have consented under the Subordinated Debt Agreements to any Disposition of Collateral pursuant to this
Section 7
and to have waived the provisions of the Subordinated Debt Agreements to the extent necessary to permit such Disposition. The provisions of this
Section 7
do not affect, waive or change Subordinated Creditor’s waiver of any and all rights to any Liens in and to any assets of any Obligor, as provided in
Sections 16
and
19
of this Agreement.
8.
Payments in Respect of Collateral or in Contravention of this Agreement
.
Any Collateral or proceeds thereof that are received by Subordinated Creditor, and any Distribution that is received by Subordinated Creditor (a) in connection with the exercise of any right or remedy (including any right of setoff or recoupment) with respect to the Collateral, (b) in connection with any insurance policy claim or any condemnation award (or deed in lieu of condemnation), (c) from the collection or other Disposition of, or realization on, any Collateral, whether or not pursuant to an Insolvency Proceeding or (d) in violation of any provision of this Agreement (without the written consent of Senior Creditors), in each case, shall be held in trust by Subordinated Creditor for Senior Creditors and promptly shall be delivered, in kind, to Senior Creditors to the extent necessary to cause the Senior Debt to be Paid in Full. The foregoing shall not be construed as any consent by Senior Creditors to the exercise by Subordinated Creditor of any right or remedy with respect to the Collateral. The provisions of this
Section 7
do not affect, waive or change Subordinated Creditor’s waiver of any and all rights to any Liens in and to any assets of any Obligor, as provided in
Sections 16
and
19
of this Agreement.
9.
Subrogation
.
Upon the Senior Debt being Paid in Full, Subordinated Creditor shall be subrogated to all rights of Senior Creditors to receive any further payments or Distributions applicable to the Senior Debt until the Subordinated Debt shall have been fully paid. For purposes of Subordinated Creditor’s subrogation rights hereunder, payments to Senior Creditors with respect to the Senior Debt which Subordinated Creditor would have been entitled to receive with respect to the Subordinated Debt but for the provisions of this Agreement shall not, as between any one or more of the Obligors, its creditors (other than Senior Creditors) and Subordinated Creditor be deemed payments with respect to the Senior Debt, it being understood that the provisions of this Agreement are solely for the purpose of defining the relative rights of the holders of Senior Debt, on the one hand, and the Subordinated Creditor on the other hand. A Distribution made pursuant to this Agreement to Senior Creditors which otherwise would have been made to Subordinated Creditor is not, as between the Obligors and the Subordinated Creditor, a payment by any Obligors to or on account of the Senior Debt.
10.
[Reserved]
11.
Legend
. Until the Senior Debt has been Paid in Full, the Obligors and the Subordinated Creditor shall cause the Subordinated Note and any Subordinated Debt Agreement to be conspicuously marked with the following legend:
“THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF DECEMBER 14, 2017 IN FAVOR DENTAL INNOVATION BVBA, as collateral agent and LONGITUDE VENTURE PARTNERS II, L.P., WHICH SUBORDINATION AGREEMENT (AS AMENDED IN ACCORDANCE WITH ITS TERMS) IS INCORPORATED HEREIN BY REFERENCE.”
12.
No Impairment of Obligation
.
Nothing contained in this Agreement shall (a) impair, as between the Subordinated Creditor and the Obligors, the obligation of the Obligors, which is unconditional and absolute, to pay any Subordinated Debt to the Subordinated Creditor as and when all or any portion thereof shall become due and payable in accordance with its terms, (b) prevent the Subordinated Creditor, upon any default or event of default under any Subordinated Debt, from exercising all rights, powers and remedies otherwise provided therein or by applicable law (except as expressly limited hereby) or (c) affect the rights of the Subordinated Creditor with respect to any other creditors of the Obligors. The failure of an Obligor to make a Distribution with respect to the Subordinated Debt or to comply with any term of any Subordinated Debt Agreement by reason of operation of this Agreement shall not be construed as preventing the occurrence of a Subordinated Default under the applicable Subordinated Debt Agreements.
13.
Cumulative Rights, No Waivers
.
Subject to the terms of this Agreement, each and every right, remedy and power granted to Senior Creditors hereunder shall be cumulative and in addition to any other right, remedy or power specifically granted in this Agreement, or any Senior Debt Agreement or now or hereafter existing in equity, at law, by virtue of statute or otherwise, and may be exercised by Senior Creditors from time to time, concurrently or independently and as often and in such order as such Person may deem expedient. Any failure or delay on the part of Senior Creditors in exercising any such right, remedy or power, or abandonment or discontinuance of steps to enforce the same, shall not operate as a waiver thereof or affect the rights of Senior Creditors thereafter to exercise the same, and any single or partial exercise of any such right, remedy or power shall not preclude any other or further exercise thereof or the exercise of any other right, remedy or power, and no such failure, delay, abandonment or single or partial exercise of the rights of Senior Creditors hereunder shall be deemed to establish a custom or course of dealing or performance among the parties hereto.
14.
Duration
.
This Agreement is of a continuing nature, and it shall continue in force until the Senior Debt is Paid in Full and thereafter as provided in
Section 17
.
15.
Senior Debt Agreement Amendments
.
Notwithstanding anything to the contrary contained herein or in any other agreement executed and delivered in connection with the Subordinated Debt, Subordinated Creditor hereby acknowledges and agrees that, without any further consent of or notice to Subordinated Creditor, without incurring responsibility to Subordinated Creditor, and without in any manner affecting, impairing, or lessening the subordination arrangements provided for in this Agreement, any of the obligations of the Subordinated Creditor under this Agreement, or any of the provisions of this Agreement, Senior Creditors may at any time and from time to time (a) renew, extend, change the manner, time, place and terms of payment of, sell, exchange, release, increase, substitute, surrender, realize upon, modify, waive, alter, grant indulgences with respect to, and otherwise deal with in any manner: (i) all or any part of the Senior Debt; (ii) all or any of the Senior Debt Agreements; (iii) all or any part of any property that at any time secures any part of the Senior Debt; or (iv) any Person at any time primarily or secondarily liable for any part of the Senior Debt and/or any Collateral and security therefor, all as if any interest the Subordinated Creditor has with respect to such Persons or property did not exist; and (b) exercise or refrain from exercising any rights and remedies against any one or more of the Obligors or any other Person, including, without limitation, those with respect to any Collateral securing payment of the Senior Debt. At any time and from time to time,
Senior Creditors may waive any Senior Default and, upon such waiver, any Subordinated Default arising solely by virtue of such Senior Default shall be deemed to have never occurred.
16.
Subordinated Debt Agreements Amendments; No Liens
.
Notwithstanding anything to the contrary contained in the Subordinated Debt Agreements or the Senior Debt Agreements, neither the Subordinated Creditor nor any Obligor shall, without the prior written consent of Senior Creditors, agree (whether or not in writing) to any amendment, modification or supplement to any Subordinated Debt Agreement. Until the Senior Debt has been Paid in Full, the parties hereto agree that no Liens shall be granted or permitted on any asset of any Obligor or any other Person to secure any Subordinated Debt.
17.
Payment Set Aside
.
If, after receipt of any payment or application of the proceeds of any Collateral to payment of all or any part of the Senior Debt, Senior Creditors are compelled to surrender or voluntarily surrender such payment or proceeds to any Person, because such payment or application of proceeds is or may be avoided, invalidated, declared fraudulent, set aside, declared to be void or voidable as a preference, fraudulent conveyance, fraudulent transfer, impermissible setoff, diversion of trust funds, or any other void or voidable transfer or payment, or because of any settlement or compromise of such claim, then, the Senior Debt shall be deemed to have not been Paid in Full, and this Agreement shall be reinstated and shall continue to be in full force and effect, as if such payment or proceeds had not been received by Senior Creditors, notwithstanding any revocation thereof, or the surrender of any promissory note, or the return or cancellation of any instrument or document relating to the Senior Debt Agreements. This
Section 17
shall survive the termination of this Agreement.
18. [Reserved]
19.
Waivers
.
(a) Subordinated Creditor expressly waives all notice of the acceptance by Senior Creditors of the subordination and other provisions of this Agreement and all other notices whatsoever not specifically required pursuant to the terms of this Agreement or (except to the extent not waiveable by Subordinated Creditor under applicable law) applicable law, and expressly waives reliance by Senior Creditors upon the subordination and other agreements as herein provided. Subordinated Creditor agrees that Senior Creditors have not made any warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of any Senior Debt Agreement, or the collectability of any Senior Debt, that Senior Creditors shall be entitled to manage and supervise their loans to and affairs with any one or more of the Obligors in accordance with applicable law and their usual practices, modified from time to time as they deem appropriate under the circumstances, without regard to the existence of any rights that Subordinated Creditor may now or hereafter have in or to any of the assets of any Obligor.
(b) Senior Creditors shall have no liability to Subordinated Creditor for, and Subordinated Creditor waives, any claim which it may now or hereafter have against Senior Creditors arising out of, any actions Senior Creditors take or omit to take (including, without limitation, actions with respect to the creation, perfection or continuation of Liens in the Collateral and other security for the Senior Debt, actions with respect to the occurrence of any default, actions with respect to the foreclosure upon, sale, release, or depreciation of, or failure to realize upon, any of the Collateral and
actions with respect to the collection of any claim for all or any part of the Senior Debt from any account debtor, guarantor or any other party, any purchase, sale, assignment, release, abandonment or Disposition of the Collateral, whether by private or public sale or otherwise with or without notice, but without waiver of any obligation of Senior Creditors to provide any UCC Notice required to be provided pursuant to
Section 6
hereof, pursuant to court order, or by any means) with respect to any of the Senior Debt Agreements, any other agreement related thereto, or the exercise of one or more rights or remedies thereunder, or with respect to the collection of the Senior Debt, or the valuation, use, protection or release of the Collateral or other security for the Senior Debt. Until the Senor Debt has been Paid in Full, Subordinated Creditor agrees, with respect to each Obligor’s assets and the enforcement of any rights or remedies of Senior Creditors arising under this Agreement or any of the Senior Debt Agreements or at law or in equity, not to demand, request, plead or otherwise claim the benefit of, any marshaling, foreclosure, appraisement, valuation or any other right contemplated at law or in equity (whether or not relating to notice, other than the right to receive any UCC Notice required to be provided pursuant to
Section 6
, diligence, presentment, demand, protest, setoff, reliance, defense, counterclaim or election) that may otherwise be available to Subordinated Creditor with respect to Senior Creditors, or their rights and remedies in the Collateral, or any Collection Action by Senior Creditors.
(c) Subordinated Creditor acknowledges and agrees that the Liens of Senior Creditor in and to the Collateral are valid, perfected, and enforceable first priority Liens. Subordinated Creditor agrees not to initiate or prosecute or encourage any other Person to initiate or prosecute (and will not participate on any creditor’s committee with respect to the initiation or prosecution of) any claim, action, objection or other proceeding (i) challenging or contesting the validity, attachment, perfection, priority or enforceability of the Senior Debt, any Senior Debt Agreement, any Lien securing the Senior Debt, or any adequate protection rights granted by any bankruptcy court in favor of Senior Creditors or the allowance of any claim for Senior Debt (including any portion thereof consisting of Post-Petition Interest or Post-Petition Charges), (ii) opposing, interfering with, or delaying any Collateral Action by Senior Creditors, (iii) asserting any claims which the Obligors may hold with respect to the Senior Creditors, (iv) seeking to lift the automatic stay to the extent that such action is opposed by Senior Creditors, or (v) opposing a motion or other request by Senior Creditors for adequate protection or an objection by Senior Creditors, based on a claim of lack of adequate protection, to any motion or other request. If any Senior Debt or Lien securing or claim for any Senior Debt is held to be invalid or not perfected or is set aside or disallowed, the provisions of this Agreement shall remain in effect with respect to such Senior Debt or Lien securing the Senior Debt and such Senior Debt and such Liens shall continue to be entitled to the benefits contemplated by this Agreement to the same extent as if still outstanding.
(d) Subordinated Creditor acknowledges that it has no Liens in the assets of any Obligor and waives any rights to acquire any such Liens until the Senior Debt is Paid in Full.
(e) Until the Senior Debt has been Paid in Full, as between Senior Creditors on the one hand, and the Subordinated Creditor on the other, Senior Creditors shall have the exclusive right to settle and adjust claims in respect of Collateral under policies of insurance and to approve any award granted in any condemnation or similar proceeding, or any deed in lieu of condemnation, in respect of the Collateral.
(f) Senior Creditors agree not to initiate any claim, action, objection or other proceeding challenging or contesting the validity or enforceability of the Subordinated Debt or any Subordinated Debt Agreement, in each case, to the extent not in violation of this Agreement.
(g) Notwithstanding the foregoing provisions of this Section, the Subordinated Creditor in no event shall be precluded from initiating or prosecuting against Senior Creditors any claim that is based solely and directly upon Senior Creditors’ breach of this Agreement.
20.
Representations and Warranties
.
Subordinated Creditor hereby represents and warrants to Senior Creditors as follows:
(a) Subordinated Creditor is duly organized, validly existing and in good standing under the law of the state of its organization.
(b) Subordinated Creditor has full power and authority to enter into, execute, deliver and carry out the terms of this Agreement and to incur the obligations provided for herein, all of which have been duly authorized by all proper and necessary action and are not prohibited by the organizational documents of Subordinated Creditor.
(c) This Agreement, when executed and delivered, will constitute the valid and legally binding obligation of Subordinated Creditor enforceable in accordance with its terms.
(d) No provisions of any mortgage, indenture, contract, agreement, statute, rule, regulation, judgment, decree or order binding on Subordinated Creditor or affecting the property of Subordinated Creditor conflicts with, or requires any consent which has not already been obtained under, or would in any way prevent the execution, delivery or performance of the terms of this Agreement. No pending, or, to the best of such Subordinated Creditor’s knowledge, threatened, litigation, arbitration or other proceedings against such Subordinated Creditor, if adversely determined, would in any way prevent the performance of the terms of this Agreement.
21.
Subordinated Debt Owed Only to the Subordinated Creditor
.
Subordinated Creditor represents and warrants that it has not previously assigned any interest in the Subordinated Debt or any security interest in connection therewith, that no other party owns an interest in the Subordinated Debt or any security therefor other than the Subordinated Creditor (whether as joint holders of the Subordinated Debt, participants or otherwise) and that the entire Subordinated Debt is owing only to the Subordinated Creditor.
22.
Information; Application of Payments
.
Subordinated Creditor hereby assumes responsibility for keeping itself informed of the financial condition of each Obligor, any and all endorsers and any and all guarantors of the Senior Debt and Subordinated Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Subordinated Debt that diligent inquiry would reveal, and Subordinated Creditor hereby agrees that Senior Creditors shall have no duty to advise Subordinated Creditor of information known to them regarding such condition or any such circumstances. In the event Senior Creditors, in their sole discretion, at any time or from time to time undertakes to provide any such information to Subordinated Creditor, Senior Creditors shall not be under any obligation (i) to provide any such information on any subsequent occasion, (ii) to undertake
any investigation, or (iii) to disclose any information Senior Creditors wish to maintain confidential. Subordinated Creditor hereby agrees that all payments received by Senior Creditors may be applied, in whole or in part, to any of the Senior Debt, as Senior Creditors, in their sole discretion, deem appropriate.
23.
No Fiduciary Relationship
.
Subordinated Creditor agrees that Senior Creditors shall not (a) be deemed or otherwise considered to be acting as an agent or in any other fiduciary capacity on behalf of Subordinated Creditor or the Subordinated Debt by virtue of this Agreement or otherwise, or (b) have any liability to Subordinated Creditor for, and Subordinated Creditor hereby waives, any claim Subordinated Creditor at any time may have against Senior Creditors arising out of any actions Senior Creditors may take or omit to take not (i) in violation of this Agreement or (ii) constituting inequitable or willful misconduct or actual fraud, as determined by a final non-appealable judgment by a court of competent jurisdiction, including, without limitation, with respect to (x) any Senior Debt Agreement, (y) collection of Senior Debt, or (z) foreclosure upon and sale, liquidation or other Disposition, or valuation, use, protection or release, of any Obligor’s assets.
24.
Successors and Assigns
.
This Agreement shall be binding upon each Obligor and its respective successors and assigns, and shall be binding upon and inure to the benefit of each Senior Creditor, the Subordinated Creditor, and their respective successors and permitted assigns. Subordinated Creditor agrees not to sell, assign, pledge, grant a security interest, dispose of or otherwise transfer all or any portion of any Subordinated Debt, any Subordinated Debt Agreement or any Lien securing the Subordinated Debt: (i) without giving prior written notice of such action to Senior Creditors, and (ii) unless prior to the consummation of any such action, the transferee thereof shall execute and deliver to Senior Creditors a joinder to this Agreement pursuant to which such transferee agrees to be bound by and subject to the terms hereof. Notwithstanding the failure to execute or deliver any such joinder, the subordination effected hereby shall survive any sale, assignment, pledge, disposition or other transfer of all or any portion of the Subordinated Debt, and the terms of this Agreement shall be binding upon any such transferee. No Obligor may assign any of its rights or obligations under this Agreement without the prior written consent of Senior Creditors and the Subordinated Creditor. This Agreement also shall be binding upon and inure to the benefit of each other holder of Senior Debt that exists as a result of a refinancing of the Senior Debt so long as (i) each such other holder of Senior Debt signs a joinder hereto and agrees to be bound by the terms hereof, and (ii) such refinancing and the terms of such refinancing are no more unfavorable with respect to the Obligors than those contained in the Senior Debt Agreements, as in effect on the date hereof or as the Senior Debt Agreements could be amended without violating this Agreement. Upon such event, each such other holder of Senior Debt shall be deemed to be included in the term “Senior Creditors” for all purposes hereunder.
25.
Governing Law; Remedies; Entire Agreement
.
This Agreement shall in all respects be governed by, and construed and enforced in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. In furtherance of the foregoing, the internal law of the State of Delaware shall control the interpretation and construction of this Agreement, even though under that jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. The parties hereto acknowledge that the provisions of this Agreement are
unique and money damages may not provide an adequate remedy for any breach thereof, and each party may seek specific performance and other equitable remedies for any breaches under this Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OR PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
26.
Amendments and Waivers
.
Notwithstanding anything herein to the contrary, this Agreement may be changed, modified or waived only by a writing signed by the Subordinated Creditor and Senior Creditors, each in its capacity as such.
27.
Notices
.
All notices to be given under this Agreement must be in writing and shall be addressed to the addresses and to the attention of the Persons stated on the signature pages hereof, or at such other address or to the attention of such other Person as the recipient has designated after the date hereof in a written notice given by the recipient in conformity with the provisions of this Section. No party is obligated to give any other party any notices under this Agreement except as expressly set forth herein. Any communication or notice so addressed and mailed shall be deemed to be given three days after mailing by first class, certified or registered mail, return receipt requested and postage prepaid. Any communication or notice otherwise delivered shall be deemed to be given when receipt is acknowledged if sent by facsimile transmission, when personally delivered, or on the next Business Day after sending by overnight courier, if sent by a nationally recognized overnight courier service for next Business Day delivery.
28.
Counterparts
.
This Agreement may be executed in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement.
29.
Severability
.
In the event that any provision of this Agreement is deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, this Agreement shall be construed as not containing such provision and the invalidity of such provision shall not affect the validity of any other provisions hereof, and any and all other provisions hereof which otherwise are lawful and valid shall remain in full force and effect.
30.
Conflict
. In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Subordinated Debt Agreements or the Senior Debt Agreements, the provisions of this Agreement shall control and govern.
31. [Reserved].
32.
Waiver of Jury Trial
.
AS A SPECIFICALLY BARGAINED INDUCEMENT FOR SENIOR CREDITORS TO ENTER INTO THIS AGREEMENT, SENIOR CREDITORS AND SUBORDINATED CREDITOR EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF EITHER OR BOTH OF THIS AGREEMENT OR THE CONDUCT OF THE RELATIONSHIP BETWEEN SENIOR CREDITORS AND SUBORDINATED CREDITOR.
33.
Descriptive Headings
.
The section headings of this Agreement are for convenience only and shall have no legal effect.
[
Signature Pages Follow
]
IN WITNESS WHEREOF
, the parties hereto have executed this Subordination Agreement as of the day and year first above written.
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DENTAL INNOVATIONS BVBA as collateral agent
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By:
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/s/ Frank Laukoetter
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/s/ Didier Westen
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Name:
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Frank Laukoetter
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Didier Westen
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Title:
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Managing Director
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Managing Director
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Notice address:
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Dental Innovations BVBA
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Wiegstraat 21
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2000 Antwerpen
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Belgium
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with a copy to:
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David Kalson, Esquire
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Cohen & Grigsby, P.C.
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625 Liberty Avenue
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Pittsburgh, PA 15222-3152
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Telephone: (412) 297-4975
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Facsimile: (412) 209-0672
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Email: dkalson@cohenlaw.com
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SIGNATURE PAGE 1 OF 3 TO
SUBORDINATION AGREEMENT
(__________)
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LONGITUDE VENTURE PARTNERS II, L.P.
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By:
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Longitude Capital Partners II, LLC
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Its:
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General Partner
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By:
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/s/ Juliet Tammenoms Bakker
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Name:
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Juliet Tammenoms Bakker
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Title:
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Managing Member
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Notice address:
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800 El Camino Real, Suite 220
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Menlo Park, CA 94025
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Attention: Juliet Bakker
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Email: jbakker@longitudecapital.com and to
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chelms@longitudecapital.com
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with a copy to:
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Jill Feldman, Esquire
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Morrison & Foerster LLP
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425 Market Street
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San Francisco, CA 94105-2482
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Telephone: (415) 268-6474
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Facsimile: (415) 268-7522
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Email: jfeldman@mofo.com
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SIGNATURE PAGE 2 OF 3 TO
SUBORDINATION AGREEMENT
(__________)
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SCH-AEON, LLC, as Subordinated Creditor
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By:
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/s/ Robert Grant
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Name:
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Robert Grant
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Title:
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Chairman/Manager
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Notice address:
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SCH-AEON, LLC
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4040 Macarthur Blvd # 210
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Newport Beach, California 92660-2509
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Attention: Robert Grant
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with a copy to:
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Scott Baugh, Esquire
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Scott Baugh & Associates
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4040 Macarthur Blvd # 200
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Newport Beach, California 92660-2509
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ACKNOWLEDGMENT
ALPHAEON Corporation , a Delaware Corporation, and Evolus, Inc., a Delaware Corporation (each an “
Obligor
” and collectively, the “
Obligors
”), each acknowledges receipt of a copy of the above Subordination Agreement by and between DENTAL INNOVATIONS BVBA (“
DI
”), as collateral agent for the holders of the DI Notes, as defined below, LONGITUDE VENTURE PARTNERS II, L.P. (“
Longitude
,” and together with DI, the
Senior Creditors
”), , and SCH-AEON, LLC, a Delaware limited liability company (“
Subordinated Creditor
(“
Subordinated Creditor
”), dated as of December 14, 2017 (as amended from time to time, the “
Subordination Agreement
”), and each agrees that (a) such Obligor will not (i) pay or perform, or provide any security or collateral for, Subordinated Creditor, other than as expressly permitted by the Subordination Agreement, until all of the Senior Debt has been paid in full, (ii) take or omit from taking any action that would cause a breach of the Subordination Agreement, or (iii) consent to any assignment, or transfer of, or give any security for, the Subordinated Debt except to the extent expressly permitted by the Subordination Agreement; (b) no Obligor nor any successor or assignee of any Obligor by operation of law or otherwise is a party to the Subordination Agreement, and such Obligor will not have (i) any right in or to enforcement of the Subordination Agreement as against Senior Creditors or Subordinated Creditor, (ii) any claim of damage if either of Senior Creditors or Subordinated Creditor default under the Subordination Agreement, or (iii) any right to object to any amendment, modification, or supplement to, or any restatement or replacement of, the Subordination Agreement undertaken by Senior Creditors and Subordinated Creditor; (c) Senior Creditors are authorized to give Subordinated Creditor copies of all notices of a Senior Debt Default and to otherwise communicate with Subordinated Creditor from time to time regarding Obligors and the administration of the Senior Debt; (d) Subordinated Creditor is authorized to give Senior Creditors copies of all notices of a Subordinated Debt Default and to otherwise communicate with Senior Creditors from time to time regarding Obligors and the administration of the Subordinated Debt; (e) as between the Obligors and the Senior Creditors and the Obligors and the Subordinated Creditor, none of the provisions of the Subordination Agreement limits or impairs Senior Creditors’ or Subordinated Creditor’s rights against Obligors or Obligors’ obligations, indebtedness, or liabilities to Senior Creditors or Subordinated Creditor under the Senior Debt Documents, the Subordinated Debt Documents, or otherwise; and (f) the Subordination Agreement is a “subordination agreement” within the meaning of Section 510(a) of the Bankruptcy Code and shall be interpreted and construed accordingly in any proceeding under the Bankruptcy Code in which an Obligor is a debtor.
All capitalized terms used in this Acknowledgment which are defined in the Subordination Agreement and not otherwise defined in this Acknowledgment will have the meanings given in the Subordination Agreement.
Dated: December 14, 2017
[
Signature Page Follows
]
IN WITNESS WHEREOF, Obligors have duly executed this Acknowledgment to Subordination Agreement as of the date set forth above.
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ALPHAEON Corporation
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By:
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/s/ Murthy Simhambhata
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Name:
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Murthy Simhambhatla
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Title:
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CEO
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Evolus, Inc.
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By:
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/s/ Murthy Simhambhata
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Name:
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Murthy Simhambhatla
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Title:
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CEO
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SIGNATURE PAGE TO ACKNOWLEDGMENT
OF SUBORDINATION AGREEMENT
(____________)
EVOLUS, INC.
LIST OF SUBSIDIARIES
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Name of Subsidiary
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Jurisdiction of Incorporation or Organization
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Evolus Pharma Limited
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Ireland
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Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption “Experts” and to the use of our report dated August 28, 2017, in the Registration Statement (Form S-1) and related Prospectus of Evolus, Inc. for the registration of its common stock.
/s/ Ernst & Young LLP
Irvine, California
January 8, 2018
CONSENT OF DIRECTOR NOMINEE
Pursuant to Rule 438 of Regulation C promulgated under the Securities Act of 1933, as amended (the “Securities Act”), in connection with the Registration Statement on Form S-1 (the “Registration Statement”) of Evolus, Inc. (the “Company”), the undersigned hereby consents to being named and described as a person who will become a director in the Registration Statement and any amendment or supplement to any prospectus included in such Registration Statement, any amendment to such Registration Statement or any subsequent Registration Statement filed pursuant to Rule 462(b) under the Securities Act and to the filing or attachment of this consent with such Registration Statement and any amendment or supplement thereto.
Dated: January 4, 2018
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/s/ David N. Gill
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David N. Gill
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