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As filed with the Securities and Exchange Commission on March 29, 2022
Registration No. 333-261876
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PEAR THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
Delaware | | 8000 | | 85-4103092 |
(State or other jurisdiction of incorporation or organization) | | (Primary Standard Industrial Classification Code Number) | | (I.R.S. Employer Identification No.) |
200 State Street, 13th Floor
Boston, MA 02109
(617) 925-7848
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Corey McCann, M.D., Ph.D
Chief Executive Officer
Pear Therapeutics, Inc.
200 State Street, 13th Floor
Boston, MA 02109
Telephone: (617) 925-7848
(Name, address, including zip code, and telephone number, including area code, of agent for service)
| | | | | |
Copies to: |
David Broadwin Stacie Aarestad Foley Hoag LLP 155 Seaport Boulevard Boston, Massachusetts 02210 (617) 832-1000 | Ronan O’Brien General Counsel Pear Therapeutics, Inc. 200 State Street, 13th Floor Boston, MA 02109 (617) 925-7848 |
Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | | Accelerated filer | ☐ |
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Non-accelerated filer | ☒ | | Smaller reporting company | ☒ |
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| | | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant (the “Registrant”) hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Post-Effective Amendment No. 1 (“Post-Effective Amendment No. 1”) to the Registration Statement on Form S-1 (File No. 333-251657) (the “Registration Statement”), as originally declared effective by the Securities and Exchange Commission (the “SEC”) on December 30, 2021, is being filed to include information contained in the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on March 29, 2022 (the “Annual Report on Form 10-K”) and to update certain other information in the Registration Statement.
The information included in this filing amends the Registration Statement and the prospectus contained therein. No additional securities are being registered under this Post-Effective Amendment No. 1. All applicable registration fees were paid at the time of the original filing of the Registration Statement on December 23, 2021.
The information in this preliminary prospectus is not complete and may be changed. The securities may not be sold 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 March 29, 2022.
PRELIMINARY PROSPECTUS
PEAR THERAPEUTICS, INC.
95,711,409 Shares of Class A Common Stock
5,013,333 Warrants to Purchase Shares of Class A Common Stock
This prospectus relates to the issuance by us of (a) up to 5,013,333 shares of Class A common stock, par value $0.0001 per share (“Pear Class A Common Shares”), issuable upon the exercise of the Private Placement Warrants (as defined below), (b) up to 9,199,944 Pear Class A Common Shares issuable upon the exercise of the Public Warrants (as defined below) and (c) 12,935,625 Pear Class A Common Shares that may be issued from time to time upon achievement of certain stock price thresholds (the “Earn-out Shares”).
In addition, this prospectus relates to the offer and sale from time to time by the selling securityholders named in this prospectus (the “Selling Securityholders”), or their permitted transferees, of (a) up to 73,575,840 Pear Class A Common Shares (which includes up to 5,013,333 Pear Class A Common Shares issuable upon the exercise of the Private Placement Warrants), up to 44,995,481 Pear Class A Common Shares beneficially owned by and/or underlying option grants to certain of our affiliates, 6,900,000 Pear Class A Common Shares beneficially owned by the Sponsor and certain other parties pursuant to the Sponsor Support Agreement, 10,280,000 Pear Class A Common Shares purchased at the closing of the Business Combination by a number of subscribers pursuant to separate PIPE Subscription Agreements (inclusive of shares purchased pursuant to the Forward Purchase Assignment) (the “PIPE Shares”) and 6,387,026 Pear Class A Common Shares beneficially owned by certain stockholders pursuant to the Amended Forward Purchase Agreement) and (b) up to 5,013,333 Private Placement Warrants to purchase Pear Class A Common Shares.
This prospectus provides you with a general description of such securities and the general manner in which the Selling Securityholders may offer or sell the securities. More specific terms of any securities that the Selling Securityholders may offer or sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the securities being offered and the terms of the offering. The prospectus supplement may also add, update or change information contained in this prospectus.
We will not receive any proceeds from the sale of shares of Class A Common Stock or Private Placement Warrants by the Selling Securityholders pursuant to this prospectus, except with respect to amounts received by us upon exercise of the Warrants to the extent such Warrants are exercised for cash and from the exercise of options held by affiliates. However, we will pay the expenses, other than any underwriting discounts and commissions, associated with the sale of securities pursuant to this prospectus.
We are registering certain of the securities for resale pursuant to the Selling Securityholders’ registration rights under certain agreements between us and the Selling Securityholders. Our registration of the securities covered by this prospectus does not mean that either we or the Selling Securityholders will issue, offer or sell, as applicable, any of the securities. The Selling Securityholders may offer and sell the securities covered by this prospectus in a number of different ways and at varying prices. We provide more information about how the Selling Securityholders may sell the shares or Private Placement Warrants in the section entitled “Plan of Distribution.”
You should read this prospectus and any prospectus supplement or amendment carefully before you invest in our securities.
Our Class A Common Stock is listed on The Nasdaq Capital Market (“Nasdaq”) under the symbol “PEAR” and the Public Warrants are listed on Nasdaq under the symbol “PEARW”. On March 1, 2022, the last quoted sale price for the Pear Class A Common Shares as reported on Nasdaq was $4.57 per share and the last quoted sale price for our Public Warrants as reported on Nasdaq was $0.75 per warrant.
We are an “emerging growth company” under applicable federal securities laws and will be subject to reduced public company reporting requirements.
Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of the risks of investing in our securities in “Risk Factors” beginning on page 12 of this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2022.
TABLE OF CONTENTS
TRADEMARKS
This document contains references to trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
SELECTED DEFINITIONS
As used in this proxy statement/prospectus, unless otherwise noted or the context otherwise requires, references to the following capitalized terms have the meanings set forth below:
“Amended Forward Purchase Agreement” means the Forward Purchase Agreement, as amended from time to time, including by the Amendment to Forward Purchase Agreement and the Second Amendment to Forward Purchase Agreement.
“Amended Forward Purchase Units” means the units issued to the Anchor Investor pursuant to the Amended Forward Purchase Agreement, consisting solely of Forward Purchase Shares.
“Amendment to Forward Purchase Agreement” means the Amendment to Forward Purchase Agreement, dated as of June 21, 2021, by and between THMA and the Anchor Investor.
“Anchor Investor” means KLP SPAC 1 LLC, a Delaware limited liability company affiliated with the Pritzker Vlock Family Office, with which THMA has entered into the Amended Forward Purchase Agreement.
“Ancillary Agreements” means the Registration Rights Agreement, the Sponsor Agreement, the Subscription Agreements, the Pear Stockholder Support Agreements, the Lock-Up Agreements, the letter of transmittal delivered to Pear stockholders in connection with the Merger and the other agreements, documents, instruments contemplated by the Business Combination Agreement executed in connection with the transactions contemplated thereby.
“Business Combination” means the merger of Merger Sub with and into Pear US, with Pear US surviving the merger as a wholly-owned subsidiary of Pear.
“Business Combination Agreement” means the Business Combination Agreement, dated as of June 21, 2021, by and among THMA, Pear (US) and Merger Sub.
“Board” means the board of directors of Pear.
“Bylaws” means the Amended and Restated Bylaws of Pear.
“Closing Date” means December 3, 2021.
“Code” means the Internal Revenue Code of 1986, as amended.
“Continental” means Continental Stock Transfer & Trust Company, as Pear’s transfer agent.
“Certificate of Incorporation” means the Second Amended and Restated Certificate of Incorporation of Pear.
“DGCL” means the Delaware General Corporation Law, as may be amended from time to time.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Forward Purchase Agreement” means the Forward Purchase Agreement, dated as of February 1, 2021, by and between THMA and the Anchor Investor.
“Forward Purchase Assignment” means the Forward Purchase Agreement Assignment, dated as of December 2, 2021, by and among THMA, the Anchor Investor and a Pipe Investor.
“Forward Purchase Shares” means the Pear Class A Common Shares sold to the Anchor Investor pursuant to the Amended Forward Purchase Agreement.
“Forward Purchase Warrants” means the warrants to purchase Pear Class A Common Shares sold to the Anchor Investor pursuant to the Forward Purchase Agreement (for the avoidance of doubt, prior to the execution of the Amendment to Forward Purchase Agreement).
“Founder Shares” means THMA Class B Common Shares and Pear Class A Common Shares issued upon the automatic conversion thereof upon the closing of the Business Combination.
“GAAP” means the generally accepted accounting principles in the United States, as applied on a consistent basis.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
“Initial Public Offering” means the initial public offering of THMA, which closed on February 4, 2021.
“Initial Stockholders” means holders of the THMA’s Founder Shares prior to the Business Combination.
“Investment Company Act” means the Investment Company Act of 1940, as amended.
“JOBS Act” means the Jumpstart Our Business Startups Act of 2012.
“Legacy Pear” means Pear Therapeutics (US), Inc., a Delaware corporation, prior to the consummation of the Business Combination (which was then known as Pear Therapeutics, Inc.)..
“Merger Sub” means Oz Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of THMA.
“Original Forward Purchase Units” means the units to be issued to the Anchor Investor pursuant to the Forward Purchase Agreement (for the avoidance of doubt, prior to the execution of the Amendment to Forward Purchase Agreement and Second Amendment to Forward Purchase Agreement), consisting of one Forward Purchase Share and one-third of one Forward Purchase Warrant.
“Pear” means Pear Therapeutics, Inc., a Delaware corporation (which, prior to the consummation of the Business Combination, was known as THMA).
“Pear Class A Common Shares” or “Class A common stock” means the Class A common stock, par value $0.0001 per share, of Pear.
“Pear US” means Pear Therapeutics (US), Inc., a Delaware corporation (which, prior to the consummation of the Business Combinations, was known as Pear).
“Pear US Common Shares” means the Common Stock, par value $0.0001 per share, of Pear US.
“Pear US Preferred Shares” means, collectively, the Pear US Series A Preferred Shares, Pear US Series B Preferred Shares, Pear US Series C Preferred Shares, Pear US Series D-1 Preferred Shares and Pear US Series D-2 Preferred Shares.
“Pear US Series A Preferred Shares” means the Series A Preferred Stock, par value $0.0001 per share, of Pear US.
“Pear US Series B Preferred Shares” means the Series B Preferred Stock, par value $0.0001 per share, of Pear US.
“Pear US Series C Preferred Shares” means the Series C Preferred Stock, par value $0.0001 per share, of Pear US.
“Pear US Series D-1 Preferred Shares” means the Series D-1 Preferred Stock, par value $0.0001 per share, of Pear US.
“Pear US Series D-2 Preferred Shares” means the Series D-2 Preferred Stock, par value $0.0001 per share, of Pear US.
“Pear US Shares” means, collectively, the Pear US Common Shares and the Pear US Preferred Shares.
“Pritzker Vlock Family Office” means the PV Family Office LLC, a Delaware limited liability company affiliated with the Anchor Investor.
“Private Placement Warrants” means the warrants issued to the Sponsor in a private placement simultaneously with the closing of the Initial Public Offering.
“Public Shares” means Pear Class A Common Shares sold as part of the units in the Initial Public Offering (whether they were purchased in the Initial Public Offering or thereafter in the open market).
“Public Stockholders” means the holders of Public Shares, including the Sponsor and THMA’s management team to the extent the Sponsor and/or members of such management team purchase Public Shares; provided that the Sponsor’s and each member of such management team’s status as a “Public Stockholder” will only exist with respect to such Public Shares.
“Public Warrants” means the warrants sold as part of the units in the Initial Public Offering (whether they were purchased in the Initial Public Offering or thereafter in the open market).
“SEC” means the U.S. Securities and Exchange Commission.
“Second Amendment to Forward Purchase Agreement” means the Second Amendment to Forward Purchase Agreement, dated as of November 14, 2021, by and between THMA and the Anchor Investor.
“Securities Act” means the Securities Act of 1933, as amended.
“Sponsor” means LJ10 LLC, a Delaware limited liability company.
“Sponsor Support Agreement” means the Sponsor Support Agreement, dated as of June 21, 2021 by and among Sponsor, THMA and certain other parties thereto, as amended on November 14, 2021.
“Subscription Agreement” means each of the separate Subscription Agreements, effective as of June 21, 2021, by and between THMA and certain investors to purchase Pear Class A Common Shares.
“THMA” means Thimble Point Acquisition Corp., a Delaware corporation.
“THMA Class A Common Shares” means the Class A common stock, par value $0.0001 per share, of THMA.
“THMA Class B Common Shares” means the Class B common stock, par value $0.0001 per share, of THMA.
“Trust Account” means the trust account established by THMA for the benefit of its stockholders at Continental Stock Transfer & Trust Company.
“Warrants” means Private Placement Warrants and Public Warrants.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements regarding, among other things, the plans, strategies, and prospects, both business and financial, of Pear. These statements are based on the beliefs and assumptions of the management of Pear. Although Pear believes that their respective plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, it cannot assure you that it will achieve or realize these plans, intentions, or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes”, “estimates”, “expects”, “projects”, “forecasts”, “may”, “might”, “will”, “should”, “seeks”, “plans”, “scheduled”, “possible”, “anticipates”, “intends”, “aims”, “works”, “focuses”, “aspires”, “strives” or “sets out” or similar expressions. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. Forward-looking statements contained in this prospectus include, for example, statements about:
•our ability to grow and manage growth profitably;
•our ability to raise financing in the future, if and when needed;
•our success in retaining or recruiting, or adapting to changes in, our officers, key employees, or directors;
•our prescription digital therapeutics’ ability to achieve and maintain market acceptance and adoption by patients and physicians;
•our ability to obtain or maintain adequate payor coverage and reimbursement for our products;
•our ability to accurately forecast demand for our products;
•our ability to attract and retain our senior management and other highly qualified personnel (in particular, Corey McCann, our President and Chief Executive Officer and Christopher Guiffre, our Chief Financial Officer and Chief Operating Officer);
•our ability to maintain access for our products via the Apple Store and the Google Play Store;
•our ability to achieve or maintain profitability;
•our ability to maintain or obtain patent protection and/or the patent rights relating to our products and our ability to prevent third parties from competing against us;
•our ability to successfully commercialize our products;
•our ability to obtain and maintain regulatory authorization for our product candidates, and any related restrictions or limitations of an authorized product candidate;
•our ability to obtain funding for our operations, including funding necessary to complete further development, authorization and, if authorized, commercialization of our product candidates;
•the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements;
•our ability to identify, in-license, or acquire additional product candidates;
•our ability to successfully protect against security breaches, ransomware attacks, and other disruptions to our information technology structure;
•the impact of applicable laws and regulations, whether in the United States or foreign countries, and any changes thereof;
•our ability to successfully compete against other companies developing similar products to our current and future product offerings;
•our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;
•our financial performance;
•the effect of COVID-19 on the foregoing; and
•other factors detailed under the section entitled “Risk Factors.”
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this prospectus described under the heading “Risk Factors.” Prospectus and elsewhere in this prospectus. The risks described under the heading “Risk Factors” are not exhaustive. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on the business of Pear or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this prospectus. It does not contain all the information you should consider before investing in the Pear Class A Common Shares or Warrants. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Where You Can Find More Information,” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. In this prospectus, unless the context requires otherwise, all references to “we,” “our,” “us,” “Pear,” the “Registrant,” and the “Company” refer to Pear Therapeutics, Inc. and its consolidated subsidiaries following the Business Combination.
Overview
Pear is a commercial-stage healthcare company pioneering a new class of software-based medicines, sometimes referred to as Prescription Digital Therapeutics (“PDTs”), which use software to treat diseases directly. Our vision is to advance healthcare through the widespread use of PDTs, and to be the one-stop shop for PDTs offered both by Pear and by other organizations that may choose to host their products on our commercial platform. Recent global trends are converging to highlight a significant unmet need for new and innovative solutions for the treatment of diseases. We believe that our software-based, data-driven solutions are well suited to satisfy this growing unmet need for treatment of diseases, including addiction and insomnia. We believe that PDTs have the potential to become a cornerstone of the emerging digital health ecosystem and that PDTs are a transformative new generation of therapeutics. We believe that Pear’s platform has the potential to provide for discovery, development, and commercialization of PDTs at scale. We have designed our development platform to allow for the repeated advancement of PDTs through U.S. Food and Drug Administration (“FDA”) market authorization. Over time, our commercial platform, PearConnect, is similarly designed to offer the infrastructure needed to distribute PDTs developed by us or others. Due to our first-mover advantage, we believe that Pear is positioned to be a long-term leader in this novel therapeutic class. See “Business” elsewhere in this prospectus for more information.
We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements and other information about issuers, like us, that file electronically with the SEC. We also maintain a website at https://peartherapeutics.com/. We make available, free of charge, on our investor relations website at https://investors.peartherapeutics.com/financial-information/sec-filings, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably practicable after electronically filing or furnishing those reports to the SEC. Information contained on our website is not a part of or incorporated by reference into this prospectus and the inclusion of our website and investor relations website addresses in this prospectus is an inactive textual reference only.
Background
On December 3, 2021, THMA consummated the previously announced business combination pursuant to the terms of the Business Combination Agreement with Pear US and Oz Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of THMA (“Merger Sub”). Pursuant to the terms of the Business Combination Agreement, Merger Sub merged with and into Pear US, with Pear US surviving the merger as a wholly-owned subsidiary of THMA and was renamed Pear Therapeutics (US), Inc. The Merger was approved by THMA’s stockholders at a meeting held on November 30, 2021. In connection with the consummation of the Merger on the Closing Date, THMA changed its name from THMA to Pear Therapeutics, Inc.
On December 6, 2021, our common stock and warrants, formerly those of THMA, began trading on The Nasdaq Capital Market under the ticker symbols “PEAR” and “PEARW,” respectively.
Summary of Risk Factors
Below is a summary of the principal factors that make an investment in our Class A common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and
should be carefully considered, together with other information in this prospectus and our other filings with the SEC before making an investment decision regarding our Class A common stock.
Risks relating to our business and industry include:
•The failure of our prescription digital therapeutics to achieve and maintain market acceptance and adoption by patients and physicians would cause our business, financial condition and results of operation to be materially and adversely affected.
•The insurance coverage and reimbursement status of novel products, such as prescription digital therapeutics, is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our products would substantially impair our ability to generate revenue.
•The market for prescription digital therapeutics is new, rapidly evolving, and increasingly competitive, as the healthcare industry in the US is undergoing significant structural change, which makes it difficult to forecast demand for our products.
•Our product and product candidates represent novel and innovative solutions, and negative perception of any product or product candidate that we develop could adversely affect our ability to conduct our business, obtain marketing authorizations, or identify regulatory pathways to market for such product candidate.
•Our future depends on the continued contributions of our senior management team and our ability to attract and retain other highly qualified personnel; in particular, Corey McCann, our President and Chief Executive Officer, and Christopher Guiffre, our Chief Financial Officer and Chief Operating Officer, are critical to our future vision and strategic direction.
•A limited number of healthcare insurers have agreed to reimburse purchases of our products, and there is no assurance that additional healthcare insurers will agree to reimburse purchases of our products in the future.
•If we are unable to expand our marketing infrastructure, we may fail to increase the usage of our products and platform to meet our forecasts.
•Our products are made available via the Apple Store and the Google Play Store and supported by third-party infrastructure. If our ability to access those markets or access necessary third-party infrastructure was stopped or otherwise restricted or limited, it would materially and adversely affect our business.
•We face competition and new products may emerge that provide different or better alternatives for treatment of the conditions that our products are authorized to treat. Many of our current and future competitors have or will have significantly more resources.
Risks relating to our financial position include:
•We have a history of significant losses, anticipate increasing expenses in the future, and may not be able to achieve or maintain profitability.
•Our credit agreement with Perceptive restricts our current and future operations, particularly our ability to respond to changes or to take certain actions.
•Due to the resources required for the development of our pipeline, and depending on our ability to access capital, we will have to prioritize the development of certain product candidates over others. We may fail to expend our limited resources on product candidates that may have been more profitable or for which there is a greater likelihood of success, which would cause our business, financial condition and results of operations to be materially and adversely affected.
•We will need substantial additional funding, If we are unable to raise capital when needed or on terms favorable to us, our business, financial condition, and results of operation could be materially and adversely affected.
Risks relating to our intellectual property and technology include:
•Limitations on our ability to maintain or obtain patent protection and/or the patent rights relating to our products and product candidates may limit our ability to prevent third parties from competing against us.
•We in-license patents and content from third parties to develop our products and product candidates. If we had a dispute or fail to comply with obligations in the agreements with a third-party licensor, we could lose rights that are important to our business, or it could materially and adversely affect our ability to commercialize the product or product candidate affected by the dispute.
Risks relating to our products include:
•Our current product candidates are in various stages of development. Our product candidates may fail in development or suffer delays that adversely affect their commercial viability. If we fail to maintain clearance, de novo classification or authorization to market our products for expanded indications, or if we are delayed in obtaining such marketing authorizations, our business, prospects, results of operations and financial condition could be materially and adversely affected.
Risks relating to our regulatory compliance and legal matters include:
•We operate in a highly regulated industry and are subject to a wide range of federal, state and local laws, rules and regulations, including US Food and Drug Administration (“FDA”) regulatory requirements and laws pertaining to fraud and abuse in healthcare, that affect nearly all aspects of our operations. Failure to comply with these laws, rules and regulations, or to obtain and maintain required licenses, could subject Pear to enforcement actions, including substantial civil and criminal penalties, and might require Pear to recall or withdraw a product from the market or cease operations. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.
•Security breaches, ransomware attacks and other disruptions to our information technology structure could compromise our information, disrupt our business and expose us to significant liability, which would cause our business and reputation to suffer, and we may be unable to maintain and scale the technology underlying our offerings.
•The regulatory framework for digital health products is constantly evolving. Increasingly stringent regulatory requirements could create barriers to our development and introduction of new products. Conversely, in the event that regulatory requirements are lowered, competitors could potentially enter the prescription digital therapeutic market and compete against us more easily. Either of the foregoing could materially harm our business.
•Premarket clearances, authorizations, and approvals for new or significantly modified devices could be denied or significantly delayed.
Risks relating to our financial reporting include:
•As a public reporting company, we will be subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, investors may lose confidence in the accuracy of our financial reports, which would harm our business and the trading price of our Class A common stock. Our management will be required to evaluate the effectiveness of our internal control over financial reporting.
•Our management has identified certain internal control deficiencies that constitute material weaknesses. If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
Risks relating to ownership of our Class A common stock and Warrants:
•The exercise of Warrants for our stock would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders. Such dilution will increase if more of our shares are redeemed.
•We may redeem unexpired Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your Warrants worthless.
•Future resales of the Class A common stock may cause the market price of our securities to drop significantly, even if our business is doing well.
We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have at least $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of the THMA IPO.
As a result of this status, we have taken advantage of reduced reporting requirements in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. In particular, in this prospectus, we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company.
Additional Information
Our principal executive offices are located at 200 State Street, Boston, Massachusetts 02109, and our telephone number is (617) 925-7848.
Our website address is https://peartherapeutics.com/. The information on, or that can be accessed through, our website is not part of this prospectus, and you should not consider information contained on our website in deciding whether to purchase Pear Class A Common Shares.
THE OFFERING
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Issuance of Pear Class A Common Shares |
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Pear Class A Common Shares to be issued upon exercise of all Private Placement Warrants and Public Warrants, and issuance of all Earn-out Shares | | Up to 27,148,902 Pear Class A Common Shares. |
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Pear Class A Common Shares outstanding prior to the exercise of all public warrants and issuance of the Earn-out Shares (as of December 3, 2021) | | 137,799,218 |
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Use of Proceeds | | We will receive up to an aggregate of approximately $163,452,686 from the exercise of all 14,213,277 Warrants, assuming the exercise in full of all such Warrants for cash. Unless we inform you otherwise in a prospectus supplement or free writing prospectus, we intend to use the net proceeds from the exercise of such warrants for working capital and general corporate purposes. |
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Resale of Pear Class A Common Shares and Private Placement Warrants |
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Shares of our Class A Common Stock offered by the Selling Securityholders (including Pear Class A Common Shares that may be issued upon exercise of the Private Placement Warrants) | | 73,575,840 Pear Class A Common Shares |
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Private Placement Warrants offered by the Selling Securityholders | | 5,013,333 Private Placement Warrants |
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Exercise Price of the Warrants | | $11.50 per share, subject to adjustment as described herein. |
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Redemption | | The Warrants are redeemable in certain circumstances. See “Description of Our Securities – Warrants”. |
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Use of proceeds | | We will not receive any proceeds from the sale of the Pear Class A Common Shares and the Private Placement Warrants to be offered by the Selling Securityholders. With respect to the issuance of the Pear Class A Common Shares underlying the Warrants, we will not receive any proceeds from such shares except with respect to amounts received by use upon exercise of such Warrants to the extent such Warrants are exercised for cash. |
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Lock-up Agreements | | The securities that are owned by the parties to the Registration Rights Agreement and some of the parties to the Subscription Agreements are subject to lock-up provisions and/or Lock-up Agreements, which provide for certain restrictions on transfer until the termination of applicable lock-up periods. |
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Ticker symbols | | “PEAR” and “PEARW” for the Pear Class A Common Shares and Public Warrants, respectively. |
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Risk factors | | Any investment in the securities offered hereby is speculative and involves a high degree of risk. You should carefully consider the information set forth under “Risk Factors” and elsewhere in this prospectus. |
RISK FACTORS
You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this prospectus and other documents we file with the SEC. The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as overall US and non-US economic and industry conditions including a global economic slowdown, geopolitical events, changes in laws or accounting rules, fluctuations in interest and exchange rates, terrorism, international conflicts, major health concerns, natural disasters or other disruptions of expected economic and business conditions. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business operations and liquidity.
This section should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes in this prospectus.
Risks Related to Our Business and Industry
The failure of our prescription digital therapeutics to achieve and maintain market acceptance and adoption by patients and physicians would cause our business, financial condition and results of operation to be materially and adversely affected.
Our current business strategy is highly dependent on our prescription digital therapeutics, or PDTs, achieving and maintaining broad market acceptance by patients and physicians. Market acceptance and adoption of our PDTs depends on educating people with chronic conditions, as well as self-insured employers, commercial and government payors, health plans and physicians and other government entities, as to the distinct features, therapeutic benefits, cost savings, and other advantages of our PDTs as compared to competitive products or other currently available methodologies. If we are not successful in demonstrating to existing or potential patients and prescribers the benefits of our products, or if we are not able to achieve the support of patients, healthcare providers and payors for our products, our sales may decline or we may fail to increase our sales in line with our forecasts.
Achieving and maintaining market acceptance of our products could be negatively impacted by many factors, including:
•the failure of reSET, reSET-O and Somryst to achieve wide acceptance among people with substance use disorder, opioid use disorder and chronic insomnia, self-insured employers, commercial and government payors, health plans, physicians and other government entities, and key opinion leaders in the treatment community;
•lack of additional evidence or peer-reviewed publication of clinical or real world evidence supporting the effectiveness, safety, cost-savings or other advantages of our products over competitive products or other currently available methodologies;
•perceived risks associated with the use of our products or similar products or technologies generally;
•our ability to secure and maintain FDA and other regulatory clearance, authorization or approval for our products;
•the introduction of competitive products and the rate of acceptance of those products as compared to our products; and
•results of clinical, real world and health economics and outcomes research (“HEOR”) studies relating to chronic condition products or similar competitive products.
In addition, our products may be perceived by patients and healthcare providers to be more complicated or less effective than traditional approaches, and people may be unwilling to change their current health regimens. Moreover, we believe that healthcare providers tend to be slow to change their medical treatment practices because of perceived liability risks arising from the use of new products and the uncertainty of third-party reimbursement.
Accordingly, healthcare providers may not recommend our products until there is sufficient evidence to convince them to alter their current approach.
The insurance coverage and reimbursement status of novel products, such as prescription digital therapeutics, is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our products would substantially impair our ability to generate revenue.
In the US, patients generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to the ability of patients to afford treatments and achieve new product acceptance. Our ability to successfully commercialize our products will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments. Sales of products, and of product candidates that we may identify, will depend substantially on the extent to which the costs to users of such products will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our products. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to achieve profitability.
There is also significant uncertainty related to, and there may be significant delays in obtaining, the insurance coverage and reimbursement of newly cleared, authorized, or approved products and coverage may be more limited than the purposes for which the device is cleared, authorized, or approved by the FDA or comparable foreign regulatory authorities. In the US, the principal decisions about reimbursement for new medicines or medical devices are typically made by the Centers for Medicare & Medicaid Services (“CMS”), an agency within the US. Department of Health and Human Services (“HHS”). FDA clearance or authorization provides no assurance of coverage or reimbursement by any payor. CMS decides whether and to what extent a new medicine or medical device will be covered and reimbursed under Medicare, and private payors tend to follow CMS to a substantial degree.
Factors payors consider in determining reimbursement are based on whether the product is:
•a covered benefit under its health plan;
•safe, effective and medically necessary;
•supported by robust clinical data from well-controlled clinical research;
•appropriate for the specific patient;
•cost-effective; and
•neither experimental nor investigational.
Each payor determines whether or not it will provide coverage for a treatment, what amount it will pay the manufacturer for the treatment and on what tier of its formulary the treatment will be placed. The position of a treatment on a payor’s list of covered drugs, biological products, and medical devices, or formulary, generally determines the co-payment that a patient will need to make to obtain the treatment and can strongly influence the adoption of such treatment by patients and physicians. Patients who are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacture, marketing, sale and distribution expenses. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors, by any future laws limiting prices and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the US.
Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular drugs or devices. We cannot be sure that coverage and reimbursement will be available for all products that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. If coverage and adequate reimbursement are not available, or are available only at limited levels, we may not be able to successfully commercialize our products.
In addition, in some foreign countries, the proposed pricing for a prescription device must be approved before it may be lawfully marketed. The requirements governing medical product pricing vary widely from country to country. For example, the European Union provides options for its Member States to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. A Member State may approve a specific price for the medicinal products or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceuticals or medical devices will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the US and generally prices tend to be significantly lower. While we are not currently marketing or selling our products in any country other than the US, including the European Union or any of its Member States, in the event that we choose to do so in the future, we will need to comply with such requirements.
The market for prescription digital therapeutics is new, rapidly evolving, and increasingly competitive, as the healthcare industry in the US is undergoing significant structural change, which makes it difficult to forecast demand for our products.
The market for our PDTs is new and rapidly evolving, and it is uncertain whether it will achieve and sustain high levels of demand and market adoption. Our future financial performance will depend on growth in this market and on our ability to adapt to emerging demands of our customers. It is difficult to predict the future growth rate and size of our target market. The healthcare industry in the US is undergoing significant structural change and is rapidly evolving. We believe demand for our products has been driven in large part by rapidly growing costs in the traditional healthcare system, the movement toward patient-centricity and personalized healthcare, and advances in technology. Widespread acceptance of personalized healthcare is critical to our future growth and success. A reduction in the growth of personalized healthcare could reduce the demand for our PDTs and result in a lower revenue growth rate or decreased revenue.
If our assumptions regarding these uncertainties are incorrect or change in reaction to changes in our markets, or if we do not manage or address these risks successfully, our results of operations could differ materially from our expectations, and our business could suffer.
Our product and product candidates represent novel and innovative potential therapeutic areas, and negative perception of any product or product candidate that we develop could adversely affect our ability to conduct our business, obtain marketing authorizations or identify alternate regulatory pathways to market for such product candidate.
Our product and product candidates are considered relatively new and novel therapeutic approaches. Our success will depend upon physicians who specialize in the treatment of diseases targeted by our product candidates prescribing potential treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments with which they are more familiar and for which greater clinical data may be available. Access will also depend on consumer acceptance and adoption of products that are commercialized. In addition, responses by the US, state or foreign governments to negative public perception or ethical concerns may result in new legislation or regulations that could limit our ability to develop or commercialize any product candidates, obtain or maintain marketing authorization, identify alternate regulatory pathways to market or otherwise achieve profitability.
Negative publicity concerning our products or the PDT market as a whole could limit market acceptance of our products. If patients and healthcare providers have a negative perception of PDTs, then a market for our products may not develop at all, or it may develop more slowly than we expect. Our success will depend to a substantial extent on the willingness of healthcare providers to prescribe our products, the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations and our ability to demonstrate the value of our products to existing and potential patients and prescribers. Similarly, negative publicity regarding patient confidentiality and privacy in the context of technology-enabled healthcare or concerns experienced by our competitors could limit market acceptance of PDTs.
Our future depends on the continued contributions of our senior management team and our ability to attract and retain other highly qualified personnel; in particular, Corey McCann, our President and Chief Executive Officer, and Christopher Guiffre, our Chief Financial Officer and Chief Operating Officer, are critical to our future vision and strategic direction.
Our success depends in large part on our ability to attract and retain high-quality management in sales, market access, product development, software engineering, marketing, operations, finance and support functions, especially in the Boston area and the San Francisco Bay area. We compete for qualified technical personnel with other life sciences and information technology companies. Competition for qualified employees is intense in our industry, particularly for software engineers, and the loss of even a few qualified employees, or an inability to attract, train, retain and motivate additional highly skilled employees required for the planned expansion of our business could harm our operating results and impair our ability to grow. The loss of one or more of our key employees, and any failure to have in place and execute an effective succession plan for key executives, could seriously harm our business.
As we continue to grow, we may be unable to continue to attract or retain the personnel we need to maintain our competitive position. To attract, train and retain key personnel, we use various measures, including competitive compensation and benefit packages (including an equity incentive program), which may require significant investment. These measures may not be enough to attract and retain the personnel we require to operate our business effectively and efficiently.
Moreover, if the perceived value of our equity awards declines, it may materially and adversely affect our ability to attract and retain key employees. If we do not maintain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that materially and adversely affect our ability to support our programs and operations.
Many of our employees may receive proceeds from sales of our equity in the public markets, which may reduce their motivation to continue to work for us.
In addition, our future also depends on the continued contributions of our senior management team and other key personnel, each of whom would be difficult to replace. In particular, Corey McCann, our President and Chief Executive Officer, and Christopher Guiffre, our Chief Financial Officer and Chief Operating Officer, are critical to
our future vision and strategic direction. We rely on our executive team in the areas of operations, research and development, commercial, and general and administrative functions. Although we have entered into employment agreements or offer letters with our key employees, these agreements have no specific duration and constitute at-will employment, and we do not maintain key person life insurance for some of our key employees.
In addition, from time to time, there may be changes in our senior management team that may be disruptive to our business. If our senior management team, including any new hires that we may make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business, results of operations and financial condition could be harmed.
A limited number of healthcare insurers have agreed to reimburse purchases of our products, and there is no assurance that additional healthcare insurers will agree to reimburse purchases of our products in the future.
To date, a limited number of healthcare insurers have agreed to reimburse purchases of reSET, reSET-O, and Somryst. We depend upon revenue from sales of reSET, reSET-O, and Somryst, and in turn on reimbursement from third-party payors for such products. The amount that we receive in payment for our products may be materially and adversely affected by factors we do not control, including federal or state regulatory or legislative changes, and cost-containment decisions and changes in reimbursement schedules of third-party payors. Any reduction or elimination of these payments could have a material adverse effect on our business, prospects, results of operations and financial condition.
Additionally, the reimbursement process is complex and can involve lengthy delays. Also, third-party payors may reject, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, that services provided were not medically necessary, that additional supporting documentation is necessary, or for other reasons. Retroactive adjustments by third-party payors may be difficult or cost-prohibitive to appeal, and such changes could materially reduce the actual amount we receive. Delays and uncertainties in the reimbursement process may be out of our control and may materially and adversely affect our business, prospects, results of operations and financial condition.
If we are unable to expand our marketing infrastructure, we may fail to increase the usage of our products and platform to meet our forecasts.
Following the termination of our commercialization agreement with Sandoz Inc. we became solely responsible for the marketing expenses relating to reSET and reSET-O in October 2019. As a result, we have only limited experience marketing our products and engaging customers at our current scale. Our financial condition and results of operations are and will continue to be highly dependent on the ability of our marketing function to adequately promote, market, and attract customers to our products and platform in a manner that complies with applicable laws and regulations and at a cost that does not exceed our current budget allocated to marketing.
If we are unable to expand our marketing capabilities, we may not be able to effectively expand the scope of our ability to attract new customers. Relatedly, if any of our advertising platforms significantly increase their advertising fees, our ability to expand our marketing reach will be greatly impeded. Any such failure could adversely affect our reputation, revenue, and results of operations.
Failure to adequately expand our direct sales force may impede our growth.
We believe that our future growth will depend in part on the continued development of our direct sales force and its ability to obtain new customers and to manage our existing customers. Identifying and recruiting qualified personnel and training and managing a geographically dispersed sales team requires significant time, expense, and attention. It can take six months or longer before a new sales representative is fully trained and productive. Our business may be adversely affected if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenue. In particular, if we are unable to hire, develop, and retain sufficient numbers of productive direct sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, sales of our services will suffer, and our growth will be impeded.
Our products are made available via the Apple App Store and the Google Play Store and supported by third-party infrastructure. If our ability to access those markets or access necessary third-party infrastructure was stopped or otherwise restricted or limited, it would materially and adversely affect our business.
Our PDTs are exclusively accessed through and depend on the Apple App Store and the Google Play Store. Both Apple and Google have broad discretion to make changes to their operating systems or payment services or change the manner in which their mobile operating systems function and their respective terms and conditions applicable to the distribution of our PDTs and to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with our products, our ability to distribute our products through their stores, our ability to update our products, including to make bug fixes or other feature updates or upgrades, the features we provide, the manner in which we market our products and our ability to access native functionality or other aspects of mobile devices. To the extent either or both of them do so, our business, financial condition and results of operations would be materially and adversely affected.
There is no guarantee that the third-party infrastructure that currently support our PDTs will continue to support them or, if it does not, that other alternatives will be available. We will continue to be dependent on third-party mobile operating systems, technologies, networks and standards that we do not control, such as the Android and iOS operating systems, and any changes, bugs, technical or regulatory issues in such systems, our current relationships with carriers or future relationships with mobile manufacturers, or in their terms of service or policies that degrade our PDTs’ functionality, reduce or eliminate our ability to distribute our PDTs, limit our ability to deliver high quality PDTs, or impose fees or other charges related to delivering our offerings, could adversely affect our product usage and revenue.
We rely upon third party providers of cloud-based infrastructure to host our platform. Any disruption in the operations of these third-party providers, limitations on capacity or interference with our use could have a material adverse effect on our business, prospects, results of operations and financial condition.
Our platform’s technological infrastructure is implemented using third-party hosting services, such as Amazon Web Services. We have no control over any of these third parties, and we cannot guarantee that such third-party providers will not experience system interruptions, outages or delays, or deterioration in their performance. We need to be able to access our computational platform at any time, without interruption or degradation of performance. Our hosted platform depends on protecting the virtual cloud infrastructure hosted by third-party hosting services by maintaining our configuration, architecture, features, and interconnection specifications, as well as protecting the information stored in these virtual data centers, which is transmitted by third-party Internet service providers. We have experienced, and expect that in the future we may again experience interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, hosting disruptions and capacity constraints. Any limitation on the capacity of our third-party hosting services could adversely affect our business, financial condition, and results of operations. In addition, any incident affecting our third-party hosting services’ infrastructure, which may be caused by cyber-attacks, natural disasters, fire, flood, severe storm, earthquake, power loss, telecommunications failures, terrorist or other attacks, and other disruptive events beyond our control, could negatively affect our cloud-based solutions. A prolonged service disruption affecting our cloud-based solutions could damage our reputation or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the third-party hosting services we use.
In the event that our service agreements with our third-party hosting services are terminated, or there is a lapse of service, elimination of services or features that we utilize, interruption of Internet service provider connectivity, or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our hosted software solutions for deployment on a different cloud infrastructure service provider, which could have a material adverse effect on our business, prospects, results of operations and financial condition.
We rely on a limited number of third party digital pharmacies for the fulfillment of prescriptions. This reliance on increases the risk that we could have a disruption in the fulfillment of prescriptions, which could have a material and adverse effect on our reputation, business, results of operations and financial condition.
We do not currently own or operate any pharmacy, nor are we licensed to perform pharmacy fulfillment services. We rely, and expect to continue to rely, on a limited number of third parties for the fulfillment of prescriptions. This reliance increases the risk that we could have a disruption in the fulfillment of prescriptions which could delay, prevent or impair the distribution and sale of our products.
Pharmacies are subject to state and federal laws and regulations. We do not control the standards and processes of, and will be completely dependent on, our digital pharmacies for compliance with federal and state law and regulations. If our digital pharmacies fail to maintain regulatory compliance, we may need to find alternative pharmacies with the capability to fulfill prescriptions for PDTs. In addition, we have no control over the ability of our digital pharmacies to maintain adequate quality control, quality assurance, and qualified personnel. If a regulatory authority finds deficiencies with or withdraws required pharmacy licenses in the future, we may need to find alternative pharmacies with the capability to fulfill prescriptions for PDTs, which would significantly impact our ability to fulfill, distribute, and sell our products. We may be unable to establish any agreements with other digital pharmacies or to do so on acceptable terms. Even if we are able to establish agreements with other digital pharmacies, reliance on a limited number of digital pharmacies entails additional risks, including:
•the possible breach of the services agreement by the third party; and
•the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.
There are a limited number of digital pharmacies that have the capability to distribute PDTs and that might be capable of fulfilling prescriptions for our products.
If our current digital pharmacies cannot perform as agreed, we may be required to replace such digital pharmacies. We may incur added costs and delays in identifying and qualifying any such replacements. If the agreement with any of our third party pharmacies is terminated, if any third party pharmacy is unable to perform in accordance with the terms of the agreement, or if the services of any third party pharmacy is terminated for any reason, it could have a material adverse effect on our business, prospects, results of operations, and financial condition.
Our current and anticipated future dependence upon others for the fulfillment of prescriptions for our product candidates or products may adversely affect our future profit margins and our ability to distribute any products on a timely and competitive basis.
We face competition and new products may emerge that provide different or better alternatives for treatment of the conditions that our products are authorized to treat. Many of our current and future competitors have or will have significantly more resources.
Our ability to achieve our strategic objectives will depend, among other things, on our ability to develop and commercialize products for the treatment of chronic conditions that are effective and safe, offer distinct features, are easy-to-use, provide measurable and meaningful cost savings to payors, and are more appealing than available alternatives. Our competitors, as well as a number of other companies, within and outside the healthcare industry, are pursuing new delivery devices, delivery technologies, sensing technologies, procedures, drugs, and other therapies for the monitoring and treatment of chronic conditions. Any technological breakthroughs in monitoring, treatment or prevention could reduce the potential market for our products, which would significantly reduce our sales.
The introduction by competitors of products that are or claim to be superior to our products may create market confusion, which may make it difficult for potential customers to differentiate the benefits of our products over competitive products. In addition, the entry of new PDTs to the market which treat the same or similar chronic conditions to our products may lead some of our competitors to employ pricing strategies that could materially and adversely affect the pricing of our products. If a competitor develops a product that competes with or is perceived to
be superior to our products, or if a competitor employs strategies that place downward pressure on pricing within our industry, our sales may decline significantly or may not increase in line with our forecasts, either of which would materially and adversely affect our business, financial condition and results of operations.
While our market is in an early stage of development, it is evolving rapidly and becoming increasingly competitive, and we expect it to attract increased competition. We currently face competition from a range of companies. Our competitors include both enterprise companies who are focused on or may enter the healthcare industry, including initiatives and partnerships launched by these large companies, and from private companies that offer solutions for specific chronic conditions. We compete with pharmaceutical and biotechnology companies that are developing treatments for addiction and insomnia, including Alkermes and their product Vivitrol, Orexo and their product Zubsolv, Sandoz and their product Suboxone, Braeburn and their product Brixadi, Pfizer and their product Halcion, Merck and their product Belsomra, Sunovion and their product Lunesta and Sanofi and their product Ambien. In the digital health space we compete with companies that have created non-regulated products to treat addiction and insomnia such as Dynamicare, CBT4CBT and Orexo and their product Modia, and Big Health and their product Sleepio, Pzizz, Headspace, and Calm. These companies, which may offer their solutions at lower prices, are continuing to develop additional products and becoming more sophisticated and effective. Competition from wellness apps, which are not authorized by the FDA but may attract consumers for other reasons, and from other parties will result in continued pricing pressures, which are likely to lead to price declines in certain product segments, which could negatively impact our sales, profitability and market share.
Our ability to compete effectively depends on our ability to distinguish our company and our solution from our competitors and their products, and includes factors such as:
•FDA authorization;
•effectiveness and safety;
•robust and well-controlled clinical research;
•long-term outcomes;
•ease of use and convenience;
•price;
•greater name and brand recognition;
•information security standards;
•greater market penetration;
•larger sales forces;
•larger marketing budgets;
•access to significantly greater financial, human, technical and other resources;
•breadth, depth, and effectiveness of offerings;
•FDA compliance, quality, and reliability of solutions; and
•healthcare provider, government agency and insurance carrier acceptance.
Some of our competitors may have, or new competitors or alliances may emerge that have, greater name and brand recognition, greater market share, a larger customer base, more widely adopted proprietary technologies, greater marketing expertise, larger sales forces, or significantly greater resources than we do and may be able to offer solutions competitive with ours at a more attractive price than we can. Further, our current or potential competitors may be acquired by third parties with greater available resources. As a result, our competitors may be able to
respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements and may have the ability to initiate or withstand substantial price competition. In addition, our competitors may in the future establish cooperative relationships with vendors of complementary products, technologies or services to increase the availability of their solutions in the marketplace. Our competitors could also be better positioned to serve certain segments of our market, which could create additional price pressure. In light of these factors, even if our products are more effective than those of our competitors, current or potential customers may accept competitive products in lieu of purchasing our products. If we are unable to successfully compete, our business, financial condition, and results of operations could be materially and adversely affected.
Any failure to offer high-quality patient support may adversely affect our relationships with our existing and prospective patients, and in turn our business, results of operations and financial condition.
In implementing and using our products, our patients will depend on our patient support to resolve issues in a timely manner. We may be unable to respond quickly enough to accommodate short-term increases in demand for patient support. Increased patient demand for support could increase costs and adversely affect our results of operations and financial condition. Any failure to maintain high-quality patient support, or a market perception that we do not maintain high-quality patient support, could adversely affect patient satisfaction or the willingness of physicians to prescribe our products, and in turn our business, results of operations, and financial condition.
Acquisitions and strategic alliances could distract management and expose us to financial, execution and operational risks that could have a detrimental effect on our business.
We intend to continue to pursue acquisitions or licenses of technology to, among other things, expand the number of products we provide as well as the features within those products. We cannot guarantee that we will identify suitable candidates for acquisition or licensing, that the transactions will be completed on acceptable terms, or that we will be able to integrate newly acquired or licensed technology into our existing business. The acquisition and integration of another technology would divert management attention from other business activities, including our core business. This diversion, together with other difficulties we may incur in integrating newly acquired or licensed technology, could have a material adverse effect on our business, financial condition and results of operations. In addition, we may borrow money or issue capital stock to finance such transactions. Such borrowings might not be available on terms as favorable to us as our current borrowing terms and may increase our leverage, and the issuance of capital stock (or securities exchangeable therefore) could dilute the interests of our stockholders.
We have experienced rapid growth since inception which may not be indicative of our future growth and, if we continue to grow rapidly, we may not be able to manage our growth effectively.
Since launching reSET in 2019, we have experienced rapid growth and we continue to rapidly and significantly expand our operations. For example, our full-time employee headcount has grown from 9 employees as of December 31, 2018 to 299 employees as of December 31, 2021. This expansion increases the complexity of our business and places significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. We may not be able to manage growth effectively, which could damage our reputation, limit our growth, and negatively affect our operating results.
The growth and expansion of our business creates significant challenges for our management, operational, and financial resources. In the event of continued growth of our operations or in the number of our third-party relationships, our information technology systems, and our internal controls and procedures may not be adequate to support our operations. To effectively manage our growth, we must continue to improve our operational, financial, and management processes and systems and to effectively expand, train, and manage our employee base. As our organization continues to grow and we are required to implement more complex organizational management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture, including our ability to quickly develop and launch new and innovative products. This could negatively affect our business performance.
We continue to experience growth in our headcount and operations, which will continue to place significant demands on our management and our operational and financial infrastructure. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, and we must maintain the beneficial
aspects of our corporate culture. To attract top talent, we have had to offer, and believe we will need to continue to offer, highly competitive compensation packages before we can validate the productivity of those employees. In addition, fluctuations in the price of our common stock may make it more difficult or costly to use equity compensation to motivate, incentivize and retain our employees. We face significant competition for talent from other healthcare, technology and high-growth companies, which include both large enterprises and privately-held companies. We may not be able to hire new employees quickly enough to meet our needs. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, and our business, results of operations and financial condition could be materially and adversely affected.
If we cannot maintain our corporate culture, we could lose the innovation, collaboration and focus on the mission that contribute to our business.
We believe that our culture has been and will continue to be a critical contributor to our success. We expect to continue to hire aggressively as we expand, and we believe our corporate culture has been crucial in our success and our ability to attract highly skilled personnel. If we do not continue to develop our corporate culture or maintain and preserve our core values as we grow and evolve both in the US and internationally, we may be unable to foster the innovation, curiosity, creativity, focus on execution, teamwork and the facilitation of critical knowledge transfer and knowledge sharing we believe we need to support our growth. Moreover, liquidity available to our employee equityholders could lead to disparities of wealth among our employees, which could adversely impact relations among employees and our culture in general. Our anticipated headcount growth and our status as a public company may result in a change to our corporate culture, which could harm our business.
The COVID-19 pandemic has had and continues to have an adverse impact on our business, operations, and the markets and communities in which we operate.
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This pandemic, which has continued to spread, and the related adverse public health developments, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, governments, customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility. It has also disrupted the normal operations of many businesses, including ours. This outbreak, as well as intensified measures undertaken to contain the spread of COVID-19, could decrease healthcare industry spending for our products, adversely affect demand for our products, affect the ability of our sales team to travel to potential customers and the ability of our professional services teams to conduct in-person services and trainings, impact expected spending from new customers, negatively impact collections of accounts receivable, and harm our business, results of operations, and financial condition.
Further, the sales cycle for a new customer of our products could lengthen, resulting in a potentially longer delay between increasing operating expenses and the generation of corresponding revenue, if any. We cannot predict with any certainty whether and to what degree the disruption caused by the COVID-19 pandemic and reactions thereto will continue and expect to face difficulty accurately predicting our internal financial forecasts. The pandemic also resulted in a shift in our workforce to a hybrid model in which employees in one of our three offices are working both remotely and onsite, and we anticipate we will continue to use this model going forward, which can increase the risk of a cybersecurity incident. In addition, our workforce has deep domain knowledge across a range of healthcare, technology, and general business, which was partially achieved by having certain of our employees working remotely across the US, which also increases the risk of a cyber security incident. Further, we continue to shift to assist new and existing customers who may also be working remotely or under hybrid models. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business, results of operations, or financial condition at this time.
Changes in funding or disruption at the FDA, the SEC and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new or modified products from being developed, reviewed or commercialized in a timely manner or at all, or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and grant marketing authorization for new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at FDA have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies, may also slow the time necessary for new digital therapeutics to be reviewed and/or granted marketing authorization by necessary government agencies, which would adversely affect our business. For example, in recent years, including for 35 days beginning on December 22, 2018, the US government shut down several times and certain regulatory agencies, such as the FDA and the SEC, had to furlough critical employees and stop critical activities.
If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Future government shutdowns or delays could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Risks Related to Our Financial Position
We have a history of significant losses, anticipate increasing expenses in the future, and may not be able to achieve or maintain profitability.
We have incurred significant net losses since our inception. We incurred net losses of $65.1 million and $97.0 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $248.0 million. We expect to incur significant losses and negative cash flow from operations for the foreseeable future as we incur significant expenses in research and development, including developing our pipeline of product candidates, working to achieve and maintain market acceptance by physicians and patients, and incur significant sales and marketing costs, including expanding our marketing channels and operations as we grow our US commercial sales force and expand our marketing efforts to increase adoption of our FDA approved products as well as growing and enhancing our platform offering of products. Further, we will be making the necessary investments in our human capital to scale our business. Based on our recurring losses and expectations to incur significant expenses and negative cash flow for the foreseeable future, our independent registered public accounting firm has included an explanatory paragraph in its report on our financial statements as of and for the years ended December 31, 2021 and December 31, 2020 expressing substantial doubt about our ability to continue as a going concern.
Further, we will incur significant costs to conduct planned clinical trials and future clinical trials. These clinical trials may be more costly than we expect, and if we do not achieve the benefits anticipated from these clinical trials, or if the realization of these benefits is delayed, they may not result in increased revenue or growth in our business. We also expect our operating costs to increase as a result of becoming a public company and will continue to increase as we grow our business. These efforts may prove more expensive than we currently anticipate, and our expenses may exceed revenues for the foreseeable future and we may not achieve profitability.
To date, we have financed our operations principally from the closing of the Business Combination with THMA, the sale of Legacy Pear convertible preferred stock, payments received in connection with collaboration agreements, and proceeds from borrowings under a credit facility. Historically the revenue from product sales and collaboration agreements have not covered the full cost of our operations. Our cash flow from operations was negative for the
years ended December 30, 2021 and 2020. We may not generate positive cash flow from operations or achieve profitability for the foreseeable future. Our limited operating history may make it difficult for you to evaluate our current business and future prospects. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Given our limited operating history, our ability to achieve revenues sufficient to cover our operating costs may not be achieved. If we are not able to scale and grow the business to achieve significant product sales, it would materially and adversely affect our business, financial condition, and results of operations. Our failure to achieve or maintain profitability would negatively impact the value of our common stock.
Our credit agreement with Perceptive restricts our current and future operations, particularly our ability to respond to changes or to take certain actions.
Our credit agreement with Perceptive is collateralized by substantially all of our assets, including our intellectual property, and imposes significant operating and financial restrictions and limit our ability and our other restricted subsidiaries’ ability to, among other things:
•incur additional indebtedness for borrowed money and guarantee indebtedness;
•pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;
•make loans, guarantees, investments and acquisitions;
•sell or otherwise dispose of assets;
•incur liens;
•enter into transactions with affiliates;
•enter into agreements restricting our subsidiaries’ ability to pay dividends;
•consolidate, merge or incur a change of control; and
•incur a material adverse change in our business condition (financial or otherwise), operations, performance or property.
As a result of these covenants and restrictions, we are and will be limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. In addition, our senior secured credit facility requires us to comply with a minimum consolidated revenue covenant (measured on a trailing twelve-month basis) and maintain a minimum aggregate cash balance of $5.0 million in one or more accounts pledged to our lenders. The operating and financial restrictions and covenants in the Perceptive Credit Facility, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities, or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. For example, in the past we have received waivers with respect to certain financial covenants in our credit agreement. In addition, on March 25, 2022, we amended the Perceptive Credit Facility to adjust certain covenants under the agreement. The amendment included reducing the required minimum trailing 12-month revenue for the fiscal quarter ending March 31, 2022 through the fiscal quarter ending March 31, 2025. We cannot guarantee that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders or amend the covenants.
Our failure to comply with the restrictive covenants described above could result in an event of default under the credit agreement. An event of default will also occur if, among other things, a material adverse change in our business, operations or condition occurs, which could potentially include a material impairment of the prospect of our repayment of any portion of the amounts we owe under the credit agreement. In the case of a continuing event of default under the credit agreement, the lenders could elect to declare all amounts outstanding to be immediately due and payable, proceed against the collateral in which we granted the lenders a security interest under the credit
agreement, or otherwise exercise the rights of a secured creditor. If we are forced to refinance these borrowings on less favorable terms, our business, results of operations and financial condition could be adversely affected. See Note 7 in the accompanying notes to the consolidated financial statements included in this prospectus for additional information regarding our Perceptive Credit Facility.
Due to the resources required for the development of our pipeline, and depending on our ability to access capital, we will have to prioritize the development of certain product candidates over others. We may fail to expend our limited resources on product candidates that may have been more profitable or for which there is a greater likelihood of success, which would cause our business, financial condition, and results of operations to be materially and adversely affected.
We currently have three FDA-authorized or cleared products, reSET, reSET-O, and Somryst, as well as several other product candidates that are at various stages of development. We seek to maintain a process of prioritization and resource allocation to maintain an optimal balance between aggressively pursuing our more advanced clinical-stage product candidates and ensuring the development of new product candidates.
Due to the significant resources required for the development of our product candidates, we must decide which product candidates to pursue and advance and the amount of resources to allocate to each. Our decisions concerning the allocation of research, development, collaboration, management, and financial resources toward particular product candidates or therapeutic areas may not lead to the development of any viable commercial products and may divert resources away from better opportunities or cause us to relinquish valuable rights to such product candidates through collaboration, licensing, or other royalty arrangements in cases in which it would have been advantageous for us to invest additional resources to retain sole development and commercialization rights. If we make incorrect determinations regarding the viability or market potential of any of our product candidates or misreads trends in the healthcare industry, our business, financial condition, and results of operations would be materially and adversely affected.
Furthermore, there can be no assurances of our successful commercialization of other products in our development pipeline. In addition, there can be no assurances that we will be able to raise additional funds in a timely manner, on acceptable terms, if needed to support commercial operations resulting in a material detrimental effect on our ability to become profitable and accordingly be a material factor to the detriment of our ability to continue as a going concern as well as having a material adverse effect on our business, results of operations, financial condition, and cash flow and ability to operate in the future.
We will need substantial additional funding, and If we are unable to raise capital when needed or on terms favorable to us, our business, financial condition, and results of operation could be materially and adversely affected.
We have consumed substantial amounts of capital to date, and we expect to incur net losses over the next several years as we continue to develop our business, direct market our products, and make investments in our human capital in order to grow our business. We expect to continue to spend substantial amounts to continue the development of our pipeline of product candidates, to complete our currently planned clinical trials and future clinical trials, to achieve and maintain market acceptance by physicians and patients, expand our marketing channels and operations, grow our US commercial sales force, grow and enhance our platform offering of products, and make the necessary investments in human capital to scale our business. Other unanticipated costs may arise in the course of our development efforts. If we are able to gain marketing clearance, authorization, or approval for additional product candidates, we will require significant additional amounts of funding in order to launch and commercialize such additional product candidates. We cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate we develop and may need substantial additional funding in the future to complete the development and commercialization of our existing and any future product candidates. Our future need for additional funding depends on many factors, including:
•the scope, progress, results, and costs of researching and developing our current product candidates, as well as other additional product candidates we may develop and pursue in the future;
•the timing of, and the costs involved in, obtaining marketing clearance, authorization, or approvals for our product candidates and any other additional product candidates we may develop and pursue in the future;
•the number of future product candidates that we may pursue and their development requirements;
•the costs of commercialization activities for our product candidates, including the costs and timing of establishing product sales, marketing, and distribution capabilities;
•revenue received from commercial sales of our current products and, subject to receipt of regulatory clearance, authorization, or approval, revenue, if any, received from commercial sales of our product candidates;
•the extent to which our in-licenses or acquires rights to other products, product candidates, or technologies;
•our investment in our human capital required to grow the business and the associated costs as we expand our research and development, and establish a commercial infrastructure;
•the costs of preparing, filing, and prosecuting patent applications, maintaining, and protecting our intellectual property rights, including enforcing and defending intellectual property-related claims; and
•the costs of operating as a public company.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, reduce, or terminate our product development programs or plans for commercialization. Further, if we raise additional capital in the form of capital stock (or securities exchangeable therefore), such issuances could dilute the interests of our stockholders.
As of December 31, 2021, we had cash and cash equivalents totaling $169.6 million and there is substantial doubt about our ability to continue as a growing concern. We do not currently have any commitments for future funding or additional capital. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the development or commercialization of our products or future product candidates or other research and development initiatives or commercial activities. We may need to seek collaborators for our products and any future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our products and any future product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves. Any of the above events could significantly harm our business, prospects, financial condition, and results of operations and cause the price of our common stock to decline.
Our estimates may prove to be wrong, and we could use our available capital resources sooner than expected. Further, changing circumstances, some of which are beyond our control, could cause us to consume capital significantly faster than anticipated, and we may need to seek additional funds sooner than planned. If adequate funds are not available on acceptable terms, we may not be able to successfully execute our business plan or continue our business.
The amount of our future losses is uncertain and our quarterly and annual operating results may fluctuate significantly or fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control and may be difficult to predict, including the following:
•the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners or as a result of COVID-19;
•our ability to successfully recruit and retain subjects for clinical trials, and any delays caused by difficulties in such efforts, including as a result of COVID-19;
•our ability to obtain marketing authorization for our product candidates and the timing and scope of any such marketing authorizations we may receive;
•the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time;
•our ability to attract, hire and retain qualified personnel;
•expenditures that we will or may incur to develop additional product candidates;
•the level of demand for our products and product candidates, should such product candidates receive marketing authorizations, which may vary significantly;
•the risk/benefit profile, cost and reimbursement policies with respect to our products and product candidates, if granted marketing authorization, and existing and potential future therapeutics that compete with our product candidates;
•the changing and volatile US and global economic environments; and
•future accounting pronouncements or changes in our accounting policies.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our operating results or revenue fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.
Risks Related to Our Intellectual Property and Technology
Limitations on our ability to maintain or obtain patent protection and/or the patent rights relating to our products and product candidates may limit our ability to prevent third parties from competing against us.
Our success depends, in part, on our ability to obtain and maintain patent protection (including utility patents and design patents) for our products and product features, including back-end architecture and graphical user interfaces. Our success further depends on our ability to obtain copyright registrations for our products’ source code; to obtain and maintain trademark protection for our product names and other key marks; to preserve our trade secrets and know-how; and to operate without infringing the intellectual property rights of others.
We cannot assure investors that we will continue to innovate and file new patent applications, or that if filed any future patent applications will result in granted patents. We cannot assure you that any of our currently pending patent applications will result in issued patents, that any current or future patents will not be challenged, invalidated or circumvented, that the scope of any of our patents will exclude competitors, or that the patent rights granted to us will provide us any competitive advantage or protect our products. The patent position of PDT companies, including ours, is generally uncertain and involves complex legal and factual considerations and, therefore, validity and enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated or circumvented. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies and any future products are covered by valid and enforceable patents and/or copyrights or are effectively maintained as trade secrets.
Any patents we have obtained or do obtain may be challenged in the US Patent and Trademark Office (“USPTO”) or in federal courts, and may be invalidated or otherwise found unenforceable. Both the patent application process
and the process of managing patent disputes can be time-consuming and expensive. If we (either alone or with a patent licensor or co-owner, as the case may require) were to initiate legal proceedings against a third party to enforce a patent related to one of our products, the defendant in such litigation could counterclaim that our (or our licensors’) patent is invalid and/or unenforceable. In patent litigation in the US, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, as are validity challenges by the defendant against the subject patent or other patents before the USPTO. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement, failure to meet the written description requirement, indefiniteness, and/or failure to claim patent-eligible subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent intentionally withheld material information from the USPTO, or made a misleading statement, during prosecution, or otherwise committed fraud on the USPTO. Additional grounds for an unenforceability assertion include an allegation of misuse or anticompetitive use of patent rights, and an allegation of incorrect inventorship with deceptive intent. Third parties may also raise similar claims before the USPTO even outside the context of litigation. The outcome is unpredictable following legal assertions of invalidity and unenforceability. With respect to the validity question, for example, we cannot be certain that no invalidating prior art existed of which we (or a patent licensor or co-owner) and the patent examiner were unaware during prosecution. These assertions may also be based on information known to us or the USPTO. If a defendant or third party were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the claims of the challenged patent. Such a loss of patent protection would or could have a material adverse impact on our business.
The standards that the USPTO (and foreign equivalents) use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in utility patents. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us (or to a patent licensor) or to others.
There can be no assurance that our technology will not be found in the future to infringe upon the rights of others or be infringed upon by others. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date(s) on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products or product candidates infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our products infringe. In such a case, others may assert infringement claims against us, and should we be found to infringe upon their patents or otherwise impermissibly utilize their intellectual property, we might be subject to injunctive relief and/or forced to pay damages, potentially including treble damages, if we are found to have willfully infringed such parties’ patent rights. In addition to any damages we might have to pay, we may be required to obtain licenses from the holders of this intellectual property. We may fail to obtain any of these licenses of intellectual property rights on commercially reasonable terms (and even if we are able to obtain a license, it may be non-exclusive, in which case our competitors would potentially have access to the same technologies licensed to us as non-exclusive licensees). In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected products or product candidates, which could materially harm our business, and the third parties owning such intellectual property rights could seek 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. Conversely, we may not always be able to successfully pursue our claims against others that infringe intellectual property rights in our technology. Thus, the proprietary nature of our technology or technology licensed by us may not provide adequate protection against competitors.
In addition to patents, we rely on copyrights to protect our products’ source code. We also rely on trademarks and trade names to differentiate our products from those of others and to protect the recognition of our company and products in the marketplace. We also rely on trade secrets, know-how, and proprietary knowledge that we seek to protect, in part, through confidentiality agreements with employees, consultants and others. We cannot assure you, however, that our proprietary information will not be shared or accessed without authorization, that our
confidentiality agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by competitors.
Changes to the patent law in the US and other jurisdictions could diminish the value of patents in general and may impact the validity, scope or enforceability of our patent rights, thereby impairing our ability to protect our product candidates.
As is the case with other digital therapeutic companies, our success is dependent on intellectual property, particularly patents and trade secrets. Obtaining and enforcing patents in the digital therapeutic industry involve both technological and legal complexity and are therefore costly, time consuming, and inherently uncertain. Our patent rights, their associated costs, and the enforcement or defense of such patent rights may be affected by developments or uncertainty in the patent statute, patent case law or USPTO rules and regulations. Changes in either the patent laws or interpretation of the patent laws could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of our issued patents.
For example the US Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Additionally, there have been recent proposals for additional changes to the patent laws of the US and other countries that, if adopted, could impact our ability to obtain patent protection for our proprietary technology or our ability to enforce rights in our proprietary technology. Depending on future actions by the US Congress, the US courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce any patents that we may obtain in the future.
In addition, it is uncertain whether the World Trade Organization (the “WTO”) will waive certain intellectual property protections now or in the future on certain technologies. It is unknown if such a waiver would be limited to patents or would include other forms of intellectual property including trade secrets and confidential know-how. We cannot be certain that any of our current or future product candidates or technologies would not be subject to an intellectual property waiver by the WTO. We also cannot be certain that any of our current or future intellectual property rights would be eliminated, narrowed, or weakened by such a waiver. Given the uncertain future actions by the WTO and other countries and jurisdictions around the world, including the US, it is unpredictable how our current or future intellectual property rights or how our current or future business would be impacted.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed.
The registered or unregistered trademarks or trade names that we own may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition with the public. In addition, third parties have filed, and may in the future file, for registration of trademarks similar or identical to our trademarks, thereby impeding our ability to build brand identity and possibly leading to market confusion. If they succeed in registering such trademarks and/or in developing common law rights in such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to develop brand recognition of our services. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. If we are unable to establish or protect our trademarks and trade names, or if we are unable to build name recognition based on our trademarks and trade names, we may not be able to compete effectively, which could harm our competitive position, business, financial condition, results of operations and prospects.
Accusations of infringement of third-party intellectual property rights could materially and adversely affect our business.
There has been substantial litigation in the areas in which we operate regarding intellectual property rights, and we may be sued for infringement from time to time in the future. Also, in some instances, we have agreed to indemnify third parties for expenses and liability resulting from claimed intellectual property infringement. From time to time,
we may receive requests for indemnification in connection with allegations of intellectual property infringement and we may choose, or be required, to assume the defense and/or reimburse third parties for their expenses, settlement and/or liability. We cannot assure you that we will be able to settle any future claims or, if we are able to settle any such claims, that the settlement will be on terms favorable to us. Our broad range of technology may increase the likelihood that third parties will claim that we infringe their intellectual property rights.
We may in the future receive notices of allegations of infringement, misappropriation or misuse of other parties’ proprietary rights. Furthermore, regardless of their merits, accusations and litigation of this nature may require significant time and expense to defend, may negatively affect customer relationships, may divert management’s attention away from other aspects of our operations and, upon resolution, may have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Certain technology necessary for us to provide our solutions may, in fact, be patented by other parties either now or in the future. If such technology were validly patented by a third party, we may have to negotiate a license for the use of that technology. We may not be able to negotiate such a license at a price that is acceptable to us or at all. The existence of such a patent, or our inability to negotiate a license for any such technology on acceptable terms, could force us to cease using the technology and cease offering products incorporating the technology, which could materially and adversely affect our business and results of operations.
If we, or any of our products, were found to be infringing on the intellectual property rights of any third party, we could be subject to liability for such infringement, which could be material. We could also be prohibited from using or selling certain products, prohibited from using certain processes, or required to redesign certain products, each of which could have a material adverse effect on our business and results of operations.
These and other outcomes may: result in the loss of a substantial number of existing customers or prohibit the acquisition of new customers; cause us to pay license fees for intellectual property we are deemed to have infringed; cause us to incur costs and devote valuable technical resources to redesigning our products; cause our cost of product revenues to increase; cause us to accelerate expenditures to preserve existing revenues; materially and adversely affect our brand in the marketplace and cause a substantial loss of goodwill; cause us to change our business methods or products; and require us to cease certain business operations or offering certain products or features.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to patent protection, we rely heavily upon know-how and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants and third parties, to protect our confidential and proprietary information, especially where we do not believe patent protection is appropriate or obtainable. It is our policy to require our employees and consultants to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual or entity during the course of the party’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived or completed by the individual, and which are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may, for example, not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such
as our trade secrets, were to be disclosed or misappropriated, or if any such information were to be independently developed by a competitor, our competitive position could be harmed. In addition, courts outside the US may be less willing to protect trade secrets. Thus, we may not be able to meaningfully protect our trade secrets outside the US.
If we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs. These lawsuits may consume our time and other resources even if we are successful. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology.
Third parties may assert that our employees, consultants, collaborators or partners have wrongfully used or disclosed confidential information or misappropriated trade secrets.
As is common in the digital health, technology, or pharmaceutical industries, we employ individuals who were previously employed at universities or other digital health, technology, or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, and although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees or consultants have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. This risk is similarly applicable with respect to claims by third parties against any current or future licensors.
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 is expensive. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the US. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the US where we have issued patents, or from selling or importing products made using our inventions in other jurisdictions. Competitors may also 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 do not have patent protection or where we have patent protection but where enforcement is not as strong as that in the US. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent such competition.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries do not favor the enforcement of patents, trade secrets and other intellectual property rights, particularly those relating to digital health, pharmaceutical and biopharmaceutical products, which could make it difficult for us, our licensors, or our licensees to stop the infringement of our patents or marketing of competing products against third parties in violation of our proprietary rights generally. The initiation of proceedings for infringement by third parties or by third parties to challenge the scope or validity of our patent rights in foreign jurisdictions could also result in substantial cost 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 any related patent applications at risk of not issuing, and could provoke third parties to assert claims against us, our licensors, or our licensees. We may not prevail in any lawsuits that we initiate or that are initiated against us, and the damages or other remedies awarded in lawsuits that we initiate, if any, may not be commercially meaningful.
Many countries, including European Union countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under specified circumstances to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. 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.
We are party to and may, in the future, enter into collaborations, in-licensing arrangements, joint ventures, or strategic alliances with third parties that may not result in the development of commercially viable products or the generation of significant or any future revenues.
In the ordinary course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, or strategic alliances to develop new PDTs and to pursue new markets. Proposing, negotiating, and implementing collaborations, in-licensing arrangements, joint ventures, and strategic alliances may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not identify, secure or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms, or at all. We have limited institutional knowledge and experience with respect to these business development activities, and we may also not realize the anticipated benefits of any such transaction or arrangement. In particular, these collaborations may not result in the development of products that achieve commercial success or result in significant revenues and could be terminated prior to developing any products.
Additionally, we may not be in a position to exercise sole decision-making authority regarding the transaction or arrangement, which could create the potential risk of creating impasses on decisions, and our collaborators may have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our collaborators, such as conflicts concerning the achievement of performance milestones, or the interpretation of significant terms under any agreement, such as those related to financial obligations or the ownership or control of intellectual property developed during the collaboration. If any conflicts arise with our current or future collaborators, they may act in their self-interest, which may be adverse to our best interest, and they may breach their obligations to us. In addition, we have limited control over the amount and timing of resources that our current collaborators or any future collaborators devote to our collaborators’ or our future products. Disputes between us and our collaborators may result in litigation or arbitration which would increase our expenses and divert the attention of our management. Further, these transactions and arrangements are contractual in nature and may be terminated or dissolved under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products relating to such transaction or arrangement or may need to purchase such rights at a premium.
We in-license patents and content from third parties to develop our products and product candidates. If we had a dispute or fail to comply with obligations in the agreements with a third-party licensor, we could lose rights that are important to our business, or it could materially and adversely affect our ability to commercialize the product or product candidate affected by the dispute.
We license certain intellectual property that is important to our business, and in the future we may enter into additional agreements that provide us with licenses to valuable intellectual property or technology. Some of our current license agreements impose various development, diligence, commercialization or sublicensing, and other obligations, including payments in connection with the achievement of specified milestones, on us in order to maintain the licenses. In spite of our efforts, a current or future licensor might conclude that we have materially breached our obligations under such license agreements and seek to terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patent rights licensed thereunder fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek marketing authorization of, and to market, products identical to ours and we may be required to cease our development and commercialization of certain of our product candidates. Any of the foregoing could have a material adverse effect on our business, prospects, results of operations and financial condition.
Licensing intellectual property involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including:
•the scope of rights granted under the license agreement and other interpretation-related issues;
•amount of royalty payments under the license agreement;
•whether and to what extent our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
•our right to sublicense patent and other rights to collaborators and other third parties;
•our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our products, and what activities satisfy those diligence obligations; and
•the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators.
If disputes over licensed intellectual property prevent or impair our ability to maintain the licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product, or the dispute may have an adverse effect on our results of operation.
The agreements under which we may license intellectual property or technology from third parties may be complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, prospects, results of operations and financial condition. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, prospects, results of operations and financial condition.
We or our licensors may be subject to claims challenging the inventorship or ownership of the patents and other intellectual property that we own or license now or in the future.
We or our licensors may be subject to claims that former employees, consultants, or other third parties have an ownership interest in the patents and intellectual property that we own or in-license or that we may own or in-license in the future. While it is our policy to require our employees and consultants who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own or such assignments may not be self-executing or may be breached. Our licensors may face similar obstacles. We or our licensors could be subject to ownership disputes arising, for example, from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against any claims challenging inventorship or ownership. If we or our licensors fail in defending any such claims, we may have to pay monetary damages and may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property, which could adversely impact our business, results of operations and financial condition.
Our products utilize third-party open source software components, which may pose particular risks to our proprietary software, technologies, products and services in a manner that could negatively affect our business.
We have chosen, and we may choose in the future, to use open source software in our products. We use various software composition tools, including Veracode and Snyk, which are designed to monitor risks related to licenses and vulnerabilities related to open-source software. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Some open source licenses may contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar products with less development effort and time and ultimately could result in a loss of product sales.
Although we intend to monitor any use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open source licenses have not been interpreted by US courts, and there is a risk that any such licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, there is no assurance that our processes for controlling our use of open source software in our products will be effective. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue offering our products on terms that are not economically feasible, to re-engineer our products, to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could materially and adversely affect our business, operating results and financial condition.
Risks Relating to Our Products
Our current product candidates are in various stages of development. Our product candidates may fail in development or suffer delays that adversely affect their commercial viability. If we fail to maintain clearance, de novo classification or authorization to market our product candidates for expanded indications, or if we are delayed in obtaining such marketing authorizations, our business, prospects, results of operations and financial condition could be materially and adversely affected.
The process of seeking FDA marketing authorization is expensive and time consuming. There can be no assurance that marketing authorization will be granted. If we are not successful in obtaining timely clearance, de novo classification or approval of our product candidates, we may never be able to generate significant revenue and may be forced to cease operations. The FDA can delay, limit or deny for many reasons, including:
•We may not be able to demonstrate to the FDA’s satisfaction that our product candidates meet the applicable regulatory standards for clearance, de novo classification, or authorization, as applicable;
•The FDA may disagree that our clinical data supports the label and use that we are seeking; and
•The FDA may disagree that the data from our preclinical or pilot studies and clinical trials is sufficient to support marketing authorization.
Obtaining marketing authorization from the FDA or any foreign regulatory authority could result in unexpected and significant costs for us and consume management’s time and other resources. The FDA could ask us to supplement our submissions, collect additional nonclinical data, conduct additional clinical trials, prepare additional manufacturing data or information or engage in other time-consuming actions, or it could simply deny our applications. In addition, if granted marketing authorization, we will be required to obtain additional FDA authorizations or clearances prior to making certain modifications to our devices. Further, FDA may impose other restrictions on our marketing authorizations, or we may lose marketing authorization, if post-market data demonstrates safety issues or lack of effectiveness. If we are unable to obtain and maintain the necessary marketing authorizations to market our products, our financial condition may be adversely affected, and our ability to grow domestically and internationally would likely be limited. Additionally, even if granted marketing authorization, our products may not receive marketing authorization for the indications that are necessary or desirable for successful commercialization or profitability. This could have a material adverse effect on our business, prospects, results of operations and financial condition.
Our products may cause undesirable side effects or have other properties that could limit their commercial potential.
If we or others identify undesirable side effects directly or indirectly caused by our products, a number of potentially significant negative consequences could result, including:
•regulatory authorities may withdraw clearance, authorization, or approvals of such product;
•regulatory authorities may require additional warnings on the product’s label;
•we may be required to issue safety communications to patients or healthcare providers that outline the risks of such side effects;
•we could be sued and held liable for harm caused to patients; and
•our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product or product candidate and, as a result of negative impacts to our reputation, our other products or product candidates and could significantly harm our business, results of operations and prospects.
If we are unable to develop and release new products, or successful enhancements, new features and modifications to our existing products, our business, financial condition and results of operations could be materially and adversely affected.
We expect that the PDT market, as with many technology markets, will be characterized by rapid technological change, frequent new product and service introductions and enhancements, changing customer demands, and evolving industry standards. As an initial matter, a significant portion of our market may not have access to smartphones or other technology necessary to utilize our PDTs. In addition, the introduction of products and services embodying new technologies could quickly make existing products and services obsolete and unmarketable. Additionally, changes in laws and regulations could impact the usefulness of our products and could necessitate changes or modifications to our products to accommodate such changes. We invest substantial resources in researching and developing new products and enhancing our existing products by incorporating additional features, improving functionality, and adding other improvements to meet our patients’ evolving needs. The success of any enhancements or improvements to our products or any new products depends on several factors, including regulatory review timelines, timely completion, competitive pricing, adequate quality testing, integration with new and existing technologies in our products and third-party collaborators’ technologies and overall market acceptance. We may not succeed in developing, marketing and delivering on a timely and cost-effective basis enhancements or improvements to our products or any new products that respond to continued changes in market demands or new customer requirements, and any enhancements or improvements to our products or any new products may not achieve market acceptance. Since developing our products is complex, the timetable for the release of new products and enhancements to existing products is difficult to predict, and we may not offer new products and updates as rapidly as our users require or expect. Any new products that we develop or acquire may not be introduced in a timely or cost-effective manner, may contain errors or defects, or may not achieve the broad market acceptance necessary to generate significant or any revenue.
The introduction of new products and products by competitors, the development of entirely new technologies to replace existing offerings or shifts in healthcare benefits trends could make our products obsolete or materially and adversely affect our business, financial condition and results of operations. We may experience difficulties with software development, industry standards, design or marketing that could delay or prevent our development, introduction or implementation of new products, enhancements, additional features or capabilities. If patients and healthcare providers do not widely adopt our products, we may not be able to realize a return on our investment. If we do not accurately anticipate patient demand or we are unable to develop, license or acquire new features and capabilities on a timely and cost-effective basis, or if such enhancements do not achieve market acceptance, it could result in adverse publicity, loss of revenue or market acceptance or claims by patients or healthcare providers brought against us, each of which could have a material and adverse effect on our reputation, business, results of operations and financial condition.
Clinical trials of any of our products or product candidates may fail to produce results necessary to support regulatory clearance or authorization.
We incur substantial expense for, and devote significant time to, clinical trials but cannot be certain that the trials will ever result in commercial gains. We may experience significant setbacks in clinical trials, even after earlier clinical trials showed promising results, and failure can occur at any time during the clinical development process. Any of our products may malfunction or may produce undesirable adverse effects that could cause us, institutional review boards (“IRBs”) or regulatory authorities to interrupt, delay or halt clinical trials. We, IRBs, the FDA, or
another regulatory authority may suspend or terminate clinical trials at any time to avoid exposing trial participants to unacceptable health risks. Our clinical trials may produce negative or inconclusive results or may demonstrate a lack of effect of our product candidates. Additionally, the FDA may disagree with our interpretation of the data from our pilot studies and clinical trials, or may find the clinical trial design, conduct or results inadequate to demonstrate safety or effectiveness, and may require us to pursue additional clinical trials, which could further delay the clearance or authorization of our product candidates. If we are unable to demonstrate the safety and effectiveness of product candidates in our clinical trials, we will be unable to obtain the regulatory clearances or authorizations we need to commercialize new products.
In addition to the extent that additional information regarding products being studied in clinical trials could translate to currently cleared or authorized products, such as information on new side effects, those results may impact existing clearances and authorizations, and required contraindications, warnings or precautions in product labeling.
Interim, “topline” and preliminary data from clinical trials of our products or product candidates may change as more patient data becomes available and are subject to confirmation, audit, and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or topline data from our pilot studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our clinical trials. Interim or preliminary data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment and treatment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our Class A Common Shares.
Further, third parties, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the potential of the particular program, the likelihood of marketing authorization or clearance or commercialization of the particular product candidate, the commercial success of any product for which we may have already obtained authorization or clearance, and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is derived from information that is typically extensive, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.
If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain clearance, authorization, or approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
Risks Related to Our Regulatory Compliance and Legal Matters
We operate in a highly regulated industry and are subject to a wide range of federal, state and local laws, rules and regulations, including FDA regulatory requirements and laws pertaining to fraud and abuse in healthcare, that affect nearly all aspects of our operations. Failure to comply with these laws, rules and regulations, or to obtain and maintain required licenses, could subject us to enforcement actions, including substantial civil and criminal penalties, and might require us to recall or withdraw a product from the market or cease operations. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.
We and our products are subject to extensive regulation in the US, including by the FDA. The regulations to which we are subject are complex. The FDA regulates, among other things, with respect to medical devices: design, development and manufacturing; testing, labeling, content and language of instructions for use; clinical trials; product safety; medical device cybersecurity; pre-market clearance, authorization, and approval; establishment registration and device listing; marketing, sales and distribution; complaint handling; record keeping procedures; advertising and promotion; recalls and field safety corrective actions; post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; post-market studies; and product import and export. The FDA monitors compliance with these applicable regulatory requirements through periodic unannounced inspections as well as various other channels, such as reviewing post-market surveillance and recall reports, monitoring advertising and promotional practices on-line and at trade shows, and reviewing trade complaints submitted by competitors or other third parties. We do not know whether we will pass any future inspections for FDA compliance, or whether the FDA might identify compliance concern(s) through other channels of information. Failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement-related actions such as: FDA Form 483s; untitled or warning letters; clinical holds on research; fines; injunctions; civil penalties; termination of distribution; recalls or seizures of products; delays in the introduction of products into the market; total or partial suspension of production; refusal to grant future clearances, authorizations, or approvals; withdrawals or suspensions of current clearances or marketing authorizations, resulting in prohibitions on the sale and distribution of our products; and in the most serious cases, criminal penalties. Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, financial condition and results of operations.
The FDA and the Federal Trade Commission (“FTC”) also regulate the advertising and promotion of our products to ensure that the claims we make are consistent with our regulatory authorizations, that there is adequate and reasonable data to substantiate the claims and that our promotional labeling and advertising is neither false nor misleading. If the FDA or FTC determines that any of our advertising or promotional claims are false, misleading, not substantiated or not permissible, we may be subject to enforcement actions, including untitled or warning letters, and we may be required to revise our promotional claims and make other corrections or restitutions. We also may be subject to fines, or other regulatory, civil, or criminal sanctions.
Additional federal and state healthcare laws and regulations that may affect our ability to conduct business include, without limitation:
•the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as CMS programs;
•the federal civil false claims and civil monetary penalties laws, including, without limitation, the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government;
•federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
•the federal Civil Monetary Penalties Law 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;
•the federal Physician Payment Sunshine Act, or Open Payments, created under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, or collectively the Affordable Care Act (“ACA”), and its implementing regulations, which requires manufacturers of drugs, medical devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to payments or other transfers of value made to licensed physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;
•Health Insurance Portability Administration and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, which impose certain requirements relating to the privacy, security and transmission of protected health information (“PHI”), on certain healthcare providers, health plans and healthcare clearinghouses, and their business associates that access or otherwise process individually identifiable health information on their behalf; HIPAA also created criminal liability for knowingly and willfully falsifying or concealing a material fact or making a materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
•medical device regulations pursuant to the federal Food, Drug and Cosmetic Act which require, among other things, pre-market clearance, authorization, or approval; compliant labeling; medical device adverse event reporting; establishment registration and device listing; reporting of corrections and removals; and quality system requirements;
•state 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, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and are in addition to requirements under HIPAA, thus complicating compliance efforts; and
•state laws governing the corporate practice of medicine and other healthcare professions and related fee-splitting laws.
Our employees, consultants and commercial collaborators may engage in misconduct or other improper activities, including non-compliance with such regulatory standards and requirements.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our activities could be subject to challenge under one or more of such laws. Any action brought against us for violations of these laws or regulations, even if successfully defended, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. We may be subject to private “qui tam” actions brought by individual whistleblowers on behalf of the federal or state governments, with potential liability under the federal False Claims Act including mandatory treble damages and significant per-claim penalties.
Although we have adopted policies and procedures designed to comply with these laws and regulations and conduct internal reviews of our compliance with these laws, our compliance is also subject to governmental review. The growth of our business and sales organization including future expansion outside of the US may increase the potential of violating these laws or our internal policies and procedures. The risk of our being found in violation of these or other laws and regulations is further increased by the fact that many have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action brought against us for violation of these or other laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are found to be in violation of any of the federal, state and foreign laws described above or any other current or future fraud and abuse or other healthcare laws and regulations that apply to us, we may be subject to
penalties, including significant criminal, civil and administrative penalties, damages and fines, disgorgement, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of noncompliance with these laws, imprisonment for individuals and exclusion from participation in government programs, such as Medicare and Medicaid, as well as contractual damages and reputational harm. We could also be required to curtail or cease our operations. Any of the foregoing consequences could seriously harm our business, financial condition and results of operations.
We will incur significant liability if it is determined that we are promoting any “off-label” uses of our products.
Although our products are marketed for the specific therapeutic uses for which the devices were designed and our personnel are trained not to promote our products for uses outside of the FDA-cleared or authorized indications for use, known as “off-label uses,” we cannot, however, prevent a physician from using our products in ways, when in the physician’s independent professional medical judgment, he or she deems it appropriate. There may be increased risk of harm to patients if primary care physicians attempt to use our products off-label. Furthermore, the use of our products for indications other than those authorized, cleared, or approved by the FDA or authorized by any foreign regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace among primary care physicians and patients.
If the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter or warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, based on our off-label promotion having caused submission of false (non-reimbursable) claims, for any products for which we obtain government reimbursement, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations. In addition, certain jurisdictions have “all payor” false claims act laws that extend penalties for false claims beyond those submitted to government programs.
In addition, physicians may misuse our products with their patients if they are not adequately trained, potentially leading to injury and an increased risk of product liability. If our products are misused, we may become subject to costly litigation by our patients or their patients. As described above, product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.
We face potential product liability exposure, and, if claims brought against us are successful, we could incur substantial liabilities.
Our business exposes us to potential product liability claims that are inherent in the design, manufacture, testing and sale of medical devices. We could become the subject of product liability lawsuits alleging that component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information resulted in an unsafe condition, injury or death to patients. In addition, the misuse of our products, or the failure of patients to adhere to operating guidelines, could cause significant harm to patients, including death, which could result in product liability claims. Product liability lawsuits and claims, safety alerts or product recalls, with or without merit, could cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business, harm our reputation and materially and adversely affect our ability to attract and retain patients, any of which could have a material adverse effect on our business, financial condition and results of operations.
Although we maintain third-party product liability insurance coverage, it is possible that claims against us may exceed the coverage limits of our insurance policies. Even if any product liability loss is covered by an insurance policy, these policies typically have substantial deductibles for which we are responsible. Product liability claims in excess of applicable insurance coverage could have a material adverse effect on our business, financial condition and results of operations. In addition, any product liability claim brought against us, with or without merit, could result
in an increase of our product liability insurance premiums. Insurance coverage varies in cost and can be difficult to obtain, and we cannot guarantee that we will be able to obtain insurance coverage in the future on terms acceptable to us or at all.
Additionally, from time to time we may enter into agreements pursuant to which we indemnify third parties for certain claims relating to our products. These indemnification obligations may require us to pay significant sums of money for claims that are covered by these indemnification obligations. We are not currently subject to any product liability claims; however, any future product liability claims against us, regardless of their merit, may result in negative publicity about us that could ultimately harm our reputation and could have a material adverse effect on our business, financial condition and results of operations.
Healthcare reform and other governmental and private payor initiatives may have an adverse effect upon, and could prevent, our products’ or product candidates’ commercial success.
In the US and in certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could impact our ability to sell our products profitably, such as the ACA.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, various portions of the ACA are currently undergoing legal and constitutional challenges in the US Supreme Court. Additionally, the former Trump administration issued various Executive Orders which eliminated cost-sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. Further, on December 20, 2019, the Further Consolidated Appropriations Act (H.R. 1865), which repeals the Cadillac tax, the health insurance provider tax, and the medical device excise tax, was signed into law. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. We cannot predict what affect further changes to the ACA would have on our business, especially under the Biden administration.
Other legislative changes have been proposed and adopted in the US since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, and, due to subsequent legislative amendments, will remain in effect through 2030 unless additional congressional action is taken. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as well as subsequent legislation, these reductions were suspended from May 1, 2020 through March 31, 2021 due to the COVID-19 pandemic. Proposed legislation, if passed, would extend this suspension until the end of the pandemic.
There has been increasing legislative and enforcement interest in the US with respect to prescription-pricing practices. Specifically, there have been several recent US Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. The HHS has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. It is unclear what effect such legislative and enforcement interest may have on prescription devices. Further, it is unclear whether the Biden administration will challenge, reverse, revoke or otherwise modify the prior administration’s executive and administrative actions.
We expect that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any cleared, authorized, or approved device, which could have an adverse effect on patients for our products or product
candidates. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels in the US directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory clearance, authorization, or approval and that may affect our overall financial condition and ability to develop product candidates. If we or any third parties we may engage are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, our current or any future product candidates we may develop may lose any regulatory clearance, authorization, or approval that may have been obtained and we may not achieve or sustain profitability.
We are subject to data privacy and security laws and regulations governing our collection, use, disclosure, or storage of personally identifiable information, including protected health information and payment card data, which may impose restrictions on us and our operations. Any actual or perceived noncompliance with such laws and regulations may result in penalties, regulatory action, loss of business or unfavorable publicity.
Numerous federal and state laws and regulations govern the collection, use, disclosure, storage and transmission of personally identifiable information (“PII”), including PHI, and information related to treatment for substance use disorders. These laws and regulations, including their interpretation by governmental agencies, are subject to frequent change and could have a negative impact on our business. In addition, in the future, industry requirements or guidance, contractual obligations, and/or legislation at both the federal and the state level may limit, forbid or regulate the use or transmission of health information outside of the US.
These varying interpretations can create complex compliance issues for us and our partners and potentially expose us to additional expense, adverse publicity and liability, any of which could materially and adversely affect our business.
Federal and state consumer protection laws are increasingly being applied by the FTC and states’ attorneys general to regulate the collection, use, storage and disclosure of PII, through websites or otherwise, and to regulate the presentation of website content. In addition, other laws, such as the Confidentiality of Substance Use Disorder Patient Records regulations at 42 C.F.R. Part 2, limit the potential use of in substance use disorder treatment-related data in non-treatment-based setting, such as administrative or criminal hearings related to the patient, and include associated restrictions on disclosure of information.
The security measures that we and our third-party vendors and subcontractors have in place to ensure compliance with privacy and data protection laws may not protect our facilities and systems from security breaches, acts of vandalism or theft, computer viruses, misplaced or lost data, programming and human errors or other similar events. Even though we provide for appropriate protections through our agreements with our third-party vendors, we still have limited control over their actions and practices. A breach of privacy or security of PII or PHI may result in an enforcement action, including criminal and civil liability, against us. We are not able to predict the extent of the impact such incidents may have on our business. Enforcement actions against us could be costly and could interrupt regular operations, which may materially and adversely affect our business. While we have not received any notices of violation of the applicable privacy and data protection laws and believe we are in compliance with such laws, there can be no assurance that we will not receive such notices in the future.
There is ongoing concern from privacy advocates, regulators and others regarding data privacy and security issues, and the number of jurisdictions with data privacy and security laws has been increasing. Also, there are ongoing public policy discussions regarding whether the standards for de-identification, anonymization or pseudonymization of health information are sufficient, and the risk of re-identification sufficiently small, to adequately protect patient privacy. We expect there will continue to be new proposed and amended laws, regulations and industry standards concerning privacy, data protection and information security in the US, such as the California Consumer Privacy Act
(“CCPA”), which went into effect on January 1, 2020 and has been amended several times. Further, a new California privacy law, the California Privacy Rights Act (“CPRA”), was passed by California voters on November 3, 2020, and in March 2021, Virginia passed a new privacy law, the Consumer Data Protection Act (“VCDPA”), similar to the CPRA. The CPRA will create additional obligations with respect to processing and storing personal information and the VCDPA is scheduled to take effect on January 1, 2023 (with certain provisions of the CPRA having retroactive effect to January 1, 2022). In addition New York’s Stop Hacks and Improve Electronic Data Security Act (“SHIELD Act”), requires any person or business owning or licensing computerized data that includes the private information of a resident of New York to implement and maintain reasonable safeguards to protect the security, confidentiality and integrity of the private information. Other U.S. states also are considering omnibus privacy legislation and industry organizations regularly adopt and advocate for new standards in these areas. While the CCPA and CPRA contain exceptions for certain activities involving PHI under HIPAA, we cannot yet determine the impact the CCPA, CPRA, VCDPA or other such future laws, regulations and standards may have on our business.
Future laws, regulations, standards, obligations, amendments, and changes in the interpretation of existing laws, regulations, standards and obligations could impair our or our customers’ ability to collect, use or disclose information relating to patients or consumers, including information derived therefrom, which could decrease demand for our products, increase our costs and impair our ability to maintain and grow our customer base and increase our revenue. Accordingly, we may find it necessary or desirable to fundamentally change our business activities and practices or to expend significant resources to modify our software or platform and otherwise adapt to these changes.
Further, our patients may expect us to comply with more stringent privacy and data security requirements than those imposed by laws, regulations or self-regulatory requirements, and we may be obligated contractually to comply with additional or different standards relating to our handling or protection of data.
Any failure or perceived failure by us to comply with federal or state laws or regulations, industry standards or other legal obligations, or any actual or suspected privacy or security incident, whether or not resulting in unauthorized access to, or acquisition, release or transfer of PII or other data, may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to develop new products could be limited. Any of these developments could harm our business, financial condition and results of operations. Privacy and data security concerns, whether valid or not valid, may inhibit retention of our products by existing customer or adoption of our products by new customers.
Security breaches, ransomware attacks and other disruptions to our information technology structure could compromise our information, disrupt its business and expose us to significant liability, which would cause our business and reputation to suffer and we may be unable to maintain and scale the technology underlying our offerings.
In the ordinary course of our business, we collect, store, use and disclose sensitive data, including PHI and other types of PII. We also process and store, and use additional third parties to process and store, sensitive information including intellectual property and other proprietary business information, including that of our patients. Patient information is encrypted but not always de-identified. We manage and maintain our platform and data utilizing a combination of managed data center systems and cloud-based computing center systems.
We are highly dependent on information technology networks and systems, including the internet, to securely process, transmit and store this critical information. Security breaches of this infrastructure, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, and employee or contractor error, negligence or malfeasance, can create system disruptions, shutdowns or unauthorized disclosure or modifications of confidential information, causing member PHI and other PII to be accessed or acquired without authorization or to become publicly available. We utilize third-party service providers for important aspects of the collection, storage and transmission of customer, user and patient information, and other confidential and sensitive information, and therefore rely on third parties to manage functions that have material cybersecurity risks. Because of the sensitivity
of the PHI, other PII, and other confidential information we and our service providers collect, store, transmit, and otherwise process, the security of our technology platform and other aspects of our services, including those provided or facilitated by our third-party service providers, are important to our operations and business strategy. We take certain administrative, physical and technological safeguards to address these risks, such as by requiring outsourcing subcontractors who handle customer, user and patient information for us to enter into agreements that contractually obligate those subcontractors to use reasonable efforts to safeguard PHI, other PII, and other sensitive information. Measures taken to protect our systems, those of our subcontractors, or the PHI, other PII, or other sensitive data we or our subcontractors process or maintain, may not adequately protect us from the risks associated with the collection, storage and transmission of such information. Although we take steps to help protect confidential and other sensitive information from unauthorized access or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses, failures or breaches due to third-party action, employee negligence or error, malfeasance or other disruptions.
A security breach or privacy violation that leads to disclosure or unauthorized use or modification of, or that prevents access to or otherwise impacts the confidentiality, security, or integrity of, member information, including PHI or other PII, or other sensitive information we or our subcontractors maintain or otherwise process, could harm our reputation, compel us to comply with breach notification laws, cause us to incur significant costs for remediation, fines, penalties, notification to individuals and for measures intended to repair or replace systems or technology and to prevent future occurrences, potential increases in insurance premiums, and require us to verify the accuracy of database contents, resulting in increased costs or loss of revenue. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, or if it is perceived that we have been unable to do so, our operations could be disrupted, we may be unable to provide access to our platform, and could suffer a loss of customers or users or a decrease in the use of our platform, and we may suffer loss of reputation, adverse impacts on customer, user and investor confidence, financial loss, governmental investigations or other actions, regulatory or contractual penalties, and other claims and liability. In addition, security breaches and other inappropriate access to, or acquisition or processing of, information can be difficult to detect, and any delay in identifying such incidents or in providing any notification of such incidents may lead to increased harm.
Any such breach or interruption of our systems, or those of any of our third-party information technology partners, could compromise our networks or data security processes and sensitive information could be inaccessible or could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such interruption in access, improper access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws and regulations that protect the privacy of member information or other personal information, such as HIPAA, the CCPA, other state data breach laws and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform our services, provide member assistance services, conduct research and development activities, collect, process, and prepare company financial information, provide information about our current and future solutions and engage in other user and clinician education and outreach efforts. Any such breach could also result in the compromise of our trade secrets and other proprietary information, which could materially and adversely affect our business and competitive position. While we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage that could result from a security incident.
International privacy and data security concerns and laws could result in additional costs and may prevent us from successfully expanding our business internationally.
Internationally, virtually every major jurisdiction has established its own data security and privacy legal framework. For instance, in May 2018, the European General Data Protection Regulation, or GDPR, came into effect and established requirements applicable to the handling of personal data and may result in fines up to €20 million (approximately $22 million based on current exchange rates) or up to 4% of annual global revenue in the preceding financial year, whichever is higher, and other administrative penalties. In many European jurisdictions enforcement actions and consequences for non-compliance are also rising.
Jurisdictions outside of the US and Europe are also considering and/or enacting comprehensive data protection legislation. Cross-border data transfers and other future developments regarding local data residency could increase
the cost and complexity of delivering our services in some markets and may lead to governmental enforcement actions, litigation, fines, and penalties or adverse publicity, which could adversely affect our business and financial position, could greatly increase our cost of providing our products and services, require significant changes to our operations, or even prevent us from offering certain services in specific jurisdictions.
Several Asian countries have constitutional protections for, or have adopted legislation protecting, individuals’ personal information. For instance, the Personal Information Protection Law (“PIPL”) of the People’s Republic of China (“PRC”), was adopted on August 20, 2021, and went into effect on November 1, 2021. The PIPL shares similarities with the GDPR, including extraterritorial application, data minimization, data localization, and purpose limitation requirements, and obligations to provide certain notices and rights to citizens of the PRC. The PIPL allows for fines of up to CN¥ 50 million (approximately $8 million based on current exchange rates) or 5% of a covered company’s revenue in the prior year. Our approach with respect to the GDPR, the PIPL, and other data protection legislation may be subject to further evaluation and change, our compliance measures may not be fully adequate and may require modification, we may expend significant time and cost in developing and maintaining a privacy governance program, data transfer or localization mechanisms, or other processes or measures to comply with these legal frameworks when looking to expand or business outside of the US.
We also continue to see jurisdictions imposing data localization laws, which may require personal information of citizens of a jurisdiction to be, among other data processing operations, initially collected, stored, and modified locally within such jurisdiction. These regulations may inhibit our ability to expand into those markets without significant additional costs.
Because of the breadth of these data protection laws and the narrowness of their exceptions and safe harbors, it is possible that international expansion could subject our business or data protection policies to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of heightened regulatory focus on data privacy and security issues. If our operations are found to be in violation of any of the data protection laws described above or any other laws that apply to us, we may be subject to penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation in government healthcare programs, injunctions, private qui tam actions brought by individual whistleblowers in the name of the government, class action litigation and the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corrective action plan or other agreement to resolve allegations of non-compliance with these laws, any of which could adversely affect our ability to operate our business and our results of operations.
Our patient service center uses text and voice calls to communicate with healthcare providers, patients and prospective patients, and we are subject to various marketing and advertising laws including the Telephone Consumer Protection Act. If we fail to comply with applicable laws, including the TCPA, we may be subject to significant liabilities.
Our patient service center uses short message service (“SMS”), text messages and telephone calls to communicate with healthcare providers, patients and prospective patients. The actual or perceived improper sending of text messages or the making of telephone calls may subject us to potential risks, including liabilities or claims relating to consumer protection laws. Numerous class-action suits under federal and state laws have been filed in recent years against companies who conduct SMS texting programs or make unwanted telephone calls, with many resulting in multi-million-dollar settlements to the plaintiffs. Any future such litigation against us could be costly and time-consuming to defend. For example, the Telephone Consumer Protections Act of 1991 (“TCPA”), a federal statute that protects consumers from unwanted telephone calls, faxes, and text messages, restricts telemarketing and the use of automated SMS text messages without proper consent. Additionally, state regulators may determine that telephone calls to our patients are subject to state telemarketing regulations. Federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain, or our SMS texting practices are not adequate or violate applicable law. This may in the future result in civil claims against us. The scope and interpretation of the laws that are or may be applicable to the delivery of text messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations, we could face direct liability, could be required to change some portions of our
business model, could face negative publicity, and our business, financial condition, and results of operations could be materially and adversely affected. Even an unsuccessful challenge of our SMS texting or telephone calling practices by our customers, regulatory authorities, or other third parties could result in negative publicity and could require a costly response from and defense by us.
We may be subject to governmental investigation, litigation and other proceedings, including intellectual property disputes, which are costly to defend and could materially harm our business and results of operations.
We may be party to government investigations, lawsuits and legal proceedings in the normal course of business. These matters are often expensive and disruptive to normal business operations. We may face allegations, lawsuits and regulatory inquiries, audits and investigations regarding data privacy, security, labor and employment, consumer protection and intellectual property infringement, including claims related to privacy, patents, publicity, trademarks, copyrights and other rights. A portion of the technologies we use incorporates open source software, and we may face claims claiming ownership of open source software or patents related to that software, rights to our intellectual property or breach of open source license terms, including a demand to release material portions of our source code or otherwise seeking to enforce the terms of the applicable open source license. We may also face allegations or litigation related to our acquisitions, securities issuances or business practices, including public disclosures about our business. Litigation and regulatory proceedings, and particularly the patent infringement and class action matters we could face, may be protracted and expensive, and the results are difficult to predict. Certain of these matters may include speculative claims for substantial or indeterminate amounts of damages and include claims for injunctive relief. Additionally, our litigation costs could be significant. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our solution or require us to stop offering certain features, all of which could negatively impact our business. We may also become subject to periodic audits, which would likely increase our regulatory compliance costs and may require us to change our business practices, which could negatively impact our results of operations. Managing legal proceedings, litigation and audits, even if we achieve favorable outcomes, is time-consuming and diverts management’s attention from our business.
The results of regulatory proceedings, litigation, claims, and audits cannot be predicted with certainty, and determining reserves for pending litigation and other legal, regulatory and audit matters requires significant judgment. There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our reputation, business, financial condition, results of operations and the market price of our Class A common stock.
Our commercialization efforts to date have focused almost exclusively on the US. Our ability to enter other foreign markets will depend, among other things, on its ability to navigate various regulatory regimes with which it does not have experience, which could delay or prevent the growth of our operations outside of the US.
To date, our commercialization efforts have focused almost exclusively on the US. Expanding our business to attract customers in countries other than the US is an element of our long-term business strategy. Our ability to continue to expand our business and to attract talented employees and customers in various international markets will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute resolution systems, regulatory systems and commercial infrastructures. Entering new international markets will be expensive, our ability to successfully gain market acceptance in any particular market is uncertain and the distraction of our senior management team could harm our business, financial condition and results of operation.
Sales of our products outside of the US are subject to foreign regulatory requirements that vary widely from country to country. In addition, the FDA regulates exports of medical devices from the US. While the regulations of some countries may not impose barriers to marketing and selling our products or only require notification, others require that we obtain the marketing authorization of a specified regulatory body. Complying with foreign regulatory requirements, including obtaining registrations or marketing authorizations, can be expensive and time-consuming, and we may not receive regulatory authorizations, clearances or approvals in each country in which we may plan to market our products or we may be unable to do so on a timely basis. The time required to obtain registrations or
marketing authorizations, if required by other countries, may be longer than that required for FDA clearance, authorization, or approval, and requirements for such registrations and marketing authorizations may significantly differ from FDA requirements. If we modify our products, we may need to apply for additional regulatory authorizations before we are permitted to sell the modified product. In addition, we may not continue to meet the quality and safety standards required to maintain the authorizations that we have received. If we are unable to maintain our authorizations in a particular country, we will no longer be able to sell the applicable product in that country. Regulatory de novo classification, clearance or approval by the FDA does not ensure registration or marketing authorization by regulatory authorities in other countries, and registration or marketing authorization by one or more foreign regulatory authorities does not ensure registration or marketing authorization by regulatory authorities in other foreign countries or by the FDA. A failure or delay in obtaining registration or marketing authorization in one country may have a negative effect on the regulatory process in others.
Doing business internationally involves a number of additional risks, including:
•multiple, conflicting and changing laws and regulations such as tax laws, privacy and data protection laws and regulations, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;
•requirements to maintain data and the processing of that data on servers located within the US or in such countries;
•protecting and enforcing our intellectual property rights;
•converting our products as well as the accompanying instructional and marketing materials to conform to the language and customs of different countries;
•complexities associated with managing multiple payor reimbursement regimes, and government payors;
•competition from companies with significant market share in our market and with a better understanding of user preferences;
•financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the effect of local and regional financial pressures on demand and payment for our products and services and exposure to foreign currency exchange rate fluctuations;
•natural disasters, political and economic instability, including wars, terrorism, political unrest, outbreak of disease (including the recent coronavirus outbreak), boycotts, curtailment of trade, and other market restrictions; and
•regulatory and compliance risks that relate to maintaining accurate information and control over activities subject to regulation under the US Foreign Corrupt Practices Act (the “FCPA”), and comparable laws and regulations in other countries.
These risks and uncertainties may impact our ability to enter foreign markets, which could delay or prevent the growth of our operations outside of the US, and have a material adverse effect on our business, prospects, results of operations and financial condition.
The regulatory framework for digital health products is constantly evolving. Increasingly stringent regulatory requirements could create barriers to our development and introduction of new products. Conversely, in the event that regulatory requirements are lowered, competitors could potentially enter the prescription digital therapeutic market and compete us more easily. Either of the foregoing could materially harm our business.
Our PDTs are novel and represent a new category of therapeutics for which the regulatory framework continues to evolve. Our ability to develop and introduce new products will depend, in part, on our ability to comply with these complex requirements, which include regulations related to product design, development and manufacturing; testing, labeling, content and language of instructions for use; clinical trials; product safety; pre market clearance, authorization, and approval; establishment registration and device listing; and marketing, sales and distribution. If,
however, the regulatory framework for digital health products simplifies and the requirements that we and others are required to comply with are lowered, it could result in the increased competition and the introduction by competitors of products that are or claim to be superior to our products. For example, due to the COVID-19 public health emergency, the FDA issued, “Enforcement Policy for Digital Health Devices For Treating Psychiatric Disorders During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency,” which allows for marketing of certain digital therapeutics without premarket clearance, authorization, or approval so long as certain criteria are met. Similarly, competitors using our products as predicates for 510(k)s may successfully argue that they should be required to submit substantially less data to support approval of their product than was required for our products based on FDA’s growing familiarity with the technology. As a result, we are subject to risks related to the developing regulatory landscape applicable to our PDTs that could have a material adverse effect on our business and results of operations.
Our products may face competition from digital health products that are marketed without regulatory clearance, authorization, or approval. Regulators have broad discretion in determining whether to enforce regulatory requirements, and may decide not to remove uncleared or unapproved products that compete with our products, which could materially and adversely impact our business.
Our PDTs, reSET, reSET-O and Somryst have been authorized or cleared by the FDA after completion of clinical trials and related regulatory review. The FDA and other regulators have broad discretion in determining whether to enforce these requirements, however, which could result in uncleared or unapproved products entering the marketplace. If uncleared or unapproved products are allowed to compete with our products, we will face increased competition from parties who have fewer barriers to enter our industry. This increased competition could have a material, adverse effect on our business, results of operations and financial condition.
Premarket clearances, authorizations, and approvals for new or significantly modified devices could be denied or significantly delayed.
Under FDA regulations, unless exempt, a new medical device may only be commercially distributed after it has received 510(k) clearance, is authorized through the de novo classification process, or is the subject of a premarket approval (“PMA”). The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the new product is substantially equivalent to another legally marketed product not subject to a PMA. Sometimes, premarket submissions must be supported by clinical data. Our ability to enroll patients in clinical trials could be impacted by the COVID-19 outbreak, as many patients are electing or being asked to delay procedures at this time. The PMA process typically is more costly, lengthy and stringent than the 510(k) process and usually requires more substantial clinical studies.
The FDA may not authorize marketing via de novo classification or clear our 510(k) applications on a timely basis or at all. For example, the COVID-19 outbreak could affect the FDA’s ability to review applications or supplements. Such delays or refusals, regardless of the cause, could have a material adverse effect on our business, financial condition, and results of operations. The FDA may also change its clearance and authorization policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay authorization or clearance of our products.
Material modifications to our devices may require new 510(k) clearance, de novo classification, PMA approval, or PMA supplement approval, or may require us to cease marketing or recall the modified devices until clearances, authorizations, or approvals are obtained.
Material modifications to the intended use or technological characteristics of our devices may require new 510(k) clearance, de novo classification, PMA approval, or PMA supplement approval, or may require us to cease marketing or recall the modified devices until clearances, authorizations, or approvals are obtained. Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design, or manufacture, requires a new 510(k) clearance or, possibly, a de novo or a PMA. The FDA requires every manufacturer to make and document this determination in the first instance. A manufacturer may determine that a modification could not significantly affect safety or effectiveness and does not represent a major change in its intended use, so that no new 510(k) clearance is necessary. The FDA may
review any manufacturer’s decision and may not agree with our decisions regarding whether new clearances, authorization, or approvals are necessary. The FDA may also on its own initiative determine that a new clearance, authorization, or approval is required.
We have modified some of our cleared and authorized devices and have determined based on our review and interpretation of the applicable FDA guidance that in certain instances new 510(k) clearances are not required. If the FDA disagrees with our determination and requires us to submit new 510(k) clearances for modifications to our previously cleared or authorized products for which we have concluded that new clearances are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance, authorization, or approval. In these circumstances, we may be subject to significant enforcement actions, regulatory fines, or penalties, which could require us to redesign our products and harm our operating results. In addition, unlike traditional hardware devices, we are exposed to this risk more frequently based on the number of changes associated with software to improve performance, introduce new features, and correct issues.
Products may be subject to product recalls. A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products, could materially and adversely affect us.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in their design or manufacture or in the event that a product poses an unacceptable risk to health.
The FDA’s authority to require a recall for medical devices must be based on a finding that there is reasonable probability that the device would cause serious injury or death. We may also decide to voluntarily recall our products. A government-mandated or voluntary recall could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects or other deficiencies and issues. For example. on May 20, 2021, we initiated a voluntary correction of reSET and reSET-O due to a software defect related to contingency management. This recall was reportable to the FDA and is in-process. Recalls of any of our products would divert managerial and financial resources and could materially and adversely affect our reputation and business, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be subject to liability claims, be required to bear other costs, or take other actions that could materially and adversely affect our business, results of operations and financial condition.
Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. We may initiate voluntary recalls or corrections for our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls and we may be subject to enforcement action.
We are required to report certain malfunctions, deaths, and serious injuries associated with our products, which can result in voluntary corrective actions or agency enforcement actions.
Under the FDA’s medical device reporting regulations, we are required to report to the FDA when information from any source suggests that our product may have caused or contributed to a death or serious injury or that our product has malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. We have not been required to make any such reports to date. If we fail to report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against us.
Any adverse event involving our products, whether in the US or abroad, could result in future voluntary corrective actions, such as recalls, including corrections or customer notifications, or agency action, such as inspection or enforcement actions. If malfunctions do occur, we may be unable to correct the malfunctions adequately or prevent further malfunctions, in which case we may need to cease manufacture and distribution of the affected products, initiate voluntary recalls, and redesign the products. Regulatory authorities may also take actions against us, such as ordering recalls, imposing fines, or seizing the affected products. Any corrective action, whether voluntary or involuntary, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
If we fail to comply with the FDA’s Quality System Regulation (“QSR”), or any applicable foreign equivalent, our operations could be interrupted, and our potential product sales and operating results could suffer.
We are required to comply with the FDA’s QSR, which delineates, among other things, the design controls, document controls, purchasing controls, identification and traceability, production and process controls, acceptance activities, nonconforming product requirements, corrective and preventive action requirements, labeling and packaging controls, handling, storage, distribution and installation requirements, complaint handling, records requirements, servicing requirements, and statistical techniques potentially applicable to the production of our medical devices. We are also subject to the regulations of foreign jurisdictions if we market products overseas.
The FDA enforces the QSR through periodic and announced or unannounced inspections of manufacturing facilities. Our San Francisco facility has been inspected by the FDA and other designated auditing organizations, and we anticipate that we will be subject to additional future inspections. If our facilities or processes are found to be in non-compliance or fail to take satisfactory corrective action in response to adverse QSR inspectional findings, the FDA could take legal or regulatory enforcement actions against us and/or our products, including but not limited to the cessation of sales or the initiation of a recall of distributed products, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and our ability to generate profits.
The FDA’s, other comparable state governmental agencies’, and non-US regulatory agencies’ statutes, regulations, policies or interpretations may change, and additional government regulation or statutes may be enacted, which could increase regulatory requirements, or delay, suspend, prevent marketing of any cleared, authorized, or approved products or necessitate the recall of distributed products. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the US or abroad.
The medical device industry has been under heightened FDA scrutiny as the subject of government investigations and enforcement actions. If our operations and activities are found to be in violation of any FDA laws or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and other legal and/or agency enforcement actions. Any penalties, damages, fines, or curtailment or restructuring of our operations or activities could materially and adversely affect our ability to operate our business and our financial results. The risk of us being found in violation of FDA laws is increased by the fact that many of these laws are broad and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend ourselves against that action and its underlying allegations, could cause us to incur significant legal expenses and divert management’s attention from the operation of our business. Where there is a dispute with a federal or state governmental agency that cannot be resolved to the mutual satisfaction of all relevant parties, we may determine that the costs, both real and contingent, are not justified by the commercial returns to us from maintaining the dispute or the product.
Various claims, design features, or performance characteristics of our medical devices that we regarded as permitted by the FDA without new marketing clearance, authorization, or approval may be challenged by the FDA or state or foreign regulators. The FDA or state or foreign regulatory authorities may find that certain claims, design features, or performance characteristics, in order to be made or included in the products, may have to be supported by further clinical studies and marketing clearances, authorizations, or approvals, which could be lengthy, costly, and possibly unobtainable.
Risks Related to Our Financial Reporting
We rely on assumptions, estimates, internally developed software, and data from third parties to calculate our key performance indicators and other business metrics to deliver timely and accurate information in order to accurately report our financial results in the timeframe and manner required by law, and real or perceived inaccuracies in these metrics may harm our reputation and negatively affect our business.
We need to receive timely, accurate, and complete information from our internal company data that has not been independently verified utilizing internally developed software and third party software in order to accurately report
our financial results on a timely basis. If the information that we receive is not accurate, our consolidated financial statements may be materially incorrect and may require restatement. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring such information. In addition, our measurement of certain metrics may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology and as a result our results may not be comparable to our competitors. As a result, we may have difficulty completing accurate and timely financial disclosures, which could have an adverse effect on our business.
Our results of operations and financial condition are subject to management’s accounting judgments and estimates, as well as changes in accounting policies.
The preparation of our financial statements requires us to make estimates and assumptions affecting the reported amounts of our assets, liabilities, revenues, expenses and earnings. If these estimates or assumptions are incorrect, it could have a material adverse effect on our results of operations or financial condition. We have identified several accounting policies as being critical to the fair presentation of our financial condition and results of operations because they involve major aspects of our business and require us to make judgments about matters that are inherently uncertain. These policies are described under the section entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and should be considered in conjunction with our audited consolidated financial statements and notes thereto included in this prospectus. The implementation of new accounting requirements or other changes to Generally Accepted Accounting Principles in the US, or GAAP, could have a material adverse effect on our reported results of operations and financial condition.
As a public reporting company, we will be subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, investors may lose confidence in the accuracy of our financial reports, which would harm our business and the trading price of our common stock. Our management will be required to evaluate the effectiveness of our internal control over financial reporting.
As a public reporting company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations established by the SEC and Nasdaq. These rules and regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal control over financial reporting. Reporting obligations as a public company place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel, including senior management. In addition, as a public company, we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting. Management’s initial certification under Section 404 of the Sarbanes-Oxley Act will be required with our annual report on Form 10-K for the year ending December 31, 2022.
In support of such certifications, we have and will be required to document and make significant changes and enhancements, including potentially hiring additional personnel, to our internal control over financial reporting. Likewise, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report is required to be filed with the SEC following the date we are no longer an emerging growth company.
To achieve compliance with Section 404 within the prescribed period, and in order to maintain and improve the effectiveness of our internal controls over financial reporting, we have expended, and anticipate we will continue to expend, significant resources, including accounting-related costs and significant management oversight. If any of these new or improved controls and systems do not perform as expected, we may experience further deficiencies in our controls.
We have identified gaps in our internal control environment in the past and cannot provide assurances that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report
our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of shares of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Our management has identified certain internal control deficiencies that constitute material weaknesses. If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, our stock price.
As of December 31, 2021 and 2020, we did not maintain an effective control environment as we did not maintain a sufficient complement of accounting and financial reporting resources commensurate with our financial reporting requirements. This resulted in the following material weaknesses:
•we did not have sufficient accounting and reporting resources to ensure adequate segregation of duties,
•we did not design, implement, and maintain adequate information systems controls, including access and change management controls, and
•we did not design, implement, and maintain controls to ensure the accurate and timely reporting of material transactions, including the capitalization of software costs and capital stock valuations performed by us or our advisors.
These control deficiencies could result in a misstatement in our accounts or disclosures that would result in a material misstatement to our financial statements that would not be prevented or detected. Accordingly, we determined that these control deficiencies constitute material weaknesses.
In addition, they could cause us to fail to meet our reporting obligations or may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could materially and adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC.
Our management has concluded that these material weaknesses are due to the fact that, prior to the Business Combination, more fully described in Note 3 in the accompanying notes to the consolidated financial statements included in this prospectus, we were a private company with limited resources. We did not have the necessary business processes and related internal controls, or the appropriate resources or level of experience and technical expertise, that would be required to oversee financial reporting processes or to address the accounting and financial reporting requirements. These material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. Our management is in the process of developing a remediation plan and we cannot assure you that the measures that we implement will fully address the material weaknesses and deficiencies in our internal control over financial reporting or that we may conclude that they have been fully remediated.
We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure information required to be disclosed by us in the reports we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. For example, we hired additional personnel in our finance group, including a Vice President, Corporate Controller and Director, SEC Reporting and Technical Accounting. In addition, we implemented a new enterprise resource planning system to replace the former general ledger package. Any failure to develop or maintain effective controls or any difficulties encountered as a result of the implementation or improvements could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could materially and adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC.
The material weaknesses remain unremediated as of December 31, 2021.
Some members of our management team have limited experience in operating a public company.
Some of our executive officers have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage our transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. Certain executives’ limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage as they will likely need to devote an increasing amount of their time to these activities, resulting in less time being devoted to the management and growth of our Company. We may not have adequate personnel with the appropriate level of knowledge, experience, and training in the accounting policies, practices or internal controls over financial reporting required of public companies.
We could be subject to additional tax liabilities and our ability to use our net operating loss carryforwards and other tax attributes may be limited.
We have incurred net operating losses (“NOLs”) since our inception and may never achieve or sustain profitability. Generally, for US federal income tax purposes, unused NOLs will carry forward. However, NOL carryforwards generated prior to January 1, 2018, are subject to expiration for US federal income tax purposes. As of December 31, 2021, we had federal NOL carryforwards of approximately $218.9 million, of which $17.4 million will begin to expire in 2034. In addition, under the Internal Revenue Code of 1986, as amended, or the Code, limits the ability to deduct NOL carryforward generated after December 31, 2017 and all future NOL carryforwards to 80% of taxable income. These NOL limitations may limit or delay in part the use of NOL carryforwards, if or, when we cease operating at a loss. It is uncertain whether and to what extent applicable state tax laws will conform to this rule. As of December 31, 2021, we also had research and development tax credits of $6.2 million, which may be available to offset future income tax liabilities. The research and development tax credit carryforwards would begin to expire in 2037. As of December 31, 2021, we also had state research and development tax credits of $1.3 million, which may be available to offset future income tax liabilities. The state research and development tax credit carryforwards would begin to expire in 2030.
In general, under Code Sections 382 and 383, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change by value in its equity ownership by certain stockholders over a three-year period), the corporation’s ability to use its pre-ownership change NOLs, carryforwards and other pre-ownership change tax attributes, such as research tax credits, to offset its post-ownership change income or taxes may be limited. Similar provisions of state tax law may also apply to limit the use of our state NOL carryforwards and other state tax attributes. We have not performed an analysis to determine whether our past issuances of stock and other changes in our stock ownership may have resulted in one or more “ownership changes” under these rules. In addition, future changes in our stock ownership may materially limit our ability to utilize our NOL carryforwards and other tax attributes under these rules. As a result, even if we earn net taxable income in the future, we may be unable to use a
material portion of our NOL carryforwards and other tax attributes, which could materially and adversely affect our future cash flows.
There is also a risk that regulatory changes, such as suspensions on the use of NOL or other unforeseen reasons, may result in our existing NOL carryforwards expiring or otherwise becoming unavailable to offset future taxable income. For these reasons, we may not be able to utilize all or a material portion of our NOL carryforwards and other tax attributes, even if we attain profitability. For example, a temporary suspension of the use of certain net operating losses and tax credits has been enacted in California, and other states may enact suspensions as well. If we are limited in our ability to use our NOLs in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs. This could materially and adversely affect our results of operations.
Risks Related to Ownership of our Class A common stock and Warrants
The terms of the Warrants may be amended in a manner adverse to a holder if holders of at least 50% of the then outstanding Public Warrants approve of such amendment.
The Private Placement Warrants and Public Warrants were issued in registered form under the Warrant Agreement, between us and Continental Stock Transfer & Trust Company, our Warrant and transfer agent (“Continental”). The Warrant Agreement provides that the terms of the Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding Public Warrants to make any change that adversely affects the interests of the registered holders of Public Warrants. Accordingly, we may amend the terms of the Public Warrants in a manner adverse to a holder if holders of at least 50% of the then outstanding Public Warrants approve of such amendment. Although our ability to amend the terms of the Public Warrants with the consent of at least 50% of the then outstanding Public Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Warrants, shorten the exercise period or decrease the number of our Class A common stock purchasable upon exercise of a Warrant.
The exercise of Warrants for our stock would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders. Such dilution will increase if more of our shares are redeemed.
As of December 31, 2021, we had Warrants to purchase an aggregate of 14,213,277 shares of our stock outstanding, comprising 9,199,944 Public Warrants sold as part of the units in the closing of the initial public offering of THMA, which closed on February 4, 2021 (the “Initial Public Offering”) (whether they were purchased in the Initial Public Offering or thereafter in the open market) and 5,013,333 Private Placement Warrants issued to LJ10 LLC, a Delaware limited liability company (the “Sponsor”) in a private placement simultaneously with the Initial Public Offering. These Warrants are exercisable at any time through December 4, 2026. The likelihood that the Warrants will be exercised increases if the trading price of shares of our stock exceeds the exercise price of the Warrants. The exercise price of these Warrants is $11.50 per share.
There is no guarantee that the Warrants will ever be in the money after they become exercisable and prior to their expiration, and as such, the Warrants may expire worthless.
To the extent the Warrants are exercised, additional Class A common stock will be issued, which will result in dilution to the holders of our stock and increase the number of shares eligible for resale in the public market. Holders of Warrants do not have a right to redeem the Warrants. Sales of substantial numbers of shares issued upon the exercise of Warrants in the public market or the potential that such Warrants may be exercised could also adversely affect the market price of our stock.
We may redeem unexpired Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your Warrants worthless.
We will have the ability to redeem the Public Warrants in whole and not in part at any time prior to their expiration, at a price of $0.01 per Warrant, if, and only if, the last reported sales price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the
like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date we send the notice of redemption to the Warrant holders. If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Warrants as described above could force you to: (1) exercise your Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so; (2) sell your Warrants at the then-current market price when you might otherwise wish to hold your Warrants; or (3) accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, we expect would be substantially less than the market value of your Warrants. The Private Placement Warrants are not redeemable by us in such a case so long as they are held by the Sponsor or its permitted transferees. The Sponsor, or its permitted transferees, has the option to exercise the Private Placement Warrants on a cashless basis and has certain registration rights.
In addition, we will have the ability to redeem the outstanding Warrants in whole and not in part for shares of our stock at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant if, among other things, (i) the closing price of our Class A common stock equals or exceeds $10.00 per public share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a Warrant) on the trading day prior to the date on which we send the notice of redemption to the Warrant holders and (ii) the closing price of our Class A common stock (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the Warrant holders is less than $18.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like). If this occurs, then the Private Placement Warrants must also concurrently be called for redemption on the same terms (except with respect to a holder’s ability to cashless exercise its Warrants) as the outstanding Public Warrants. In such a case, the holders will be able to exercise their Warrants prior to redemption for a number of Class A common stock determined based on the redemption date and the fair market value of the Class A common stock. The value received upon exercise of the Warrants (1) may be less than the value the holders would have received if they had exercised their Warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the Warrants.
Future resales of our Class A common stock may cause the market price of our securities to drop significantly, even if our business is doing well.
Subject to customary exceptions, the Sponsor, parties to the Registration Rights Agreement, certain holders of Private Investment in Public Equity (“PIPE”) Shares and certain other holders of our Class A common stock are subject to lock-up provisions in which they agreed not to sell or otherwise dispose of any our Class A common stock or any other equity securities of Pear convertible into or exercisable or exchangeable for our Class A common stock held by any of them for a period of 180 days after the Closing).
However, following the expiration of each lock-up, the applicable stockholders will not be restricted from selling our Class A common stock held by them, other than by applicable securities laws. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time after the expiration of the applicable lock-up periods. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of the Class A common stock.
As restrictions on resale end and registration statements are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in our share price or the market price of our stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
The market price and trading volume of our Class A common stock may be volatile and could decline significantly.
The stock markets, including Nasdaq on which we list the Class A common stock, have from time to time experienced significant price and volume fluctuations. Even if an active, liquid and orderly trading market develops and is sustained for our stock, the market price of our stock may be volatile and could decline significantly. In addition, the trading volume in our stock may fluctuate and cause significant price variations to occur. If the market
price of our stock declines significantly, you may be unable to resell your shares at an attractive price (or at all). We cannot assure you that the market price of our stock will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following:
•the realization of any of the risk factors presented in this prospectus;
•changes in the industries in which we operate;
•developments involving our competitors;
•changes in laws and regulations affecting our business;
•actual or anticipated differences in our estimates, or in the estimates of analysts, for our revenues, Adjusted EBITDA, results of operations, level of indebtedness, liquidity, or financial condition;
•additions and departures of key personnel;
•failure to comply with the requirements of Nasdaq;
•failure to comply with the Sarbanes-Oxley Act or other laws or regulations;
•future issuances, sales, resales or repurchases or anticipated issuances, sales, resales or repurchases, of our securities;
•publication of research reports by securities analysts about us or our competitors or our industry;
•the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
•actions by stockholders, including the sale by the PIPE investors of any of their shares of our stock;
•the performance and market valuations of other similar companies;
•commencement of, or involvement in, litigation involving us;
•broad disruptions in the financial markets, including sudden disruptions in the credit markets;
•speculation in the press or investment community;
•actual, potential or perceived control, accounting, or reporting problems;
•changes in accounting principles, policies, and guidelines;
•other events or factors, including those resulting from infectious diseases, health epidemics and pandemics (including the ongoing COVID-19 public health emergency), natural disasters, war, acts of terrorism, or responses to these events;
•actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
•changes in the market’s expectations about our results of operations;
•our results of operations failing to meet the expectation of securities analysts or investors in a particular period;
•any major change in our Board of Directors or management;
•sales of substantial amounts of the shares of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and
•general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations, and acts of war or terrorism.
In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their shares. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and Nasdaq in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could materially and adversely affect our business, prospects, financial condition and results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
The requirements of being a public company may strain our resources and divert management’s attention, and the increases in legal, accounting and compliance expenses may be greater than we anticipate.
As a public company we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Exchange Act and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of Nasdaq, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls. Compliance with these rules and regulations can be burdensome. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our historical legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it difficult and expensive for us to obtain director and officer liability insurance and could also make it more difficult for us to attract and retain qualified members of our Board of Directors as compared to when we were a private company. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an “emerging growth company.” We may need to hire additional accounting and financial staff, and engage outside consultants, all with appropriate public company experience and technical accounting knowledge and maintain an internal audit function, which will increase our operating expenses. Moreover, we could incur additional compensation costs in the event that we decide to pay cash compensation closer to that of other public companies, which would increase our general and administrative expenses and could materially and adversely affect our profitability. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earliest of (i) the day we are deemed to be a large accelerated filer, which, in addition to certain other criteria, means the market value of our common equity that is held by non-affiliates exceeds $700
million as of the end of the prior fiscal year’s second fiscal quarter, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period and (iv) the last day of the fiscal year ending after the fifth anniversary of the THMA IPO. Investors may find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to opt out of such an extended transition period and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
The exclusive forum provision in our Certificate of Incorporation may have the effect of discouraging lawsuits against our directors and officers.
Our Second Amended and Restated Certificate of Incorporation (our “Certificate of Incorporation”) provides that unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action brought by a stockholder on behalf of us, (ii) any claim of breach of a fiduciary duty owed by any of our directors, officers, stockholders, or employees, (iii) any claim against us arising under our Certificate of Incorporation, our Amended and Restated Bylaws (the “Bylaws”) or the Delaware General Corporation Law, as may be amended from time to time (the “DGCL”) and (iv) any claim against us governed by the internal affairs doctrine. The Certificate of Incorporation designates the US District Court for the District of Delaware as the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
This exclusive forum provision does not apply to claims under the Exchange Act, but does apply to other state and federal law claims including actions arising under the Securities Act. Section 22 of the Securities Act, however, created concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act.
Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, this choice of forum provision may have the effect of increasing costs for investors to bring a claim against us and our directors and officers and of limiting a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage (but not prevent) lawsuits with respect to such claims.
Provisions in our Certificate of Incorporation and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for the Class A common stock and could entrench management.
Our Certificate of Incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include three-year director terms and the ability of our Board of Directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
Section 203 of the DGCL affects the ability of an “interested stockholder” to engage in certain business combinations, for a period of three years following the time that the stockholder becomes an “interested
stockholder.” We elected in our Certificate of Incorporation not to be subject to Section 203 of the DGCL. Nevertheless, our Certificate of Incorporation contains provisions that have the same effect as Section 203 of the DGCL, except that it provides that affiliates of our Sponsor and their transferees will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and will therefore not be subject to such restrictions. These Certificate of Incorporation provisions may limit the ability of third parties to acquire control of our company.
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 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 entered into with our directors and officers provide that:
•We will indemnify our directors and officers for serving in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;
•We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;
•We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;
•We are not obligated pursuant to our Bylaws to indemnify a person with respect to proceedings initiated by that person against Aurora or our other indemnitees, except with respect to proceedings authorized by our Board of Directors or brought to enforce a right to indemnification;
•the rights conferred in our Bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and
•We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our capital stock will be at the discretion of our Board of Directors. Accordingly, investors must rely on sales of the Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
We may be subject to securities litigation, which is expensive, and could divert management attention.
The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm its business.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or the market in which we operate, or if they change their recommendations regarding our securities adversely, the price and trading volume of our securities could decline.
The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, market or competitors. If any of the analysts who may cover us change their recommendation regarding our shares of common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover us were to cease our coverage of us or fail to regularly publish reports on it, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.
Future issuances of debt securities and equity securities may adversely affect us, including the market price of our stock and may be dilutive to existing stockholders.
In the future, we may incur debt or issue equity ranking senior to the Class A common stock. Those securities will generally have priority upon liquidation. Such securities also may be governed by an indenture or other instrument containing covenants restricting its operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of the Class A common stock. Because our decision to issue debt or equity in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. As a result, future capital raising efforts may reduce the market price of our stock and be dilutive to existing stockholders.
Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our securities.
If we fail to satisfy the continued listing requirements of Nasdaq such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our securities. Such a delisting would likely have a negative effect on the price of the securities and would impair your ability to sell or purchase the securities when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our securities from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements. Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, trading our common stock could be conducted only in the over-the-counter (“OTC”) market or on an electronic bulletin board established for unlisted securities such as the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.
USE OF PROCEEDS
All of the Pear Class A Common Shares and Private Placement Warrants offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any of the proceeds from the sale of the Pear Class A Common Shares or Private Placement Warrants hereunder.
With respect to the registration of all Pear Class A Common Shares and Private Placement Warrants offered by the Selling Securityholders pursuant to this prospectus, the Selling Securityholders will pay any underwriting discounts and commissions and expenses incurred by them for brokerage, accounting, tax or legal services or any other expenses incurred by them in disposing of the Securities. We will bear the costs, fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including all registration and filing fees and fees and expenses of our counsel and our independent registered public accounting firm.
We will receive up to an aggregate of approximately $163,452,686 from the exercise of all 14,213,277 Warrants assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for working capital and general corporate purposes. There is no assurance that the holders of the Warrants will elect to exercise any or all of such Warrants or that they will exercise any or all of them for cash. The amount of cash we would receive from the exercise of Warrants will decrease to the extent that Warrants are exercised on a cashless basis.
DETERMINATION OF OFFERING PRICE
The offering price of the Pear Class A Common Shares underlying the Warrants offered hereby is determined by reference to the exercise price of the Warrants of $11.50 per share. The Public Warrants are listed on Nasdaq under the symbol “PEARW.”
We cannot currently determine the price or prices at which the Pear Class A Common Shares or Warrants may be sold by the Selling Securityholders under this prospectus. Our Class A Common Shares are listed on Nasdaq under the symbol “PEAR.”
MARKET PRICE AND DIVIDEND INFORMATION
Market Price
Pear Class A Common Shares and Public Warrants are listed on Nasdaq under the symbols “PEAR” and “PEARW,” respectively. Prior to the consummation of the Business Combination our Class A common shares, units and public warrants were traded on Nasdaq under the symbols “THMA,” “THMA.U” and “THMA.W,” respectively.
The closing price of our Class A Common Shares and Public Warrants on March 15, 2022 was $4.54 and $0.66, respectively.
Holders
As of March 1, 2022, there were 86 holders of record of our Class A Common Shares, one holder of Private Placement Warrants and one holder of record of Public Warrants. The number of holders of record does not include for example a substantially greater number of “street name” holders or beneficial holders whose Pear Class A Common Shares and Public Warrants are held of record by banks, brokers and other financial institutions.
Dividend Policy
We have not paid any cash dividends to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our Board at such time. The terms of our existing credit agreement preclude us from paying cash dividends without consent. Our ability to declare dividends may also be limited by restrictive covenants pursuant to any future debt financing agreements.
BUSINESS
Overview
Pear is a commercial-stage healthcare company pioneering a new class of software-based medicines, sometimes referred to as Prescription Digital Therapeutics (“PDTs”), which use software to treat diseases directly. Our vision is to advance healthcare through the widespread use of PDTs, and to be the one-stop shop for PDTs offered both by Pear and by other organizations that may choose to host their products on our commercial platform.
Recent global trends are converging to highlight a significant unmet need for new and innovative solutions for the treatment of diseases. We believe that our software-based, data-driven solutions are well suited to satisfy this growing unmet need for treatment of diseases, including addiction and insomnia. We believe that PDTs have the potential to become a cornerstone of the emerging digital health ecosystem and that PDTs are a transformative new generation of therapeutics.
We believe that Pear’s platform has the potential to provide for discovery, development, and commercialization of PDTs at scale. We have designed our development platform to allow for the repeated advancement of PDTs through U.S. Food and Drug Administration (“FDA”) market authorization. Over time, our commercial platform, PearConnect, is similarly designed to offer the infrastructure needed to distribute PDTs developed by us or others. Due to our first-mover advantage, we believe that Pear is positioned to be a long-term leader in this novel therapeutic class.
Pear is one of the category creators and leaders of the PDT industry, as evidenced by being the first company to receive FDA market authorization for a PDT. Our marketed PDTs, reSET, reSET-O and Somryst, were among the first three PDTs authorized by FDA and address psychiatric indications, an area with significant unmet need.
Two of Pear’s FDA-authorized PDTs treat addiction, which currently affects more than 20 million people in the United States (“US”).
Pear’s first product, reSET, is indicated for the treatment of substance use disorder (“SUD”) as a monotherapy. To combat SUD, reSET works to enhance patient abstinence, improve patient treatment retention relative to human intervention-based alternatives, and extend clinicians’ reach outside of scheduled office visits. reSET’s mechanisms of action seek to directly modify addiction-related neurocircuitry and induce dopamine in the brain, a process with the potential to repair dysfunctional neurophysiology.
Pear’s second product, reSET-O, is the first PDT to receive FDA Breakthrough Designation, and is FDA-authorized for treatment of opioid use disorder (“OUD”) in combination with buprenorphine. Approximately 1.6 million Americans suffer from OUD annually in the US, and approximately 50,000 Americans die each year from opioid overdose. To combat OUD, reSET-O works alongside buprenorphine to reduce dependence on opioids, and, similar to reSET, to improve patient treatment adherence and extend clinicians’ reach outside of scheduled office visits.
Pear’s third product, Somryst, is the only software-based, FDA-authorized, and guideline-recommended treatment for chronic insomnia. Chronic insomnia is estimated to affect approximately 30 million people in the US. In addition to adversely affecting quality of life, chronic insomnia can also give rise to other serious and life-threatening medical conditions. Many patients turn to sleep medications to combat their chronic insomnia. Most available sleep medications are only recommended for short-term use due to their habit-forming side effects, and, as a result, are not a long-term solution to treat chronic insomnia. We believe that the lack of a convenient and effective solution for chronic insomnia represents a significant unmet medical need that Somryst can help address to reduce the occurrence of chronic insomnia.
We believe that PDTs have the potential to directly treat a breadth of additional diseases beyond our initial products for the treatment of addiction and insomnia, including the diseases listed in the graphic below. To capitalize on this potential, Pear has developed a robust pipeline of PDTs for a variety of additional indications across psychiatry, neurology, and other therapeutic areas. Pear currently has a pipeline of 14 PDT product candidates, as well as the
infrastructure and knowledge base needed to continue to expand upon this pipeline, which we believe has the potential to deliver more than one hundred PDTs.
Note: Diseases show above are potential medication conditions that PDTs could address in the future.
The Prescription Digital Therapeutic Opportunity
For decades, innovations have expanded the classes of therapeutics to treat disease, from small molecules starting in the 1900s to biologics starting in the late 1970s to cell and gene therapies starting around 2000. This collective innovation has resulted in consistent improvement of health outcomes around the world. Still, across numerous disease states, limited treatment options and substantial barriers to access persist. These barriers include excessive cost, conditions that are difficult to treat with drugs, geographic inaccessibility, and unfavorable side effect profiles.
Pear is advancing PDTs, a novel class of therapeutics, which are software that can be prescribed by a clinician, either alone or in combination with drugs, to treat disease directly. We believe that PDTs are a transformative new class of medicines.
Similar to pharmaceuticals, novel PDTs undergo rigorous clinical development via clinical trials designed to seek FDA authorization to safely and effectively treat disease. Similar to wellness apps, PDTs utilize digital technology to remotely interface with patients. PDTs are designed to expand access and convenience for patients, improve reach for clinicians, and reduce cost for payors by reducing and/or augmenting human intervention, providing for more efficient care, and by ideally improving clinical outcomes.
Currently, the medical community is embracing the integration of software into the navigation and delivery of care. Payors are increasingly recognizing the near- and long-term cost benefit of using software for treatment of diseases. The pervasiveness of technology and growth of telehealth allows for virtual access that was not previously available. As the category creator and leader in PDTs, Pear is defining and expanding the opportunities in this market due to factors which include, but are not limited to:
•being the first mover and leader in the PDT space, defining the industry via the first three FDA-authorized products.
•having products in major markets, with reSET and reSET-O for the treatment of addiction, and Somryst for the treatment of chronic insomnia, with the potential to address, in the aggregate, more than 50 million US patients and more than 850 million patients worldwide.
•having a deep and broad pipeline of PDTs, with 14 product candidates with the potential to redefine care across a range of therapeutic areas via diverse mechanisms of action.
•having the first scalable end-to-end platform to discover, develop, and deliver PDTs to patients, creating the horizontal infrastructure to enable our PDTs, and potentially those of other companies, to come to market and be delivered to patients. Pear’s platform also has the potential to integrate into care delivery and payor infrastructure with virtuous network effects and modularity, facilitating speed and scale in PDT deployment.
•demonstrating adoption by patients, clinicians, and payors, which could be leveraged across various future opportunities.
Products and Pipeline
PDTs are software applications authorized by FDA that are intended to treat disease. PDTs are designed to be prescribed by clinicians, reimbursed by third-party payors, and used by patients to improve clinical outcomes as part of a patient’s care, similar to FDA approved medications and medical devices. PDTs are authorized to deliver evidence-based mechanisms-of-action, such as cognitive behavioral therapy, contingency management, and exposure therapy, that the patient engages with on their mobile device and may be used alone or in combination with medications. The value of Pear’s FDA-authorized PDTs is supported by evidence demonstrating safety and clinical
effectiveness in randomized control trials, collected data on PDT usage and clinical outcomes in real-world data, and health economic value.
We believe PDTs can be utilized in the treatment of a wide variety of diseases. Pear’s first three FDA-authorized products address behavioral health indications:
•reSET is authorized in the US and Singapore for the treatment of substance use disorder related to alcohol, cannabis, cocaine, and stimulants (such as methamphetamine).
•reSET-O is authorized for use in combination with buprenorphine in the US for the treatment of opioid use disorder and was the first PDT to receive FDA Breakthrough Designation.
•Somryst is the only software-based FDA-authorized and guideline-recommended treatment for chronic insomnia and the first PDT submitted through FDA’s traditional 510(k) pathway while simultaneously being reviewed as part of FDA’s Software Precertification Pilot Program.
Our pipeline consists of 14 product candidates, including candidates in psychiatry, neurology, and outside of central nervous system therapeutic areas such as gastrointestinal (“GI”), oncology, and cardiovascular. We are initially focusing on psychiatric and neurologic conditions, which supports our strategy to commercialize our own products.
All of Pear’s product candidate development is, at present, conducted in humans. As therapeutic candidates consisting of software, there are no in vivo animal or in vitro pre-clinical or non-clinical studies. This reduces the translational risk of going from animals to humans that is encountered by many biotechnology and typical pharmaceutical companies.
The pipeline chart below uses four stages of development: Discovery, Proof of Concept (“POC”), Pivotal, and Commercial. Because PDTs are regulated as medical devices, these four stages align with guidance from the Center for Devices and Radiological Health (“CDRH”), which has two broad stages of clinical development before commercialization—pre-pivotal (such as feasibility, including first-in-human) and pivotal (generates definitive evidence of the safety and effectiveness for a specified intended use). Pear breaks down the pre-pivotal clinical development stage into Discovery and POC.
Pre-commercial development at Pear is segregated into three stages: Discovery, POC, and Pivotal. Pear refers to the stage before clinical development as Discovery. Discovery is the concept stage, in which the product candidate, its mechanism(s) of action and target patient population(s) are defined, technical capabilities and prototypes are built, and then the candidate concept is rapidly tested in iterative evaluations. Some Discovery stage programs are focused on a specific indication, and others are focused on a disease area that may be refined based on further research. POC is the early clinical development stage, in which the product candidate is being tested in human clinical trials designed to prove that the candidate concept is worthy of advancement to the Pivotal stage. POC stage activities are related to technical work, study design, planning, other operational clinical trial activities, and statistical analysis. Pivotal is the registrational phase, in which the product candidate is tested in a randomized controlled trial designed to support market authorization from a regulatory authority such as FDA. Pivotal stage activities are related to technical work, study design, planning, other operational clinical trial activities, and/or statistical analysis that are part of a regulatory submission. Commercial stage includes any products which have received market authorization from FDA.
Pear seeks out and licenses content suitable for the development of PDTs that has been initially developed by third parties. These parties, or content partners, are primarily academics or academic institutions, and Pear’s current partners are listed in the table below.
Below is a summary of our products, product candidates and partners:
*Dartmouth transaction is with a researcher employed by Dartmouth. Pear has no direct contractual relationship with Dartmouth relating to this content.
**Karolinska transaction is with individual researchers who are employed by the Karolinska Institute. Pear has no direct contractual relationship with the Karolinska Institute relating to this content.
***Services agreement with Ironwood to evaluate a PDT in GI diseases.
As reflected above, Pear has licensed or otherwise acquired rights in content suitable for the development of PDTs from a variety of content partners. For further information concerning content collaborations see the section below entitled “License Agreements.”
Our agreement involving the University of Virginia relates to our license agreement with BeHealth Solutions, LLC and the relationship between Pear and University of Virginia Patent Foundation d/b/a University of Virginia Licensing & Ventures.
Our license with Red 5 Group LLC relates to our content collaboration involving a researcher employed by Dartmouth College.
Pear licenses certain content related to treatment of irritable bowel syndrome (“IBS”) developed by individual researchers employed by the Karolinska Institute who founded a company called Hedman-Lagerlöf Och Ljótsson Psykologi AB (“NCAB”) and assigned intellectual property rights in and to the IBS-related content to NCAB. Under Pear’s license agreement with NCAB, entered into on December 14, 2019, Pear was granted an exclusive license in the US and a non-exclusive license throughout the rest of the world to develop and commercialize digital therapeutic products incorporating NCAB’s IBS-related content, in exchange for an upfront payment in the mid-five figures, one-time milestone payments in low-six figures upon delivery to Pear of updated IBS-related content and upon first FDA approval of such a therapeutic product, and a royalty percentage in the low-single digits on net sales of such therapeutic products.
Pear licenses contain content related to treatment of stress disorders from the University of Southern California (“USC”). Under the Technology License and Distribution Agreement entered into with USC on January 11, 2016, Pear was granted worldwide exclusive rights to develop drug/software combination products incorporating that
content to treat disorders, illness or trauma, in addition to certain worldwide non-exclusive rights. Pear initially paid USC an upfront fee in the low-five figures and agreed to pay a royalty percentage in the low-to-mid single digits on net sales of licensed products, an annual license fee (creditable against royalty payment obligations in the same year) increasing in amount from the low-six figures in 2018 to the low-seven figures in 2021, and regulatory and commercialization milestone payments that, in the aggregate, could reach a total in the low-seven figures. On February 11, 2019, Pear notified USC of its election no longer to pay the annual license fee, thus converting the exclusive license granted by USC to a non-exclusive license.
Pear licenses certain contain related to treatment of mental health conditions including anxiety and depression from Instituto Auxologico Italiano (“IAI”). Under a software license agreement dated March 23, 2015, IAI granted Pear worldwide exclusive rights to develop drug/software combination products incorporating that content, in addition to certain worldwide non-exclusive rights. Pear agreed to pay IAI a royalty percentage in the low-to-mid single digits on net sales of licensed products, subject to an annual minimum revenue threshold in the low-six figures beginning in the fifth year of the license to maintain exclusivity; as this threshold was not met, Pear’s license from IAI is now non-exclusive.
Pear licenses certain content related to treatment of migraine headaches from Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital Medical Center (“CHMC”). Under a license agreement entered by the parties on December 17, 2019, CHMC granted a worldwide, non-exclusive license to Pear to develop and commercialize therapeutic products incorporating CHMC’s migraine-related content in exchange for an upfront payment in the mid-five figures and Pear’s agreement to pay CHMC one-time regulatory and commercial milestone payments that, in the aggregate, could reach a total in the mid-six figures, and a royalty percentage in low-single digits on net sales of such therapeutic products.
Under a services agreement dated January 9, 2020 with Apricity Health, LLC (“Apricity”), a company engaged in the business of creating digital health therapeutic solutions for improving cancer treatment, Pear has a right of first offer to negotiate terms of a license with Apricity to develop and commercialize each of the first two commercial products developed by Apricity.
Under a services agreement with Ironwood Pharmaceuticals, Inc. (“Ironwood”) dated October 25, 2019, Ironwood agreed to pay Pear a sum not to exceed the low-six figures to develop initial concepts for PDTs for treatment of gastrointestinal indications.
Under an assignment agreement dated January 15, 2019, Pear acquired rights in certain assets primarily related to treatment of acute and chronic pain from Firsthand Technology, Inc. (“Firsthand”) (the “Firsthand Agreement”). In exchange for acquiring those assets, Legacy Pear issued Legacy Pear Common Shares to Firsthand, agreed to pay an amount capped in the low-six figures to certain creditors of Firsthand, and agreed to pay a one-time milestone payment in the mid-six figures to Firsthand upon first commercial sale of an FDA-cleared Product (as defined in the Firsthand Agreement) and to pay a royalty percentage in the low-single digits on net sales of such Products. Other than the agreements with ISF, Red 5 and BeHealth, Pear does not consider any of the foregoing agreements to be material for purposes of Item 601(b)(10) of Regulation S-K.
Pear’s PDTs and its product candidates achieve their therapeutic potential by delivering evidence-based mechanisms-of-action, such as standard behavioral treatments. For example, reSET delivers an addiction-specific form of cognitive behavioral therapy called Community Reinforcement Approach (“CRA”), fluency training, and contingency management (“CM”). Somryst delivers a disease-specific intervention called Cognitive Behavioral Therapy for Insomnia (“CBTi”), which is also the first-line treatment recommended for patients with chronic insomnia in the American College of Physicians and the American Academy of Sleep Medicine’s clinical guidelines for patients with chronic insomnia. Across Pear’s pipeline, the product candidates each deliver various forms of standardized and disease-specific behavioral treatments such cognitive behavioral therapy (“CBT”), behavioral activation (“BA”), exposure therapy, and/or cognitive restructuring. Product candidates that are intended to treat diseases with standard-of-care pharmacotherapy, such as schizophrenia, for example, would make recommendations on medication usage to support overall care.
Pear’s products and product candidates may be studied both in trials sponsored and conducted by Pear and trials that are conducted by non-Pear researchers in collaborative and investigator-initiated trials. Pear is currently enrolling patients in a study that it is sponsoring and conducting on its own involving gamification of reSET-O, which is an outpatient-based, randomized-controlled, open-label study conducted at two addiction treatment programs of a gamified-version of reSET-O. This trial is partially supported by a grant from the National Institute on Drug Abuse. The study objectives are (i) to evaluate participant engagement data [Time Frame: From Week 1 to Week 8 (End of Treatment)], and (ii) to evaluate the number of active sessions per week between PEAR-008 (gamified version) and reSET-O.
Pear temporarily paused patient enrollment in its DREAM trial at the end of 2021 to make improvements to its development platform in order to gather additional follow up data. Pear received approval for their institutional review board protocol amendment on February 2, 2022, and will began to re-enroll patients (with an enrollment goal of 1,500 patients) in DREAM, which is an open-label, 9-week treatment, de-centralized trial to collect real-world evidence for Somryst. The study objectives are (i) to measure the change in the Insomnia Severity Index (“ISI”) [Time Frame: From baseline to Day 63 (End of Treatment) and Days 243, 428, 610, and 793 (Follow-up)], and (ii) to measure the change in the ISI total score from baseline to end of treatment and follow-up. The ISI’s total score ranges from 0 (not clinically significant) to 28 (clinically significant).
Key Elements of Our Growth Strategy
Our mission is to use software to treat disease directly and increase access to care for patients, including underserved constituents of the healthcare ecosystem. We plan to accomplish this goal by developing, licensing, and acquiring PDTs, and building the preferred PDT commercialization platform for use by prescribing clinicians. We aim to be the one-stop shop for PDTs offered both by Pear and by other organizations that may choose to host their products on our commercial platform. To achieve our mission, we are pursuing the following strategies:
•Capitalize on our leadership position in the PDT market. By obtaining FDA market authorization for the first three PDTs, we established ourselves as the leader and pioneer of a new category. We currently have 14 additional product candidates in our pipeline, and we intend to capitalize on our leadership position via horizontal scale.
•Continue to invest in our efforts to create the primary commercial platform through which patients and clinicians access PDTs. We are pioneering new commercialization approaches for PDTs. We seek to capture the best of tech and life science approaches to create a scalable and capital-efficient model across our existing portfolio and downstream pipeline. To date, our sales, marketing, and medical affairs teams have engaged with more than 690 clinicians who have written prescriptions for one or more of our three FDA-authorized products. We expect that number will grow proportionally in response to increasing traction with payors and growth in the number of commercially available PDTs. In addition, we recently began piloting direct-to-patient engagement via our virtual care platform, which allows patients to obtain a prescription without going to a clinician’s office.
•Establish reimbursement pathways. To date, we have 30 organizations across over 31.7 million individuals with healthcare coverage providing access to our three FDA-authorized products via listing on formulary, as a covered benefit, bulk purchase, or funding a study. Pear’s payor strategy focuses across all major payor channels, including employers, Integrated Delivery Networks (“IDNs”), pharmacy benefit managers (“PBMs”), commercial payors, and government payors including Medicaid and Medicare.
•Opportunistically license and acquire PDT product candidates and host third-party PDT products. We aspire to host products from other PDT companies on our multi-product Pear MD™ Clinician Dashboards and technology infrastructure. This has the potential to create a PDT marketplace for all patients to access safe, effective, and secure digital therapeutics. We believe we will be the acquirer and licensing partner of choice for other PDT companies and academia. Our development platform is designed to bring product candidates through development, and our commercialization platform could afford long-term commercial success. We will continue to opportunistically pursue acquisitions and licensing opportunities to grow our developmental pipeline. Pear’s experience developing and guiding PDTs through
the regulatory review process, as well as our scalable platform, provide a foundation on which Pear could potentially develop and host more than a hundred additional PDTs.
•Protect our intellectual property. In addition to securing regulatory authorization for our PDTs, we make strategic use of various intellectual property regimes: patents; copyrights; trademarks; and trade secrets. We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to the development of our business, including seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties.
•Expand outside the United States. Today, we operate only in the US. At this point, we intend to expand our capabilities to support ex-US partners who would commercialize specific products in specific regions. We plan on evaluating potential partners on a geography-by-geography basis and will pursue partnerships to maximize the value of our company.
Industry Trends Overview
Pear believes that major trends are converging to create a significant opportunity to treat disease with software, either alone or in combination with drugs, due to the following factors:
•The ongoing burden of chronic disease. Ninety percent of the $3.8 trillion in US annual healthcare expenditures are for people with chronic and mental health conditions.
•There is a pronounced shortage of clinicians. Across many disease areas there are tens of millions of patients with only a few thousand trained specialists who can provide treatment.
•There is a rapid patient and clinician adoption of digital for healthcare delivery such as telemedicine. The number of people who have used telehealth has doubled from 40% prior to the COVID-19 pandemic to 80% post-quarantine.
•There is pervasive use of technology. Americans spend an average of 5.4 hours per day on their mobile phones. Connection to a therapeutic delivered digitally is convenient and available for most Americans. The data captured by this engagement could also drive deeper insights into disease states and the ability to personalize treatment.
We believe the trends described above have created a moment in time when technology-based approaches are essential to, and capable of, revolutionizing healthcare. We believe that these trends have accelerated due to the COVID-19 pandemic, which resulted in fewer in-person visits and increased the adoption and use of technology and digital health experiences across consumers, clinicians, payors, and the broader healthcare system.
Our PDT Solution and Value Proposition
PDTs are prescribed by clinicians, downloaded by the patient to a smart phone, tablet, or VR headset, and used under the supervision of a prescribing clinician. PDTs have a recommended frequency and duration of use, but patients can use the product whenever they want and wherever they are. PDTs receive market authorization from regulators, like FDA, with a label that addresses both safety and effectiveness. To obtain a label from FDA, PDT companies developing novel therapies are generally required to submit data from one or more randomized, controlled trials (“RCT”) that demonstrate safety and effectiveness, and product candidates must be developed in a good manufacturing practice (“GMP”)-compliant environment.
In order for a patient to obtain a prescription, there is first an appropriate assessment and diagnosis of the patient, which is then followed by direction and ongoing guidance, as well as accountability related to product use and ongoing care management. Engagement levels for Pear’s PDTs significantly exceed that of published rates of health and wellness digital products. For patients with disease, a prescription is an enabler of access, engagement, and real-world effectiveness. PDTs integrate into existing healthcare infrastructure allowing for a digital experience via a patient’s own clinician, enhancing the continuum of care rather than fragmenting care paradigms.
We believe that PDTs will become an important segment of the digital health revolution and a vital part of the medical armamentarium because they have qualities that are similar to those of both health and wellness apps and pharmaceuticals. PDTs leverage the pervasiveness and accessibility of digital technology to improve human health. However, PDTs are always developed in a GMP-compliant environment, maintain compliance with data security and HIPAA protocols, and integrate into standard of care. PDTs are also tested in RCTs and are FDA-authorized as safe and effective therapies for particular indications like pharmaceuticals but also enable clinicians to receive timely feedback regarding patient progress and therapy adherence. This patient monitoring capability afforded by PDTs may be the difference in a patient’s success during a course of treatment. The table below shows some of the key differences between PDTs and other products.
![pear-20220328_g5.jpg](https://content.edgar-online.com/edgar_conv_img/2022/03/29/0001628280-22-007506_pear-20220328_g5.jpg)
Pear reimagined what treating disease could look like from the vantage point of patients, clinicians, and payors. We set out to disrupt the healthcare system with urgency because we believe there is a growing need for the treatments that can be provided by PDTs. With our proprietary development and commercialization platform, we can bring product candidates to FDA for market authorization, and we can bring FDA-authorized products to patients, clinicians, and payors. We continue to refine and optimize our development capabilities, and we believe we will be able to scale our operations significantly in the near-term, allowing us to pursue authorizations for more product candidates, to self-commercialize our products inside the US and commercialize our products outside of the US with the help of regional partners.
Pear is a platform-based, product-driven company. Our end-to-end PDT engine, which currently includes three FDA-authorized products and a pipeline of 14 product candidates, continues to produce clinical and real-world data as well as health economic outcome research (“HEOR”) data that provide evidence of Pear’s ability to enhance outcomes, increase access and reduce healthcare costs, and validate Pear’s value proposition. We believe our value proposition will magnify over time, as our model scales and we expand the reach and impact of PDTs.
We believe PDTs are poised to disrupt healthcare delivery in ways that could offer benefits to three major stakeholders:
1.Patients: PDTs provide 24/7 remote treatment access to patients that can improve outcomes and be used alongside other standard of care treatments. Additionally, PDTs have a relatively benign side effect profile compared to traditional pharmaceutical therapies.
2.Clinicians: PDTs provide additional treatment options and improve clinicians’ reach to patients, potentially resulting in broader patient impact. They are integrated into standard practice and may also be used alongside traditional drug-based treatments. Data from the PDT provides insight to the clinician and the clinical care team which can facilitate enhanced care navigation and delivery. They also provide reimbursable events for interactions on the “Pear MD Clinician Dashboard,” an end-to-end patient service center.
3.Payors: PDTs have the potential to reduce overall healthcare costs to payors by providing patients with therapies that may be more cost-effective. Additionally, PDTs may fill gaps in care across indications with high prevalence.
For Patients
PDTs have the potential to be safe, effective, and accessible care options for patients with diseases and mental health disorders. These options are increasingly needed as diseases and mental health disorders require more innovative approaches to overcome current treatment challenges and realize better patient outcomes. With Pear’s PDTs, patients have 24/7 remote access to their treatment program and to clinicians who can monitor progress to inform their treatment approach, regardless of physical proximity. They can be integrated into standard of care and may be used alongside pharmacotherapy. Pear’s software is designed to be easy-to-use and intuitive, and it also generates data from patient usage to inform the treatment approach for each patient. Our clinical trial and real-world data also continue to demonstrate a favorable side-effect profile versus existing medications, which could foster stronger adherence to treatment programs.
The privacy provided by reSET and reSET-O, for example, offers access to treatment of addiction without fear of stigma. Patients also gain control over where they conduct addiction treatment and can conduct clinician check-ins remotely, which empower patients to better navigate their care. Further, we believe that our software enables a larger portion of Americans access to addiction treatment. Only a small fraction of patients with addiction are actively enrolled in treatment today, and we believe that reSET and reSET-O may significantly lower treatment barriers to ongoing care and substantially increase the ability of clinicians to serve more and diverse patient needs. An analogous shift is seen in Somyrst, Pear’s treatment for chronic insomnia. Clinical guidelines indicate Cognitive Behavioral Therapy for insomnia (“CBTi”) as the first-line treatment, but there are currently fewer than 300 certified and licensed CBTi clinicians in the US to treat a patient population of approximately 30 million. We believe that Somyrst as a therapeutic may substantially change the access paradigm, creating an ability for patients to get the treatment they need when they need it most.
For Clinicians
PDTs provide a new treatment option that clinicians can provide to their patients. Many clinicians today lack evidence-based treatment options with the potential to improve outcomes. PDTs are a standardized, evidence-based, cost-effective, and easily accessed class of treatments that can be used as a standalone treatment or in conjunction with pharmacotherapies. Not only can PDTs better enable clinicians to serve their patients, but PDTs can also improve the reach of clinicians, creating the potential for broader patient impact.
In addition, we believe Pear’s products enable richer and more effective patient data and engagement capabilities. For clinicians prescribing reSET, reSET-O, or Somryst, clinicians may use our Pear MD Clinician Dashboard and review a wealth of data-based, real-time feedback that can help them better understand and manage their patients’ treatment journey. The Pear MD Clinical Dashboard is easy to use and accessible 24/7, enabling care teams to conveniently manage populations of patients. This real-time engagement is particularly impactful in the world of addiction, in which adherence is continually decided, moment to moment, outside of the walls of the clinician’s office. The ability of a clinician to regularly monitor and engage with their patient can make the difference in successful navigation of the treatment journey.
Pear’s platform can also create reimbursable events for Pear MD Clinician Dashboard interactions.
For Payors
We believe Pear’s PDTs will reduce overall medical costs, support value-based care initiatives, and improve member experience. Insights and information collected by Pear’s PDTs can be integrated within care management workflows to provide payors with valuable insights that support population health management and value-based care initiatives. Pear’s PDTs can also fill gaps in specialty care across large populations, providing timely insights into patient engagement and practice performance via a dedicated platform.
A study of 351 patients evaluating healthcare resource utilization via insurance claims six months after reSET-O initiation found that compared to a six-month baseline there was a 62% reduction in inpatient hospitalizations and a 20% reduction in emergency room visits, resulting in a near-term cost-savings of $2,150 per patient. The durability of reSET-O’s treatment effect at 9 months was evaluated in a larger group of patients and was communicated in publications. One of those publication compared outcomes between reSET-O patients and controls and found that
reSET-O-treated patients experienced costs that were $2,708 lower than for controls, and which were also driven by a reduction in hospital-related utilization.
In addition, on May 19, 2021, Pear presented results of two analyses demonstrating the cost-effectiveness of reSET-O at the virtual annual meeting of The Professional Society for Health Economics and Outcomes Research. The machine learning analysis showed that all clusters of engagement (low, medium, and high) each experienced a very similar reduction in emergency department and inpatient stays of approximately 60%. The budget impact analysis showed that reSET-O plus treatment-as-usual (“TAU”) (i.e., transmucosal buprenorphine, face-to-face counseling and contingency management) versus TAU alone resulted in a projected net cost reduction over a five-year period. Supporting this budget impact analysis are two subsequent publications examining the cost effectiveness and cost utility of reSET-O, both showing quality adjusted life year gains from increased retention and abstinence, respectively, which were accompanied by reductions in overall costs, supporting the economic advantages of reSET-O vs. TAU.
We believe that the real-world claims analysis and health economic modeling data, together with existing RCT effectiveness data, demonstrate that reSET-O can provide compelling clinical and economic cost-savings to payors seeking a high level of care for their members.
Our Scalable Commercial Platform
Pear’s commercial platform was designed to be agile and scalable with the ability to host multiple PDTs developed by Pear and potentially by third parties. We believe that the investments that we are making in our development engine, commercialization strategy, clinician and patient awareness, and HEOR data will enable our platform to become the industry standard. We also believe that this will be an advantage not only to Pear, but also to our third-party developers that can potentially host their PDTs on Pear’s commercial platform. Through this replicable process, Pear expects to further boost its industry-leading position as the primary provider of PDTs.
With this potential ability to host third-party PDTs on its platform, Pear is positioning itself not only as a leading PDT developer, but also as a centralized marketplace for patients seeking PDTs, which is a key value proposition and brand definer for Pear.
Our Advantages
•Pear is pioneering the PDT industry. Pear is the first mover in the PDT industry, and as a result has advanced experience in developing and commercializing PDTs. Pear was the first company to receive FDA authorization for a PDT and the term PDT was conceived and defined during that initial authorization process. Pear currently has the greatest number of FDA-authorized PDTs and has been developing PDTs since 2013.
•Pear leverages our data aggregation capabilities. Pear’s ability to collect data from existing PDTs, generate insights and improvements based on these data, and then quickly develop new PDTs using these insights has enabled us to bring to market the first three FDA-authorized PDTs. We believe it will enable us to continue to bring additional FDA-authorized PDTs to market across a breadth of indications.
•Pear developed a reproducible process for cost-effective development and regulatory review of PDTs. We conduct agile software development in a GMP-compliant environment. Due to our remote clinical trial infrastructure, we are able to conduct clinical trials without the need for external sites and develop our products iteratively, which both accelerates timelines and reduces costs. This iterative product development paradigm contrasts with traditional drug development in which a molecule that enters the clinic cannot be improved or adapted along the way.
•Pear utilizes a relatively lean and efficient salesforce to target customers at the enterprise level. Our commercialization model is built on the intersection of biotech, tech, and medical device commercialization methods. We take an enterprise-level, key-account management approach to pursuing IDNs, health systems, academic teaching hospitals, and large addiction clinics and systems. This is a capital-efficient and scalable model that allows for accelerated growth. As we secure additional reimbursement contracts with
payors, we will seek to accelerate revenue growth through increased investment in sales and marketing. Pear currently promotes reSET and reSET-O using a small specialty salesforce and targeted marketing budget. Despite our lean salesforce and budget, our commercialization efforts have resulted in over 700 clinicians across 32 states who have prescribed reSET and reSET-O over 20,000 times since launch. Pear currently boasts patient and prescriber satisfaction scores of 89% and 82%, respectively, which validates our approach. The results achieved by reSET and reSET-O provide Pear with a strong foundation to achieve scalable and sustainable sales over time. Pear currently promotes Somryst via a direct-to-consumer pilot that launched in the fourth quarter of 2020.
•Pear is building a robust IP portfolio. Pear regularly applies for patents, copyrights, and trademarks throughout the development and iteration of its products, and also judiciously maintains trade secrets. Pear protects the iterations of its proprietary technology that are commercially important to its business by filing, maintaining, and, if necessary, defending patent rights, whether developed internally or licensed from third parties. We also rely on copyright, including registrations for product source code, graphic user interfaces and other content, as well as on trademarks. Finally, Pear maintains trade secrets relating to its proprietary PDT product development platform to enable Pear to strengthen its leadership position in the PDT industry over the long-term.
•Pear has a diverse and scalable management team that is pioneering the PDT space. The discovery, development, and commercialization of PDTs as a new healthcare delivery system requires both a breadth and depth of experience. Our cross-disciplinary and cross-functional team of experts collectively synthesizes years of experience in medicine, biotech, technology, and data science. This breadth and depth of experience has enabled Pear to forge new pathways within the healthcare industry.
Our Commercialization Strategy
With three FDA-authorized products on the market, and a deep and broad pipeline of product candidates, Pear is currently at a commercial inflection point. Additionally, the PDT category continues to expand with three other companies recently receiving marketing authorization. There is strong momentum in the industry, and we believe our commercialization platform has the potential to set us up as the one-stop shop for PDTs.
We are pioneering PDT commercialization
By developing PDTs as a new class of medicines, Pear pioneers innovative approaches for its commercialization. Pear’s commercialization strategy attempts to combine the most effective features of the commercialization methodologies of both tech and life sciences companies to create a scalable yet capital-efficient PDT commercialization model.
Pear deploys two distinct commercialization models. First, to capture the most effective features of traditional life sciences commercialization methodologies, Pear utilizes a conventional sales-enabled approach focused on targeting large, multi-specialty health systems. Second, to capture the most effective features of traditional tech commercialization methodologies, Pear utilizes a virtual care platform to directly engage with clinicians and patients.
Pear’s platform enables the collection of data characterizing patient engagement and progress during treatment with PDTs. This data collection capability appeals to clinicians and payors who seek to track treatment progress. Pear’s centralized PDT platform is configured to provide robust data that describes patient treatment progress to clinicians and payors, thereby providing these stakeholders with insights that have the potential to improve clinical outcomes and lower costs. Clinicians can use the insights provided by Pear’s platform to enable the clinician to support a patient’s course of treatment outside of routine office visits, and during periods when the patient may be experiencing increased challenges with treatment adherence. Similarly, payors can use the data provided by Pear’s platform to supplement their understanding of population-level treatment outcomes, and to adjust access to PDTs accordingly. As a result, Pear’s PDT platform serves as an enterprise sales tool for stakeholders looking to monitor and improve the clinical outcomes of patients through data collection and analysis.
We are building patient, clinician, and payor awareness
As the pioneer in PDTs, Pear is built to educate all participants of care delivery, including patients, clinicians and payors, about a new class of medicines. To inform and educate the public about PDTs, Pear has built and deployed sales, marketing, patient and clinician services, and medical affairs teams. These PDT specialists are dedicated to educating patients, clinicians, payors, and other stakeholders about PDTs.
As a result of the efforts of our PDT specialists, PDTs are increasingly recognized as a treatment option by the medical community as evidenced by the increasing number of clinicians prescribing PDTs and the increasing number of PDT prescriptions being written. To date, Pear has educated more than 800 clinicians that have collectively written prescriptions for one or more of Pear’s three FDA-authorized products, and we expect that number will grow significantly over time. Once introduced to PDTs, those clinicians are equipped to provide valuable education and guidance to patients and other clinicians regarding how the use of PDTs.
We are creating access to PDTs by establishing reimbursement pathways
The Pear team is actively working to establish reimbursement pathways for PDTs, and we believe that as a result of these efforts, payors are increasingly providing their members with access to PDTs. To date, Pear has 30 payors across more than 31.7 million covered lives that provide access to its PDTs. reSET and reSET-O are currently covered as pharmacy benefits, medical benefits, and/or via direct purchase transactions. In an effort to onboard additional payors, Pear engages directly with payors to establish coding, coverage, and payment pathways for its PDTs and the PDT category as a whole. Pear is also exploring innovative contracting models with payors that utilize the strong correlation between patient engagement with PDTs and the resulting clinical and economic benefits. We believe that these continued payor engagement efforts will result in reimbursement for PDTs by both commercial and public payors in the US, including, but not limited to, self-insured employers, PBMs, health plans, IDNs, and public payors, including Medicaid and Medicare.
In addition to pursuing traditional payor reimbursement of PDTs, Pear also offers a PEAR Assistance Program (“PAP”) to ensure that eligible, underserved patients living with SUD or OUD have access to reSET and reSET-O. PAP is designed for SUD or OUD patients who are being treated by a licensed US clinician on an outpatient basis and have been prescribed a PDT. PAP-qualifying patients have limited or no health insurance coverage, a demonstrated qualifying financial need, and live within the US. Patients enrolled in PAP generate additional real world and HEOR data that may be used to support the utilization and coverage of Pear’s products.
We are building end-to-end infrastructure that provides ease of use to clinicians
To enable a high degree of accessibility to PDTs for clinicians, Pear has developed and deployed a patient service platform, called PearConnect™, designed to be a convenient one-stop shop for PDTs. PearConnect features four distinct system components, consisting of PDTs for patient use, the Pear MD Clinician Dashboard, an end-to-end patient service center, and a data analytics system configured to aggregate patient engagement, adherence, and clinical outcome data for insight generation. These components of PearConnect are intentionally designed to improve accessibility to Pear’s PDTs. PearConnect also incorporates various data privacy and security features to support the protection, quality, and integrity of each component of our platform, including the data that is processed and stored by the platform. Each component plays a meaningful role in ongoing and product evolution and performance, building Pear’s PDT marketplace, and enabling clinicians and payors to assess the value of each PDT on a population and individual level.
The Pear MD Clinician Dashboard displays icons representing multiple different PDTs to a viewing clinician. Via the Pear MD Clinician Dashboard, clinicians are able to learn about the PDTs offered and are able to gain valuable, timely insights into their patients’ progress over the course of a PDT prescription through the Pear MD Clinician Dashboard based on engagement, adherence, and clinical outcome data gathered and analyzed by the analytics component of the platform. If clinicians and payors deem initial PDT prescriptions a success as supported by this collected and displayed health economic data, we can easily add any new PDT products to existing agreements with clinicians and to the Pear MD Clinician Dashboard.
Pear’s end-to-end patient service center provides support to patients that have been prescribed PDTs, which includes informational and technical support regarding use of the PDT and the virtual care platform. The service makes it easier for clinicians to introduce new patients to PDTs and to Pear’s platform.
The data analytics component of PearConnect collects patient engagement, adherence, and clinical outcome data, and generates insights based on this data. The insights generated by the data analytics component of PearConnect can be accessed by clinicians via the Pear MD Clinician Dashboard to inform clinicians of their patients’ progress over the course of a PDT prescription. The insights generated by the data analytics can also be used by us to incrementally evolve individual PDTs to better serve patients, and we believe will ultimately generate improved clinical outcomes.
We are able to demonstrate the value of our PDTs with HEOR data generated based on commercial patients
Pear’s commercial infrastructure allows for the analysis of patients’ healthcare claims data pre-, during, and post-use of Pear’s PDTs. Based on these robust analytics, Pear is able to gain insight into PDT utilization across patient groups, and to understand how use of its PDTs correlates with clinical outcomes. Data-derived insights support collaboration with clinicians, coverage and reimbursement by payors, and product enhancements.
Discovery Strategy and Development Platform
Developing an entirely new class of medicines led to Pear pioneering new approaches for the discovery and development of PDTs. We have invested in and created a model to progress from concept to market authorization, and we believe we have optimized that model to the point where it is now ready to scale.
Pear is pioneering clinical development. Our three approaches consist of: (i) an integrated virtual and decentralized clinical study platform, (ii) agile development as therapeutic candidates move through phases, and (iii) integrated health economic and real-world extension studies to facilitate regular and timely evidence generation.
First, Pear has designed and built its own integrated virtual and decentralized study platform. This technology facilitates a seamless experience for fully virtual and decentralized studies. DREAM, Pear’s remote, real-world clinical study of Somryst is the first to utilize this platform, with recruitment, enrollment, consents, monitoring, and assessments all completed through digital and virtual means. Patients do not need to be present at a clinic or site for any step of the process. In addition to being more cost-effective, the speed of recruitment and enrollment is enhanced by facilitating fully automated screening and consenting, and by minimizing the number of patients requiring manual or direct human interaction.
Second, as Pear’s therapeutic candidates move from discovery and through subsequent stages of development, Pear iterates the product. If data indicate that adding additional modalities or mechanisms of action to the candidate is warranted, Pear is able to refine the PDT in between subsequent studies and re-evaluate the candidate in a variety of clinical study designs. We believe deploying this agile and adaptable framework to clinical development has the potential to increase not only speed but also the probability of success.
Third, as Pear conducts pre-market studies, health economic endpoints are integrated and real-world extension studies are built into development plans. Registrational and even earlier stage development studies having health economic or insurance claims endpoints have the potential to facilitate earlier insights to support payor engagement. Post-randomized studies and even post-market, Pear continues to generate clinical and economic data on every patient that uses a PDT whether it is a Pear PDT or a third-party PDT using the Pear platform. Adaptive real-world extension studies post-registration demonstrate generalizability from RCTs, and have the ability to demonstrate that RCT outcomes are consistent in real-world use and across various clinical settings and patient populations.
Our Commercial Products
reSET
reSET is the first PDT to receive FDA market authorization and is authorized in the US and Singapore for the treatment of SUD in patients who are 18 years of age and older. reSET is the only FDA-authorized product indicated to treat addiction to alcohol, cannabis, cocaine, and stimulants (such as methamphetamines) as no pharmacotherapy
or other FDA-approved treatments for this patient population exist. reSET is a 12-week prescription-only treatment for patients who are actively enrolled in outpatient therapy under the supervision of a clinician.
Disease Overview
Addiction is a disease of the brain that manifests as compulsive substance use, known as SUD. In the US, the disease of addiction can be characterized as an epidemic, with more than 20 million Americans struggling with addiction based on 2019 data.
Each year, there are approximately 13,000 overdose deaths related to stimulant use, particularly methamphetamine, and approximately 16,000 deaths related to cocaine use. Since the 1970s, there has been a significant increase in mortality related to unintentional drug poisonings, growing at 7% per year. Unfortunately, the COVID-19 pandemic has only accelerated these trends. In 2020, there was an 18% increase in drug related overdose deaths and a 26% increase in overdoses involving cocaine.
Traditional medical guidelines recommend Cognitive Behavioral Therapy (“CBT”) and contingency management (“CM”) as best practices in treating SUD. However, there are multiple roadblocks that prevent a majority of SUD patients from ultimately receiving effective behavioral treatment, such as CBT and CM. CBT is largely conducted in outpatient settings, and is a time-intensive, location-dependent treatment methodology. This and the sheer quantity of SUD patients results in an insufficient number of trained therapists and facilities to meet demand. This results in SUD patients often receiving inconsistent treatment in inconvenient locations. Insufficient access to CBT can cause patients to drop out of therapy or not pursue therapy in the first place. Even when SUD patients are able to gain sufficient access to CBT, clinician education, training, and treatment paradigms vary. Documented discrepancies in CBT administration standards and protocols impede the ability of CBT to adequately and uniformly treat the wide range and quantity of SUD patients that require care. Furthermore, many patients may experience perceived or real stigma associated with physical attendance at CBT sessions. As a result of these many obstacles, only a fraction of SUD patients receive CBT treatment. For instance, in 2019, only 1.5% of SUD patients received formal treatment.
In addition to the challenges to initiating and completing a first round of SUD treatment, for many patients, addiction can be a lifelong battle that often involves multiple relapses. This constant and recurring need for treatment places additional burdens on SUD patients, particularly given the currently insufficient treatment options available. There remains a significant unmet need for accessible and effective SUD treatment options.
Our Solution
To bridge this gap between disease prevalence and treatment availability, Pear has an FDA-authorized PDT that has been clinically proven to help treat addiction and extend the reach of clinicians to patients during their recovery journey. reSET is authorized for the treatment of SUD in patients 18 years or older. reSET’s mechanisms of action combines addiction-specific CBT, fluency training, contingency management, and craving and trigger assessment, all provided by Pear’s software-based application. It is intended to reduce substance abuse during treatment, eventually supporting discontinuance and recovery while simultaneously improving retention rates in the outpatient treatment program.
To begin treatment, the clinician prescribes the patient the PDT. The patient then downloads the software to a smart phone, tablet or VR headset, inputs their prescription access code and gets access to the PDT. The PDT includes three evidence-based treatments, each of which represent a distinct mechanism of action:
•The first is an addiction-specific form of cognitive behavioral therapy, called a community reinforcement approach (“CRA”), that moves patients from actively using a substance to reducing and ultimately discontinuing use. CRA is a form of treatment that integrates cognition and learning with treatment techniques. CRA is based on the insight that cognitive, emotional, and behavioral variables are functionally interrelated. Treatment is aimed at identifying and modifying the patient’s maladaptive thought processes and problematic behaviors through cognitive restructuring and behavioral techniques to achieve change. Disease-specific CRA targets the associated neurocircuitry for addiction, harnessing adaptive neuroplasticity. reSET is comprised of 61 interactive modules (31 core and 30 supplement modules). Core modules focus on key CRA concepts to build skills to support behavior change and prevent relapse.
Supplemental modules provide more in-depth information on specific topics such as relationship skills and living with a disease.
•The second is fluency training, which assesses proficiency and reinforces concept mastery. Fluency training supports the ability of the patient to apply their learnings in moments of stress to facilitate their treatment and ultimate recovery.
•The third is contingency management, which is a positive reinforcement mechanism. CM induces a dopamine response directly competing with the negative response induced by substance use. It does this by rewarding healthy behaviors and key outcomes such as engagement in treatment and reduced substance use through a clinical algorithm.
CRA and fluency training strengthen affected neurocircuitry while CM induces dopamine in the nucleus accumbens repairing dysfunctional neurophysiology, driving engagement with CRA and treatment in a virtuous cycle. These integrated mechanisms of action drive patient engagement and target the pathophysiology of addiction to correct and restore neurofunction.
reSET also includes validated assessments including substance use, triggers, and cravings supporting interactive engagement and insights to the clinical care team. All of this information is shared with the clinical care team via the Pear MD Clinician Dashboard enabling the clinician and care team to derive insights to inform optimal patient care.
By integrating PDTs into the practice of medicine, the clinician and patient relationship may be strengthened, and data insights facilitate clinician extension for greater efficiency and effectiveness. reSET and reSET-O provide 24/7 anytime, anywhere treatment. As the patient undergoes therapy with reSET, the patient and clinician can continue to meet in person or virtually as part of their outgoing treatment therapy, and the clinician has easy access via the Pear MD Clinician Dashboard to monitor and adjust treatment. We believe the connectivity established through our PDTs is valuable to patients and clinicians.
Our Clinical Trial Data
Among patients with SUD (i.e. addiction to cocaine, cannabis, stimulants, and/or alcohol), RCT data demonstrated that adding the PDT to TAU more than doubled abstinence rates during the last month of the 12-week trial. Among all patients, adding a PDT to outpatient care improved retention rate compared to TAU (72.2% vs 63.5%) at the end of the 12-week trial. Treatment with the PDT did not demonstrate a significant difference in unanticipated adverse events compared to TAU.
Adult men and women (N=399) entering 10 outpatient addiction treatment programs were randomly assigned to receive 12 weeks of either TAU (N=193) or reduced treatment-as-usual (“rTAU”) plus the PDT, with the intervention substituting for about two hours of standard care per week (N=206).
TAU consisted of individual and group counseling at the participating programs for 4-6 hours per week. rTAU consisted of 2 hours less than TAU of aggregate individual and group counseling. The primary outcome measures were abstinence from drugs and heavy drinking (measured by twice-weekly urine drug screens and self-report) and time to dropout from treatment.
Those in the PDT+rTAU group had a higher retention rate of 76.2% compared to 63.2% in TAU and a greater abstinence rate in the last 4 weeks of 40.3% in the PDT+rTAU group relative to 17.6% in the TAU group. This effect was more pronounced among patients who had a positive urine drug or breath alcohol screen at study entry (N=192) with an abstinence rate in the last 4 weeks in the PDT+rTAU group of 16.1% compared to 3.2% of TAU.
reSET Pivotal Clinical Trial. Abstinence in TAU relative to rTAU + PDT.
reSET Pivotal Clinical Trial. Abstinence and Retention in TAU relative to rTAU + PDT.
| | | | | | | | | | | | | | | | | | | | |
Outcomes | | TAU | | rTAU+reSET | | p-value |
Abstinence: All patients | | 17.6 | % | | 40.3 | % | | 0.4000 | |
Abstinence: Non-abstinent at study start | | 3.2 | % | | 16.1 | % | | 1.3000 | |
Retention in treatment: All patients | | 63.2 | % | | 76.2 | % | | 4.2000 | |
Overall safety was in-line with expectations and no significant difference was observed in the rate of adverse events between groups (p = 0.3563).
Evaluation of rTAU+PDT abstinence and retention compared to TAU.
| | | | | | | | | | | | | | | | | | | | |
Outcomes | | TAU | | rTAU+PDT | | p-value |
Number of Adverse Events | | 29,000 | | 37,000 | | n/a |
% of Adverse Events | | 11.5 | % | | 14.5 | % | | 356.3000 |
Adverse events evaluated were typical of patients with SUD, including cardiovascular disease, GI events, depression, mania, suicidal behavior, suicidal thoughts and attempts. None of the adverse events in the interventional arm were adjudicated by the study investigators to be related to the PDT.
This RCT was reviewed by FDA and supported Pear’s FDA market authorization of reSET to treat patients with SUD to improve clinical outcomes.
Real World Evidence and Health Economic and Outcomes Research Data
Pear intends to publish reSET Real World Evidence (“RWE”) and HEOR data starting with a six-month duration.
reSET-O
reSET-O is the second PDT to receive FDA authorization and the first to receive breakthrough designation in the US for the treatment of OUD in patients who are 18 years of age and older. reSET-O is a 12-week prescription-only treatment that is intended to increase retention of patients with OUD in outpatient treatment by providing CBT as an adjunct to outpatient treatment that includes transmucosal buprenorphine and CM. reSET-O is indicated only for patients who are currently under the supervision of a clinician.
Disease Overview
Opioid use disorder in the US has increased so dramatically and taken such a heavy toll on American lives over the past decade that, in 2017, the US Department of Human Health Services declared the opioid epidemic a public health emergency. Approximately 1.6 million Americans suffer from OUD annually in the US, and according to the CDC, the substance use and opioid use disorder epidemics continue to grow with unprecedented numbers of fatal opioid overdoses, in excess of 200 deaths daily (over 75,000 annually), approximately 87% of which are due to widely available, inexpensive yet pharmacologically-potent synthetic opioids. Nonfatal overdoses far outnumber fatal overdoses and place a tremendous burden the health care system through excess utilization of acute care services such as emergency department and inpatient stays, which contributes to rising health care costs. For example, every year, there are over 500,000 emergency room visits for opioid overdoses in the US. Of those patients that are discharged from the emergency room following overdose, 24% are readmitted to the emergency room for additional emergency care within 30 days. As a result of these frequent emergency room visits, opioid overdoses are estimated to cost the US $11.0 billion in hospital costs alone. A recent study evaluated the direct healthcare cost of 2,044,467 people with OUD to be $89.1 billion with an average cost of $43,581 per patient per year. The cost of the current opioid crisis in the US is estimated to exceed $700.0 billion.
Treatment has been shown to help patients avoid the increased risk of respiratory arrest, organ system damage, and dramatically reduce use of acute care services and associated high costs. However, only 11.2% of patients in the US receive treatment with MOUD in a given year. For those who obtain treatment, dropout rates are high, ranging between 30% and 50% at 90 days, highlighting the need for comprehensive support to keep patients engaged in their recovery. Progress in recovery helps reduce the burden on the health care system, and helps to mitigate the harm the opioid crisis causes. The current standard of care for treating opioid addiction is medication-assisted treatment (“MAT”). MAT consists of the administration of medication, such as buprenorphine, in combination with counseling and behavioral therapy. Only a fraction of opioid-addicted patients, however, receive treatment. Similar to SUD patients, there are significant barriers to opioid-addicted patients receiving accessible and effective care. Many patients fail to receive care as a result of care inaccessibility, cost, or patient stigmatization. It is estimated that only 19% of opioid-addicted patients receive treatment each year. In addition, many opioid-addicted patients elect to rely solely on medication and reject counseling. For example, only 10% of opioid-addicted patients that are prescribed buprenorphine receive adjunct psychotherapy treatment. While reliance solely on the medication portion
of the recommended treatment paradigm may provide a higher level of convenience for patients, adherence to only a portion of treatment decreases overall probability of success. Therefore, due to the current lack of effective treatment options for OUD, and the continually growing number of patients, there remains a significant unmet need in the fight against OUD.
Our Solution
To bridge this gap between disease prevalence and treatment, Pear has an FDA-authorized PDT that has been clinically proven to treat OUD and extend the reach of clinicians to patients during their recovery journey. reSET-O is authorized for use in combination with buprenorphine in the US for the treatment of OUD in patients who are 18 years or older.
Similar to reSET, reSET-O is intended to increase retention of patients with OUD in outpatient treatment by providing the same behavioral treatments. This PDT is a 12-week treatment used as an adjunct to outpatient treatment, including transmucosal buprenorphine and CM. Patients using reSET-O are required to be under the supervision of a clinician.
reSET-O has three mechanisms of action consisting of addiction-specific CRA, fluency training, and CM. reSET-O has an additional function that supports the patient’s appropriate use of buprenorphine. This function includes reminders, assessments of use, non-use and reasons and beliefs. reSET-O also has additional content modules specific to OUD.
Similar to reSET, patients download reSET-O to their smart phone, tablet or VR headset for discreet, convenient access to therapy, interactive treatment, learning, and support. reSET-O lets patients practice what their clinicians taught them anytime, anywhere, and report daily triggers, cravings, and substance use so they feel more engaged and supported between appointments.
reSET-O also encourages patients with tangible rewards via its CM capabilities. These rewards can be managed by clinicians.
As the patient undergoes therapy with reSET-O, the patient and clinician continue to meet in person or virtually as part of their outgoing treatment therapy, and the clinician has real-time access via the Pear MD Clinician Dashboard to monitor and adjust treatment.
Our Clinical Trial Data
There have been multiple RCTs evaluating PDTs in patients with OUD in combination with MAT and Medications for Opioid Use Disorder (“MOUD”). These studies have been conducted across a variety of durations and clinical care models. The primary RCT that FDA reviewed to support marketing authorization of reSET-O is described below.
In summary, the clinical data demonstrated that adding reSET-O alongside outpatient treatment and buprenorphine use increased retention of patients with OUD by 14% at the end of the 12-week trial and reduced opioid use. Patients achieving no substance use by end of treatment was 75.9% in TAU + PDT group versus 60.6% in TAU-alone (p = 0.03). Patients in the TAU + PDT group had an 82.4% retention rate compared to 68.4% in the TAU group (p = 0.02). The observed adverse events were of a type and frequency as anticipated in a large population of patients with OUD or associated with buprenorphine pharmacotherapy, particularly during the induction phase. The adverse events observed were not adjudicated to be device-related.
A block-randomized, parallel, 12-week treatment trial was conducted with 170 opioid-dependent adult patients. Participants received an internet-based community reinforcement approach intervention plus CM (“CRA+”) and buprenorphine, or CM-alone plus buprenorphine.
•All patients received 30 minutes of face-to-face clinician interaction every other week.
•Patients provided urine samples three times per week to objectively monitor substance use.
•Primary endpoints were:
▪retention in treatment, and
▪no substance use (during last four weeks).
Incorporation of a PDT increased retention and abstinence
| | | | | | | | | | | | | | | | | |
| TAU + PDT | | TAU | | p-value |
Retention | 82.4 | % | | 68.4 | % | | 20.00 | |
No Substance Use (last 4 weeks) | 77.3 | % | | 62.1 | % | | 30.00 | |
Among patients whose primary addiction was opioids, adding reSET-O to TAU had significantly greater odds of opioid abstinence during weeks 9-12 of the 12-week trial with abstinence rates (no opioids) at 77.3% for the TAU + reSET-O treatment group versus 62.1% for the TAU group (p = 0.02). Further, adding reSET-O to outpatient therapy buprenorphine increased retention of patients with OUD by 14% at the end of the 12-week trial, with retention found to be 82.4% in the TAU + reSET-O treatment group versus 68.4% in the TAU group (p = 0.02).
Overall safety was in line with expectations and no significant difference was observed in the rate of adverse events between groups (p = 0.42). The observed adverse events were of a type and frequency as anticipated in a large population of patients with OUD or associated with buprenorphine pharmacotherapy, particularly during the induction phase. The adverse events observed were not adjudicated to be device related.
Real World Evidence
Pear continues to generate RWE evaluating the use of reSET-O across prospective and commercial use. We plan to continue to publish and disseminate reSET-O real-world data.
For example, a published real-world analysis evaluated patient engagement, usage of reSET-O and associated outcomes of opioid use and treatment retention in those using buprenorphine MAT/MOUD. The results demonstrated that reSET-O is readily and broadly used by patients with OUD and that real-world therapeutic engagement is positively associated with abstinence and retention in treatment.
The real-world observational analysis was conducted in a population of 3,144 patients with OUD who were prescribed their first 12-week prescription for reSET-O. The patients came from 30 different states and represented a
wide range of demographics (15.4% of individuals were between ages 19-29, 45.5% were between 30-39, 25% were between 40-49, 11.2% were between 50-59, and 2.9% were age 60 or older).
A summary of results is set forth below:
•Patients in the 40-49 age range had highest level of “Active” days of treatment.
•80% of patients completed at least 25% of core modules, 66% completed half of all core modules, and 49% completed all core modules across the entire cohort of patients.
•Patients exhibited usage of reSET-O across a 24-hour period, including before and after clinic hours, at times when clinicians would not traditionally be available.
•Over 70% of patients were retained in reSET-O treatment and continued to use their PDT during the last 4 weeks.
•91% of the patients were “responders”, meaning 80% of their self-reports and urine drug screens (“UDS”) were negative for illicit opioid use.
•Patient engagement on reSET-O was higher than other products as shown in the chart below.
Patient Engagement on reSET-O Compared to Other Products
(using the above-reference study for reSET-O)
Patients have also benefited from repeat prescriptions for reSET-O. Another peer-reviewed study evaluated the impact of longer-term (24 week) engagement and use of reSET-O in a sample of 3,817 patients) and found increased abstinence (86%) and retention in treatment (91%), and 94.4% met the responder rate of being abstinent for at least 80% of the weeks of treatment.
Healthcare Economic & Outcomes Research
Pear continues to generate real-world evidence evaluating the use of reSET-O.
reSET-O’s impact on healthcare resource utilization has been demonstrated in two separate analyses. In the first study there was a per-patient reduction of $2,150 in the six months after reSET-O initiation vs. a six-month baseline,
and there was a $2,708 difference vs controls at nine months, driven largely in both instances by reductions in emergency department visits and inpatient stay-associated costs.
A follow-on analysis of this patient population examined the cost implications for payers, and found real-world cost reductions of $2,385 six months after product initiation (vs. the six-month baseline period) for a typical US payer after factoring in rebates. This analysis also showed that the number-needed-to-treat, i.e., the number of patients you need to treat to prevent one additional hospital-related event, was just 4.8 treated patients.
In addition, an analysis of the impact of a second prescription of reSET-O using a linear regression model found a further 27% reduction in hospital-related events with a second prescription for reSET-O (24 weeks of treatment), compared to the first (12 weeks of treatment).
In addition to clinical value, these results support the cost-savings benefit of reSET-O as an adjunct to TAU.
Somryst
Somryst is the only non-drug FDA-authorized and guideline-recommended treatment for chronic insomnia in adults over 22 years of age. It is intended to improve patients’ symptoms of chronic insomnia. Somryst is the first PDT submitted through FDA’s traditional 510(k) pathway while simultaneously reviewed as part of FDA’s Software Precertification Pilot Program to help build and test FDA’s Digital Health Precertification Working Model 1.0. Somryst is a nine-week prescription-only treatment. Somryst has been the subject of 29 completed clinical studies and ongoing clinical studies.
Disease Overview
Insomnia is a sleep disorder that manifests as difficulty falling or remaining asleep. Insomnia can be a short-term (e.g., acute) or a long-term (e.g., chronic) condition. Chronic insomnia is classified as persistent insomnia that occurs at least three nights a week for a period of at least three months. Chronic insomnia is a relatively common medical condition in the US, and is estimated to affect approximately 30 million Americans.
Chronic insomnia adversely affects many facets of a patient’s everyday quality of life, including social, occupational, and educational. These reductions in a patient’s daily quality of life can also give rise to more serious, and life-threatening medical conditions, including depression, suicidality, hypertension, and heart attacks. For example, in patients with chronic insomnia approximately 40% have depression and up to 35% have anxiety. Chronic insomnia also results in a plethora of more measurable detrimental consequences, including heavy costs and resource utilization strain on the healthcare system. For example, annual medical costs for patients diagnosed with insomnia are approximately 25% higher relative to those without insomnia.
Current options for the treatment of chronic insomnia are limited, and the available treatment options have thus far proven ineffective. The American Academy of Sleep Medicine and the American College of Physicians clinical guidelines recommend CBTi as the first-line treatment for patients suffering from chronic insomnia. However, CBTi is difficult to access, as fewer than 300 certified and licensed CBTi clinicians currently exist in the US to treat a patient population of approximately 30 million.
Despite the clinical guidance recommending CBTi as the first-line treatment for chronic insomnia, over 50% of chronic insomnia patients do not seek CBTi treatment, but instead rely on the use of sleep medications (e.g., “sleeping pills”), such as Ambien (zolpidem). Because most available sleep medications are only recommended for
short-term use, they are not recommended as a long-term solution to chronic insomnia. Long-term use of sleep medications can yield unwanted side-effects and result in serious, adverse health consequences. Further, utilization of sleep medications can result in reliance on the medication for sleep induction, rather than addressing the underlying condition, thereby perpetuating the chronic nature of the disease.
Our Solution
We believe Somryst addresses the limitations of current standard of care by treating the underlying factors without a label risk of dependence, inappropriate use, and adverse effects of pharmacotherapy. Somryst effectively delivers all three primary mechanisms of actions provided by face-to-face CBTi (sleep restriction and consolidation, cognitive restructuring, and stimulus control), using Pear’s software-based PDT. By delivering CBTi digitally, barriers to people with chronic insomnia are reduced while receiving guideline-recommended treatment. The following is a brief description of each mechanism of action.
•Sleep restriction and consolidation reduces the time it takes to fall-to-sleep and reduces amount of wakefulness in the middle of the night by consolidating the patient’s sleep through an algorithm to direct the patient’s sleep-wake pattern.
•Cognitive restructuring teaches patients to identify maladaptive thought patterns related to sleep circuits and replace and strengthen healthy neurocircuits.
•Stimulus control teaches patients to identify behaviors, thoughts, and practices that increase arousal and limit sleep and then to correct those behaviors.
Patients are prescribed Somryst by their clinician. After downloading the PDT to a smart phone, tablet or VR headset, patients engage in fully digital, automated, and interactive exercises that move patients through the mechanisms of action to get better sleep. These interactive modules span a range of topics including properly tracking sleep patterns and identifying stimulants that may be harming sleep quality and restructuring maladaptive thoughts about sleep. Patients use Somryst for approximately 45-60 minutes weekly, over a period of 6-9 weeks. The content and interface encourages engagement, facilitates active learning, and promotes behavioral change, while the algorithm supports a tailored experience.
Our Clinical Trial Data
Somryst provides a clinician-facing dashboard that allows healthcare providers to track patient treatment and progress. The PearMD Clinician Dashboard displays information about patients’ use of Somryst, including the Insomnia Severity Index (“ISI”), the Patient Health Questionnaire 8 scores, and sleep metrics derived from nightly sleep diaries (“Sleep-Onset-Latency” or “SOL”) and Wakefulness-After-Sleep-Onset (“WASO”). The evidence base for Somryst is extensive and includes the following:
•Somryst has been examined in an aggregate of 29 completed and ongoing studies. FDA submission and authorization was supported by two RCTs with an aggregate of more than 1,400 adults with chronic insomnia. The data from the RCTs showed a 45% decrease in the severity of insomnia symptoms, a 50% decrease in depression symptoms and nearly a 45% decrease in anxiety symptom. It has also demonstrated a durable effect on insomnia, depression, and anxiety for up to 18 months.
•In a clinical trial of 303 patients with chronic insomnia (Study 1), those on treatment demonstrated clinically meaningful improvements in insomnia severity, SOL (time to fall asleep), and WASO (time awake at night) at the end of treatment, as well as at six and 12 months follow-up compared to active control. Results of the study were published in JAMA Psychiatry.
•In a separate study of 1,149 adult patients with chronic insomnia and depressive symptoms (Study 2), those on treatment for nine weeks saw a significant reduction in insomnia severity measurements compared to controls.
The majority of patients randomized to the Somryst arm no longer met clinical criteria for insomnia at the end of the nine-week treatment. Patients were examined at baseline, nine weeks, six months, 12 months and 18 months
following treatment. At treatment end, the patients who received Somryst experienced a decrease in their mean ISI score to 7.3 from baseline of mean 15.9, while the control arm had a reduction to 13.2 from 16.2 baseline. In addition, the Somryst group had a reduction in depression severity to a mean score of 3.8 from an 8.0 baseline mean. The mean score decreased to 6.2 from a mean of 7.8 at baseline in control subjects. It was observed that the clinical improvements were maintained to 18 months post-treatment. Study data, published in Lancet Psychiatry, showed decreases in anxiety symptoms and suicidal ideation.
The Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (“DSM-5”) makes no distinction between primary and comorbid insomnia. This previous distinction had been of questionable relevance in clinical practice and a diagnosis of insomnia is made if an individual meets the diagnostic criteria, despite any coexisting conditions. The International Classification of Sleep Disorders, Third Edition criteria are consistent with the changes to the DSM-5.
The DSM-5 defines insomnia as dissatisfaction with sleep quantity or quality, associated with one (or more) of the following symptoms:
•Difficulty initiating sleep;
•Difficulty maintaining sleep, characterized by frequent awakenings or problems returning to sleep after awakenings; and
•Early-morning awakening with inability to return to sleep
Other criteria include the following:
•The sleep disturbance causes clinically significant distress or impairments in social, occupational, educational, academic, behavioral, or other important areas of functioning;
•The sleep difficulty occurs at least three nights per week;
•The sleep difficulty is present for at least three months;
•The sleep difficulty occurs despite adequate opportunity for sleep;
•The insomnia cannot be explained by and does not occur exclusively during the course of another sleep-wake disorder;
•The insomnia is not attributable to the physiological effects of a drug of abuse or medication; and
•Coexisting mental disorders and medical conditions do not adequately explain the predominant complaint of insomnia
Somryst use led to a meaningful reduction in ISI as well as reduction SOL and WASO, as shown by the UVA and GoodNight Studies.
UVA Study: ISI Score Results
Proportion of ISI responders (reduction in ISI score > 7 from baseline)
| | | | | | | | | | | | | | | | | | | | |
Time of Assessment | | Somryst Group | | Control Group | | p-value |
End of Treatment Period (Week 9) | | 52.6 | % | | 16.9 | % | | <0.0001 |
Month 6 Follow-Up | | 59.6 | % | | 35.7 | % | | 0.0002 |
Month 12 Follow-Up | | 69.7 | % | | 43.0 | % | | <0.0001 |
GoodNight Study: ISI Score Results
Proportion of ISI responders (reduction in ISI score > 7 from baseline)
| | | | | | | | | | | | | | | | | | | | |
Time of Assessment | | Somryst Group | | Control Group | | p-value |
End of Treatment Period (Week 9) | | 62.8 | % | | 14.0 | % | | <0.0001 |
Month 6 Follow-Up | | 56.2 | % | | 18.9 | % | | <0.0001 |
Month 12 Follow-Up | | 59.3 | % | | 25.2 | % | | <0.0001 |
Real World Evidence and Health Economics & Outcomes Research
Pear continues to generate RWE and HEOR data in patients with chronic insomnia.
A real-world deployment with 7,414 patients who utilized Somryst evaluated the benefits and health outcomes. In the real-world experience, patients utilized the product for nine weeks, consisting of six treatment modules. Data were collected on the FDA-reviewed endpoint, ISI, patient reported outcomes, and over 300,000 sleep diaries. As shown in the figures below, ISI, SOL, and WASO scores saw meaningful decreases as patients progressed through the six treatment modules.
Patient Engagement, ISI Score, SOL and WASO by completed core of the six cores in Somryst.
Dynamic Evidence Generation
We believe that PDTs have an advantage over molecular therapeutics because data of product usage, patient-reported, and clinical outcomes of PDTs may be captured more rapidly. These data collected in studies as well as in commercial use facilitate regular evidence generation. Pear’s platform can facilitate linking healthcare resource utilization in the form of public and private insurance claims. Pear is able to rapidly scale evidence (clinical and health economic) and analyze across care-settings, specific populations, regions, and customers.
This evidence continuum is a key competitive advantage of Pear and its platform. Pear plans to continue to expand evidence for its PDTs in additional RCTs, RWE, and health-economic evaluation to support continued product improvement, and to generate information for clinicians, and value for payors.
Our Development Pipeline
PDTs have the potential to treat many diverse diseases directly and enhance health outcomes for patients. We have 14 product candidates in our pipeline, including ten product candidates in psychiatry and neurology, our two initial areas of focus to support our self-commercialization strategy, and four candidates in other therapeutic areas as set forth below.
*Dartmouth transaction is with a researcher employed by Dartmouth. Pear has no direct contractual relationship with Dartmouth relating to this content.
**Karolinska transaction is with individual researchers who are employed by the Karolinska Institute. Pear has no direct contractual relationship with the Karolinska Institute relating to this content.
***Services agreement with Ironwood to evaluate a PDT in GI diseases.
We are initially building a portfolio of psychiatry and then neurology-focused PDTs. We also have early-stage programs in GI, oncology, and cardiovascular indications. Our near-term focus is to expand our leadership in psychiatry by developing PDTs for the treatment of Alcohol Use Disorder (“AUD”), depression, anxiety, and schizophrenia. These four additions have the potential to help fill the need for additional treatment options and enhance the offering to mental and behavioral health clinicians and psychiatrists while supporting payors’ need to reduce morbidity and cost in these indications.
Additional details about our four key research and development projects in our pipeline are set forth below:
1)Alcohol Use Disorder Product Candidate
•Current Stage: POC with Breakthrough Designation from FDA
•Patient Population: Alcohol Use Disorder
•Product Candidate Number: PEAR-009
•Description of Therapeutic Modality and Method of Action (“MoA”):
i.Mobile Device
ii.PEAR-009 is a multimodal PDT candidate that delivers digital CRA, Fluency Training, CM and Behavioral Activation and validated assessments to improve clinical outcomes of AUD
•Expected Use: Alone (“monotherapy”) with potential for future combination (“combination therapy”)
•Objective: To develop a PDT that could be used alone or in combination with another medication to treat patients with AUD
•Current Status and Next Steps: This product candidate is at POC stage. Pear is currently evaluating data to determine the next steps.
•Risks and Uncertainties: There are limited therapies for AUD currently and no existing FDA-market authorized PDTs for AUD on the market. For example, it is uncertain that further clinical testing would support the safety and effectiveness of the product and its market authorization, or whether the product, if authorized, would be receive reimbursement from third party payors.
2)Schizophrenia Product Candidate
•Current Stage: POC
•Patient Population: Psychotic Spectrum Disorders including patients with schizophrenia
•Product Candidate Number: PEAR-004
•Description of Therapeutic Modality and MoAs:
i.Mobile Device
ii.Pear-004 is a multimodal PDT candidate that delivers BA, cognitive restructuring, illness self-management, cognitive behavioral therapy, and validated assessments to improve clinical outcomes in patients with schizophrenia
•Expected Use: Combination therapy with antipsychotics
•Objective: To develop a PDT that could be used in combination with pharmacotherapy to treat patients with schizophrenia
•Current Status and Next Steps This product candidate has completed the POC stage and is ready for a potential pivotal randomized clinical trial to support potential FDA submission. Pear has development plans outlining specific types of studies and purposes, but the clinical trial planning has not commenced.
•Risks and Uncertainties: There are many failures of therapeutics while in development for schizophrenia and/or psychotic spectrum disorder. There are no existing FDA-market authorized PDTs for schizophrenia on the market.
3)Anxiety Product Candidate
•Current Stage: POC
•Patient Population: Generalized Anxiety Disorder (“GAD”)
•Product Candidate Number: PEAR-011
•Description of Therapeutic Modality and MoAs:
i.Mobile Device
ii.PEAR-011 is a multimodal PDT candidate that delivers Panic Modulation (a digitized form of psychotherapy where the patient is instructed and learns to employ mechanisms of modulating their fear, anxiety or panic response to stimuli to desensitize them to future exposures to the inciting stimuli), BA, CBT, sleep hygiene and stimulus control plus medication management and validated assessments to improve clinical outcomes in patients with anxiety disorder
•Expected Use: Potential for monotherapy and combination therapy
•Objective: To develop a PDT that could be used alone and/or in combination with pharmacotherapy to treat patients with anxiety disorder
•Current Status and Next Steps: This product candidate is at the POC stage and is ready for a potential pivotal randomized clinical trial, which is the next step to support potential FDA submission. Pear has development plans outlining specific types of studies and purposes, but the clinical trial planning has not commenced.
•Risks and Uncertainties: There are many failures of therapeutics while in development for psychiatric diseases like Anxiety-Spectrum Disorders. There are no existing FDA-market authorized PDTs for anxiety on the market.
4)Depression Product Candidate
•Current Stage: Discovery
•Patient Population: Major Depressive Disorder and additional Depression populations
•Product Candidate Number: PEAR-015
•Description of Therapeutic Modality and MoAs:
i.Mobile Device
ii.PEAR-015 is a multimodal PDT candidate that delivers CBT, BA with Ecologic Momentary Assessment (repeated sampling of a patient’s behaviors and experiences on which brief interventions by the software are delivered), sleep content plus medication and validated assessments to improve clinical outcomes in patients with depression. Pear acquired two clinical
state depression product candidates in the fourth quarter of 2021 and is in the process of integrating those product candidates into PEAR-015.
•Expected Use: Potential for monotherapy and combination therapy
•Objective: To develop a PDT that could be used alone and/or in combination with pharmacotherapy to treat patients with Depression
•Current Status and Next Steps: This product candidate is at the Discovery stage. Once the new product candidates are integrated into PEAR-015, it will require clinical studies, and if promising, would then in the future be evaluated in a potential pivotal clinical trial to support potential FDA submission.
•Risks and Uncertainties: There are many failures of therapeutics while in development for psychiatric diseases like Depression. There are no existing FDA-market authorized PDTs for Depression on the market.
•Development activities for product candidates have a number of risks and uncertainties. All therapeutic development activities have risk and probabilities of success that can vary by disease indication. In many of the disease areas Pear is developing product candidates there is a long history of failure. The areas of mental and behavioral health or neuropsychiatry, which is a primary focus for Pear, have had notable failures across biotech, pharma, and digital health. Each of Pear’s pipeline candidates have technical, clinical, regulatory, and commercial risk. See the heading “Risk Factors—Risks Related to Pear’s Products— If the Company is not able to develop and release new products, or successful enhancements, new features and modifications to the Company’s existing products, the Company’s business, financial condition and results of operations could be materially and adversely affected” in this prospectus for more information on risks related to product development.
Additional specific risks and uncertainties also include but are not limited to:
•each potential therapeutic must achieve levels of use by the patient in their disease population sufficient for the evidence-based treatment or mechanism of action to exert its behavioral and/or biologic effect. If levels of product use or engagement are not high enough a study may not be successful and a product candidate may not be viable;
•even if patients do engage at sufficient levels, the proposed evidence-based treatment or scientific mechanism of action may not be effective in achieving the desired clinical outcome;
•clinical trials may fail for numerous reasons including operational complexities, difficulty in measurement, challenges in enrollment, adverse events and safety events, poor endpoints, variabilities amongst sites, protocol deviations, and many others; and
•the technology, such as algorithms or engineering, may fail.
Ongoing PDT discovery
There are two categories of PDT’s interventional mechanisms of action. The first is delivery of neurobehavioral interventions. These are scientific and evidence-based practices, many of which we know work from face-to-face delivery, and target affected disease-specific neurocircuitry. Examples include CBT, cognitive restructuring, behavioral activation, exposure therapy, and CM. The second category is dose-optimization. In diseases where pharmacotherapy exists, PDTs can be integrated with the molecular therapeutic to assess patient response and optimize medication dose and frequency. Use cases include titrating a medication to therapeutic effect, optimizing chronic dosing, tapering medication, and recommending dosing as needed when a disease exacerbation is occurring.
We believe utilizing both categories of interventional mechanisms of action will facilitate further pipeline expansion. Pear’s existing PDT candidates in neurologic diseases including epilepsy, pain, and multiple sclerosis, have potential to increase the patient populations and addressable markets.
Gastroenterology, cardiology, and oncology are particularly promising therapeutic areas. In oncology, combining dose-optimization of immuno-oncology drugs (which could target both solid or liquid tumors) with neurobehavioral mechanisms of action, multi-modal PDTs could optimize both the treatment of cancer directly and the behavioral disorders that often coincide with cancer treatment. For example, by utilizing labs, patient-reported outcomes, and sensor data, recommendations to refine the dosing and frequency of chemotherapeutic agents to reduce dose-limiting toxicities and maximize overall-survival can be integrated with CBTi for insomnia in patients undergoing treatment for cancer. Similar approaches may be deployed in GI and cardiovascular.
In addition, we will continue our strategic pursuit of enabling technologies, such as digital sensors, that may be used to enhance our products and product candidates.
We expect to significantly grow our pipeline through internal discovery efforts, in-licensing, and acquisition. We continue to seek to accumulate early-stage clinical assets and technologies for development. We believe our scalable infrastructure to discover, develop, and deliver these products to patients will allow us to be a partner of choice for development, regulatory, and commercial stage deals.
Competition
The pharmaceutical, biotechnology and digital health industries are characterized by rapidly advancing technologies, intense competition, and an emphasis on proprietary products. While Pear believes that Pear’s technology, development experience and scientific knowledge provide Pear with competitive advantages, Pear faces potential competition from many different sources, including large pharmaceutical and biotechnology companies, digital health companies, and academic institutions. To drive continual technology advantage, Pear seeks patent protection and establishes collaborative arrangements for the research, development, manufacturing and commercialization of evidence-based therapeutics. Any products that Pear successfully develops and commercializes will compete with new therapies that may become available in the future.
Pear competes in the segments of the pharmaceutical, biotechnology and other related markets that develop therapeutics as treatments, in particular treatments for addiction (reSET and reSET-O) and insomnia (Somryst). There are many other companies that have commercialized and/or are developing such treatments for addiction and insomnia including large pharmaceutical and biotechnology companies such as Alkermes and their product Vivitrol, Orexo and their product Zubsolv, Sandoz and their product Suboxone, Braeburn and their product Brixadi, Pfizer and their product Halcion, Merck and their product Belsomra, Sunovion and their product Lunesta and Sanofi and their product Ambien.
Pear’s competitors in the digital health space, with specific focus in addiction and insomnia have created non-regulated products, are not supported by randomized controlled trials to support treatment claims, such as Dynamicare, CBT4CBT and Orexo and their product Modia, and Big Health and their products Sleepio, Pzizz, and Calm.
Rather, Pear believes the competitive landscape is best understood by comparing the primary mechanism of action (behavioral support/intervention or improving medication adherence and tracking); to the business model for patient acquisition (apps marketed direct-to-consumer; tech-enabled healthcare services offered to members of health plans, most often those of self-insured employers; or regulated products prescribed by providers).
While some solutions have evolved to include elements of various mechanisms such as behavioral support, reminders for medication adherence, or remote monitoring and transmission of biometric data, in Pear’s view, each has a primary mechanism for affecting disease and a clearly defined model for acquiring patients or consumers.
To Pear’s knowledge, Pear’s reSET and reSET-O are the only FDA-authorized PDTs with a direct treatment-related claim for addiction, and Pear’s Somryst is the only FDA-authorized PDT with a direct treatment-related claim for chronic insomnia that can be prescribed by providers and reimbursed by insurance. This has required Pear to generate significant evidence to demonstrate safety, effectiveness, clinical outcomes and distinct impact on the total cost of care. While many early market entrants (in fact, nearly 360,000 health and wellness apps are now available in Apple’s App Store) are making marketing claims related to the ability to help treat addiction and insomnia, Pear
believes the landscape will change dramatically when new solutions that can be prescribed by providers and covered by insurance become broadly available.
There are a number of companies in the prescription digital therapeutics space but none of these companies have commercialized an FDA-authorized prescription digital therapeutic to target addiction or insomnia at this time. Other than Pear, we are aware of three companies that have received FDA-authorization to make medical claims as prescription digital therapeutics. This includes Akili Interactive Labs and their product Endeavor for ADHD, Mahana Therapeutics and their product Parallel for IBS and Nightware for patients with PTSD that are experiencing nightmares. Other companies of which Pear is aware in the space that have not received FDA-authorization and are not authorized to make medical claims but may pursue FDA-authorization in the future include: (i) Click Therapeutics in Depression, (ii) Better Therapeutics in Cardiometabolic, (iii) Cognoa in Autism, (iv) AppliedVR in Pain, (v) Orexo and GAIA AG in Depression, (vi) MedRhythms in Stroke, and (vii) Blue Note Therapeutics for Cancer Related Anxiety and Depression.
License Agreements
We have rights to use and exploit technologies disclosed in issued and pending patents and other therapeutic content under licenses and/or assignment agreements with other entities (collectively, “License Agreements”). We consider the commercial terms of these License Agreements, which provide for milestone and royalty payments, and their provisions regarding diligence, insurance, indemnification, and other similar matters, to be reasonable and customary for our industry.
The material License Agreements related to our three commercial products are those with The Invention Science Fund I, LLC (“ISF”), Red 5 Group, LLC (“Red 5”), and BeHealth Solutions, LLC (“BeHealth”). The Invention Science Fund I, LLC
We entered into a contribution and license agreement with ISF in February 2015, as amended on February 28, 2018 (the “ISF Agreement”), pursuant to which ISF grants the Company certain licenses under specified patent rights to develop and commercialize licensed products either independently and/or in combination with a drug for use in connection with the treatment of central nervous system disorders. The oldest patent in the family is expected to expire in 2028.
Under the terms of the ISF Agreement, we are required to pay a minimum annual royalty, capped at low-seven figures per year. From inception through December 31, 2021, we have paid ISF $2.6 million in minimum annual royalties, and for the year ended December 31, 2021 recorded annual minimum royalties payable of $1.0 million. The ISF Agreement also requires us to pay a royalty percentage in the low single digits on net sales of products covered by the in-licensed patents that do not include drugs. To date, no royalties have been paid on net sales of products covered by the in-licensed patents that do not include drugs. In addition, as to sales of products covered by the in-licensed patents that do include drugs, the ISF Agreement requires us to pay either (i) a royalty percentage on net sales in the low single digits or (ii) an annual fee based on net sales. To date, no royalties have been paid on net sales of products covered by the in-licensed patents that include drugs.
Under the ISF Agreement, ISF covenants that neither it nor any of its affiliates will sue, or assert any claim against (or cause any third party to sue or assert any claim against) us for infringement of any patent covered under the ISF Agreement with respect to our permitted use of such patents under the ISF Agreement (the “Covenant”).
In consideration of the Covenant granted to us in the ISF Agreement, the ISF Agreement requires us to pay an annual covenant fee (the “Covenant Fee”) in a variable amount ranging from mid-to-high five digits to a low-six figures per year through December 2030. Through December 31, 2021, we have paid ISF $0.3 million in annual Covenant Fees.
The ISF Agreement will terminate upon the expiration or invalidation of all of the patents subject to the license. Additionally, ISF may terminate the ISF Agreement upon certain breaches by us of the terms of the ISF Agreement, and we may terminate the ISF Agreement 90 days after providing written notice to ISF. The Covenant, and our related obligation to pay the annual Covenant Fee, may be terminated by us 30 days after providing written notice to ISF. Red 5 Group, LLC
In January 2015, we entered into a software license agreement with Red 5, and on March 21, 2018, the parties entered into an amended and restated software license agreement which was further amended on July 1, 2021 to clarify certain terms and increase the royalty rate by a de minimis amount (such agreement, as amended, “Amended Red 5 Group License”). Under the Amended Red 5 Group License, Red 5 grants us, inter alia, an exclusive (other than a limited reserved right for ongoing academic studies), worldwide, sublicensable, royalty-bearing license to develop and commercialize integrated products incorporating certain technology and documentation materials relating to the treatment of psychological and substance use disorders. Under the Amended Red 5 Group License, we agreed to use commercially reasonable efforts to develop integrated products in accordance with a development plan, to introduce any integrated products that gain regulatory approval into the commercial markets, to market integrated products that have gained regulatory approval following such introduction into the market, and to make integrated products that have gained regulatory approval reasonably available to the public.
In March 2018, the parties amended the original Red 5 agreement, and we subsequently paid an amendment fee in the high-six figures in consideration for expanding the scope of our exclusive license. On July 1, 2021, the parties amended the Amended Red 5 Group License to further clarify certain terms and increase the royalty rate by a de minimis amount.
To the extent achieved, we are obligated to pay Red 5 up to an aggregate of $0.4 million if certain milestones related to product regulatory approval and commercial sales are achieved in respect to a software/drug combination, which we are not currently pursuing. Each such regulatory and sales milestone is payable only once.
The Amended Red 5 Group License also requires us to pay a single digit royalty percentage on net revenue from integrated products. Through December 31, 2021, we have recorded $1.3 million in royalties to Red 5. We are also required to make annual maintenance fee payments capped at a sum in the low-six figures per year, creditable against future royalty and milestone payment obligations. From inception through December 31, 2021, we have recorded $0.4 million of annual maintenance fees under the terms of the agreement. In addition, we have a credit in the mid-six figures against future royalty and milestone payment obligations.
The Amended Red 5 Group License will continue in perpetuity unless terminated in accordance with its terms, under which Red 5 may terminate the license upon certain breaches by us of the terms of the license, and we may terminate the license 60 days after providing written notice to Red 5. BeHealth Solutions, LLC
We entered into an assignment, license and services agreement with BeHealth, effective March 24, 2018 (the “BeHealth Agreement”), which relates to software, documentation, and intellectual property rights in and to certain therapeutic content related to cognitive behavioral treatment for insomnia and other sleep disorders that BeHealth licensed from University of Virginia Patent Foundation d/b/a University of Virginia Licensing & Ventures Group (“UVA LVG”).
Under the terms of the BeHealth Agreement, we paid an initial up-front fee in the mid-six figures to BeHealth, and during the year ended December 31, 2019, we paid a milestone payment to BeHealth of $0.8 million upon the FDA’s acceptance of a filing seeking marketing authorization for Somryst that was recorded as a research and development expense in the consolidated statement of operations and comprehensive loss for the period then ended. During the year ended December 31, 2020, we paid a milestone payment to BeHealth of $0.8 million upon the FDA’s marketing authorization of Somryst. The milestone payment was capitalized in other long-term assets and amortized on a straight-line basis to cost of product revenue over the estimated useful life, which was ten years at initial recognition. During the year ended December 31, 2021, we recorded $1.0 million related to the achievement of a commercial milestone. Each such regulatory and sales milestone is payable only once, and no other milestone payment may become due and payable after March 24, 2028. Assuming that we meet the remaining commercial milestones, the Company could be obligated to make payments of up to an additional $26.0 million in the aggregate upon achievement of various annual commercial milestones and a mid-to-high-single-digit percentage royalty on net sales to BeHealth.
Because the underlying license agreement (with exclusive rights relating to content and non-exclusive rights relating to the underlying platform) between BeHealth and UVA LVG was assigned to us, we owe a royalty percentage in the mid-single digits on net sales of integrated products to UVA LVG. We have the right to sublicense our rights
under the assigned license agreement, and we will be required to pay a percentage of such sublicense income in the low-double digits to UVA LVG. We are required to make annual minimum royalty payments in the low-five figures to UVA LVG under the assigned license agreement, which payments are creditable against royalty payments on a year-by-year basis. Through December 31, 2021, we have recorded only de minimis royalties under the UVA LVG assigned license agreement and we have paid de minimis royalties, $2.5 million in milestone payments, and $0.5 million in other fees to BeHealth. We have a buyout option in the assigned license agreement under which we may pay UVA LVG a lump sum of $1.0 million in exchange for a perpetual royalty-free license in the field.
The underlying license from UVA LVG will continue in perpetuity unless terminated in accordance with the terms of the assigned license agreement, under which UVA LVG may terminate the license upon certain breaches by us of the terms of the license, and we may terminate the license at any time upon 30 days’ written notice to UVA LVG.
Intellectual Property
In addition to securing regulatory authorization for our PDTs, we make strategic use of various intellectual property regimes: patents; copyrights; trademarks; and trade secrets. We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to the development of our business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties. We also rely on copyrights (including copyright registrations for product source code), on trademarks, and on trade secrets relating to our proprietary PDT product development platform to develop, strengthen and maintain our proprietary position in the PDT field.
Our commercial success may depend in part on our ability to: obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business; defend and enforce our patents, copyrights, trademarks and other proprietary rights; preserve the confidentiality of our trade secrets; and operate without infringing the valid, enforceable patents and proprietary rights of third parties. Our ability to limit third parties from making, using, selling, offering to sell, or importing our products may depend on the extent to which we have rights under valid and enforceable licenses, patents, copyrights or trade secrets that cover these activities. In some cases, enforcement of these rights may depend on third-party licensors or co-owners. With respect to both company-owned and licensed intellectual property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our commercial products.
Patent expiration dates noted below refer to statutory expiration dates and do not take into account any potential patent term adjustment or extension that may be available.
Solely Owned Patent Assets
We exclusively own eleven patent families directed to a variety of different aspects related to PDTs. One family is directed to ensuring data security in the treatment of diseases and disorders using digital therapeutics. One US patent has issued in this family and will expire in 2038. A continuation patent application has been filed claiming the benefit of the allowed application, and, if granted, will expire in 2038. A Patent Cooperation Treaty application has been filed in this family, and national phase entry applications have been filed in Europe, Japan, Singapore, New Zealand, China, Israel, Canada, and Australia. Another family is directed to the optimization of buprenorphine induction. If granted, the patent(s) in this family would expire in 2039. A Patent Cooperation Treaty application has been filed in this family, and national phase entry applications have been filed in Australia, Canada, China, Europe, Israel, Japan, New Zealand, Singapore, and South Korea. Another family is directed to the treatment of migraines. If granted, the patent(s) in this family would expire in 2040. A Patent Cooperation Treaty application has been filed in this family, and national phase entry applications have been filed in Australia, Canada, China, Europe, Israel, Japan, New Zealand, Singapore, and South Korea. Another family is directed to treating depressive symptoms associated with multiple sclerosis. If granted, the patent(s) in this family would expire in 2040. A Patent Cooperation Treaty application has been filed in this family, and national phase entry applications have been filed in Australia, Canada, China, Europe, Israel, Japan, New Zealand, Singapore, and South Korea. Another family is directed to clinical curation of crowdsourced data. If granted, the patent(s) in this family would expire in 2040. A Patent Cooperation
Treaty application has been filed in this family, and national phase entry applications have been filed in Australia, Canada, China, Europe, Israel, Japan, New Zealand, Singapore, and South Korea. Another family is directed to visualizing and modifying treatment of a patient utilizing digital therapeutics. If granted, the patent(s) in this family would expire in 2040. Another family is directed to generating and administering digital therapeutic placebo and shams. If granted, the patent(s) in this family would expire in 2041. A Patent Cooperation Treaty application has been filed in this family, with a national phase entry date in January 2023.
Another family is directed to a display screen or portion thereof with an animated graphical user interface. A US design patent has issued in this family and will expire in 2035. A European design has been registered in this family and will expire in 2024. Another family is directed to a display screen or portion thereof with a graphical user interface. A US design patent has issued in this family and will expire in 2035. A European design has been registered in this family and will expire in 2024. Another family is directed to a display screen or portion thereof with an animated graphical user interface. A US design patent has issued in this family and will expire in 2036. A European design has been registered in this family and will expire in 2024. Another family is directed to a graphical user interface. A European design has been registered in this family and will expire in 2024.
Jointly Owned Patent Assets
We jointly own two patent families directed to a variety of different aspects related to digital therapeutics. One family is directed to the treatment of depressive symptoms and disorders utilizing digital therapies. If granted, the patent(s) in this family would expire in 2040. A Patent Cooperation Treaty application has been filed in this family, and national phase entry date applications have been filed in Australia, Canada, China, Europe, Israel, Japan, New Zealand, Singapore, and South Korea. Another family is directed to treatment utilizing antipsychotics in combination with digital therapies. If granted, the patent(s) in this family would expire in 2039. A Patent Cooperation Treaty application has been filed in this family, and national phase entry applications have been filed in Europe, Japan, South Korea, Singapore, New Zealand, China, Israel, Canada, and Australia.
Licensed Patent Assets
As discussed above in “License Agreements - ISF”, we are the exclusive licensee within a broad field of use to a portfolio of patents directed to combinational drug and prescription digital therapy treatment. Nineteen US patents have been allowed in this portfolio, the patents expiring between 2028 and, at the latest, 2036. Those patents encompass more than 550 granted claims directed to drug/software combinations and that may potentially cover aspects of current or future PDTs. One US patent applications is pending in this portfolio. If granted, the pending patent application would expire in 2028. As exclusive licensee, we play a pivotal role in the ongoing prosecution of this portfolio.
Registered Copyrights
In addition to our portfolio of utility and design patents, we hold copyright in each of our PDTs and pursue federal copyright registration where appropriate. We have registered copyright in the source code for each of our commercial products with the US Copyright Office.
Registered Trademarks
Beyond patent and copyright protection, we also protect our valuable trademarks and associated brand recognition by registering trademarks with the US Patent and Trademark Office. We own seven US trademark registrations covering goods and services in multiple classes. Our federally registered trademarks are PEAR THERAPEUTICS, the Pear logo, RESET, RESET-O, and SOMRYST. Certain of our RESET and RESET-O trademark applications and registrations are the subject of ongoing opposition and cancellation proceedings, respectively.
Government Regulation
Insurance and Coverage
In the US and markets in other countries, patients generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare
programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Pear’s ability to successfully commercialize Pear’s product candidates will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments. Sales of product candidates that Pear may identify will depend substantially, both domestically and abroad, on the extent to which the costs of Pear’s product candidates will be paid by health maintenance, managed care, pharmacy benefit, and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers, and other third-party payors.
There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved products and coverage may be more limited than the purposes for which the product is approved by FDA or comparable foreign regulatory authorities. In the US, a key decision-maker about reimbursement for new products is the Centers for Medicare & Medicaid Services (“CMS”), an agency within the US Department of Health and Human Services (“HHS”). CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare, and several US private payors tend to follow CMS to some degree.
In determining reimbursement, payors generally consider whether the product is:
•a covered benefit under its health plan;
•safe, effective and medically necessary;
•appropriate for the specific patient;
•cost-effective; and
•neither experimental nor investigational.
Each payor determines whether or not it will provide coverage for a treatment, what amount it will pay the manufacturer for the treatment, and on what tier of its formulary it will be placed. The position on a payor’s list of covered drugs, biological products, and medical devices, or formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and clinicians. Patients who are prescribed treatments for their conditions and clinicians prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use Pear’s products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of Pear’s products. There may be significant delays in obtaining such coverage and reimbursement for newly authorized products, and coverage may be more limited than the purposes for which the product is authorized by FDA.
Healthcare Laws and Regulations
Pear is subject to applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the US federal Anti-Kickback Statute and the US federal False Claims Act, which may constrain the business or financial arrangements and relationships through which Pear sells, markets and distributes Pear’s products. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry (e.g., healthcare providers, clinicians and third-party payors), are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Pear also may be subject to patient information and privacy and security regulation by both the federal government and the states in
which Pear conducts its business. The applicable federal and state healthcare laws and regulations that may affect Pear’s ability to operate include, but are not limited to:
•the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, the purchase, lease, order, arrangement, or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties. On December 2, 2020, the Office of Inspector General (“OIG”) published further modifications to the federal Anti-Kickback Statute. Under the final rules, OIG added safe harbor protections under the Anti-Kickback Statute for certain coordinated care and value-based arrangements among clinicians, providers, and others. This rule, with certain exceptions, became effective January 19, 2021. Implementation of this change is currently under review by the Biden administration and may be amended or repealed. Pear continues to evaluate what effect, if any, the rule will have on Pear’s business;
•the federal civil and criminal false claims laws and civil monetary penalty laws, such as the federal False Claims Act, which impose criminal and civil penalties and authorize civil whistleblower or qui tam actions, against individuals or entities for, among other things: knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent; knowingly making, using or causing to be made or used, a false statement of record material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government. A person can be held liable under the federal False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The federal False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the federal False Claims Act and to share in any monetary recovery;
•Applicable privacy laws and regulations, including HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates, independent contractors or agents of covered entities, that perform services for them that involve the creation, maintenance, receipt, use, or disclosure of, individually identifiable health information relating to the privacy, security and transmission of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, there may be additional federal, state and non-US laws which 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;
•The US federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, or collectively, the Affordable Care Act (“ACA”) including the provision commonly referred to as the Physician Payments Sunshine Act, and its implementing regulations, which requires applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors)
and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners; and
•federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.
•Additionally, Pear is subject to state equivalents of each of the healthcare laws and regulations described above, among others, some of which may be broader in scope and may apply regardless of the payor. Many states in the US have adopted laws similar to the federal Anti-Kickback Statute and False Claims Act, and may apply to Pear’s business practices, including, but not limited to, research, distribution, sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental payors, including private insurers. Several states also impose other marketing restrictions or require medical device manufacturers to make marketing or price disclosures to the state, and may also require that medical device manufacturers, such as Pear, maintain licenses to manufacture and/or distribute products within their state. State laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. There are ambiguities as to what is required to comply with these state requirements and if Pear fails to comply with an applicable state law requirement, Pear could be subject to penalties.
Data Privacy and Security Laws
Numerous federal and state laws and regulations govern the collection, use, disclosure, storage and transmission of personally identifiable information, including protected health information. These laws and regulations, including their interpretation by governmental agencies, are subject to frequent change and could have a negative impact on Pear’s business. In addition, in the future, industry requirements or guidance, contractual obligations, and/or legislation at both the federal and the state level may limit, forbid or regulate the use or transmission of health information outside of the US.
These varying interpretations can create complex compliance issues for Pear and Pear’s partners and potentially expose Pear to additional expense, adverse publicity and liability, any of which could adversely affect Pear’s business.
Federal and state consumer protection laws are increasingly being applied by the FTC and states’ attorneys general to regulate the collection, use, storage and disclosure of personal or personally identifiable information, through websites or otherwise, and to regulate the presentation of website content.
The security measures that Pear and Pear’s third-party vendors and subcontractors have in place to ensure compliance with privacy and data protection laws may not protect Pear’s facilities and systems from security breaches, ransomware acts of vandalism or theft, computer viruses, misplaced or lost data, programming and human errors or other similar events. Even though Pear provides for appropriate protections through Pear’s agreements with Pear’s third-party vendors, Pear still has limited control over their actions and practices. A breach of privacy or security of personally identifiable health information may result in an enforcement action, including criminal and civil liability, against us. Pear is not able to predict the extent of the impact such incidents may have on Pear’s business. Enforcement actions against Pear could be costly and could interrupt regular operations, which may adversely affect Pear’s business. While Pear has not received any notices of violation of the applicable privacy and data protection laws and we believe Pear is in compliance with such laws, there can be no assurance that Pear will not receive such notices in the future.
There is ongoing concern from privacy advocates, regulators and others regarding data privacy and security issues, and the number of jurisdictions with data privacy and security laws has been increasing. Also, there are ongoing public policy discussions regarding whether the standards for de-identification, anonymization or pseudonymization of health information are sufficient, and the risk of re-identification sufficiently small, to adequately protect patient privacy. Pear expects that there will continue to be new proposed and amended laws, regulations and industry
standards concerning privacy, data protection and information security in the US, such as the California Consumer Privacy Act (“CCPA”), which went into effect on January 1, 2020 and has been amended several times. Further, a new California privacy law, the CPRA, was passed by California voters on November 3, 2020. The CPRA will create additional obligations with respect to processing and storing personal information that are scheduled to take effect on January 1, 2023 (with certain provisions having retroactive effect to January 1, 2022). Additionally, a new Virginia privacy law, the VCDPA, was signed into law on March 2, 2021 and is also scheduled to take effect on January 1, 2023, and the Colorado Privacy Act (“CPA”) which was passed by the state legislature and is awaiting the governor’s signature, will take effect on July 1, 2023. The VCDPA and CPA will impose many similar obligations regarding the processing and storing of personal information as the CCPA and the CPRA. Other states in the Unites States also are considering omnibus privacy legislation, and industry organizations regularly adopt and advocate for new standards in these areas. While the CCPA, CPRA, CPA and VCDPA contain exceptions for certain activities involving protected health information already regulated under HIPAA, Pear cannot yet determine the impact the CCPA, CPRA, CPA, VCDPA or other such future laws, regulations and standards may have on Pear’s business.
Healthcare Legislative Reform
In both the US and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could impact Pear’s ability to sell Pear’s products profitably. In particular, in 2010, the ACA was enacted, which contained a number of measures aimed at controlling healthcare costs.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and Pear expects there will be additional challenges and amendments to the ACA in the future. Additionally, the Trump administration issued various Executive Orders which eliminated cost-sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. Further, on December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act (H.R. 1865), which repealed the Cadillac tax, the health insurance provider tax, and the medical device excise tax. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. Pear cannot predict what affect further changes to the ACA would have on Pear’s business, especially given the new administration.
Other legislative changes have been proposed and adopted in the US since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, and, due to subsequent legislative amendments, will remain in effect through 2030 unless additional congressional action is taken. The CARES Act suspended the sequestration payment adjustment percentage of 2% applied to all Medicare Fee-for-Service claims from May 1, 2020 through December 31, 2020. The Consolidated Appropriations Act, 2021, extended the suspension period to March 31, 2021. An Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes, signed into law on April 14, 2021, extends the suspension period to December 31, 2021.
There has been increasing legislative and enforcement interest in the US with respect to prescription-pricing practices. It is unclear what effect such legislative and enforcement interest may have on prescription devices. Further, it is unclear whether the Biden administration will challenge, reverse, revoke or otherwise modify the prior administration’s executive and administrative actions.
Pear expects that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that Pear received for any approved device, which could have an adverse effect on customers for Pear’s product candidates. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels in the US directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent Pear from being able to generate revenue, attain profitability or commercialize Pear’s products. Such reforms could have an adverse effect on anticipated revenue from product candidates that Pear may successfully develop and for which Pear may obtain regulatory approval and that may affect Pear’s overall financial condition and ability to develop product candidates. If Pear or any third parties Pear may engage are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Pear or such third parties are not able to maintain regulatory compliance, Pear’s current or any future product candidates Pear may develop may lose any regulatory approval that may have been obtained and Pear may not achieve or sustain profitability.
FDA Regulation
United States
Pear’s products are medical devices subject to extensive and ongoing regulation by FDA under the Federal Food, Drug, and Cosmetic Act (“FD&C Act”) and its implementing regulations, as well as other federal and state regulatory bodies in the US The laws and regulations govern, among other things, product design and development, preclinical and clinical testing, manufacturing, packaging, labeling, storage, recordkeeping and reporting, clearance, authorization, or approval, marketing, distribution, promotion, import and export and post-marketing surveillance. Failure to comply with applicable requirements may subject a device and/or its manufacturer to a variety of administrative sanctions, such as issuance of warning letters, import detentions, civil monetary penalties, mandatory recalls, and/or judicial sanctions, such as product seizures, injunctions and criminal prosecution.
Generally, establishments that design and/or manufacture devices are required to register their establishments with the FDA. They also must provide the FDA with a list of the devices that they design and/or manufacture at their facilities.
The FDA enforces its requirements by market surveillance and periodic visits, both announced and unannounced, to inspect or re-inspect equipment, facilities, laboratories and processes to confirm regulatory compliance. These inspections may include the manufacturing facilities of subcontractors. Following an inspection, the FDA may issue a report, known as a Form 483, listing instances where the manufacturer has failed to comply with applicable regulations and/or procedures or, if observed violations are sufficiently severe and urgent, a warning letter. If the manufacturer does not adequately respond to a Form 483 or warning letter, the FDA make take enforcement action against the manufacturer or impose other sanctions or consequences, which may include:
•cease and desist orders;
•injunctions or consent decrees;
•civil monetary penalties;
•recall, detention or seizure of products;
•operating restrictions, partial or total shutdown of production facilities;
•refusal of or delay in granting requests for 510(k) clearance, de novo authorization, or premarket approval of new products or modified products;
•withdrawing 510(k) clearances, de novo authorizations, or premarket approvals that are already granted;
•refusal to grant export approval or export certificates for devices; and
•criminal prosecution.
FDA’s Pre-market Clearance, Authorization and Approval Requirements
Each prescription digital therapeutic Pear seeks to commercially distribute in the US will require either a prior de novo authorization, 510(k) clearance, unless it is exempt, or a Premarket Approval (“PMA”) from FDA under its medical device authorities. Generally, if a new device has a predicate that is already classified as Class II, FDA will allow that new device to be marketed under a 510(k) clearance. If there is no legally marketed predicate device and general controls alone or with special controls provide reasonable assurance of safety and effectiveness, FDA will allow the new device to be marketed under a de novo authorization; otherwise, a PMA is required. Medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of control needed to provide reasonable assurance of safety and effectiveness. Class I devices are deemed to be low risk and are subject to the general controls of the FD&C Act, such as provisions that relate to: adulteration; misbranding; registration and listing; notification; records and reports; and good manufacturing practices. Class II devices are moderate risk. They are subject to general controls and may also be subject to special controls. Special controls include, for example, performance standards, post market surveillance, patient registries and guidance documents. Devices deemed by FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed in Class III. A Class III device cannot be marketed in the US unless FDA approves the device after submission of a PMA. However, there are some Class III devices for which FDA has not yet called for a PMA. For these devices, the manufacturer must submit a pre-market notification and obtain 510(k) clearance in order to commercially distribute these devices. FDA can also impose sales, marketing or other restrictions on devices in order to assure that they are used in a safe and effective manner. There is no guarantee that a submission to FDA will result in a clearance, authorization, or approval. In addition, various review process and goals to which applications are currently subject are the result of Medical Device User Fee Act (“MDUFA”) IV, which expires after September 30, 2022; negotiations for enactment of a MDUFA V law and adoption of associated goals are ongoing.
While most Class I and some Class II devices may be marketed without prior FDA authorization, most other medical devices can be legally sold within the US only if the FDA has: (i) approved a PMA application prior to marketing, generally applicable to most Class III devices; (ii) cleared the device in response to a 510(k) submission, generally applicable to some Class I and most Class II devices; or (iii) authorized the device to be marketed through the de novo classification process, generally applicable for novel Class I or II devices.
510(k) Clearance Pathway
Product marketing in the US for most Class II and a limited number of Class I devices typically follows the 510(k) premarket notification pathway. When a 510(k) clearance is required, Pear must submit a pre-market notification to FDA demonstrating that Pear’s proposed device is substantially equivalent to a legally marketed device, referred to as a “predicate device.” A predicate device may be a previously 510(k) cleared device or a Class III device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for PMA applications, or a product previously placed in Class II or Class I through the de novo classification process. To demonstrate substantial equivalence, the manufacturer must show that the proposed device has the same intended use as the predicate device, and it either has the same technological characteristics, or different technological characteristics and the information in the pre-market notification demonstrates that the device is equally safe and effective and does not raise different questions of safety and effectiveness as compared to the predicate device. FDA may require further information, including clinical data, to make a determination regarding substantial equivalence. If FDA determines that the device, or its intended use, is not substantially equivalent to a previously cleared device or use, FDA will place the device into Class III.
There are three types of 510(k)s: traditional, special and abbreviated. Special 510(k)s are for devices that are modified, and the modification needs a new 510(k) but does not affect the intended use or alter the fundamental scientific technology of the device. Abbreviated 510(k)s are for devices that conform to a recognized standard. FDA has a user fee goal to apply no more than 90 calendar review days to traditional and abbreviated 510(k) submissions. During the process, FDA may issue an Additional Information request, which stops the clock. The applicant has 180 days to respond. Therefore, the total review time could be up to 270 days. The special and abbreviated 510(k)s are intended to streamline review, and FDA intends to process special 510(k)s within 30 days of receipt, although it can
take longer, if FDA has questions. There are no guarantees that FDA meet its goals, although it has agreed to try to meet its 90 calendar day decision goals in 95% of 510(k) submissions for FY 2022.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require a PMA approval or de novo classification. The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance for the modified device, the agency may retroactively require the manufacturer to seek 510(k) clearance, de novo classification, or PMA approval. The FDA also can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance, de novo authorization, or PMA approval is obtained.
De Novo Classification
When it is determined there is no legally marketed predicate device, the de novo process provides a pathway to classify novel low- or moderate-risk medical devices for which general controls alone, or general and special controls, provide reasonable assurance of safety and effectiveness. Medical device types that FDA has not previously classified as Class I, II or III are automatically classified into Class III regardless of the level of risk they pose. The de novo classification procedure allows a manufacturer whose novel device is automatically classified into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA application. Prior to the enactment of the FDA Safety and Innovation Act of 2012 (“FDASIA”), a medical device could only be eligible for de novo classification if the manufacturer first submitted a 510(k) pre-market notification and received a determination from FDA that the device was not substantially equivalent. FDASIA streamlined the de novo classification pathway by permitting manufacturers to request de novo classification directly without first submitting a 510(k) pre-market notification to FDA and receiving a not substantially equivalent determination. Under FDASIA, FDA is required to classify the device within 120 days following receipt of the de novo application. If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. In addition, FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderate risk or that general controls would be inadequate to control the risks and special controls cannot be developed. Devices that are classified into Class I or Class II through a de novo classification request may be marketed and used as predicates for future premarket notification 510(k) submissions.
FDA has a user fee goal to review a de novo request in 150 calendar review days (which FDA agreed to try and meet for 70% of De Novo submissions in FY 2022). During the process, FDA may issue an Additional Information request, which stops the clock. The applicant has 180 days to respond. Therefore, the total review time could be as long as 330 days.
Pre-market Approval Pathway
A Class III product not eligible for either 510(k) clearance or de novo classification must follow the PMA approval pathway. The PMA application process is generally more expensive, rigorous, lengthy, demanding, and uncertain than the 510(k) premarket notification or de novo process. A PMA application must be supported by extensive data, including but not limited to technical, preclinical, clinical trials, manufacturing, marketing history, design, controls, and labeling to demonstrate to FDA’s satisfaction reasonable assurance of safety and effectiveness of the device.
FDA may convene an advisory panel of experts from outside FDA to review and evaluate the application and provide recommendations to FDA as to the safety and effectiveness of the device. Although FDA is not bound by the advisory panel decision, the panel’s recommendations are important to FDA’s overall decision-making process. In addition, FDA may conduct a preapproval inspection of the manufacturing facility to ensure compliance with the Quality System Regulation (“QSR”), which imposes elaborate testing, control, documentation, and other quality assurance requirements. The agency also may inspect one or more clinical sites to assure compliance with FDA’s regulations.
FDA has a user fee goal to review a PMA in 180 calendar review days, if the submission does not require advisory committee input, or 320 review days if the submission does require advisory committee input. FDA has agreed to try to meet this goal in most cases for FY 2022, though it is not guaranteed. During the process, FDA may issue a major deficiency letter, which stops the review clock. The applicant has up to 180 days to respond. Therefore, the total review time could be up to 360 days, if the submission does not require advisory committee input, or 500 days if the submission does require advisory committee input.
Upon completion of the PMA review, FDA may: (i) approve the PMA which authorizes commercial marketing with specific prescribing information for one or more indications, which can be more limited than those originally sought and can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale and distribution; (ii) issue an approvable letter which indicates FDA’s belief that the PMA is approvable and states what additional information FDA requires, or the post-approval commitments that must be agreed to prior to approval; (iii) issue a not approvable letter which outlines steps required for approval, but which are typically more onerous than those in an approvable letter, and may require additional clinical trials that are often expensive and time consuming and can delay approval for months or even years; or (iv) deny the application. If FDA issues an approvable or not approvable letter, the applicant has 180 days to respond, after which FDA’s review clock is reset.
Even after approval of a PMA, a new PMA or PMA supplement may be required in the event of a modification to the device, its labeling or its manufacturing process. Supplements to a PMA often require the submission of the same type of information required for an original PMA, except that the supplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA.
Breakthrough Devices
The Breakthrough Devices Program is a voluntary program intended to expedite the review, development, assessment and review of certain medical devices that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human diseases or conditions for which no approved or cleared treatment exists or that offer significant advantages over existing approved or cleared alternatives. Submissions for devices designated as Breakthrough Devices will receive priority review, meaning that the review of the submission is placed at the top of the appropriate review queue and receives additional review resources, as needed and available. Although Breakthrough Device designation or access to any other expedited program may expedite the development or clearance/authorization/approval process, it does not change the standards for clearance/authorization/approval. Designation for any expedited review procedure does not ensure that we will ultimately obtain regulatory clearance or approval for such product.
Clinical Trials
Clinical trials are almost always required to support a PMA, are often required for a de novo authorization, and are sometimes required for 510(k) clearance. Clinical trials may also be conducted or continued to satisfy post-approval requirements for devices with PMAs. In the US, for significant risk devices, these trials require submission of an application for an investigational device exemption (“IDE”) to FDA prior to initiating clinical trials. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by FDA for a specific number of patients at specified study sites. A 30-day waiting period after the submission of each IDE is required prior to the commencement of clinical testing in humans. If the FDA disapproves the IDE within this 30-day period, the clinical trial proposed in the IDE may not begin. During the trial, the clinical trial sponsor must comply with FDA’s IDE requirements for investigator selection, trial monitoring, reporting and recordkeeping. The investigators must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of investigational devices and comply with all reporting and recordkeeping requirements. Clinical trials for significant risk devices may not begin until the IDE application is approved by FDA and the appropriate institutional review boards (“IRBs”) at the clinical trial sites. An IRB is an appropriately constituted group that has been formally designated to review and monitor medical research involving subjects and which has the authority to approve, require modifications in, or disapprove research to protect the rights, safety and welfare of human research subjects. A nonsignificant risk device does not require FDA approval of
an IDE; however, the clinical trial must still be conducted in compliance with various requirements of FDA’s IDE regulations and be approved by an IRB at the clinical trials sites. FDA or the IRB at each site at which a clinical trial is being performed may withdraw approval of a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the benefits or a failure to comply with FDA or IRB requirements. Even if a trial is completed, the results of clinical testing may not demonstrate the safety and effectiveness of the device, may be equivocal or may otherwise not be sufficient to obtain approval, authorization, or clearance of the product.
Sponsors of applicable clinical trials of devices are required to register with www.clinicaltrials.gov, a public database of clinical trial information. Information related to the device, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration.
Although the QSR does not fully apply to investigational devices, the requirement for controls on design and development does apply. The clinical trial sponsor also must manufacture the investigational device in conformity with the quality controls described in the IDE application and any conditions of IDE approval that the FDA may impose with respect to manufacturing.
Ongoing Regulation by FDA
Even after a device receives clearance, authorization, or approval and is placed on the market, numerous regulatory requirements apply. These include:
•establishment registration and device listing;
•the QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the manufacturing, design, development, distribution, and labeling process;
•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved, or “off-label” uses and other requirements related to promotional activities;
•medical device reporting regulations, which require that manufactures report to FDA if their device may have caused or contributed to a death or serious injury, or if their device malfunctioned and the device or a similar device marketed by the manufacturer would be likely to cause or contribute to a death or serious injury if the malfunction were to recur;
•corrections and removal reporting regulations, which require that manufactures report to FDA field corrections or removals if undertaken to reduce a risk to health posed by a device or to remedy a violation of the FD&C Act that may present a risk to health; and
•post market surveillance regulations, which apply to certain Class II or III devices when necessary to protect the public health or to provide additional safety and effectiveness data for the device.
FDA regulations require manufacturers to register with FDA and to list the devices they market. Additionally, the California Department of Health Services (“CDHS”) requires manufacturers to register within the state. Following these registrations, FDA and CDHS inspect manufacturers on a routine basis for compliance with the QSR and applicable state regulations. These regulations require that Pear manufacture Pear’s products and maintain related documentation in a prescribed manner with respect to manufacturing, testing and control activities. Other states might also require non-resident licenses concerning distribution of devices into their states. Pear is also subject to other federal, state and local laws and regulations relating to safe working conditions, laboratory and manufacturing practices. Failure to comply with applicable regulatory requirements can result in enforcement action by FDA or state authorities, which may include any of the following sanctions:
•warning or untitled letters, fines, injunctions, consent decrees and civil penalties;
•customer notifications, voluntary or mandatory recall or seizure of Pear’s products;
•operating restrictions, partial suspension or total shutdown of production;
•delay in processing submissions or applications for new products or modifications to existing products;
•withdrawing clearance, authorization, and/or approvals that have already been granted; and
•criminal prosecution.
The medical device reporting laws and regulations require manufacturers to provide information to FDA when they receive or otherwise become aware of information that reasonably suggests their devices may have caused or contributed to a death or serious injury as well as a device malfunction that likely would cause or contribute to death or serious injury if the malfunction were to recur. Failure to properly identify reportable events or to file timely reports, as well as failure to address each of the observations to FDA’s satisfaction, can subject a manufacturer to warning letters, recalls, or other sanctions and penalties.
Advertising, marketing and promotional activities for devices are also subject to FDA and US Federal Trade Commission (“FTC”) oversight and must comply with the statutory standards of the FD&C Act and the FDA’s implementing regulations, and the Federal Trade Commission Act and FTC’s implementing regulations. The FDA’s and FTC’s oversight authority review of marketing and promotional activities encompasses, but is not limited to, direct-to-consumer advertising, healthcare provider-directed advertising and promotion, sales representative communications to healthcare professionals, promotional programming and promotional activities involving electronic media. The FDA also regulates industry-sponsored scientific and educational activities that make representations regarding product safety or efficacy in a promotional context.
Manufacturers of medical devices are permitted to promote products solely for the uses and indications set forth in the approved or cleared product labeling, and all claims must be truthful, non-misleading, and adequately substantiated. In addition, although healthcare providers may use medical devices in an off-label manner in accordance with the practice of medicine, FDA prohibits marketed devices from being marketed for off-label uses and regulates the advertising of certain devices as well. FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution, including False Claims Act liability for products covered under the federal health care programs.
Finally, newly discovered or developed safety or effectiveness data may require changes to a marketed product’s labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or FDA’s policies may change, which could delay or prevent regulatory clearance or approval of Pear’s products under development.
Pear has three FDA-authorized products: reSET, reSET-O, and Somryst. Pear’s first product, reSET, obtained a de novo authorization as a Class II device. Pear’s second and third products, reSET-O and Somryst, obtained 510(k) clearance as Class II devices.
Human Capital
The Company believes it has a talented, motivated, and dedicated team, and is committed to supporting the development of all of its team members and to continuously building on its strong culture that operates at the intersection of biology and software technology. As of December 31, 2021, we had approximately 300 employees, that includes primarily full-time employees but also part-time employees and interns.
Workplace Practices and Policies
The Company is committed to providing a workplace free of harassment or discrimination based on race, color, religion, sex, sexual orientation, gender identity or expression, pregnancy, age, national origin, disability status, genetic information, protected veteran status, or any other characteristic protected by law. The Company is an equal opportunity employer committed to inclusion and diversity.
In managing our business, we strive to develop and implement policies and programs that support our business goals, maintain competitiveness, promote shared fiscal responsibility among our company and our employees,
strategically align talent within our organization and reward performance, while also managing the costs of such policies and programs. Our employees are supported with training and development opportunities to pursue their career paths and to ensure compliance with our policies. We adhere to our code of business conduct and ethics (the "Code of Business Conduct and Ethics"), which sets forth a commitment to our stakeholders, including our employees, to operate with integrity and mutual respect.
During the COVID-19 pandemic, we have taken and continue to take necessary actions to safeguard the health of our employees. Steps we have taken include enhancing office safety measures, encouraging hygiene practices advised by health authorities, restricting non-essential business travel, requiring proof of COVID-19 vaccinations, including booster shots as applicable, for employees and third-party personnel who wish to visit our offices, and flexibility in remote working for all of our employees, which has continued to evolve due to the resurgence of infections as a result of mutations of the virus. We continue to actively monitor risks related to COVID-19 and proper application of our safety protocol to remain aligned with federal, state, and local laws, regulations and guidelines. We are committed to providing consistent, transparent communication to employees around safe practices, quarantine and testing protocols, vaccine availability, and policies and procedures for safely returning to office work for those employees. We believe our technology platform will continue to support the effectiveness of our employees that choose to work remotely. Our employees and their families are also supported with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health.
Inclusion and Diversity
The Company is committed to actively recruiting from diverse backgrounds, providing training and development opportunities, fostering an inclusive culture, and ensuring equitable pay for employees, and is continuing to focus on increasing diverse representation at every level of the Company. As of December 31, 2021, our board is comprised of three female directors and four male directors, our executive team is comprised of three female officers and four male officers, and our leadership team is comprised of six females and five males.
Compensation, Benefits, Growth, and Development
Pear seeks to attract, develop, and retain talented professionals from the healthcare and tech sectors. We utilize a pay-for-performance compensation structure that involves a combination of salary, bonus (which includes a personal component and a company component, the proportions of which are based on the level of the employee), and stock-based compensation awards. We also have a robust rewards and recognition program. We seek to develop all of our employees, which we refer to as “Pearmates”, with a learning and development program. We strive to stretch our highest potential employees by promoting from within where possible.
Pear has a number of Employee Resource Groups: employee-led, voluntary groups, based around a shared interest or goal, and aligned with the mission and objectives of the company. The following are our current Employee Resource Groups and their missions:
•DEI Committee - to enable a diverse, equitable, and inclusive organization that embraces and leverages our differences and enhances a sense of belonging for all Pearmates;
•Pear Women - to support the women of Pear by providing a safe space to discuss their thoughts and concerns, with an emphasis on career growth;
•Pear Impact Committee - to create empathy by engaging employees to deepen their understanding of the patients we serve with love, care, and compassion;
•Employee Engagement Council - a cross-functional and cross-geographic team empowered to improve the employee experience at Pear; and
•Peargivers - to support employees who have caregiver responsibilities with resources and socioemotional support to enable their maximized contributions to Pear.
Engagement
The Company believes that open and honest communication among Pearmates, managers, and leadership fosters an open, collaborative work environment where everyone can participate, develop and thrive. Pearmates are encouraged to come to their managers with questions, feedback or concerns, and we regularly conduct surveys that gauge employee sentiment in areas like the Company culture, communication, leadership, work environment, well-being, rewards and recognition, compensation and benefits, and career development.
Properties
Our corporate headquarters is located in Boston, Massachusetts, where we lease approximately 19,000 square feet pursuant a lease that expires on June 1, 2028. We also lease approximately 17,000 square feet of office space San Francisco, California pursuant to a lease that expires on July 31, 2025. We use these facilities for finance, legal, human resources, information technology, engineering, product, sales and marketing, and other administrative functions. In addition, we lease approximately 7,700 square feet of office space in Raleigh, North Carolina pursuant to a lease that expires on May 31, 2026. We use this facility to house our Patient Service Center and various other personnel. The Company believes its existing facilities are adequate for its current requirements.
See Note 8 in the accompanying notes to the consolidated financial statements included in this prospectus for additional information regarding our specific leaseholds.
Legal Proceedings
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or any of our officers or directors in their corporate capacity. From time to time, we may become involved in litigation or legal proceedings relating to claims arising from the ordinary course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these proceedings to have a material adverse effect on our financial position, results of operations, or cash flow.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements and other information about issuers, like us, that file electronically with the SEC. We also maintain a website at https://peartherapeutics.com/. We make available, free of charge, on our investor relations website at https://investors.peartherapeutics.com/financial-information/sec-filings, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably practicable after electronically filing or furnishing those reports to the SEC. Information contained on our website is not a part of or incorporated by reference into this prospectus and the inclusion of our website and investor relations website addresses in this prospectus is an inactive textual reference only.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Pear’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under in the “Risk Factors” section included in this prospectus All references to years, unless otherwise noted, refer to our fiscal years, which end on December 31. For purposes of this section, all references to “we,” “us,” “our,” “Pear,” or the “Company” refer to Pear Therapeutics, Inc. and its consolidated subsidiaries.
The following discussion and analysis should also be read in conjunction with the accompanying consolidated financial statements included in this prospectus.
Overview
Pear is a commercial-stage healthcare company pioneering a new class of medicine, referred to as PDTs, which use software to treat diseases. Our vision is to advance healthcare through the widespread use of PDTs.
Recent global trends are converging to highlight a significant unmet need for new and innovative solutions for the treatment of diseases. We believe our PDTs are well suited to satisfy this growing unmet need for the treatment of diseases, including addiction and insomnia.
Pear is a leader in the PDT industry. Our marketed PDTs, reSET, reSET-O, and Somryst, were among the first three PDTs authorized by FDA. We believe PDTs have the potential to improve clinical outcomes, facilitate improved care coordination, improve practice efficiency, and provide data tracking over time.
Two of our FDA-authorized PDTs are for the treatment of addiction, which currently affects more than 20 million people in the US. Our first product, reSET, is indicated for the treatment of SUD as a monotherapy. Our second product, reSET-O, is indicated for the treatment of OUD in combination with buprenorphine.
Our third product, Somryst, is indicated for the treatment of chronic insomnia, which currently affects more than approximately 30 million people in the US.
Operating Segments
We operate our business in a single segment and as one reporting unit, which is how our chief operating decision maker (who is our president and chief executive officer) reviews financial performance and allocates resources.
Key Business Metrics
We monitor the key non-financial operating performance metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. We began using these metrics in 2021 as we began to generate product revenue, primarily from sales of reSET and reSET-O. The metrics include the following:
| | | | | | | | | | |
Financial and Key Operating Performance Metrics | | | | Year ended December 31, 2021 |
Revenue | | | | $4.2 million |
Prescriptions Written | | | | 14,000+ |
Fulfillment Rate | | | | ~51% |
Covered Lives | | | | 31.7 million+ |
Prescriptions Written - the number of prescriptions written by a clinician for one of Pear’s three commercial products, reSET®, reSET-O®, and Somryst®.
Fulfillment Rate - the percentage of prescriptions written by a clinician for one of Pear’s three commercial products that result in patients downloading and accessing therapeutic software content.
Covered Lives - the estimated number of persons with access to Pear’s PDTs by either listing on a formulary or on a fee schedule as a covered benefit with payors, including self-insured employers, IDNs, PBMs, commercial payors, and government payors. Covered lives is a proxy metric for payment rate, which is the percentage of fulfilled prescriptions for which Pear receives payment. As we are early in the development of the PDT category, most payors do not yet cover PDTs; therefore, Pear does not yet receive payment for most fulfilled prescriptions.
To illustrate how prescriptions written, fulfillment rate, and covered lives relate to product revenue we believe it is helpful to provide a hypothetical scenario of 100 prescriptions written with a 50% fulfillment rate and a 50% payment rate. We use covered lives as a metric that is expected to impact payment rate because, as we grow the number of covered lives for our three products, the payment rate should increase. In this hypothetical scenario, Pear has 50 filled prescriptions, of which 25 are paid. In this hypothetical scenario, Pear would receive payment for 25 of the 50 filled prescriptions. Product revenue for the 100 prescriptions written would be calculated by multiplying (a) 25 paid prescriptions by (b) the wholesale acquisition cost (WAC) for the respective prescription, reduced by (c) any applicable discounts and rebates as well as estimated contingency management costs, if applicable.
Factors Affecting Our Performance and Results of Operations
We believe that our performance and future success depend on many factors that present significant opportunities for us, but also pose risks and challenges, including those discussed more fully under the heading “Risk Factors” in this prospectus.
Product Revenue
We generate product revenue from the sale of our three FDA-authorized PDTs: reSET, reSET-O, and Somryst. We began our efforts to self-commercialize reSET and reSET-O in Q4 2019 and Somryst in Q4 2020. Through at least 2023, sales of our existing products are not expected to reduce our continued net losses.
We enter into arrangements with health care providers and payers that provide for government-mandated and/or privately negotiated rebates and discounts with respect to the purchase of our product. A portion of the product revenue is recognized when the products are made available to the customer (under a bulk order) or when a prescription is fulfilled, and a portion of the product revenue related to the clinician’s access to our proprietary clinician dashboard is deferred and recognized ratably over the term of the PDT or if purchased under a bulk purchase agreement is deferred and recognized ratably over the term of the contract. See Note 2, Revenue Recognition, in the accompanying notes to the consolidated financial statements included in this prospectus.
If our development efforts for our PDT product candidates are successful and result in regulatory marketing authorization, we may generate revenue in the future from product sales or payment from collaboration or license agreements that we may enter into with third parties or any combination thereof. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of the product candidates that we currently have under development or potential future product candidates.
Product revenue from our existing three FDA-authorized PDTs, as well as potential future product candidates, is and will be impacted by the many factors, including the following variables: patient and clinician adoption of PDTs, pricing, reimbursement, contingency management, and product mix.
Patient and Clinician Adoption of PDTs — To continue to grow our business, we will need to execute on our current business strategy of achieving and maintaining broad market acceptance of our PDTs by patients and physicians. Market acceptance and adoption of our PDTs depends on educating people with chronic conditions, as well as self-insured employers, commercial and government payors, health plans and physicians, and other government entities, as to the distinct features, therapeutic benefits, cost savings, and other advantages of our PDTs as compared to competitive products or other currently available methodologies. We have a market access team focused educating payors on the clinical outcomes and value proposition of our products and to seek to secure favorable coverage
policies and to maximize the covered lives that have reimbursement for our products by expanding approvals with IDNs, PBMs, and other payers. If we are not successful in demonstrating to existing or potential patients and prescribers the benefits of our products, or if we are not able to achieve the support of patients, healthcare providers, and payors for our products, our sales may decline, or we may fail to increase our revenue.
Pricing — In the future, we expect to grow the number of commercially available PDTs in our product portfolio, offering a broad range of PDTs spanning multiple price points. PDTs may be subject to competition which may impact our pricing, and in addition, our products may be subject to legislative prescription-pricing practices.
Reimbursement — As of December 31, 2021 , we have more than 30 organizations across more than 31.7 million covered lives providing access to our three FDA-authorized products via listing on formulary, as a covered benefit, bulk purchase, or funding a study. Pear’s payor strategy focuses across all major payor channels, including employers, IDNs, PBMs, commercial payors, and government payors, including Medicaid and Medicare. We expect to increase our number of payors, and the pricing for such payors may vary as net prices for our products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and can be subject to customary discounts and rebates. In addition, some of our products may be subject to certain customer incentive programs. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to achieve profitability. As of December 31, 2021, approximately 21% of activated prescriptions (prescriptions written multiplied by fulfilled prescription rate) were paid prescriptions. In the future, as our market access team educates payors on the clinical attributes of our products we expect our products to secure favorable coverage policies and to maximize the covered lives that have reimbursement for our products.
Contingency Management — Costs related to clinically-validated rewards that patients earn as they complete treatment goals within our reSET and reSET-O PDTs is recorded as contra revenue.
Product Mix — Sales of certain products have, or are expected to have, higher gross margins than others. As a result, our financial performance depends, in part, on the mix of products we sell during a given period.
Collaboration and License Revenue
As of December 31, 2021, we do not have collaboration and licensing agreements from which we would recognize significant collaboration and licensing revenue. Our historical collaboration and license revenue is from Novartis Institute of Biomedical Research (“NIBR”). In June 2020, NIBR terminated their collaboration agreement with the Company, or the NIBR Agreement, related to our schizophrenia and multiple sclerosis product candidate development programs. We will not recognize any revenue under these agreements in the future.
If our development efforts for our PDT candidates are successful and result in regulatory marketing authorization or collaboration or license agreements with third parties, we may generate revenue in the future from collaboration or license agreements that we may enter into with third parties. We cannot predict if, when, or to what extent we may enter into future licensing or collaboration agreements. Further, we may never succeed in obtaining regulatory approval for any of our product candidates that are currently under development.
Cost of Product Revenue
Cost of product revenue consists primarily of costs that are closely correlated or directly related to the delivery of the Company’s products, including pharmacy costs, royalties paid under license agreements related to our commercialized products, amortization of milestone payments capitalized related to commercialized products, hosting costs, and personnel-related costs, including salaries and bonuses, employee benefits, and stock-based compensation attributable to employees in a particular function. We expect the cost of product revenue to increase as we further commercialize our products and increase the volume of prescriptions filled.
Research and Development Expenses
As of December 31, 2021, we have multiple product candidates in our pipeline, and we have incurred and will continue to incur significant research and development, or R&D, costs for their development. Developing PDTs
requires a significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. We have chosen to leverage our platform to initially focus on advancing our PDTs in the area of psychiatry. We expect our R&D expenses will increase substantially as we continue to invest in the development of our pipeline of product candidates, future clinical development activities, and testing of our product candidates.
R&D expenses consist of costs incurred in performing R&D activities, which include:
•expenses incurred in connection with the development of our pipeline of PDTs;
•costs in connection with third-party licensing agreements, including development and regulatory milestones;
•personnel-related expenses, including salaries, bonuses, benefits, and stock-based compensation for employees engaged in R&D functions;
•cost of clinical trials;
•expenses incurred in connection with the discovery and development of our PDTs, including under agreements with third parties, such as consultants;
•expenses incurred under agreements with consultants who supplement our internal capabilities, including software development; and
•facilities, depreciation, and other expenses, which include direct and allocated expenses, such as rent and maintenance of facilities, insurance, and other operating costs for space and costs directly related to R&D functions.
Each of our product candidates has technical, clinical, regulatory, and commercial risk, including those discussed more fully under the heading “Risk Factors” in this prospectus.
We expense R&D costs as incurred and do not track the costs at a project level. Advance payments made for goods or services to be received in the future for use in R&D activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed. In the early phases of development, our R&D costs are often devoted to product platform and proof-of-concept studies that are not necessarily allocable to a specific product.
Selling, General, and Administrative Expenses
Selling, general, and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation related to commercial, marketing, executive, finance and accounting, information technology, corporate and business development, and human resource functions. Other SG&A expenses include marketing initiatives, market research, and analysis, conferences and trade shows, travel expenses, professional services fees (including legal, patent, accounting, audit, tax, and consulting fees), insurance costs, amortization of internal-use software, general corporate expenses, and allocated facilities-related expenses, including rent and maintenance of facilities.
We expect SG&A expenses to continue to increase in absolute dollars as we increase potential customers’ awareness and our sales and marketing functions to support existing products and future product launches. In addition, the Company expects to increase expenditures to expand our infrastructure to both drive and support the anticipated growth of the Company as well as additional expenses related to legal, accounting, information technology, investor and public relations, regulatory, and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs, and other expenses associated with being a public company and implementing additional controls over financial reporting.
Interest and other income (expense), net
Interest expense includes interest due under the Perceptive Credit Facility (as defined below) and accretion of the debt discount on the Perceptive Credit Facility as well as the change in the fair value of our derivative liabilities and earn-out liabilities that occurred during the period. In addition, it includes the accretion of the interest of the seller financing in connection with the Waypoint asset acquired in November 2021. See Note 8 in the accompanying notes to the consolidated financial statements included in this prospectus for further information.
Interest income consists of interest earned on cash balances held in interest-bearing accounts. We expect our interest income will fluctuate based on the timing and ability to raise additional funds as well as the amount of expenditures for our commercial products and R&D for our product candidates and ongoing business operations.
Loss on issuance of convertible preferred stock
In December 2020 and February 2021, the Company issued shares of Series D-1 and D-2 convertible preferred stock to investors. The shares are recorded at their estimated fair market value on the date of issuance. In connection with the Series D-1 preferred stock and D-2 preferred stock financing, the Company recorded a loss on the issuance of convertible preferred stock for the years ended December 31, 2021 and 2020, of $2.1 million and $16.8 million, respectively, which represents the amount by which the estimated fair value of the shares exceeded the sale price.
Loss/gain on extinguishment of debt
In connection with the extinguishment of the SVB Term Loan (as defined below), in June 2020, we recorded a loss on extinguishment of debt of $1.0 million for the year ended December 31, 2020.
Income taxes
Deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We regularly assess the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Accordingly, we have recorded a valuation allowance of $66.7 million and $40.3 million, as of December 31, 2021 and 2020, respectively. The future realization of deferred tax assets is subject to the existence of sufficient taxable income of the appropriate character (e.g., ordinary income or capital gain) as provided under the carryforward provisions of tax law. We consider the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), future projected taxable income (including the character and jurisdiction of such income), and tax-planning strategies in making this assessment. Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the considerations described above. As of December 31, 2021, we had no unrecognized tax benefits.
Financial Highlights
Year-over-year product revenue grew significantly primarily due to an increase in sales of reSET and reSET-O, which increased approximately 24x year over year. Year-over-year total revenue declined due to non-recurring $9.2 million of collaboration revenue recognized in the year ended December 31, 2020 under an agreement terminated in March 2020 and under which no further revenue will be recognized
We incurred a net loss of $65.1 million and $97.0 million for the years ended December 31, 2021, and 2020, respectively, representing a period-over-period decrease of $31.9 million or 32.9%. This decrease was primarily due to a change in the fair value of the earn-out liabilities of $47.0 million for the year ended December 31, 2021, and a $14.8 million decrease in loss on issuance of convertible preferred stock, offset by an $8.8 million decrease in collaboration revenues. In addition, we had a $2.6 million increase in personnel-related expenses, primarily related to new hires as we expanded our commercial team from an average of 59 people in the year ended December 31, 2020, to an average of 94 people for the year ended December 31, 2021, and as we prepared to become a public
company. Further, we had a $5.0 million increase in marketing-related expenses, a $4.1 million increase in professional fees, and a $2.4 million increase in interest expense related to the borrowing of $30.0 million under the Perceptive Credit Facility on June 30, 2020. In June 2020, the Company recorded a $1.0 million loss on extinguishment of debt.
To date, we have funded our operations primarily with proceeds from sales of convertible preferred stock, proceeds as a result of the business combination, payments received in connection with collaboration and license agreements, product sales, and proceeds from borrowings under various credit facilities. Since our inception, we have received gross cash proceeds of $175.3 million as a result of the business combination (see Note 3 in the accompanying notes to the consolidated financial statements included in this prospectus), gross cash proceeds of $268.2 million from sales of our convertible preferred stock, and currently have $30.0 million of debt outstanding under a credit facility. During the year ended December 31, 2020, we completed a tender offer to purchase $32.0 million in aggregate principal amount of our common stock in connection with the Legacy Pear Series D-2 preferred stock offering that was conducted in conjunction with the Legacy Pear Series D-1 stock offering.
Recent Events
Business Combination
On December 3, 2021 (the “Closing Date”), we consummated a business combination, pursuant to the terms of the business combination agreement (“Business Combination Agreement”) dated June 21, 2021. Upon the consummation of the Business Combination, Oz Merger Sub, a newly formed subsidiary of THMA, merged with and into Pear, with Pear surviving. THMA, was renamed Pear Therapeutics, Inc (collectively, “Pear”) and Pear Therapeutics, Inc. was renamed Pear Therapeutics (US), Inc. (“Legacy Pear”). Legacy Pear is deemed the accounting predecessor and the post-company successor SEC registrant, which means Legacy Pear financial statements for previous periods will be disclosed in this prospectus. Future period reports filed with the SEC will include Pear Therapeutics, Inc. and its subsidiaries.
The business combination was accounted for as a reverse recapitalization. Under this method of accounting, THMA was treated as the acquired company for financial statement reporting purposes. The most significant change in the post-combination Company’s reported financial position and results was an increase in cash of $175.0 million. We paid $32.8 million in transaction costs relating to the business combination. We recorded a liability related to the Public and Private Placement Warrants of $16.5 million and $95.4 million related to the earn-out shares that holders of Legacy Pear Common Shares and Legacy Pear Preferred Shares prior on the Closing Date who received the contingent right to receive up to 12,395,625 additional shares of Class A common stock (the “Earn-Out Shares”) upon the achievement of certain earn-out targets.
As a consequence of the business combination, we became the successor to an SEC-registered and Nasdaq-listed company and we have hired additional personnel and implemented procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.
Economic Conditions (Impact of COVID-19)
In March 2020, the World Health Organization declared the global outbreak of COVID-19 to be a pandemic. The pandemic has significantly impacted the economic conditions in the US, as federal, state and local governments react to the public health crisis, creating significant uncertainties in the US economy. The downstream impact of various lockdown orders and related economic pullback affect our business and our customers to varying degrees. There Company is closely monitoring the impact of COVID-19 on all aspects of its business, including how it will impact its customers, patients, employees, suppliers, vendors, and business partners. The Company is unable to predict the specific impact that COVID-19 may have on its business, financial position, and operations moving forward due to the numerous uncertainties. Any estimates made herein may change as new events occur and additional information is obtained, and actual results could differ materially from any estimates made herein under different assumptions or conditions.
For further details see the information under the heading “Risk Factors” in this prospectus. Pear is unable to predict the full impact that the COVID-19 pandemic will have on its future results of operations, liquidity, and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities across the US. However, COVID-19 is not expected to result in any significant changes in costs going forward. As a result of COVID -19 pandemic we shifted our workforce to a hybrid model in which employees in one of our three offices work both remotely and onsite, and we anticipate we will continue to use this model going forward. In addition, our workforce has deep domain knowledge across a range of healthcare, technology, and general business, which was partially achieved by having certain of our employees working remotely across the US. Pear will continue to monitor the performance of its business and assess the impacts of COVID-19.
Results of Operations
The table and discussion below present the results for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | $ Change | | % Change |
(in thousands, except percentages) | | 2021 | | 2020 | | |
Revenues | | | | | | | | |
Product revenue | | $ | 3,748 | | | $ | 149 | | | $ | 3,599 | | | * |
Collaboration and license revenue | | 460 | | | 9,235 | | | (8,775) | | | (95) | % |
Total revenues | | 4,208 | | | 9,384 | | | (5,176) | | | (55) | % |
Cost and operating expenses: | | | | | | | | |
Cost of product revenue | | 5,233 | | | 1,718 | | | 3,515 | | | 205 | % |
Research and development | | 37,041 | | | 28,084 | | | 8,957 | | | 32 | % |
Selling, general, and administrative | | 67,619 | | | 56,226 | | | 11,393 | | | 20 | % |
Total cost and operating expenses | | 109,893 | | | 86,028 | | | 23,865 | | | 28 | % |
Loss from operations | | (105,685) | | | (76,644) | | | (29,041) | | | 38 | % |
Other income (expenses): | | | | | | | | |
Interest and other (expense) income, net | | (4,144) | | | (1,767) | | | (2,377) | | | 135 | % |
Change in estimated fair value of earn-out liability | | 47,038 | | | — | | | 47,038 | | | * |
Change in estimated fair value of warrant liabilities | | (298) | | | (795) | | | 497 | | | * |
Loss on extinguishment of debt | | — | | | (998) | | | 998 | | | * |
Loss on issuance of legacy convertible preferred stock | | (2,053) | | | (16,819) | | | 14,766 | | | * |
Total other income (expense) | | 40,543 | | | (20,379) | | | 60,922 | | | (299) | % |
Net loss | | $ | (65,142) | | | $ | (97,023) | | | $ | 31,881 | | | (33) | % |
__________________
* Percentage change not meaningful.
Product revenue—Product revenue for the year ended December 31, 2021, was $3.7 million, an increase of $3.6 million, or 24x, compared to the prior year primarily driven by increased bulk sales of reSET and reSET-O.
Collaboration and license revenue—Collaboration and license revenue was $0.5 million for the year ended December 31, 2021, compared to $9.2 million for the year ended December 31, 2020. For the year ended December 31, 2020, we recognized $9.2 million in connection with the NIBR Agreement, which was terminated in June 2020. See Note 9 in the accompanying notes to the consolidated financial statements included in this prospectus for further information.
Cost of product revenue—Cost of product revenue for the year ended December 31, 2021, was approximately $5.2 million, an increase of approximately $3.5 million compared to the prior year primarily due to increased product revenue as discussed above.
Due to our increased commercialization efforts, we saw an increase in our pharmacy costs, minimum royalties related to licensing agreements for commercialized products, and hosting costs for our PDTs. In addition, in November 2020, the Company launched Somryst, which further increased our cost of product revenue.
Research and development—R&D expenses were $37.0 million and $28.1 million for the years ended December 31, 2021 and 2020, respectively. The increase of $9.0 million was primarily due to the following:
•An increase of $3.9 million of personnel-related costs and an increase of $1.0 million of recruiting fees as we continued shifting our software development work from external to internal resources, and coinciding with an increase in average R&D headcount from 88 for the year ended December 31, 2020 to 107 for the year ended December 31, 2021; and
•Increases of $2.1 million of consultant costs, $1.0 million of professional and recruiting fees, and $1.0 of software expenses.
Selling, general, and administrative—SG&A expenses were $67.6 million and $56.2 million for the years ended December 31, 2021 and 2020, respectively. The increase of $11.4 million was primarily due to further building out of our commercial operations, which resulted in the following increases:
•$5.3 million in personnel-related costs as a result of an increase in average headcount from approximately 90 in 2020 to approximately 120 in 2021, primarily the commercial team;
•$5.0 million in marketing and advertising costs as a result of targeted media and market awareness, education, and advocacy initiatives;
•$2.2 million in professional fees, including increases in legal and accounting fees as a result of becoming a public company;
•$1.4 million of transaction costs directly incurred in connection with the Business Combination;
•$1.3 million of depreciation and amortization expense, primarily related to amortization of software used in our patient support center;
•$1.2 million of software related expenses; and
•$1.1 million of license and subscription costs.
The results for the year ended December 31, 2020, included a $7.2 million stock compensation charge from the tender offer used to purchase and re-sell Legacy Pear shares as part of the Legacy Pear Series D preferred share issuance.
Interest and other (expense) income, net—Interest and other income (expense), net was an expense of $4.1 million for the year ended December 31, 2021, as compared to expense of $1.8 million for the year ended December 31, 2020. The increase in interest expense was primarily related to $4.3 million of interest related to the Perceptive Credit Facility that closed on June 30, 2020, compared to $2.5 million of interest under the Perceptive Credit Facility and SVB Term Loan for the year ended December 31, 2020. For the year ended December 31, 2020, the Company also recognized $0.7 million of interest income on cash and investments.
Change in fair value of earn-out liabilities—For the year ended December 31, 2021, the Company recognized a $47.0 million gain as a result of the change in fair value of the earn-out liabilities from its initial recognition on the December 3, 2021, the date of the Merger, until December 31, 2021.
Change in fair value of warrant liabilities—Legacy Pear Warrants, which were exercised in 2021 prior to the business combination, for the year ended December 31, 2021, the Company recognized a $8.3 million loss due to the change in fair value of outstanding warrant liabilities, compared to a $0.8 million loss on Legacy Pear Warrants for the year ended December 31, 2020. The loss on the Legacy Pear Warrants for the year ended December 31, 2021
was offset by a gain on the Public and Private Placement Warrants $8.0 million, which were issued by THMA prior to the business combination.
Loss on issuance of extinguishment of debt—In June 2020, the Company paid the outstanding principal on the SVB Term Loan prior to the maturity date resulting in a loss on extinguishment of debt of $1.0 million for the year ended December 31, 2020. See Note 7 in the accompanying notes to the consolidated financial statements included in Part II, Item 8 of this prospectus for further information.
Loss on issuance of legacy convertible preferred stock—In December 2020, the Company issued shares of Legacy Pear Series D-1 and D-2 convertible preferred stock. The shares are recorded at their estimated fair market value on the date of issuance. In connection with the Legacy Pear D-1 and D-2 Preferred Stock Financing, the Company recorded a loss of $16.8 million, net of issuance costs, for the year ended December 31, 2020, which represents the amount by which the estimated fair value of the shares exceeded the sale price. In February 2021, the Company issued additional shares of Legacy Pear Series D-1 Preferred Stock. The shares are recorded at their estimated fair market value on the date of issuance. In connection with the Legacy Pear Series D-1 Preferred Stock, the Company recorded a loss of $2.1 million for the year ended December 31, 2021, which represents the amount by which the estimated fair value of the shares exceeded the sale price, net of issuance costs. See Note 10 in the accompanying notes to the consolidated financial statements included in this prospectus for further information.
Income tax—We did not incur income tax expenses for the years ended December 31, 2021 or 2020. Given our lack of prior earnings history, we have a full valuation allowance primarily related to our net operating loss and R&D credit carryforwards that we do not consider more likely than not to be realized.
Liquidity and Capital Resources
Since our inception, our primary sources of capital have been proceeds from sales of convertible preferred stock, payments received in connection with collaboration agreements, proceeds from borrowings under various credit facilities, and the business combination that occurred December 3, 2021. See Note 3 in the accompanying notes to the consolidated financial statements included in this prospectus for further information.
We have three commercial products: reSET, reSET-O, and Somryst. The revenue from the sale of these products at the present time is not sufficient to cover the operating costs incurred. Our ability to achieve sufficient revenue to cover our costs is highly dependent on our PDTs achieving and maintaining broad market acceptance by patients and physicians and obtaining reimbursement from third-party payors. The Company has incurred recurring losses from inception and anticipates net losses and negative operating cash flows for the near future. For the years ended December 31, 2021 and 2020, we incurred net operating losses of $65.1 million and $97.0 million, respectively.
As of December 31, 2021 and 2020, we had an accumulated deficit of $248.0 million and $182.8 million, respectively. As of December 31, 2021 and 2020, we had outstanding debt of $27.0 million and $26.3 million, net of debt issuance costs, respectively. Our cash flows may fluctuate and are difficult to forecast and will depend on many factors. As of December 31, 2021 and 2020, we had cash and cash equivalents of $169.6 million and $110.9 million, respectively.
Our primary uses of capital are, and we expect will continue to be for the near future, funding operating activities, including expanding our commercial operations and further development of our product pipeline. We have in the past and we expect in the future to capitalize labor costs related to the development of our internal-use software. We may also pursue acquisitions, investments, joint ventures, and other strategic transactions.
In the future, we will need to raise additional capital to pursue our growth strategy and support continuing operations. Until such time as we can generate significant revenue to fund operations, we expect to seek additional capital from the issuance of equity, debt, or other capital transactions. If sufficient funds on acceptable terms are not available when needed, we will be required to significantly reduce our operating expenses. Further, we may be unable to increase our revenue, raise additional funds, or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates and other strategic initiatives. We are also subject to various covenants related to the
Perceptive Credit Facility, and given the substantial doubt about our ability to continue as a going concern, there is a risk that we may not meet our covenants in the future. As of December 31, 2021 and 2020, we concluded that these circumstances raise substantial doubt about our ability to continue as a going concern.
Cash and cash equivalents
As of December 31, 2021 we had $169.6 million of cash and cash equivalents. Our future capital requirements may vary from those currently planned and will depend on various factors, including the timing and extent of R&D spending and spending on other strategic business initiatives, including expanding our commercial operations.
Liquidity Risks
We expect to incur substantial additional expenditures in the near term to support our ongoing activities, including as a result of operating as a public company. We expect to continue to incur net losses for the foreseeable future. Our ability to fund our product development and clinical operations as well as commercialization of our product candidates will depend on the amount and timing of cash available to fund operations. Our future liquidity and capital funding requirements will depend on numerous factors, including:
•our revenue growth;
•the ability to obtain third-party payor reimbursement for our current products;
•the amount and timing of sales and other revenues from our product candidates, if approved, including the sales price and the availability of coverage and adequate third-party payor reimbursement;
•our commercial activities, including sales and marketing;
•our R&D efforts;
•the emergence and effect of competing or complementary products;
•the outcome, timing, and cost of meeting regulatory requirements established by the FDA, or comparable foreign regulatory authorities;
•the progress, timing, scope, and costs of our preclinical studies, clinical trials, potential future clinical trials, and other related activities;
•the costs of commercialization activities for any of our product candidates that receive marketing authorization, including the costs and timing of establishing product sales, marketing and hosting capabilities, or entering into strategic collaborations with third parties to leverage or access these capabilities;
•the cash requirements of developing our programs and our ability and willingness to finance their continued development;
•the cash requirements of any future discovery of product candidates;
•our ability to retain our current employees and the need and ability to hire additional management and sales, technical and medical personnel;
•the time and cost necessary to respond to technological and market developments, including other products that may compete with one or more of our product candidates;
•debt service requirements;
•the extent to which we acquire or invest in business, products, or technology; and
•the impact of the COVID-19 pandemic.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the sale of our products or the development of product candidates. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. See the information under the heading “Risk Factors” included in this prospectus.
Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
Funding Requirements
Please see the risks associated with our substantial capital requirements explained more fully under the heading “Risk Factors-The Company will need substantial additional funding, and if it is unable to raise capital when needed or on terms favorable to the Company, the Company’s business, financial condition, and results of operation could be materially and adversely affected” in this prospectus.
Debt Financing and Covenants
Borrowings under our $50.0 million secured Perceptive Credit Facility were $30.0 million as of December 31, 2021 and 2020, which was used to extinguish the former SVB Term Loan and for general business purposes. The Perceptive Credit Facility matures in June 2025. We are required to pay a variable rate of interest based upon the one-month LIBOR rate plus 11.0%, subject to a LIBOR floor of 1.0%. As of December 31, 2021, the annual interest rate was 12.0%. The Company is required to make interest-only payments until May 31, 2024, after which point the Company will be required to make monthly payments of principal equal to 3.0% of the then outstanding principal until maturity on June 30, 2025.
The Perceptive Credit Facility is secured by substantially all of the assets of the Company, including our intellectual property. The Perceptive Credit Facility requires the Company to (i) maintain a minimum aggregate cash balance of $5.0 million in one or more controlled accounts, and (ii) as of the last day of each fiscal quarter commencing with the fiscal quarter ending March 31, 2022, report revenues for the trailing 12-month period that exceed the amounts that range from $5.8 million for the fiscal quarter ending March 31, 2022, to $125.0 million for the fiscal quarter ending March 31, 2025. The Perceptive Credit Facility contains various affirmative and negative covenants that limit the Company’s ability to engage in specified types of transactions. The Company was in compliance with the covenants under the Perceptive Credit Agreement as of December 31, 2021.
See Note 7 in the accompanying notes to the consolidated financial statements included in this prospectus for further information. In the future, we may seek to obtain other additional sources of financing, including incurring term debt or issuing equity or debt securities.
As of December 31, 2021 and 2020, we had $0.4 million in a letter of credit outstanding in connection with our leased property in San Francisco, California.
Contractual Obligations, Commitments, and Contingencies
We lease our headquarters in Boston, Massachusetts, under a non-cancelable operating lease with an expiration date of June 1, 2028. We also lease office space in San Francisco, California, under a non-cancelable operating lease that expires on July 31, 2025, and office space in Raleigh, North Carolina, under a non-cancelable operating lease that expires on May 31, 2026.
We enter into agreements in the normal course of business with various vendors, which are generally cancellable upon notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of service providers, up to the date of cancellation.
In addition, under various licensing agreements to which we are a party, we are obligated to pay annual license maintenance fees and may be required to make milestone payments and to pay royalties and other amounts to third parties. The payment obligations under these agreements are contingent upon future events, such as our achievement
of specified milestones or generating product revenue, and the amount, timing and likelihood of such payments are not known. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain milestones. These contingent milestones may not be achieved. We cannot estimate or predict when, or if, these amounts will become due.
On June 17, 2021, and later amended on August 3, 2021, the Company entered into a non-cancelable purchase obligation for a subscription to the Palantir Foundry cloud platform, including support services, updates, and related professional services with Palantir for $9.3 million payable over three years, continuing through September 30, 2024.
See Note 8 in the accompanying notes to the consolidated financial statements included in this prospectus for further information.
Cash Flows
The following table provides a summary of cash flow data for each applicable period:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in thousands) | | 2021 | | 2020 |
Net cash used in operating activities | | $ | (109,043) | | | $ | (67,894) | |
Net cash provided by investing activities | | 2,883 | | | 58,925 | |
Net cash provided by financing activities | | 164,077 | | | 91,703 | |
Net increase in cash, cash equivalents, and restricted cash | | $ | 57,917 | | | $ | 82,734 | |
Operating Activities
Net cash used in operating activities was $109.0 million for 2021. Net cash used in operating activities consists of a net loss of $65.1 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments primarily include the change in fair value of earn-out liabilities of $47.0 million, stock-based compensation of $3.8 million, loss on issuance of convertible preferred stock of Legacy Pear of $2.1 million, and depreciation of $1.7 million and net changes in operating assets and liabilities (working capital) of $5.9 million.
Net cash used in operating activities was $67.9 million for 2020. Net cash used in operating activities consists of a net loss of $97.0 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments primarily include loss on the issuance of convertible preferred stock of Legacy Pear of $16.8 million, stock-based compensation expense of $9.0 million, depreciation expense of $0.4 million, loss on the extinguishment of debt of $1.0 million, and the change in fair value of Legacy Pear warrants of $0.8 million (increase in ending warrant liability).
Investing Activities
Net cash provided by investing activities was $2.9 million for 2021 related primarily to the maturities of investments offset by the purchase of investments, $3.3 million investment in property and equipment which is primarily internal-use software, and $1.4 million in intangible assets, and a $1.0 million regulatory milestone payment.
Net cash provided by investing activities was $58.9 million for 2020 and related primarily to the maturities of investments offset by a regulatory milestone payment and investment in internal-use software.
Financing Activities
Through December 31, 2021, Pear has financed its operations primarily through the Business Combination with THMA (discussed above), the sale of Legacy Pear convertible preferred stock, payments received in connection with collaboration agreements, and borrowings under various credit facilities.
Net cash provided by financing activities was $164.1 million for 2021 and related to proceeds from the Business Combination of $144.3 million and proceeds of $19.9 million from the issuance of Legacy Pear preferred convertible stock, offset by transaction costs associated with the Business Combination of $32.8 million.
Net cash provided by financing activities was $91.7 million for 2020 and primarily related to net proceeds from the issuance of Legacy Pear Series D convertible preferred stock of $111.1 million, proceeds from the drawdown on the Perceptive Credit Facility of $30.0 million, $1.0 million of borrowings under the former SVB Term Loan, and proceeds of $0.4 million from the exercise of stock options offset by the repurchase of Legacy Pear common and convertible preferred stock of $32.0 million and the payment to extinguish the former SVB Term Loan in the amount of $17.3 million.
Related Party Transactions
During the year ended December 31, 2020, in connection with the Legacy Pear Series D-2 preferred stock offering, the Company completed a tender offer whereby the Company purchased 2,788,732 shares of Legacy Pear common stock from its President & Chief Executive Officer, and 41,100 Legacy Pear common shares from certain eligible employees, at a purchase price of $3.9433 per share totaling $11.2 million and resulting in a stock-based compensation expense of $7.3 million, representing the difference between the purchase price and the fair value of the Legacy Pear common stock on the date of the sale.
Certain holders of Legacy Pear Series A preferred stock had representation on the Company’s then board of directors and purchased shares of Legacy Pear Series B preferred stock. Certain holders of Legacy Pear Series A and B preferred stock had representation on the Company’s then board of directors and purchased shares of Legacy Pear Series C preferred stock. Certain holders of Legacy Pear Series A, B, and C preferred stock had representation on the Company’s then board of directors and purchased shares of Legacy Pear Series D preferred stock. Certain holders of Legacy Pear Series A, B, C, and D preferred stock had representation on the Company’s then board of directors and purchased PIPE Shares.
Emerging Growth Company Status (JOBS Act)
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth company” as defined in Section 2(A) of the Securities Act of 1933, as amended, and have elected to take advantage of the benefits of this extended transition period.
We expect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and nonpublic business entities until the earlier of the date we (a) are no longer an emerging growth company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
In addition, we have chosen to take other exemptions and reduced reporting requirements provided by the JOBS Act and are not required to, among other things:
(a)provide an auditor’s attestation report on Pear’s system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
(b)provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; and
(c)disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
Recent Accounting Pronouncements
Refer to the accompanying notes to consolidated financial statements as of and for the years ended December 31, 2021 and 2020 included in this prospectus for more information regarding recently issued accounting pronouncements, the timing of their adoption, and its assessment, to the extent it has made one, of their potential impact on its financial condition and results of operations.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and related disclosures in conformity with US generally accepted accounting principles, or US GAAP, and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. See Note 2 in the accompanying notes to the consolidated financial statements included in this prospectus for further information. Management bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities. Actual results may differ materially from these estimates if past experience or other assumptions do not turn out to be substantially accurate.
The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known.
Legacy Pear Preferred and Common Stock Valuations
The fair value of Legacy Pear’s preferred and Legacy Pear common stock underlying stock awards was determined by the then board of directors. Given the absence of a public trading market, the then board of directors considered numerous objective and subjective factors to determine the fair value of Legacy Pear’s common stock at each board of directors meeting in which stock awards were approved. These factors included, but were not limited to:
•the prices at which we sold our preferred stock to outside investors in arms-length transactions;
•our results of operations, financial position, and capital resources;
•contemporaneous third-party valuations common stock;
•the rights, preferences, and privileges of convertible preferred stock relative to common stock;
•the lack of marketability of common stock;
•stage and development of Pear’s business;
•the history and nature of our business, industry trends and competitive environment,
•general economic conditions; and
•the likelihood of achieving a liquidity event, such as an initial public offering or sale of Pear, given prevailing market conditions.
We determined the fair value per share of the underlying Legacy Pear preferred and Legacy Pear common stock by taking into consideration results obtained from third-party valuations and additional factors that were deemed relevant. The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly
different assumptions or estimates, the fair value of our Legacy Pear preferred and Legacy Pear common stock and our stock-based compensation expense could be materially different. The fair value of the underlying Legacy Pear common stock was determined by the then board of directors until we were listed on Nasdaq on December 3, 2021.
Revenue Recognition
We determine both product and collaboration and license revenue recognition through the following five-step framework in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and its related amendments, or, collectively, ASC 606:
•identification of the contract, or contracts, with a customer;
•identification of the performance obligations in the contract;
•determination of the transaction price;
•allocation of the transaction price to the performance obligations in the contract; and
•recognition of revenue when, or as, Pear satisfies a performance obligation.
Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. To the extent a contract includes multiple promised goods and services, the Company applies judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. To the extent the goods and services are distinct, it requires an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices. The Company typically determines standalone selling prices using an adjusted market assessment approach model.
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.
Our collaboration and license revenue to date has primarily been generated through two collaboration and license agreements: the Sandoz Agreement and the NIBR Agreement.
In October 2019, Sandoz terminated the Sandoz Agreement, and thereafter Pear assumed the responsibility to commercialize its two lead products, reSET and reSET-O. In October 2019, we began our efforts to self-commercialize reSET and reSET-O. In addition, in June 2020, NIBR terminated their collaboration agreement with the Company related to our schizophrenia and multiple sclerosis product candidate development programs. We will not recognize any revenue under these agreements in the future.
To date, while we have recognized product revenue from the sale of our PDTs, reSET, reSET-O, and Somryst, and although we expect to continue to recognize revenue from the sale of these PDTs, we do not expect to generate significant revenue until 2023.
Valuation of Earn-Out Liabilities
As discussed in Notes 1, 3, and 4 in the accompanying notes to the consolidated financial statements included in this prospectus, on December 3, 2021, we completed a Business Combination. In connection with the Business
Combination and pursuant to the Business Combination Agreement, eligible Legacy Pear Shareholders are entitled to receive an aggregate of 12,395,625 shares of the Company’s Class A common stock (“Earn-Out Shares”) upon the Company achieving certain earn-out triggering events. At the time of closing, the Company recorded the earn-out liabilities upon issuance at its then estimated fair value of the Earn-Out Shares. The fair value of the Earn-Out Shares was derived utilizing a Monte Carlo Simulation Method (“MCSM”) to assess the likelihood of a triggering event occurring in the specified time frame. Under each scenario, the occurrence of a triggering event is tracked. If one of the thresholds is reached, then the underlying fair value of the common stock at the time of the trigger event is utilized to determine the fair value of the Earn-Out shares that would be issued. The mean value of the shares estimated over the course of numerous iterations are calculated to arrive at the fair value of the Earn-Out Shares. The MCSM utilizes a number of inputs which include the trading price and volatility of the underlying common stock, expected term, risk-free interest rates, expected date of a qualifying event, and qualifying traded share price within the specified time frame. The determination of the fair value of these financial instruments is complex and highly judgmental due to the significant estimation required. In particular, the fair value estimate was sensitive to certain assumptions, such as the volatility of underlying shares. The earn-out liabilities to the Legacy Pear shareholders are measured at the end of each reporting period at fair value with changes in fair value reported in our statement of operations.
If the applicable triggering event is achieved for a tranche, the Company will account for the Earn-Out Shares for such tranche as issued and outstanding common stock.
Stock-Based Compensation
Accounting for stock-based compensation is a critical accounting policy due to the broad-based equity awards provided to employees at all levels and the use of equity awards as part of the strategy to retain employees as a result of a change of control events. Pear issues stock-based compensation to employees and non-employees, generally in the form of stock options and starting in 2022, restricted stock units, or RSUs. Compensation expenses for stock options are recognized on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are accounted for when they occur. The fair value of the stock options is measured on the grant date using the Black-Scholes model, which utilizes the following estimates as inputs:
•Expected volatility: determined based on an average of the historical volatility of a peer group of similar public companies;
•Expected term: as our employee stock options have “plain vanilla” characteristics, the expected term is determined using the simplified method, which represents the average of the contractual term of the option and the weighted average vesting period of the option; the contractual life of the option is used for the expected life of non-employee stock options;
•Risk-free interest rate: based upon the US Treasury yield curve in effect at the time of grant; and
•Expected dividend yield: based on our history and current expectation of not paying dividends in the foreseeable future.
MANAGEMENT OF PEAR
Information About Our Directors and Executive Officers
The following biographical descriptions set forth certain information with respect to our directors and our executive officers as of March 1, 2022:
| | | | | | | | | | | | | | | | | | | | |
Name | Title | Age | Independent | Audit Committee | Compensation Committee | Nominating Committee |
Executive Officers: | | | | | | |
Corey McCann, M.D., Ph.D. | Chief Executive Officer, President and Director | 42 | | | | |
Christopher D.T. Guiffre, J.D., M.B.A | Chief Financial Officer, Chief Operating Officer, Treasurer, and Assistant Secretary | 53 | | | | |
Erin K. Brenner | Chief Product Development Officer | 48 | | | | |
Katherine Jeffery | Chief People Officer | 54 | | | | |
Yuri Maricich, M.D., M.B.A | Chief Medical Officer and Head of Development | 41 | | | | |
Ronan P. O’Brien, J.D. | General Counsel, Secretary, and Chief Compliance Officer | 49 | | | | |
Julia Strandberg, M.B.A | Chief Commercial Officer | 47 | | | | |
Directors: | | | | | | |
Alison Bauerlein | Director | 40 | • | • | • | |
Jorge Gomez, M.B.A | Director | 54 | • | Chair | | |
Zack Lynch | Director | 49 | • | • | • | • |
Kirthiga Reddy, M.B.A | Director | 50 | • | | | Chair |
Nancy Schlichting | Director | 67 | • | | Chair | |
Andrew Schwab | Director | 51 | • | | | • |
Dr. Corey McCann, M.D., Ph.D., Chief Executive Officer, President and Director
Dr. McCann has served as the President, Chief Executive Officer of Pear and a Director of Pear since December 2021 and prior to this, held the same positions with Pear US since August 2013. He also served as the President of Pear Therapeutics Securities Corporation, a wholly-owned subsidiary of Pear, since December 2017. Dr. McCann has also served as a member of the board of directors of NOUS Imaging, Inc. a technology company focused on medical imaging software, since March 2020, as director of Eternia Group LLC since August 2011, and as a director of Eternia Group SRL since May 2021. Previously, Dr. McCann served on the board of Edumedics LLC (now known as SentryHealth), a health and wellness solutions technology company, from January 2013 through October 2019, and Resolute Bio, Inc., a biotechnology company developing peptide-based drugs for chronic metabolic and neurological disorders from June 2016 through June 2019. Dr. McCann received his B.S. degree in biology from The Pennsylvania State University, his M.D and Ph.D. from Washington University’s St. Louis School of Medicine, and his Ph.D. in neuroscience from Harvard University. We believe Dr. McCann is qualified to serve as a director due to his extensive experience leading and developing Pear, as well as his technical knowledge.
Christopher Guiffre, Chief Financial Officer, Chief Operating Officer, Treasurer and Assistant Secretary
Mr. Guiffre has served as the Chief Financial Officer, Chief Operating Officer, Treasurer and Assistant Secretary of Pear since December 2021 and prior to this, held the same positions with Pear US since December 2017. He has also served as the Treasurer of Pear Therapeutics Securities Corporation, a wholly-owned subsidiary of Pear, since December 2018. From December 2017 through December 2021, he served as Interim Chief Compliance Officer at Legacy Pear. From March 2015 through July 2017, Mr. Guiffre served as the President and Chief Executive Officer of Cerulean Pharma, Inc. (now known as Dare Bioscience, Inc.) (NASDAQ: DARE), a biopharmaceutical company. Mr. Guiffre received his B.S. degree in Marketing from Babson College, his J.D. from Boston College Law School, and M.B.A. from the Boston College Carroll School of Management.
Erin K. Brenner, Chief Product Development Officer
Ms. Brenner has served as the Chief Product Development Officer of Pear since December 2021 and prior to this, held the same position with Pear US since June 2020. Ms. Brenner previously served as Legacy Pear’s Vice President of Portfolio Management from January 2019 through June 2020, and as the Senior Director, Portfolio Management from July 2018 through January 2019. Ms. Brenner worked at GE Healthcare Inc. from 2004 to 2018, including leading the development of GE’s Senographe Pristina mammography platform, and from December 2016 through July 2018, she served as the Global Mammography Product Leader for GE Healthcare. She earned her B.A. in History from Middlebury College.
Katherine Jeffery, Chief People Officer
Ms. Jeffery has served as the Chief People Officer of Pear since December 2021 and prior to this, held the same position with Pear US since June 2019. Prior to that, Ms. Jeffery served as the Vice President of People for Recurly, Inc., a subscription management software company, from January 2018 through June 2019; as a Human Resources Consultant and Leadership Coach for Next Level Resource Partners, a logistics management company, from October 2016 through January 2018, and as Vice President of Human Resources for Sportvision Inc., a broadcasting media company, from February 2011 through October 2016. Ms. Jeffery has also served as President of the board of directors of W.O.M.A.N. Inc. since June 2014, as a founding member of the Product Advisory Board of Twine’s CPOHQ since June 2020, and on the Advisory Board of Bennie, an employment benefits platform, since January 2021. Ms. Jeffery earned her B.A. degree in Liberal Arts with a concentration in Human Resources from DePaul University, and an M.S. in Communication with a concentration in Managerial Communication from Northwestern University.
Yuri Maricich, Chief Medical Officer & Head of Development
Dr. Maricich has served as Pear’s Chief Medical Officer and Head of Development since December 2021 and prior to this, held the same positions with Pear US since October 2017. Prior to that, from September 2014 through September 2017, Dr. Maricich served as the Vice President of Clinical Development of Legacy Pear. Dr. Maricich leads the Clinical/Regulatory/Quality and Medical Affairs group at Pear as the Chief Medical Officer and Head of Development. He leads and manages the development programs from Discovery/TPP stage, through Translational, Clinical Development, Regulatory submission and review as well as Medical Affairs. In addition to overseeing subsequent pipeline programs across a broad-spectrum of disease areas (such as CNS/neuroscience, cardiovascular, and oncology), he led reSET (1st prescription digital therapeutic), reSET-O (1st combination drug and software treatment), and Somryst (chronic insomnia) programs. Dr. Maricich is a licensed, board-certified physician, investor, clinical developer and strategist. His work is focused on improving patient health and our healthcare system. He has worked with and led successful teams and programs at Health & LifeScience/biotech (HLS) firms, including Corixa (acquired by GlaxoSmithKline), Xdynia (acquired by Cavion), Cavion (acquired by Jazz Pharmaceuticals), AWS, and Pear Therapeutics (1st FDA-cleared, clinically validated digital therapeutic to treat disease). He founded a digital health firm while a medical student that used natural-language processing (NLP) to structure clinical data. Dr. Maricich is also the principal and owner of Maricich & Co., which he founded in June 2007, and a Partner at Asclepius Capital, an investment firm, since January 2012. Dr. Maricich received his B.S. in Pre-Professional/Pre-Med and Philosophy from the University of Notre Dame, his M.D. from the University of Washington and his M.B.A. from Harvard University.
Ronan P. O’Brien, General Counsel, Chief Compliance Officer and Secretary
Mr. O’Brien has served as the General Counsel and Secretary of Pear since December 2021 and prior to this, held the same positions with Pear US since March 2018. Mr. O’Brien has also served as the Chief Compliance Officer of Pear since January 2022. Since December 2018, he has served as the Secretary of Pear Therapeutics Securities Corporation, a wholly-owned subsidiary of Pear. Previously, from September 2016 through February 2018, Mr. O’Brien served as the Vice President and Associate General Counsel for Selecta Biosciences, Inc., a clinical stage biotechnology company (NASDAQ: SELB) and from June 2014 through September 2016, he served as the Executive Director and Associate General Counsel for Cerulean Pharma Inc. (now known as Dare Bioscience, Inc.) (NASDAQ: DARE), a biopharmaceutical company. Mr. O’Brien received his B.A. degree in French Literature and English Literature as well as his J.D. from Boston University.
Julia M. Strandberg, Chief Commercial Officer
Ms. Strandberg has served as Pear’s Chief Commercial Officer since December 2021 and prior to this, held the same position with Pear US since July 2019. Prior to her position at Pear, Ms. Strandberg served as the Senior Vice President of GHX, LLC from May 2019 through July 2019, as President of Edison Consulting LLC from February 2019 through May 2019, and as Vice President and General Manager of Health Informatics and Monitoring at Medtronic plc from January 2015 through January 2019. Ms. Strandberg received her B.S. in chemical engineering from Purdue University, and her M.B.A. from the University of Minnesota’s Carlson School of Management.
Alison Bauerlein, Director
Ms. Bauerlein has been a member of the Board since December 2021 and is a member of both the Audit Committee and Compensation Committee. Ms. Bauerlein is a co-founder of Inogen, Inc. (Nasdaq: INGN). Most recently, she served as Inogen’s Chief Financial Officer and Executive Vice President, Finance from March 2014 until December 2021. Ms. Bauerlein also serves on the board of directors of Gelesis Holdings, Inc, (NYSE: GLS), a biotherapeutics company, as well as Koya Medical, Inc, and Equinox Ophthalmic, Inc, which are private companies. Ms. Bauerlein has over 20 years of experience in treasury, finance, accounting, risk management as well as strategic and tactical cost analysis and forecasting. Ms. Bauerlein received a B.A. degree in Economics/Mathematics with high honors from the University of California, Santa Barbara.
Jorge Gomez, Director
Mr. Gomez has been a member of the Board since December 2021 and prior to this, was a member of the board of directors of Pear US since August 2021. Mr. Gomez is the chair of the Audit Committee. Mr. Gomez has been the Executive Vice President and Chief Financial Officer of Dentsply Sirona, Inc. (Nasdaq: XRAY), a manufacturer of professional dental products and technologies, since August 2019. Mr. Gomez previously served as Chief Financial Officer of Cardinal Health, Inc. (NYSE: CAH), a multinational healthcare services company, from January 2018 to August 2019. At Cardinal Health, he was responsible for financial activities across the enterprise, including financial strategy, capital deployment, treasury, investor relations, tax, accounting, and external reporting. From July 2015 to December 2017, he was Chief Financial Officer of Cardinal Health’s Medical segment and from February 2012 to June 2015, he was Chief Financial Officer of Cardinal Health’s Pharmaceutical segment. Prior to that, Mr. Gomez served as treasurer and corporate controller at Cardinal Health. Before joining Cardinal Health, Mr. Gomez held multiple executive and leadership roles at General Motors Company (NYSE: GM), including assignments in New York, Singapore, Belgium, and Brazil. He began his career with the Smurfit-Kappa Group plc. (OTCMKTS: SMFTF) in the company’s finance development program. Currently, he also serves on the Board of Directors for Xylem, Inc. (NYSE: XYL), a global water management company. Mr. Gomez earned a bachelor’s degree in Electrical Engineering from the National University of Colombia and a master’s degree in Business Administration from the University of Hartford.
Zack Lynch, Director
Mr. Lynch has been a member of the Board since December 2021 and prior to this, was a member of the board of directors of Pear US since December 2015. Mr. Lynch serves on the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Since July 2015, Mr. Lynch has served as the Managing
Partner of JAZZ Venture Partners, a venture capital firm that focuses on investments at the intersection of digital technology and life sciences. Mr. Lynch also currently serves on the board of various life sciences companies, including Thread Robotics Inc., a medical device and services company focusing on fertility care since June 2020; Swing Therapeutics, Inc., a company focused on creating digital therapeutics for people with chronic conditions since October 2019; and Pinpoint Predictive, Inc., a company that provides behavioral risk assessments using artificial intelligence designed for insurance companies since September 2018. Mr. Lynch has also served on the board of JobGet Inc., an online and mobile application based job platform since January 2021 and served on the board of Pymetrics, Inc., a company focused on utilizing artificial intelligence and behavioral science in hiring practices, from September 2016 to March 2018. Mr. Lynch is the founder and Chairperson of the Neurotechnology Industry Organization, a global trade association representing companies involved in neuroscience, brain research institutes and patient advocacy groups and the founder and curator of the Experiential Technology and NeuroGaming Conference and Expo. Mr. Lynch co-founded NeuroInsights, a market research and investment advisory firm that advises global organizations on the impact of neurotechnology on business, government and society, and developed the NASDAQ NeuroInsights Neurotech Index (Nasdaq: NERV), a stock tracking index for neuroscience companies. Mr. Lynch served on the advisory boards of the McGovern Institute for Brain Research at MIT, Center for Neuroeconomic Studies at Claremont Graduate University and the Center for Neuroscience and Society at the University of Pennsylvania. Mr. Lynch has a B.S. in Evolutionary Biology, B.S. in Environmental Science and an M.A. in Economic Geography, all from UCLA.
Kirthiga Reddy, Director
Ms. Reddy has been a member of the Board since December 2021 and is the chair of the Nominating and Corporate Governance Committee. She previously served as a board observer on the Legacy Pear board of directors beginning December 2020 through November 23, 2021. Ms. Reddy brings over 20 years of experience leading technology-driven transformations and is a co-founder and since October 2018, has served as Investment Counsel for F7 Ventures, a female-led seed investment fund focused on enabling human operations and the investment themes of connected communities, future of work, and physical and mental health. Previously, she served as the Investment Partner at SoftBank Investment Advisers, a private equity firm headquartered in London (SBIA), and served on the Investment Committee for the SoftBank Vision Fund Emerge program, a global accelerator for companies led by underrepresented founders. From July 2010 to March 2018, Ms. Reddy held various executive roles at Facebook, Inc. (Nasdaq: FB). At Facebook, Ms. Reddy first served as the Managing Director for India and South Asia, and subsequently focused on emerging and high-growth markets including Mexico, Brazil, Indonesia, South Africa and the Middle East. Additionally, Ms. Reddy has served as a member of the board of directors of several companies, including Collective Health, Inc. since December 2019, where she also serves on the compensation and audit committees, WeWork Inc. since February 2020, and Fungible, Inc. since April 2021. Ms. Reddy has also served on the Investment Advisory Council for Neythri Futures Fund, a South Asian female-led stage-agnostic tech fund since March 2021. Ms. Reddy holds an MBA from Stanford University, an M.S. in Computer Engineering from Syracuse University and a B.E. in Computer Science from Marathwada University, India. She served on Stanford Business School Management Board from September 2014 to April 2019, including serving as Chair from September 2018 to April 2019.
Nancy Schlichting, Director
Ms. Schlichting has been a member of the Board since December 2021 and prior to this, was a member of the board of directors of Pear US since January 2021. From June 2003 until January 2017, Ms. Schlichting served as the Chief Executive Officer of the Henry Ford Health System, where she helped lead a $4.7 billion integrated healthcare system. Ms. Schlichting has also served on the board of directors of Walgreens Boots Alliance, Inc. (Nasdaq: WBA) since 2006 and chairs its Compensation and Leadership Development Committee. Ms. Schlichting has served on the board of directors of the Duke University Health System since 2016, where she serves as vice-chair, and has also served on the board of directors of Encompass Health since 2018, and Hill-Rom Holdings, Inc. since 2017, where she also serves as the Chairperson of the Compensation and Management Development Committee. Ms. Schlichting also serves as the Trustee for a number of organizations, including The Kresge Foundation since 2003, and Duke University since 2018. In addition, Ms. Schlichting has served as a director and Vice Chair of the Detroit Symphony Orchestra since 2016. Ms. Schlichting earned her B.A. from Duke University and her M.B.A. from Cornell University in healthcare administration and accounting.
Andrew J. Schwab, Director
Mr. Schwab has been a member of the Board since December 2021 and prior to this, was a member of the board of directors of Pear US since June 2014. Mr. Schwab has served as the co-Chief Executive Officer and as a member the board of directors of 5:01 Acquisition Corp. (Nasdaq: FVAM) since its inception in August 2020. Mr. Schwab is a Founding Partner and Managing Member of 5AM Venture Management, LLC and also a Managing Member of 5AM Partners IV, LLC and 5AM Opportunities I (GP), LLC, the general partner entities of major shareholders of Pear. Prior to founding 5AM Venture Management, LLC in 2002, Mr. Schwab was a Principal at Bay City Capital where he was involved with companies such as Cubist Pharmaceuticals, Inc., PTC Therapeutics, Inc., Symyx Technologies, Inc. and Syrrx, Inc. Previously, Mr. Schwab was Vice President of Business Development at Digital Gene Technologies, Inc. and a Vice President in the life science investment banking group of Montgomery Securities. At 5AM, he has led the firm’s investments in and served on the boards of Bird Rock Bio, Inc., BlueLight Therapeutics, Inc, Camp4 Therapeutics Corporation, Cleave Therapeutics, Inc., DVS Sciences, Inc. (which was acquired by Fluidigm Corporation), EnLiven Therapeutics, Inc., Escient Pharmaceuticals, Inc., Flexion Therapeutics, Inc. (Nasdaq: FLXN), Ikaria, Inc. (which was acquired by Mallinckrodt plc and spun-out Bellerophon Therapeutics, Inc. (Nasdaq: BLPH)), Ilypsa, Inc. (which was acquired by Amgen, Inc.), Miikana Therapeutics, Inc. (which was acquired by EntreMed, Inc.), Novome Biotechnologies, Inc., Panomics Inc. (which was acquired by Affymetrix, Inc.), Precision NanoSystems, Inc. (which was acquired by Danaher Corporation), Purigen Biosystems, Inc., Synosia Therapeutics Holding AG (which was acquired by Biotie Therapies Corp.), Rarecyte, Inc., The Assay Depot (d.b.a. Scientist.com), TMRW Life Sciences, Inc. and Viveve Medical, Inc. (Nasdaq: VIVE). Mr. Schwab also currently serves on the boards of trustees of the California Academy of Sciences and Davidson College. Mr. Schwab earned a B.S. degree with Honors in Genetics & Ethics from Davidson College.
EXECUTIVE COMPENSATION
Executive Summary
2021 Highlights
On December 3, 2021, the Business Combination closed and we transitioned into becoming a public company. In connection with the Business Combination, we engaged Frederic W. Cook & Co., Inc. as our independent compensation consultant to help structure a competitive executive compensation program from a public company perspective.
As a general matter, our executive compensation program consists of annual base salary, target cash bonus opportunities, and equity-based long-term incentives. We will continue to evaluate, develop, and grow our executive compensation program as we progress as a public company.
Executive Compensation Objectives
The Company is committed to providing a fair and market competitive executive compensation programs that will attract, retain and reward high-performing employees. Our compensation package is tied to the contributions of the individual and the achievement of organizational goals. Below are the objectives of our program:
•Attract, retain, and motivate superior executive talent;
•Provide incentives that reward the achievement of performance goals that directly correlate to the enhancement of shareholder value, as well as facilitate executive retention; and
•Reinforce Pear’s goal of recruiting and retaining a highly motivated workforce to support the overall growth and performance of the Company.
Compensation Governance and Best Practices
We are committed to having strong governance standards with respect to our compensation programs, procedures and practices. Our key compensation practices include the following:
| | | | | | | | |
What We Do | | What We Do Not Do |
Emphasize the use of equity compensation to promote executive retention and reward long-term value creation. Maintain equity granting guidelines. | | Do not guarantee annual salary increases. Do not grant uncapped cash incentives or guaranteed equity compensation. |
Engage an independent compensation consultant to advise our Compensation Committee. Develop a relevant peer group to benchmark compensation. | | Do not provide significant perquisites. Do not provide any compensation-related tax gross-ups. |
Summary Compensation Table
The following table sets forth information regarding compensation earned by our President and Chief Executive Officer and our two next most highly paid executive officers who served during fiscal year 2021, as well as the compensation earned by Elon S. Boms, who served as the Chief Executive Officer of THMA until his resignation upon the closing of the Business Combination. We refer to these individuals as our named executive officers, or
“NEOs”. The compensation set forth below for Dr. McCann, Mr. Guiffre, and Ms. Strandberg includes compensation from Legacy Pear during fiscal years 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary ($) | | Option Awards ($) (1) | | Non-Equity Incentive Plan Compensation ($) (2) | | All Other Compensation ($) (3) | | Total ($) |
Corey McCann President & Chief Executive Officer | | 2021 | | 478,780 | | | — | | | 202,500 | | | 49,950 | | | 731,230 | |
| 2020 | | 424,515 | | | — | | | 148,580 | | | 74,910 | | | 648,005 | |
Christopher Guiffre Chief Financial Officer & Chief Operating Officer | | 2021 | | 414,813 | | | 119,170 | | | 162,256 | | | 5,885 | | | 702,124 | |
| 2020 | | 366,880 | | | 155,513 | | | 111,238 | | | 14,765 | | | 648,396 | |
Julia Strandberg Chief Commercial Officer | | 2021 | | 365,246 | | | 57,653 | | | 216,365 | | | — | | | 639,264 | |
| 2020 | | 356,265 | | | 28,277 | | | 121,682 | | | 33,550 | | | 539,774 | |
Elon S. Boms (4) Chief Executive Officer | | 2021 | | — | | | — | | | — | | | — | | | — | |
| 2020 | | — | | | — | | | — | | | — | | | — | |
_________________
(1)The amounts reported in the “Option Awards” column reflect the aggregate grant date fair value of stock options awarded during fiscal years 2020 and 2021 computed in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC 718. See Note 11 in the accompanying notes to the consolidated financial statements included in this prospectus for assumptions underlying the valuation of equity awards.
(2)The amounts shown in the “Non-Equity Incentive Plan Compensation” column represent amounts earned in fiscal years 2020 and 2021 but paid in February of the following year based on the achievement of corporate and individual performance objectives set by the Board. In addition, “Non-Equity Incentive Plan Compensation” for Ms. Strandberg includes $16,798 and $66,462 in commissions earned by Ms. Strandberg for fiscal years 2020 and 2021, respectively, as a member of our commercial team.
(3)“All Other Compensation” includes:
(i)for Dr. McCann, (a) $64,935 and $49,950 during 2020 and 2021, respectively, representing payment for a lease to occupy an apartment in San Francisco, California and (b) $9,975 during 2020 representing employer matching contributions under our 401(k) plan;
(ii)for Mr. Guiffre, (a) $8,345 during 2020 representing employer matching contributions under our 401(k) plan and (b) $6,420 and $5,885 during 2020 and 2021, respectively, representing a transportation benefit; and
(iii)for Ms. Strandberg, (a) $27,000 representing payment for a lease to occupy an apartment in Boston, Massachusetts, which payments were made through March 2020, and (b) $6,550 representing employer matching contributions under our 401(k) plan.
(4)Mr. Boms was the Chief Executive Officer of THMA until December 2021, at which time he resigned from his position upon the closing of the Business Combination.
Narrative Disclosure to Summary Compensation Table
Base Salaries
We use base salaries to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our NEOs. Base salaries are reviewed annually, typically in connection with our annual performance review process, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. For the year ended December 31, 2021, the annual base salaries for each of Dr. McCann, Mr. Guiffre and Ms. Strandberg were $450,000, $396,229 and $366,062, respectively. The compensation committee sets the salary and bonus for each NEO, aside from the President & Chief Executive Officer’s which is set by the Board based on recommendation from the Compensation Committee, and the compensation is subject to periodic review and adjustment. Dr. McCann’s base salary for 2022 is $550,000, Mr. Guiffre’s base salary for 2022 is $435,000 and Ms. Strandberg’s base salary for 2022 is $415,000.
Equity Compensation
We believe that equity award grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders. In addition, we believe that equity award grants with a time-based vesting feature promote executive retention because this feature incentivizes our executive officers to remain in our employment during the vesting period. Accordingly, we typically grant equity awards to our executives, including our NEOs, in the ordinary course of business on a discretionary basis. During the year ended December 31, 2021, we granted options to purchase shares of common
stock of Legacy Pear to Mr. Guiffre and Ms. Strandberg, as described in more detail in the “Outstanding Equity Awards at 2021 Fiscal Year End” table.
Non-Equity Incentive Plan Compensation
We pay cash incentive compensation to reward our executives for their performance over the fiscal year, based on performance goals established by the Board. Incentive compensation is determined by the Board based on two components: corporate performance and individual performance. Dr. McCann’s bonus is based on 100% corporate performance and 0% individual performance, and Mr. Guiffre’s and Ms. Strandberg’s bonuses are based on 80% corporate performance and 20% individual performance. For the year ended December 31, 2021, the target bonus for Dr. McCann was equal to 50% percent of his base salary, the target bonus for Mr. Guiffre for the year ended December 31, 2021 was 45% percent of his base salary, and the target bonus for Ms. Strandberg for the year ended December 31, 2021 was 45% percent of her base salary. In addition to the incentive compensation described above, Ms. Strandberg earned $62,461 in commissions for the year ended December 31, 2021 as a member of the commercial team.
Each NEO is eligible to participate in any annual incentive compensation programs as may be established from time to time by the Board. For 2022, Dr. McCann is eligible to receive a target annual performance bonus of 60% of his annual base salary, Mr. Guiffre is eligible to receive a target annual performance bonus of 50% of his annual base salary, and Ms. Strandberg is eligible to receive a target annual performance bonus of 50% of her annual base salary.
Outstanding Equity Awards at 2021 Fiscal Year End
The following table sets forth information regarding outstanding equity awards held by each of our NEOs as of December 31, 2021. All equity awards set forth in the table below were originally granted under the Legacy Pear 2013 Stock Incentive Plan (the “2013 Plan”). In connection with the Business Combination, each option to purchase shares of common stock of Legacy Pear outstanding under the 2013 Plan were cancelled in exchange for an option to purchase Class A common stock under the Pear Therapeutics, Inc. 2021 Stock Option and Incentive Plan. Mr. Boms, who served as the Chief Executive Officer of THMA until his resignation upon the closing of the Business Combination, held no outstanding equity-based awards as of December 31, 2021.
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Name | | Number of Securities Underlying Unexercised Options (#) exercisable | | Number of Securities Underlying Unexercised Options (#) unexercisable | | Option Exercise Price ($) | | Option Expiration Date | | Option Grant Date |
Corey McCann | | — | | | — | | | — | | | — | | | — | |
Christopher Guiffre | | — | | | 228,224 | | (1) | 1.29 | | | 1/26/2031 | | 1/26/2021 |
| | 111,351 | | | 131,597 | | (2) | 1.09 | | | 3/24/2030 | | 3/24/2020 |
| | 73,006 | | | 30,062 | | (3) | 1.08 | | | 3/14/2029 | | 3/14/2019 |
| | 51,533 | | | — | | (4) | 0.72 | | | 3/21/2028 | | 3/21/2018 |
| | 478,533 | | | — | | (4) | 0.68 | | | 12/13/2027 | | 12/13/2017 |
Julia Strandberg | | — | | | 110,431 | | (1) | 1.29 | | | 1/26/2031 | | 1/26/2021 |
| | 20,245 | | | 23,926 | | (2) | 1.09 | | | 3/24/2030 | | 3/24/2020 |
| | 391,108 | | | 234,667 | | (5) | 1.09 | | | 9/25/2029 | | 9/26/2019 |
__________________
(1)The shares underlying these stock options vest over four years with 25% of the shares vesting on the first anniversary of the vesting commencement date, and the remaining shares vesting in 36 equal monthly installments on the last day of each calendar month following the first anniversary (for the avoidance of doubt, inclusive of the calendar month in which the first anniversary falls), subject to the executive’s continued service. The vesting commencement date is January 26, 2021.
(2)The shares underlying these stock options vest over four years with 25% of the shares vesting on the first anniversary of the vesting commencement date, and the remaining shares vesting in 36 equal monthly installments on the last day of each calendar month following the first anniversary (for the avoidance of doubt, inclusive of the calendar month in which the first anniversary falls), subject to the executive’s continued service. The vesting commencement date is March 24, 2020.
(3)The shares underlying these stock options vest over four years with 25% of the shares vesting on the first anniversary of the vesting commencement date, and the remaining shares vesting in 36 equal monthly installments on the last day of each calendar month following
the first anniversary (for the avoidance of doubt, inclusive of the calendar month in which the first anniversary falls), subject to the executive’s continued service. The vesting commencement date is March 14, 2019.
(4)The shares underlying these stock options vest over four years with 25% of the shares vesting on the first anniversary of the vesting commencement date, and the remaining shares vesting in 36 equal monthly installments thereafter, subject to the executive’s continued service. The vesting commencement date is December 7, 2017.
(5)The shares underlying these stock options vest over four years with 25% of the shares vesting on the first anniversary of the vesting commencement date, and the remaining shares vesting in 36 equal monthly installments on the last day of each calendar month following the first anniversary (for the avoidance of doubt, inclusive of the calendar month in which the first anniversary falls), subject to the executive’s continued service. The vesting commencement date is July 22, 2019.
Potential Payments Upon Termination or Change of Control
The employment of each of our NEO’s is at-will. Each NEO has entered into a management retention agreement which provides that if the NEO is terminated “for cause” or resigns without “good reason” (as such terms are defined in the management retention agreement), the NEO is paid their accrued but unpaid vacation pay, earned but unpaid salary, and reimbursement for any business expense (collectively, the “accrued obligations”). If the NEO is terminated within 60 days before a “change in control date” (as such term is defined in the management retention agreement) or during the one year following the change in control (such period is defined in the management retention agreement as the “protection period”) and the NEO is terminated by us without cause or by the NEO for good reason, the NEO will receive payments that equal the accrued obligations, 12 months of the NEO’s base salary as of the termination date (paid in a lump sum within two weeks of the termination date), continued medical, life insurance and benefits to the same extent the NEO participated prior to the termination date for 12 months following the termination date (unless similar benefits are offered sooner by a new employer). In addition, any “equity awards” (as such term is defined in the management retention agreement) that have not been terminated will automatically accelerate and become fully exercisable and all restrictions and conditions on the NEO’s outstanding stock awards and other equity based awards will immediately lapse as of the termination date, and if an equity award has been terminated, the NEO will receive a cash amount equal to the amount he or she would have received had all such terminated equity awards been fully vested. Finally, if the NEO is terminated without cause or resigns with good reason outside of the protection period, the NEO will receive the accrued obligations, six months of the NEO’s base salary as of the termination date (paid in a lump sum within two weeks of the termination date) and medical, life insurance, disability and other benefits to the same extent the NEO participated prior to the termination date for six months following the termination date (unless similar benefits are offered sooner by a new employer).
DIRECTOR COMPENSATION
The following table presents information regarding compensation awarded to, earned by or paid to our non-employee directors in connection with their service on the Board during fiscal year 2021 (including compensation for serving on the board of directors of THMA and Legacy Pear. Other than as set forth in the table and described more fully below, we did not pay any compensation, make any equity awards to, or pay any other compensation to any of the non-employee members of the Board. Prior to the Business Combination, THMA did not pay compensation to the members of the board of directors for their service on the board of directors of THMA. Corey McCann, our President and Chief Executive Officer, did not receive any compensation for his service as a member of the Board during 2021 or 2020. Dr. McCann’s compensation for service as an employee for fiscal years 2021 and 2020 are presented above in Item 11, “Executive Compensation.”
Director Compensation Table—2021
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Name | | Year | | Fees Earned ($) | | Option Awards ($)(1) | | Total ($) |
Nancy Schlichting | | 2021 | | 50,000 | | | — | | | 50,000 | |
Andrew Schwab | | 2021 | | — | | | — | | | — | |
Zack Lynch | | 2021 | | — | | | — | | | — | |
Alison Bauerlein | | 2021 | | 4,334 | | | 390,217 | | | 394,551 | |
Jorge Gomez | | 2021 | | 41,209 | | | 387,227 | | | 428,436 | |
Kirthiga Reddy | | 2021 | | 5,122 | | | 390,217 | | | 395,339 | |
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(1)The amounts reported in the “Option awards” column reflect the aggregate grant date fair value of share-based compensation awarded during the year computed in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718. See Note 11 in the notes to the consolidated financial statements included in this prospectus for assumptions underlying the valuation of equity awards.
The table below shows the aggregate number of Class A common stock option awards held as of December 31, 2021 by each of our current non-employee directors who was serving as of that date.
| | | | | | | | |
Name | | Number of Shares Underlying Options Outstanding at December 31, 2021 |
Nancy Schlichting | | 110,430 |
Andrew Schwab | | — |
Zack Lynch | | 29,448 |
Alison Bauerlein | | 70,675 |
Jorge Gomez | | 70,675 |
Kirthiga Reddy | | 70,675 |
Non-Employee Director Compensation Policy
Non-employee members of the Board shall be eligible to receive cash and equity compensation, as set forth in the Non-Employee Director Compensation Policy, as described below:
| | | | | | | | |
Name | | Annual Retainer |
Board of Directors | | $ | 55,000 | |
Audit Committee Chair | | 20,000 |
Compensation Committee Chair | | 15,000 |
Nominating and Corporate Governance Chair | | 10,000 |
In addition to cash compensation, non-employee directors elected or appointed to our board of directors will be granted a one-time stock option award to purchase 70,560 shares of our Class A common stock on the date of such director’s election or appointment to the board of directors, which will vest in equal annual installments over three years, subject to continued service through such vesting dates. On the day of our annual meeting of stockholders each year, we may grant each non-employee director an annual stock option or a restricted stock award.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of our Class A common stock as of March 1, 2022:
•each person known by Pear to be the beneficial owner of more than 5% of the Class A common stock;
•each of Pear’s NEOs and directors; and
•all of Pear’s executive officers and directors as a group.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and restricted stock units that are currently exercisable or vested or that will become exercisable or vest within 60 days. Unless otherwise indicated, Pear believes that all persons named in the table below have sole voting and investment power with respect to the voting securities beneficially owned by them.
The following beneficial ownership of our Class A common stock is based on 137,836,028 shares of Class A common stock issued and outstanding as of the March 1, 2022:
| | | | | | | | | | | | | | |
Name of Beneficial Owners (1) | | Number of Class A Common Stock Shares | | % |
Directors and Executive Officers | | | | |
Corey McCann, M.D., Ph.D (2)(14) | | 10,829,995 | | | 7.9 | % |
Christopher D.T. Guiffre, J.D., M.B.A (3) | | 819,332 | | | * |
Julia Strandberg (3) | | 503,992 | | | * |
Elon S. Boms (4) | | — | | | — | |
Alison Bauerlein | | — | | | — | |
Jorge Gomez | | — | | | — | |
Zack Lynch (5)(14) | | 10,796,035 | | | 7.8 | % |
Kirthiga Reddy | | — | | | — | |
Nancy Schlichting (3) | | 36,442 | | | * |
Andrew Schwab (6)(14) | | 18,631,771 | | | 13.5 | % |
All directors and executive officers as a group (13 individuals) | | 43,156,572 | | | 30.7 | % |
Five Percent Holders (14) | | | | |
TLS Beta Pte. Ltd. and affiliated funds (7) | | 26,803,573 | | | 19.4 | % |
5AM Ventures IV, L.P. and affiliated funds (8) | | 18,631,771 | | | 13.5 | % |
SVF II Cobbler (DE) LLC (9) | | 12,100,078 | | | 8.8 | % |
LJ10 LLC (10) | | 11,553,333 | | | 8.1 % |
Arboretum Ventures IV, L.P. (11) | | 10,859,050 | | | 7.9 | % |
JAZZ Human Performance Technology Fund, L.P. and affiliated funds (12) | | 10,766,587 | | | 7.8 | % |
Kaiser Permanente Group Trust and affiliated entities (13) | | 8,503,618 | | | 6.2 | % |
__________________
*Indicates beneficial ownership less than 1%.
(1)Unless otherwise noted, the business address of each of the directors and executive officers is c/o Pear Therapeutics, Inc., 200 State Street, 13th Floor, Boston, Massachusetts 02109.
(2)Consists of (i) 8,157,565 shares of Class A common stock held directly by Corey McCann; (ii) 1,685,913 shares of Class A common stock held by The Corey M. McCann Irrevocable Trust of 2021 (the “McCann Irrevocable Trust”), and (iii) 986,517 shares of Class A common stock held by The McCann Family Trust (the “McCann Family Trust,” and, together with the McCann Irrevocable Trust, the “McCann Trusts”). Mia E. Moll, the Trustee of the McCann Irrevocable Trust, is the sister of Corey McCann and holds voting and investment control over the shares held by the McCann Irrevocable Trust. Mia E. Moll acts as Investment Advisor and Concord Trust Company, LLC acts as Trustee of the McCann Family Trust; the Trustee acts at the direction of a distribution committee, whose actions over the shares of Class A common stock held by the McCann Family Trust are subject to the approval of Corey McCann pursuant to the trust agreement. By virtue of
the foregoing, Corey McCann may be deemed to be the beneficial owner of the shares of Class A common stock held by each of the McCann Trusts. Dr. McCann disclaims beneficial ownership of the shares of Class A common stock held by each of the McCann Trusts, except to the extent of any pecuniary interest therein. The business address of the McCann Irrevocable Trust and Mia E. Moll is c/o Bass, Doherty & Finks, P.C., 1380 Soldiers Field Road, Boston, MA 02135-1023, and the business address of the McCann Family Trust and Cancord Trust Company, LLC is 3 Executive Park Drive, Suite 302, Bedford, NH 03110.
(3)Consists of options to purchase shares of Class A common stock which have vested or which will vest within 60 days of the March 1, 2022.
(4)Mr. Boms was the Chief Executive Officer of THMA until December 2021, at which time he resigned from his position upon the closing of the Business Combination.
(5)Consists of 10,766,587 shares of Class A common stock identified in footnote 12 over which Mr. Lynch may be deemed to beneficially own and options to purchase up to 29,448 shares of Class A common stock which have vested or which will vest within 60 days of the March 1, 2022. Mr. Lynch disclaims beneficial ownership of the shares identified in footnote 12 except to the extent of his pecuniary interest therein.
(6)Consists of 18,631,771 shares of Class A common stock identified in footnote 8 over which Mr. Schwab may be deemed to beneficially own. Mr. Schwab disclaims beneficial ownership of the shares identified in footnote 8 except to the extent of his pecuniary interest therein.
(7)Consists of 24,903,573 shares of Class A common stock held by TLS Beta Pte. Ltd. and 1,900,000 shares of Class A common stock held by Elbrus Investments Pte. Ltd. Each of TLS Beta Pte. Ltd. and Elbrus Investments Pte. Ltd. is a direct wholly-owned subsidiary of Temasek Life Sciences Private Limited, which in turn is a direct wholly-owned subsidiary of Fullerton Management Pte Ltd, which in turn is a direct wholly-owned subsidiary of Temasek Holdings (Private) Limited. The address of each of the foregoing entities is 60B Orchard Road, #06-18 Tower 2, The Atrium@Orchard, Singapore.
(8)Consists of 14,648,641shares of Class A common stock held by 5AM Ventures IV, L.P. (“Ventures IV”), 610,361 shares of Class A common stock held by 5AM Co-Investors IV, L.P. (“Co-Investors IV”), and 3,372,769 shares of Class A common stock held by 5AM Opportunities I, L.P. (“Opportunities I”). 5AM Partners IV, LLC (“Partners IV”) is the sole general partner of Ventures IV and Co-Investors IV. Dr. John Diekman, Andrew Schwab and Dr. Scott M. Rocklage, are the managing members of Partners IV and, along with Partners IV, have shared voting and investment power over the shares beneficially owned by Ventures IV and Co-Investors IV. Andrew Schwab, one of our directors, is an affiliate of Ventures IV, Co-Investors IV and Opportunities I. Each of Partners IV, Dr. Diekman, Mr. Schwab and Dr. Rocklage disclaim beneficial ownership of such shares except to the extent of its or their recurring interest therein. 5AM Opportunities I (GP), LLC is the general partner of Opportunities I and may be deemed to have sole investment and voting power over the shares held by Opportunities I. Andrew Schwab and Dr. Kush Parmar are the managing members of 5AM Opportunities I (GP), LLC, and may be deemed to share voting and dispositive power over the shares held by Opportunities I. The address of all entities affiliated with 5AM Ventures is 501 2nd Street, Suite 350, San Francisco, CA 94107.
(9)Consists of 12,100,078 shares of Class A common stock held by SVF II Cobbler (DE) LLC (“SVF”). SoftBank Vision Fund II-2 L.P. is the managing member of SVF II AIV (DE) LLC, which is the sole member of SVF. SB Global Advisers Limited (“SBGA”) has been appointed as manager and is responsible for making all decisions related to the acquisition, structuring, financing and disposal of SoftBank Vision Fund II-2 L.P.’s investments, including as held by SVF. Spencer Collins, Rajeev Misra, and Neil Hadley are the directors of SBGA. As a result of these relationships, each of these entities and individuals may be deemed to share beneficial ownership of the securities held of record by SVF. Each of them disclaims any such beneficial ownership. The registered address for each of SVF and SVF II Holdings (DE) LLC is c/o Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808. The registered address of SoftBank Vision Fund II-2 L.P. is c/o Crestbridge Limited, 47 Esplanade, St. Helier, Jersey, JE1 0BD. The business address of SB Global Advisers Limited is 69 Grosvenor Street, London W1K 3JP, England, United Kingdom.
(10)Consists of 6,540,000 shares of Class A common stock and 5,013,333 Private Placement Warrants held by LJ10 LLC, which are exercisable for 5,013,333 shares of Class A common stock within 60 days of March 1, 2022. Elon S. Boms and two other managers are the three managers of LJ10 LLC’s board of managers. Any action by LJ10 LLC with respect to the shares, including voting and dispositive decisions, requires at least a majority vote of the managers of the board of managers. Under the so-called “rule of three”, because voting and dispositive decisions are made by a majority of the managers, none of the managers is deemed to be a beneficial owner of securities held by LJ10 LLC, even those in which such manager may hold a pecuniary interest. Accordingly, none of the managers on LJ10 LLC’s board of managers is deemed to have or share beneficial ownership of the shares held by LJ10 LLC. LJ10 LLC and KLP SPAC 1 LLC may be deemed to be members of a “group,” within the meaning of Section 13(d)(3) of the Act, comprised of LJ10 LLC and KLP SPAC 1 LLC. The business address of LJ10 LLC is 195 Church Street, 15th Floor, New Haven, Connecticut 06510.
(11)Consists of 10,859,050 shares of Class A common stock held by Arboretum Ventures IV, L.P. (“AV IV”). Arboretum Investment Manager IV, LLC (“AIM IV”) is the general partner of AV IV. Jan L. Garfinkle, Timothy B. Petersen and Paul McCreadie are the managing members of AIM IV and share voting and dispositive power with respect to the shares held by AV IV. Ms. Garfinkle and Messrs. Petersen and McCreadie disclaim beneficial ownership of the shares held by AV IV, except to the extent of their pecuniary interest therein. The address of the principal place of business of each of these entities and individuals is 303 Detroit Street, Suite 301, Ann Arbor, Michigan 48104.
(12)Consists of 9,681,673 shares of Class A common stock held by JAZZ Human Performance Technology Fund, L.P. (“Jazz Technology”) and 1,084,914 shares of Class A common stock held by JAZZ Human Performance Opportunity Fund, L.P (“Jazz Opportunity”). Jazz Human Performance Technology GP, LLC (“Jazz Technology GP”) is the general partner of Jazz Technology. Voting and dispositive decisions with respect to the shares held by Jazz Technology are exercised collectively by the managing members of Jazz Technology GP: Andrew Firlik, John Harris, Zack Lynch and John Spinale. JAZZ Human Performance Opportunity GP, LLC (“Jazz Opportunity GP”) is the general partner of Jazz Opportunity. Voting and dispositive decisions with respect to the shares held by Jazz Opportunity are exercised collectively by the managing members of Jazz Opportunity GP: Andrew Firlik, John Harris, Zack Lynch and John Spinale. Mr. Lynch, one of our directors, is an affiliate of Jazz Technology and Jazz Opportunity. The address of the principal place of business of each of these entities and individuals is 548 Market Street, #27799, San Francisco, CA 94104.
(13)Consists of 5,502,171 shares of Class A common stock held by Kaiser Permanente Group Trust (“Kaiser Trust”) and 3,001,447 shares of Class A common stock held by Kaiser Foundation Hospitals (“Kaiser Hospitals”). The Kaiser Permanente Retirement Plans Investment Committee has discretionary authority to manage and control Kaiser Trust assets. The address for Kaiser Trust and Kaiser Hospitals is One Kaiser Plaza, The Ordway Building, Oakland, California 94612.
(14)Excludes the contingent right to receive additional Class A common stock upon the achievement of certain earn-out targets.
SELLING SECURITYHOLDERS
This prospectus relates to the possible offer and resale by the Selling Securityholders of (i) up to 73,575,840 Pear Class A Common Shares (which includes up to 5,013,333 Pear Class A Common Shares issuable upon the exercise of the Private Placement Warrants) and (ii) and up to 5,013,333 Private Placement Warrants.
The Selling Securityholders may from time to time offer and sell any or all of the Pear Class A Common Shares and Private Placement Warrants set forth below pursuant to this prospectus. When we refer to the “Selling Securityholders” in this prospectus, we mean the persons listed in the table below, and the pledgees, donees, transferees, assignees, successors and others who later come to hold any of the Selling Securityholders’ interest in the Pear Class A Common Shares and Private Placement Warrants after the date of this prospectus such that registration rights shall apply to those securities.
The following table is prepared based on information provided to us by the Selling Securityholders. It sets forth the name and address of the Selling Securityholders, the aggregate number of Pear Class A Common Shares that the Selling Securityholders may offer pursuant to this prospectus, and the beneficial ownership of the Selling Securityholders both before and after the offering. We have based percentage ownership after this offering on 137,836,028 shares of Class A Common Stock outstanding as of March 1, 2022.
We cannot advise you as to whether the Selling Securityholders will in fact sell any or all of such Pear Class A Common Shares or Private Placement Warrants. In addition, the Selling Securityholders may sell, transfer or otherwise dispose of, at any time and from time to time, the Pear Class A Common Shares and Private Placement Warrants in transactions exempt from the registration requirements of the Securities Act after the date of this prospectus. For purposes of this table, we have assumed that the Selling Securityholders will have sold all of the securities covered by this prospectus upon the completion of the offering. Any changed or new information given to us by the Selling Securityholders, including regarding the identity of, and the securities held by, each Selling Securityholder, will be set forth in a prospectus supplement or amendments to the registration statement of which this prospectus is a part, if and when necessary.
Please see the section entitled “Plan of Distribution” for further information regarding the Selling Securityholders’ method of distributing these securities. For information regarding transactions between us and the Selling Securityholders, see the section entitled “Certain Relationships and Related Person Transactions.”
Unless otherwise indicated below, the address of each Selling Securityholder listed in the tables below is c/o Pear Therapeutics, Inc., 200 State Street, 13th Floor, Boston, Massachusetts 02109.
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| Securities Beneficially Owned Prior to this Offering | | Securities to be Sold in this Offering | | Securities Beneficially Owned After this Offering |
Class A Common Stock | | Private Placement Warrants | | Class A Common Stock | | Private Placement Warrants | | Class A Common Stock | | Percent | | Private Placement Warrants | | Percent |
Name of Selling Securityholder | | | | | | | | | | | | | | | |
5AM Opportunities I, L.P. and associated entities(1) | 18,631,771 | | | — | | | 18,631,771 | | | — | | | — | | | — | | | — | | | — | |
Anil Aggarwal(2) | 36,000 | | | — | | | 36,000 | | | — | | | — | | | — | | | — | | | — | |
Arboretum Ventures IV, L.P.(3) | 10,859,050 | | | — | | | 10,000 | | | — | | | 10,849,050 | | | 7.9 | % | | — | | | — | |
Blue Water Life Science Master Fund, Ltd. and associated entities(4) | 254,686 | | | — | | | 50,000 | | | — | | | 204,686 | | | * | | — | | | — | |
Brian Barth(2) | 36,000 | | | — | | | 36,000 | | | — | | | — | | | — | | | — | | | — | |
CNVC Investment Limited and associated entities(5) | 1,810,810 | | | — | | | 100,000 | | | — | | | 1,710,810 | | | 1.2 | % | | — | | | — | |
Erin K. Brenner(6) | 399,987 | | | — | | | 50,000 | | | — | | | 349,987 | | | * | | — | | | — | |
Henry S. Miller(2) | 60,000 | | | — | | | 60,000 | | | — | | | — | | | — | | | — | | | — | |
Jarrod Yuster(2) | 36,000 | | | — | | | 36,000 | | | — | | | — | | | — | | | — | | | — | |
JAZZ Human Performance Technology Fund, L.P. and associated entities(7) | 10,766,587 | | | — | | | 10,000 | | | — | | | 10,756,587 | | | 7.8 | % | | — | | | — | |
Julia Strandberg(6) | 780,377 | | | — | | | 100,000 | | | — | | | 680,377 | | | * | | — | | | — | |
Kaiser Permanente Group Trust and associated entities(8) | 8,503,618 | | | — | | | 4,000,000 | | | — | | | 4,503,618 | | | 3.3 | % | | — | | | — | |
Katherine Jeffery(6) | 323,930 | | | — | | | 100,000 | | | — | | | 223,930 | | | * | | — | | | — | |
KLP SPAC 1 LLC(9) | 6,387,026 | | | — | | | 6,387,026 | | | — | | | — | | | — | | | — | | | — | |
LJ10 LLC(10) | 11,553,333 | | | 5,013,333 | | | 11,553,333 | | | 5,013,333 | | | — | | | — | | | — | | | — | |
Meghan M. FitzGerald(2) | 60,000 | | | — | | | 60,000 | | | — | | | — | | | — | | | — | | | — | |
Michael J. Christenson(2) | 60,000 | | | — | | | 60,000 | | | — | | | — | | | — | | | — | | | — | |
Michael K. Simon(2) | 36,000 | | | — | | | 36,000 | | | — | | | — | | | — | | | — | | | — | |
Michael Tessler(2) | 36,000 | | | — | | | 36,000 | | | — | | | — | | | — | | | — | | | — | |
Million Pacific International Corporation(11) | 2,071,865 | | | — | | | 25,000 | | | — | | | 2,046,865 | | | 1.5 | % | | — | | | — | |
Neuberger Berman Group LLC and certain affiliates(12) | 1,500,000 | | | — | | | 1,500,000 | | | — | | | — | | | — | | | — | | | — | |
Novartis Pharma AG and associated entities(13) | 2,216,807 | | | — | | | 25,000 | | | — | | | 2,191,807 | | | 1.6 | % | | — | | | — | |
Palantir Technologies Inc.(14) | 1,000,000 | | | — | | | 1,000,000 | | | — | | | — | | | — | | | — | | | — | |
Petite Pond LLC(15) | 775,541 | | | — | | | 100,000 | | | — | | | 675,541 | | | * | | — | | | — | |
PH Investments, LLC(16) | 2,388,856 | | | — | | | 700,000 | | | — | | | 1,688,856 | | | 1.2 | % | | — | | | — | |
QUAD Healthcare Multi-Strategy 9 Fund(17) | 460,361 | | | — | | | 10,000 | | | — | | | 450,361 | | | * | | — | | | — | |
Ronan O’Brien(6) | 471,168 | | | — | | | 100,000 | | | — | | | 371,168 | | | * | | — | | | — | |
Sarissa Capital Management LP and associated entities(18) | 500,356 | | | — | | | 50,000 | | | — | | | 450,356 | | | * | | — | | | — | |
Shanda Asset Management Holdings Limited and associated entities(19) | 725,541 | | | — | | | 50,000 | | | — | | | 675,541 | | | * | | — | | | — | |
SVF II Cobbler (DE) LLC(20) | 12,100,078 | | | — | | | 500,000 | | | — | | | 11,600,078 | | | 8.4 | % | | — | | | — | |
The Eleven Fund LLC(21) | 50,000 | | | — | | | 50,000 | | | — | | | — | | | — | | | — | | | — | |
The McCann Family Trust and certain affiliates(22) | 10,829,995 | | | — | | | 1,086,517 | | | — | | | 9,743,478 | | | 7.1 | % | | — | | | — | |
TLS Beta Pte. Ltd. and associated entities(23) | 26,803,573 | | | — | | | 26,803,573 | | | — | | | — | | | — | | | — | | | — | |
Yuri Maricich(6) | 883,443 | | | — | | | 223,620 | | | — | | | 659,823 | | | * | | — | | | — | |
__________________
*Indicates beneficial ownership less than 1%.
(1)Consists of 14,648,641 Pear Class A Common Shares held by 5AM Ventures IV, L.P. (“Ventures IV”), 610,361 Pear Class A Common Shares held by 5AM Co-Investors IV, L.P. (“Co-Investors IV”), and 3,372,769 Pear Class A Common Shares held by 5AM Opportunities I, L.P. (“Opportunities I”), which includes 200,000 PIPE Shares. 5AM Partners IV, LLC (“Partners IV”) is the sole general partner of Ventures IV and Co-Investors IV. Dr. John Diekman, Andrew Schwab and Dr. Scott M. Rocklage, are the managing members of Partners IV and, along with Partners IV, have shared voting and investment power over the shares beneficially owned by Ventures IV and Co-Investors IV. Andrew Schwab, one of our directors, is an affiliate of Ventures IV, Co-Investors IV and Opportunities I. Each of Partners IV, Dr. Diekman, Mr. Schwab and Dr. Rocklage disclaim beneficial ownership of such shares except to the extent of its or their recurring interest therein. 5AM Opportunities I (GP), LLC is the general partner of Opportunities I and may be deemed to have sole investment and voting power over the shares held by Opportunities I. Andrew Schwab and Dr. Kush Parmar are the managing members of 5AM Opportunities I (GP), LLC, and may be deemed to share voting and dispositive power over the shares held by Opportunities I. The address of all entities affiliated with 5AM Ventures is 501 2nd Street, Suite 350, San Francisco, CA 94107.
(2)The address of the Selling Stockholder is 195 Church Street, 15th Floor, New Haven, Connecticut 06510.
(3)Consists of 10,859,050 Pear Class A Common Shares held by Arboretum Ventures IV, L.P. (“AV IV”), which includes 10,000 PIPE Shares. Arboretum Investment Manager IV, LLC (“AIM IV”) is the general partner of AV IV. Jan L. Garfinkle, Timothy B. Petersen and Paul McCreadie are the managing members of AIM IV and share voting and dispositive power with respect to the shares held by AV IV. Ms. Garfinkle and Messrs. Petersen and McCreadie disclaim beneficial ownership of the shares held by AV IV, except to the extent of their pecuniary interest therein. The address of the principal place of business of each of these entities and individuals is 303 Detroit Street, Suite 301, Ann Arbor, Michigan 48104.
(4)Consists of 204,686 Pear Class A Common Shares held by Blue Water Life Science Fund, LP and 50,000 PIPE Shares held by Blue Water Life Science Master Fund, Ltd. Nate Cornell, the Founder and CIO of Blue Water Life Science Master Fund, Ltd. has voting and dispositive power over the shares owned by Blue Water Life Science Master Fund, Ltd. The business address of Blue Water Life Science Master Fund, Ltd. is 80 E. Sir Francis Drake Blvd., Suite 4A Larkspur, CA 94939.
(5)Consists of 1,545,632 Pear Class A Common Shares held by CNVC Investment Limited (“CNVC”), which includes 60,000 PIPE Shares, 132,589 Pear Class A Common Shares held by FOY Limited (“FOY”), which includes 20,000 PIPE Shares, and 132,589 Pear Class A Common Shares held by ICCN Limited (“ICCN”), which includes 20,000 PIPE Shares. Gan Yong Aik, the director of each of CNVC, FOY and ICCN, has voting and dispositive power over the shares. As a result of this relationship, Gan Yong Aik may be deemed to share beneficial ownership of the securities held of record by each of CNVC, FOY and ICCN. The address of each of CNVC, FOY and ICCN is 6 Temasek Boulevard #39-03, Suntec Tower 4, Singapore 038986.
(6)The address of the Selling Stockholder is c/o Pear Therapeutics, Inc., 200 State Street, 13th Floor, Boston, Massachusetts 02109.
(7)Consists of 9,681,673 Pear Class A Common Shares held by JAZZ Human Performance Technology Fund, L.P. (“Jazz Technology”), which includes 10,000 PIPE Shares, and 1,084,914 Pear Class A Common Shares held by JAZZ Human Performance Opportunity Fund, L.P (“Jazz Opportunity”). Jazz Human Performance Technology GP, LLC (“Jazz Technology GP”) is the general partner of Jazz Technology. Voting and dispositive decisions with respect to the shares held by Jazz Technology are exercised collectively by the managing members of Jazz Technology GP: Andrew Firlik, John Harris, Zack Lynch and John Spinale. JAZZ Human Performance Opportunity GP, LLC (“Jazz Opportunity GP”) is the general partner of Jazz Opportunity. Voting and dispositive decisions with respect to the shares held by Jazz Opportunity are exercised collectively by the managing members of Jazz Opportunity GP: Andrew Firlik, John Harris, Zack Lynch and John Spinale. Mr. Lynch, one of our directors, is an affiliate of Jazz Technology and Jazz Opportunity. The address of the principal place of business of each of these entities and individuals is 548 Market Street, #27799, San Francisco, CA 94104.
(8)Consists of 5,502,171 Pear Class A Common Shares held by Kaiser Permanente Group Trust (“Kaiser Trust”), which includes 2,800,000 PIPE Shares, and 3,001,447 Pear Class A Common Shares held by Kaiser Foundation Hospitals (“Kaiser Hospitals”), which includes 1,200,000 PIPE Shares. The Kaiser Permanente Retirement Plans Investment Committee has discretionary authority to manage and control Kaiser Trust assets. The address for Kaiser Trust and Kaiser Hospitals is One Kaiser Plaza, The Ordway Building, Oakland, California 94612.
(9)Consists of 6,387,026 Pear Class A Common Shares held by KLP SPAC 1 LLC. Elon S. Boms and two other managers are the three managers of KLP SPAC 1 LLC's board of managers. Any action by KLP SPAC 1 LLC with respect to the shares, including voting and dispositive decisions, requires at least a majority vote of the managers of the board of managers. Under the so-called "rule of three", because voting and dispositive decisions are made by a majority of the managers, none of the named managers is deemed to be a beneficial owner of securities held by KLP SPAC 1 LLC, even those in which such manager may hold a pecuniary interest. Accordingly, none of the managers on KLP SPAC 1 LLC's board of managers is deemed to have or share beneficial ownership of the shares held by KLP SPAC 1 LLC. LJ10 LLC and KLP SPAC 1 LLC may be deemed to be members of a “group,” within the meaning of Section 13(d)(3) of the Act, comprised of LJ10 LLC and KLP SPAC 1 LLC. The business address of KLP SPAC 1 LLC is 195 Church Street, 15th Floor, New Haven, Connecticut 06510.
(10)Consists of 6,540,000 Pear Class A Common Shares and 5,013,333 Private Placement Warrants held by LJ10 LLC, which are exercisable for 5,013,333 Pear Class A Common Shares within 60 days of the date of this prospectus. Elon S. Boms and two other managers are the three managers of LJ10 LLC’s board of managers. Any action by LJ10 LLC with respect to the shares, including voting and dispositive decisions, requires at least a majority vote of the managers of the board of managers. Under the so-called “rule of three”, because voting and dispositive decisions are made by a majority of the managers, none of the managers is deemed to be a beneficial owner of securities held by LJ10 LLC, even those in which such manager may hold a pecuniary interest. Accordingly, none of the managers on LJ10 LLC’s board of managers is deemed to have or share beneficial ownership of the shares held by LJ10 LLC. LJ10 LLC and KLP SPAC 1 LLC may be deemed to be members of a “group,” within the meaning of Section 13(d)(3) of the Act, comprised of LJ10 LLC and KLP SPAC 1 LLC. The business address of LJ10 LLC is 195 Church Street, 15th Floor, New Haven, Connecticut 06510.
(11)Consists of 2,071,865 Pear Class A Common Shares held by Million Pacific International Corporation (“Million Pacific”), which includes 25,000 PIPE Shares. Trustbridge Partners VI, L.P (“TBP VI”) is the sole shareholder of Million Pacific. TB Management Holdings Limited (“TB Mgt”) is the advisor to TBP VI acting through its sole general partner TB Partners GP6, L.P (“GP6 L.P”) which in turn, is acting through its general partner, TB Partners GP6 Limited (“GP6 Limited”). TB Mgt and GP6 Limited share voting and dispositive power with respect to the shares held by Million Pacific. The registered address of TB Mgt is c/o Osiris International Cayman Limited, Suite #4-210, Governors Square, 23 Lime Tree Bay Avenue, PO Box 32311, Grand Cayman, KY1-1209, Cayman Islands. The registered address of GP6 Limited is c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
(12)Neuberger Berman Group LLC (“NBG”) and certain of its affiliates, including Neuberger Berman Investment Advisers LLC, as sub-advisor of MAP 204 Segregated Portfolio, a segregated portfolio of LMA SPC and investment manager of Neuberger Berman Principal Strategies Master Fund L.P., have voting power and investment power over the securities. NBG and its affiliates do not, however, have any economic interest in such securities. The address of the principal place of business of these entities is c/o Neuberger Berman Investment Advisers LLC, 1290 Avenue of the Americas, New York, NY 10104.
(13)Consists of 511,323 Pear Class A Common Shares held by Novartis Pharma AG (“Pharma AG”), which includes 25,000 PIPE Shares, and 1,705,484 Pear Class A Common Shares held by Novartis Institutes for Biomedical Research, Inc. (“NIBR”). As the indirect parent of NIBR, Novartis AG may be deemed to beneficially own the shares held by NIBR as well as securities owned by any other affiliated companies. As the parent of Novartis Pharma AG, Novartis AG may be deemed to beneficially own these securities as well as securities owned by any other affiliated companies.The business address for Novartis Pharma AG is Lichstrasse 35, Basel, Switzerland 4056.
(14)Palantir Technologies Inc. is a corporation and is currently controlled by its seven-member board of directors. For more information, please see Palantir Technologies Inc.’s public filings with the SEC. The address of Palantir Technologies Inc. is 1555 Blake Street, Suite 250, Denver, CO 80202.
(15)Consists of 775,541 Pear Class A Common Shares held by Petite Pond LLC (“Petite Pond”), which includes 100,000 PIPE Shares. Petite Pond is managed by its managing member, Robert F. Raucci. As a result of this relationship, Mr. Raucci may be deemed to share beneficial ownership of the securities held of record by Petite Pond. Mr. Raucci disclaims any such beneficial ownership. The address of Petite Pond is c/o Forth Management, 505 Park Ave., 18th Floor, New York, NY 10022.
(16)Consists of 2,388,856 Pear Class A Common Shares held by PH Investments, LLC (“PH Investments”), which includes 700,000 PIPE Shares. PH Investments is managed by managing directors Melinda E. Barber, Benjamin A. Gomez and John W. Vander Vort. Melinda E. Barber, Benjamin A. Gomez and John W. Vander Vort disclaim beneficial ownership of the shares held by PH Investments. The address for PH Investments is Pilot House, Lewis Wharf, 2 Atlantic Avenue, Boston MA 02110.
(17)Consists of 460,361 Pear Class A Common Shares held by QUAD Healthcare Multi-Strategy 9 Fund (“QUAD”), which includes 10,000 PIPE Shares. Samsung Securities Co., Ltd., QUAD’s trustee, has voting and dispositive power over the shares. As a result of this relationship, Samsung Securities Co., Ltd. may be deemed to share beneficial ownership of the securities held of record by QUAD. Samsung Securities Co., Ltd. disclaims any such beneficial ownership. The address of QUAD is 29/F, Three IFC, 10 Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Korea.
(18)Consists of 291,912 Pear Class A Common Shares held by Sarissa Capital Offshore Master Fund LP (“Offshore”), which includes 27,100 PIPE Shares, 109,702 Pear Class A Common Shares held by Sarissa Capital Catapult Fund LLC (“Catapult”), which includes 11,300 PIPE Shares, 90,638 Pear Class A Common Shares held by Sarissa Capital Hawkeye Fund LP (“Hawkeye”), which includes 10,700 PIPE Shares, and 8,104 Pear Class A Common Shares held by Sarissa Capital Master Fund II LP (“Master”, and together with Offshore, Catapult and Hawkeye, the “Sarissa Entities”)), which includes 900 PIPE Shares. By virtue of his position as the Chief Investment Officer of Sarissa Capital and as the managing member of Sarissa Capital’s general partner and as controlling the ultimate general partner of each of the Sarissa Entities, Alexander Denner, Ph.D. may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the securities held by the Sarissa Entities. The address of each of the Sarissa Entities is 660 Steamboat Road, 3rd Floor, Greenwich, CT 06830.
(19)Consists of 50,000 PIPE Shares held by Shanda Asset Management Holdings Limited, and 675,541 Pear Class A Common Shares held by Shanda Grab Ventures Limited (together the “Shanda Entities”). Tianqiao Chen, the director and beneficial owner of the Shanda Entities, has voting and dispositive power over the shares owned by the Shanda Entities. The business address is 303 Twin Dolphin Drive, #6054, Redwood City, CA 94065.
(20)Consists of 12,100,078 Pear Class A Common Shares held by SVF II Cobbler (DE) LLC (“SVF”), which includes 500,000 PIPE Shares. SoftBank Vision Fund II-2 L.P. is the managing member of SVF II AIV (DE) LLC, which is the sole member of SVF. SB Global Advisers Limited (“SBGA”) has been appointed as manager and is responsible for making all decisions related to the acquisition, structuring, financing and disposal of SoftBank Vision Fund II-2 L.P.’s investments, including as held by SVF. Spencer Collins, Rajeev Misra, and Neil Hadley are the directors of SBGA. As a result of these relationships, each of these entities and individuals may be deemed to share beneficial ownership of the securities held of record by SVF. Each of them disclaims any such beneficial ownership. The registered address for each of SVF and SVF II Holdings (DE) LLC is c/o Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808. The registered address of SoftBank Vision Fund II-2 L.P. is c/o Crestbridge Limited, 47 Esplanade, St. Helier, Jersey, JE1 0BD. The business address of SB Global Advisers Limited is 69 Grosvenor Street, London W1K 3JP, England, United Kingdom.
(21)Hartley Wasko is the manager of The Eleven Fund LLC and has voting and dispositive power over the Common Shares. The address of each of Hartley Wasko and The Eleven Fund LLC is 463 Adams Street, Denver, CO 80206.
(22)Consists of (i) 8,157,565 Pear Class A Common Shares held directly by Corey McCann, of which 100,000 Pear Class A Common Shares are being registered (ii) 986,517 Pear Class A Common Shares held by The McCann Family Trust (the “McCann Family Trust”), all of which Pear Class A Common Shares are being registered and (iii) 1,685,913 Pear Class A Common Shares held by The Corey M. McCann Irrevocable Trust of 2021 (the “McCann Irrevocable Trust”, and, together with the McCann Family Trust, the “McCann Trusts”), of which no Pear Class A Common Shares are being registered. Mia E. Moll, the Trustee of the McCann Irrevocable Trust, is the sister of Corey McCann and holds voting and investment control over the shares held by the McCann Irrevocable Trust. Mia E. Moll acts as Investment Advisor and Concord Trust Company, LLC acts as Trustee of the McCann Family Trust; the Trustee acts at the direction of a distribution committee, whose actions over the Pear Class A Common Shares held by the McCann Family Trust are subject to the approval of Corey McCann pursuant to the trust agreement. By virtue of the foregoing, Corey McCann may be deemed to be the beneficial owner of the Pear Class A Common Shares held by each of the McCann Trusts. Dr. McCann disclaims beneficial ownership of the shares of Pear Class A Common Shares held by each of the McCann Trusts, except to the extent of any pecuniary interest therein. The business address of the McCann Irrevocable Trust and Mia E. Moll is c/o Bass, Doherty & Finks, P.C., 1380 Soldiers Field Road, Boston, MA 02135-1023, and the business address of the McCann Family Trust and Cancord Trust Company, LLC is 3 Executive Park Drive, Suite 302, Bedford, NH 03110.
(23)Consists of 24,903,573 Pear Class A Common Shares held by TLS Beta Pte. Ltd. and 1,900,000 PIPE Shares held by Elbrus Investments Pte. Ltd. Each of TLS Beta Pte. Ltd. and Elbrus Investments Pte. Ltd. is a direct wholly-owned subsidiary of Temasek Life Sciences Private Limited, which in turn is a direct wholly-owned subsidiary of Fullerton Management Pte Ltd, which in turn is a direct wholly-owned subsidiary of Temasek Holdings (Private) Limited. The address of each of the foregoing entities is 60B Orchard Road, #06-18 Tower 2, The Atrium@Orchard, Singapore.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies and Procedures for Approval of Related Person Transactions
We have adopted a formal written policy that became effective upon the completion of the Business Combination which provides that our officers, directors, nominees for election as directors, beneficial owners of more than 5% of any class of our common stock or preferred stock, any member of the immediate family of any of the foregoing persons and any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest, where the amount involved in the transaction exceeds or is reasonably expected to exceed $120,000 in a single fiscal year and the related party has or will have a direct or indirect interest in the transaction (other than solely as a result of being a director or less than 10% beneficial owner of another entity), are not permitted to enter into a related party transaction with us without the approval of our Audit Committee, subject to certain exceptions. This written policy on transactions with related persons is in conformity with the requirements for issuers having publicly held common stock that is listed on Nasdaq.
The Audit Committee is responsible for reviewing and approving any related person transactions. In reviewing any related person transaction, the Audit Committee will take into account, among other factors that it deems appropriate, whether the related person transaction is on terms no less favorable to Pear than terms generally available in a transaction with an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the related person transaction.
Relationships and Transactions with Directors, Executive Officers, and Significant Stockholders
In addition to the executive officer and director compensation arrangements discussed above under “Executive Compensation”, since January 1, 2020, the following is a description of each transaction since January 1, 2020 and each currently proposed transaction in which:
•we, THMA or Legacy Pear have been or are to be a participant;
•the amounts involved exceeded or exceeds $120,000; and
•any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.
Certain Relationships and Related Person Transactions of Pear (formerly THMA)
SoftBank Agreement
Effective March 15, 2022, we entered into a development agreement with SoftBank Corp., an entity under common control with SVF II Cobbler (DE) LLC (a greater than 5% shareholder of Pear), to develop a Japanese-language digital therapeutic for the treatment of sleep/wake disorders for the Japanese market.
Founder Shares and Private Placement Warrants
On December 7, 2020, the Sponsor purchased 5,750,000 shares of Class B common stock, par value $0.0001 per share, of THMA (“THMA Class B Common Shares”) (“Founder Shares”) for an aggregate purchase price of $25,000, or approximately $0.004 per share. In January 2021, the Sponsor transferred 50,000 Founder Shares to each of Michael J. Christenson, Meghan M. FitzGerald, and Henry S. Miller, THMA’s independent directors, and an aggregate of 150,000 Founder Shares to THMA’s Advisors, in each case, at approximately the same share price initially paid by the Sponsor. On February 2, 2021, THMA effected a 1.2-to-1 forward stock split with respect to its Founder Shares, resulting in the Sponsor holding 6,900,000 Founder Shares, each THMA independent director holding 60,000 Founder Shares and THMA’s Advisors holding an aggregate of 180,000 Founder Shares. Simultaneously with the consummation of its initial public offering on February 4, 2021, THMA consummated the private placement of an aggregate of 5,013,333 Private Placement Warrants to the Sponsor at a price of $1.50 per Private Placement Warrant, generating total proceeds of $7,520,000.
Subscription Agreements
In connection with the execution of the Business Combination Agreement, on June 21, 2021, THMA entered into separate PIPE Subscription Agreements whereby the Pipe Investors agreed to purchase and THMA agreed to sell, an aggregate of 9,780,000 PIPE Shares, for a purchase price of $10.00 per share and an aggregate purchase price of $97.8 million. Pursuant to the PIPE Subscription Agreements, Pear gave certain registration rights to the PIPE Investors with respect to the PIPE Shares. The sale of the PIPE Shares was consummated concurrently with the closing of the Business Combination.
Palantir Agreement
On June 17, 2021 and as later amended on August 3, 2021, Legacy Pear entered into a non-cancelable purchase obligation for a subscription to the Palantir Foundry cloud platform, including support services, updates and related professional services with Palantir Technologies Inc. (“Palantir”), a PIPE Investor, for $9.3 million payable over three years, continuing through September 30, 2024. Palantir committed to purchasing $10.0 million of shares of Class A common stock pursuant to a PIPE Subscription Agreement, substantially concurrent with the closing of the Business Combination.
Sponsor Support Agreement
In connection with the execution of the Business Combination Agreement, the Sponsor and THMA’s directors, advisors and officers (collectively, the “Sponsor Agreement Parties”) entered into the Sponsor Support Agreement with THMA and Pear US, pursuant to which each Sponsor Support Agreement Party agreed to, among other things, (i) vote at any meeting of the stockholders of THMA all of its THMA Class A Common Shares and THMA Class B Common Shares in favor of the transactions and the adoption of the Business Combination Agreement; (ii) appoint THMA as each Sponsor Agreement Party’s proxy in the event such Sponsor Agreement Party fails to fulfill its obligations under the Sponsor Agreement; (iii) be bound by certain other covenants and agreements related to the Merger; (iv) subject certain of the Sponsor’s THMA Class B Shares (the “Earn-Out Shares”) and Sponsor’s Private Placement Warrants (the “Earn-Out Warrants”) to post-closing vesting conditions and (v) be bound by certain transfer restrictions with respect to THMA Common Shares during the period between the date of the Sponsor Support Agreement and the Closing, subject to certain exceptions set forth in the Sponsor Agreement. The Sponsor Agreement also provided that the Sponsor Agreement Parties agreed to waive their redemption rights in connection with the consummation of the Business Combination with respect to any THMA Common Shares held by them.
Pursuant to the Sponsor Agreement, the Sponsor also agreed, subject to certain exceptions, not to transfer 1,269,600 Founder Shares held by it and to have 922,453 Private Placement Warrants held in trust, in each case, until such securities become released upon the achievement of certain performance-based milestones under the Sponsor Agreement. The Founder Shares held by the Sponsor’s directors and Advisors were not subject to vesting or forfeiture.
On November 14, 2021, the parties entered into an amendment to the Sponsor Support Agreement pursuant to which, among other things, the Sponsor Earn-Out Shares and Earn-Out Warrants shall no longer be subject to vesting conditions, in each case as consideration for the Sponsor agreeing to enter into the Backstop (as defined below).
Forward Purchase Agreement
In connection with the consummation of its initial public offering, THMA entered into the Forward Purchase Agreement with the KLP SPAC 1 LLC (the “Anchor Investor”), that provided for the purchase, in the aggregate, of 5,000,000 Original Forward Purchase Units, consisting of one Forward Purchase Share and one-third of one Forward Purchase Warrant, at a purchase price of $10.00 per unit, or an aggregate purchase price of $50,000,000, in a private placement concurrently with the closing of THMA’s initial business combination.
In connection with the execution of the Business Combination Agreement, the Anchor Investor entered into the Amendment to Forward Purchase Agreement with THMA, pursuant to which, effective as of immediately prior to the Closing, the Forward Purchase Agreement was amended to (i) eliminate the sale of warrants to purchase THMA
Class A Common Shares and (ii) instead provide exclusively for the sale of such number of THMA Class A Common Shares equal to the sum of (x) 2,300,000 and (y) such additional THMA Class A Common Shares as the Anchor Investor elected to purchase up to the lesser of (A) the number of Public Shares redeemed by THMA’s Public Stockholders and (B) 2,700,000, in each case, for a purchase price of $10.00 per THMA Class A Common Share.
On November 14, 2021, THMA entered into an amendment to the Amended Forward Purchase Agreement, pursuant to which, among other things, the Anchor Investor increased its binding forward purchase commitment (the “Backstop”), subject to cutback, from $23.0 million to up to $73.0 million and removed any optional element to the Backstop. The Backstop was subject to certain reductions if gross transaction proceeds exceeded each of $175.0 million and $250.0 million, respectively. The Anchor Investor was permitted to offer PIPE Investors the opportunity to participate in the Backstop in an amount up to $23.0 million, subject to cutback if proceeds exceeded $175.0 million. As consideration for committing to fund the Backstop, THMA and Legacy Pear agreed to release the Sponsor Earn-Out Shares and Earn-Out Warrants from certain earn-out conditions in connection with the Business Combination, with a certain number of such securities being transferred to each Subscriber that participated in the Backstop.
On December 2, 2021, THMA entered into the Forward Purchase Agreement Assignment pursuant to which, among other things, the Anchor Investor assigned its right to purchase 500,000 THMA Class A Common Shares to a PIPE Investor.
An entity affiliated with the Pritzker Vlock Family Office holds an indirect economic interest in each of the Sponsor and the Anchor Investor. Elon Boms, who was the Chief Executive Officer and director of THMA until the closing of the Business Combination, is a Managing Director of the Pritzker Vlock Family Office and a manager of the Anchor Investor. Steve Benson, who was THMA’s Chief Operating Officer and director until the closing of the Business Combination, is a Venture Partner with the Pritzker Vlock Family Office. Joseph Iannotta, who was THMA’s Chief Financial Officer until the closing of the Business Combination, is the Controller of the Pritzker Vlock Family Office. Messrs Boms, Benson, and Iannotta led and assisted in, respectively, the evaluation of THMA’s business combination targets, including Legacy Pear, and the negotiation of THMA’s Business Combination with Legacy Pear.
Administrative Support
Prior to the closing of the Business Combination, THMA utilized office space at 195 Church Street, 15th Floor, New Haven, Connecticut 06510 from the Sponsor. On February 2, 2021, THMA began paying to the Sponsor $10,000 per month for office space, secretarial, and administrative services provided to members of their management team. Upon completion of the Business Combination, THMA ceased paying these monthly fees. For the year ended December 31, 2021, THMA incurred and paid $100,000 of such fees.
Related Party Loans and Advances
On December 7, 2020, THMA issued an unsecured promissory note to the Sponsor, pursuant to which THMA was permitted to borrow up to an aggregate principal amount of $300,000. Such promissory note was non-interest bearing and payable on the earlier of December 31, 2021 and the completion of the Initial Public Offering. The outstanding balance under such promissory note of $136,833 was repaid at the closing of THMA’s initial public offering on February 4, 2021.
On June 21, 2021, THMA issued an unsecured promissory Note (the “2021 Note”) in the principal amount of $1,000,000 to the Sponsor in exchange for up to $1 million in working capital loans. The 2021 Note was non-interest bearing and payable upon the consummation of the Business Combination. Upon completion of the Business Combination, THMA repaid such loaned amounts out of the proceeds of the Trust Account released to THMA.
Registration Rights Agreement
THMA entered into a registration rights agreement with the Sponsor, the Anchor Investor and THMA’s directors, Advisors and officers with respect to the Private Placement Warrants, the THMA Class A Common Shares issued to
the Anchor Investor pursuant to the Forward Purchase Agreement and the THMA Class A Common Shares issued upon exercise of the foregoing and upon conversion of the Founder Shares.
In connection with the consummation of the Business Combination, we entered into the Amended and Restated Registration Rights Agreement with certain Pear stockholders, pursuant to which we agreed to register for resale, pursuant to Rule 415 under the Securities Act, the Class A Common Shares and other equity securities of Pear that are held by the parties thereto from time to time.
The Amended and Restated Registration Rights Agreement grants the Anchor Investor, the Sponsor, and certain of our stockholders the right to require, subject to certain conditions and limitations, that we register for resale, securities held by such stockholders and certain “piggyback” registration rights with respect to registrations initiated by us. Pursuant to the PIPE Subscription Agreements, the PIPE Investors were also granted registration rights which required us to file a registration statement registering the resale of the PIPE Shares. The registration of Class A Common Shares pursuant to the exercise of the registration rights provided under the Registration Rights Agreement and the PIPE Subscription Agreements enable the applicable Pear stockholders to resell such shares without restriction under the Securities Act. We bear the expenses incurred in connection with the filing of any registration statements pursuant to the Registration Rights Agreement and the PIPE Subscription Agreements and indemnify the stockholders against certain liabilities.
Certain Relationships and Related Person Transactions of Legacy Pear
Legacy Pear Series D-1 and D-2 Preferred Stock Financing
From December 7, 2020 through February 25, 2021, Legacy Pear sold an aggregate of 15,293,315 Legacy Pear Series D-1 Preferred Shares at a purchase price of approximately $6.5388 per share, for an aggregate purchase price of $99,999,928.30 (the “Legacy Pear Series D-1 Preferred Stock Financing”). The participants in the Legacy Pear Series D-1 Preferred Stock Financing included persons affiliated with members of Legacy Pear’s board of directors and persons that held more than 5% of Legacy Pear’s outstanding capital stock. The following table summarizes purchases of Legacy Pear Series D-1 Preferred Shares from Legacy Pear by such related persons:
| | | | | | | | | | | | | | |
Name | | Legacy Pear Series D-1 Preferred Shares | | Total Purchase Price |
SVF II AIV (DE) LLC(1) | | 3,823,331 | | | $ | 24,999,996.70 | |
TLS Beta Pte. Ltd.(2) | | 3,823,331 | | | $ | 24,999,996.70 | |
5AM Opportunities I, L.P.(3) | | 764,666 | | | $ | 4,999,998.00 | |
Arboretum Ventures IV, L.P.(4) | | 49,703 | | | $ | 324,997.90 | |
JAZZ Human Performance Technology Fund, L.P.(5) | | 152,933 | | | $ | 999,998.30 | |
JAZZ Human Performance Opportunity Fund, L.P.(5) | | 458,799 | | | $ | 2,999,994.90 | |
__________________
(1)Elena Viboch is a former member of the board of directors of Legacy Pear and an affiliate of SVF II AIV (DE) LLC (“Softbank”). Softbank currently holds more than 5% of Pear’s outstanding capital stock. Ms. Viboch does not serve on the Pear Board.
(2)TLS Beta Pte. Ltd. (“Temasek”) currently holds more than 5% of Pear’s outstanding capital stock.
(3)Andrew Schwab is a former member of the board of directors of Legacy Pear and an affiliate of 5AM Opportunities I, L.P. (“5AM Opportunities”). 5AM Opportunities and its affiliated entities, 5AM Ventures IV, L.P. (“5AM Ventures”) and 5AM Co-Investors IV, L.P. (“5AM Co-Investors”), currently hold more than 5% of Pear’s outstanding capital stock. Mr. Schwab is also an affiliate of each of 5AM Ventures and 5AM Co-Investors. Mr. Schwab is currently a member of the Pear Board.
(4)Timothy Petersen is a former member of the board of directors of Legacy Pear and an affiliate of Arboretum Ventures IV, L.P. (“Arboretum”). Arboretum currently holds more than 5% of Pear’s outstanding capital stock. Mr. Petersen does not serve on the Pear Board.
(5)Zack Lynch is a former member of the board of directors of Legacy Pear and an affiliate of JAZZ Human Performance Technology Fund, L.P. and JAZZ Human Performance Opportunity Fund, L.P. (collectively, “JAZZ”). JAZZ currently holds more than 5% of Pear’s outstanding capital stock. Mr. Lynch is currently a member of the Pear Board.
On December 8, 2020, Legacy Pear sold an aggregate of 8,109,888 Legacy Pear Series D-2 Preferred Shares at a purchase price of approximately $3.9458 per share, for an aggregate purchase price of $31,999,996.08 (the “Legacy Pear Series D-2 Preferred Stock Financing”). The participants in the Legacy Pear Series D-2 Preferred Stock Financing included persons affiliated with members of Legacy Pear’s board of directors and persons that held more
than 5% of Legacy Pear’s outstanding capital stock. The following table summarizes purchases of Legacy Pear Series D-2 Preferred Shares from Legacy Pear by such related persons:
| | | | | | | | | | | | | | |
Name | | Legacy Pear Series D-2 Preferred Shares | | Total Purchase Price |
SVF II AIV (DE) LLC(1) | | 4,054,944 | | | $ | 15,999,998,040.00 | |
TLS Beta Pte. Ltd.(2) | | 4,054,944 | | | $ | 15,999,998,040.00 | |
__________________(1)Elena Viboch is a former member of the board of directors of Legacy Pear and an affiliate of Softbank. Softbank currently holds more than 5% of Pear’s outstanding capital stock. Ms. Viboch does not serve on the Pear Board.
(2)Temasek currently holds more than 5% of Pear’s outstanding Class A common stock.
In connection with the Legacy Pear Series D-1 Preferred Stock Financing and the Legacy Pear Series D-2 Preferred Stock Financing, Legacy Pear repurchased (i) 2,788,732 Legacy Pear Common Shares from Corey McCann, Pear’s Chief Executive Officer, for $10,996,806.90, (ii) 480,000 Legacy Pear Common Shares and 1,920,000 Legacy Pear Series A Preferred Shares from 5AM Ventures for $9,463,920, (iii) 20,000 Legacy Pear Common Shares and 80,000 Legacy Pear Series A Preferred Shares from 5AM Co-Investors for $394,330 and (iv) 1,000,000 Legacy Pear Series A Preferred Shares from Arboretum for $3,943,300, each pursuant to a tender offer by Legacy Pear that closed on December 9, 2020.
Pear Stockholder Support Agreements
In connection with the execution of the Business Combination Agreement, certain equityholders of Legacy Pear representing the requisite votes necessary to approve the Merger (such stockholders, the “Pear Supporting Equityholders”) entered into stockholder support agreements with THMA and Legacy Pear (the “Stockholder Supporting Agreements”), pursuant to which each Supporting Pear Equityholder agreed to, among other things, (a) vote all of its Legacy Pear Common Shares and Legacy Pear Preferred Shares (or any securities convertible into or exercisable or exchangeable for Legacy Pear Common Shares and Legacy Pear Preferred Shares) in favor of the approval and adoption of the Business Combination Agreement, the Ancillary Agreements to which Legacy Pear was party and the transactions contemplated thereby (including the Merger) and (b) be bound by certain other covenants and agreements related to the Merger.
Investors’ Rights Agreement
Legacy Pear was party to a Third Amended and Restated Investors’ Rights Agreement, dated as of November 3, 2020 (the “IRA”), as amended by that certain Omnibus Amendment dated as of February 23, 2021, which granted registration rights and information rights, among other things, to certain holders of Legacy Pear’s capital stock, including entities affiliated with Temasek, Softbank, Arboretum, JAZZ, 5AM Ventures, 5AM Co-Investors and 5AM Opportunities. The IRA terminated upon the closing of the Business Combination.
Right of First Refusal and Co-Sale Agreement
Pursuant to certain agreements with its stockholders, including the Third Amended and Restated Right of First Refusal and Co-Sale Agreement, dated as of November 3, 2020 (the “ROFR Agreement”), as amended by that certain Omnibus Amendment dated as of February 23, 2021, Legacy Pear had the right to purchase shares of Legacy Pear’s capital stock that certain of its stockholders proposed to sell to other parties. Certain holders of Legacy Pear’s capital stock that were party to the ROFR Agreement, included Temasek, Softbank, Arboretum, JAZZ, 5AM Ventures, 5AM Co-Investors and 5AM Opportunities. The ROFR Agreement terminated upon the closing of the Business Combination.
Voting Agreement
Legacy Pear was party to the Third Amended and Restated Voting Agreement, dated as of November 3, 2020 (the “Voting Agreement”), as amended by that certain Omnibus Amendment dated as of February 23, 2021, pursuant to which certain holders of Legacy Pear’s capital stock, including Temasek, Softbank, Arboretum, JAZZ, 5AM Ventures, 5AM Co-Investors and 5AM Opportunities, agreed to vote their shares of Legacy Pear’s capital stock in
favor of certain matters, including with respect to the election of directors. The Voting Agreement terminated upon the closing of the Business Combination.
Director and Officer Indemnification
Legacy Pear’s certificate of incorporation and bylaws provided for indemnification and advancement of expenses for its directors and officers to the fullest extent permitted by the DGCL, subject to certain limited exceptions. Legacy Pear also entered into indemnification agreements with each of its directors. Following the Business Combination, Pear entered into new indemnification agreements with each of the directors and officers of Pear. The indemnification agreements entered into by Pear Board members Messrs. Schwab and Lynch also provided certain indemnification rights to the entities with which they are affiliated.
Director Independence
Our Board has determined that none of the members of our Board other than Dr. McCann has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of the members of our Board other than Mr. McCann is “independent” as that term is defined under the rules of Nasdaq. Our Board has also determined that all members of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are independent and satisfy the relevant SEC and Nasdaq independence requirements for such committees. The transactions, relationships or arrangements described above were considered by the Board in determining director independence.
DESCRIPTION OF SECURITIES
The following description summarizes certain important terms of our capital stock as of the date of this prospectus as specified in our Second Amended and Restated Certificate of Incorporation and Bylaws. Because the following description is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in this section titled “Description of Securities,” you should refer to the Second Amended and Restated Certificate of Incorporation, the Bylaws, the Warrant Agreement, and the Registration Rights Agreement, which are included as exhibits to the registration statement of which this prospectus is a part, and to the applicable provisions of Delaware law.
Authorized and Outstanding Capital Stock
Our authorized capital stock consists of 690,000,000 Class A common stock, par value $0.0001 per share and 10,000,000 shares of preferred stock, par value $0.0001 per share (the “Preferred Shares”). As of December 31, 2021, there were 137,836,014 Pear Class A Common Shares issued and outstanding and 14,213,277 Warrants to purchase Pear Class A Common Shares outstanding.
Pear Class A Common Shares
Voting Rights
Holders of Pear Class A Common Shares shall exclusively possess all voting power with respect to the Company. Holders of Pear Class A Common Shares are entitled to one (1) vote for each Pear Class A Common Share held of record by such holder on all matters properly submitted to a vote of the stockholders of Pear.
Except as otherwise required by law or by our Certificate of Incorporation, at any annual meeting or special meeting of our stockholders, holders of Pear Class A Common Shares has the exclusive right to vote for the election of directors and on all matters properly submitted to a vote of the stockholders.
Dividends
Subject to the rights, if any, of holders of any outstanding series of Preferred Shares, the holders of Pear Class A Common Shares shall be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the Company) when, as and if declared thereon by the Board, or any authorized committee thereof, from time to time out of any assets or funds of the Company legally available therefor and shall share equally on a per share basis in such dividends and distributions.
Liquidation, Dissolution or Winding up
Subject to the rights, if any, of holders of any outstanding series of Preferred Shares, in the event of our voluntary or involuntary liquidation, dissolution or winding up, after payment or provision for payment of our debts and other liabilities, holders of Pear Class A Common Shares will be entitled to receive all our remaining assets available for distribution to our stockholders, ratably in proportion to the number of Pear Class A Common Shares held by them.
Transfer Restrictions
Subject to customary exceptions, the Sponsor, parties to the Registration Rights Agreement, certain holders of PIPE Shares and certain other holders of Pear Class A Common Shares are subject to lock-up provisions in which they agreed not to sell or otherwise dispose of any Pear Class A Common Shares or any other equity securities of Pear convertible into or exercisable or exchangeable for Pear Class A Common Shares held by any of them for a period of 180 days after the Closing Date.
Registration Rights
The Anchor Investor, the Sponsor, and certain of our stockholders are parties to the Registration Rights Agreement, which grants them the right to require, subject to certain conditions and limitations, that we register for resale, securities held by such stockholders and certain “piggyback” registration rights with respect to registrations initiated
by us. Pursuant to the PIPE Subscription Agreements, the PIPE Investors were also granted registration rights which required us to file a registration statement registering the resale of the PIPE Shares. The registration of Pear Class A Common Shares pursuant to the exercise of the registration rights provided under the Registration Rights Agreement and the PIPE Subscription Agreements would enable the applicable Pear stockholders to resell such shares without restriction under the Securities Act when the applicable registration statement is declared effective. We will bear the expenses incurred in connection with the filing of any registration statements pursuant to the Registration Rights Agreement and the PIPE Subscription Agreements and indemnify the stockholders against certain liabilities.
Classified Board of Directors
Our Certificate of Incorporation provides that our Board is divided into three classes of directors, with the classes to be as nearly equal in number as possible, and with each director serving a three-year term. As a result, approximately one-third of the Board will be elected each year.
Stockholder Action by Written Consent
Our Certificate of Incorporation provides that any action required or permitted to be taken by stockholders of Pear Class A Common Shares must be effected by a duly called annual or special meeting of such stockholders and may not be effected by written consent of the stockholders in lieu thereof.
Special Meetings of Stockholders
Subject to the rights, if any, of holders of any outstanding series of Preferred Stock, and to the requirements of applicable law, special meetings of Pear’s stockholders may be called only by the Board pursuant to a resolution adopted by a majority of the Board. The holders of Pear Class A Common Shares are prohibited from calling a special meeting. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of our stockholders.
Amendment of Certificate of Incorporation or Bylaws
Our Bylaws may be amended or repealed by the affirmative vote of a majority of the Board or by the affirmative vote of the holders of not less than two thirds (2/3) of the voting power of all then-outstanding shares entitled to vote generally in the election of directors, voting together as a single class. The affirmative vote of the holders of not less than two thirds (2/3) of the voting power of all then-outstanding shares of our capital stock entitled to vote thereon and the affirmative vote of holders of not less than two thirds (2/3) of the voting power of all then outstanding shares of each class entitled to vote thereon as a class would be required to amend certain provisions of the Certificate of Incorporation.
Forum Selection
Our Certificate of Incorporation provides that unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by the applicable law, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any internal or intra-corporate claim or any action asserting a claim governed by the internal affairs doctrine as defined by the laws of the State of Delaware, (including, but not limited to): (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or stockholder of the Company to the Company or the Company’s stockholders or (iii) any action asserting a claim against the Company, its directors, officers or employees arising pursuant to any provision of the DGCL or our certificate of incorporation or the bylaws (in each case, as they may be amended from time to time), or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, shall be a state court located within the State of Delaware (or, if no court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware).
Our Certificate of Incorporation provides that unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for any action asserting a cause of action arising under the Securities Act of 1933 or any rule or regulation promulgated thereunder (in each case, as amended) shall be the federal district court for the District of Delaware (or, if such court does not have jurisdiction over such action,
any other federal district court of the United States); provided, however, that if the foregoing provisions are, or the application of such provisions to any person or entity or any circumstance is, illegal, invalid or unenforceable, the sole and exclusive forum for any action asserting a cause of action arising under the Securities Act of 1933 or any rule or regulation promulgated thereunder (in each case, as amended) shall be the Court of Chancery of the State of Delaware.
Limitations on Liability and Indemnification of Officers and Directors
Our Certificate of Incorporation and Bylaws provide indemnification and advancement of expenses for our directors and officers to the fullest extent permitted by the DGCL, subject to certain limited exceptions. We have entered into indemnification agreements with each of our directors and officers. In some cases, the provisions of those indemnification agreements may be broader than the specific indemnification provisions contained under Delaware law. In addition, as permitted by Delaware law, our Certificate of Incorporation and Bylaws include provisions that eliminate the personal liability of directors for monetary damages resulting from breaches of certain fiduciary duties as a director.
Preferred Shares
Our Certificate of Incorporation authorizes 10,000,000 Preferred Shares. The Board is expressly authorized to provide out of the unissued Preferred Shares for one or more series of Preferred Shares and to establish from time to time the number of shares to be included in each such series and to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional, special and other rights, if any, of each such series and any qualifications, limitations and restrictions thereof, as shall be stated in the resolution or resolutions adopted by the Board providing for the issuance of such series and included in a preferred stock designation filed pursuant to the DGCL, and the Board is expressly vested with the authority to the full extent provided by law, to adopt any such resolution or resolutions. We have no Preferred Shares outstanding at the date hereof. Although we do not currently intend to issue any Preferred Shares, we cannot assure you that we will not do so in the future. No Preferred Shares are being issued or registered in this offering.
Warrants
Each whole warrant entitles the registered holder to purchase one Pear Class A Common Share at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing on the later of 12 months from the closing of the Initial Public Offering and 30 days after the completion of the Business Combination. Pursuant to the Warrant Agreement, a warrant holder may exercise its Warrants only for a whole number of Pear Class A Common Shares. This means only a whole Warrant may be exercised at a given time by a Warrant holder. The Warrants will expire five years after the completion of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We will not be obligated to deliver any Pear Class A Common Shares pursuant to the exercise of a Warrant and will have no obligation to settle such Warrant exercise unless a registration statement under the Securities Act covering the issuance of the Pear Class A Common Shares issuable upon exercise of the Warrants is then effective and a current prospectus relating to those Pear Class A Common Shares is available, subject to our satisfying our obligations described below with respect to registration. No Warrant will be exercisable for
cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their Warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a Warrant, the holder of such Warrant will not be entitled to exercise such Warrant and such Warrant may have no value and expire worthless.
We have agreed that as soon as practicable, but in no event later than 15 business days after the closing of the Business Combination, we will use our reasonable best efforts to file with the SEC, and within 60 business days following the closing of the Business Combination to have declared effective, a registration statement covering the issuance of the Pear Class A Common Shares issuable upon exercise of the Warrants and to maintain a current prospectus relating to those Pear Class A Common Shares until the Warrants expire or are redeemed.
Notwithstanding the above, if Pear Class A Common Shares are at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of Public Warrants who exercise their Public Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but will use our reasonable best efforts to qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of Warrants
Redemption of Warrants when the price per share of Pear Class A Common Shares equals or exceeds $18.00
Once the Warrants become exercisable, we may call the Warrants for redemption:
•in whole and not in part;
•at a price of $0.01 per Warrant;
•upon a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption period, to each Warrant holder; and
•if, and only if, the closing price of Pear Class A Common Shares equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the Warrant holders.
If and when the Warrants become redeemable by us pursuant to the foregoing redemption method, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
We have established the last of the redemption criteria discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the Warrants, each Warrant holder will be entitled to exercise his, her or its Warrant prior to the scheduled redemption date. However, the price of the Pear Class A Common Shares may fall below the $18.00 redemption trigger price as well as the $11.50 warrant exercise price after the redemption notice is issued.
Redemption of Warrants when the price per Pear Class A Common Share equals or exceeds $10.00
Once the Warrants become exercisable, we may redeem the outstanding Warrants (except as described herein with respect to the Private Placement Warrants):
•in whole and not in part;
•at $0.10 per Warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the table below, based on the redemption date and the “fair market value” of Pear Class A Common Shares (as defined below) except as otherwise described below; and
•if, and only if, the closing price of Pear Class A Common Shares equals or exceeds $10.00 per public share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a Warrant as described under the heading “—Warrants—Anti-Dilution Adjustments”) on the trading day prior to the date on which we send the notice of redemption to the Warrant holders;
•if, and only if, the closing price of Pear Class A Common Shares (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the warrant holders (the “Reference Value”) is less than $18.00 per share (as adjusted for share splits, share
dividends, reorganizations, recapitalizations and the like), then the Private Placement Warrants must also concurrently be called for redemption on the same terms (except as described herein with respect to a holder’s ability to cashless exercise its Warrants) as the outstanding Public Warrants.
Beginning on the date the notice of redemption is given until the Warrants are redeemed or exercised, holders may elect to exercise their Warrants on a cashless basis. The numbers in the table below represent the number of Pear Class A Common Shares that a Warrant holder will receive upon such cashless exercise in connection with a redemption by us pursuant to this redemption feature, based on the “fair market value” of Pear Class A Common Shares on the corresponding redemption date (assuming holders elect to exercise their Warrants and such Warrants are not redeemed for $0.10 per Warrant), determined for these purposes based on volume weighted average price of Pear Class A Common Shares for the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of Warrants, and the number of months that the corresponding redemption date precedes the expiration date of the Warrants, each as set forth in the table below. We will provide our Warrant holders with the final fair market value no later than one business day immediately following the 10 trading day period described above ends.
The share prices set forth in the column headings of the table below will be adjusted as of any date on which the number of shares issuable upon exercise of a Warrant or the exercise price of a Warrant is adjusted as set forth under the heading “—Anti-dilution Adjustments” below. If the number of shares issuable upon exercise of a Warrant is adjusted, the adjusted share prices in the column headings will equal the share prices immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the exercise price of the warrant after such adjustment and the denominator of which is the price of the Warrant immediately prior to such adjustment. In such an event, the number of shares in the table below shall be adjusted by multiplying such share amounts by a fraction, the numerator of which is the number of shares deliverable upon exercise of a Warrant immediately prior to such adjustment and the denominator of which is the number of shares deliverable upon exercise of a warrant as so adjusted. If the exercise price of a Warrant is adjusted, (a) in the case of an adjustment pursuant to the fifth paragraph under the heading “—Anti-dilution Adjustments” below, the adjusted share prices in the column headings will equal the unadjusted share price multiplied by a fraction, the numerator of which is the higher of the Market Value and the Newly Issued Price as set forth under the heading “—Anti-dilution Adjustments” and the denominator of which is $10.00 and (b) in the case of an adjustment pursuant to the second paragraph under the heading “—Anti-dilution Adjustments” below, the adjusted share prices in the column headings will equal the unadjusted share price less the decrease in the exercise price of a warrant pursuant to such exercise price adjustment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Redemption Date (period to expiration of warrants) | | Fair Market Value of Pear Class A Common Shares |
| ≤10.00 | | 11.00 | | 12.00 | | 13.00 | | 14.00 | | 15.00 | | 16.00 | | 17.00 | | ≥18.00 |
60 months | | 0.261 | | | 0.281 | | | 0.297 | | | 0.311 | | | 0.324 | | | 0.337 | | | 0.348 | | | 0.358 | | | 0.361 | |
57 months | | 0.257 | | | 0.277 | | | 0.294 | | | 0.310 | | | 0.324 | | | 0.337 | | | 0.348 | | | 0.358 | | | 0.361 | |
54 months | | 0.252 | | | 0.272 | | | 0.291 | | | 0.307 | | | 0.322 | | | 0.335 | | | 0.347 | | | 0.357 | | | 0.361 | |
51 months | | 0.246 | | | 0.268 | | | 0.287 | | | 0.304 | | | 0.320 | | | 0.333 | | | 0.346 | | | 0.357 | | | 0.361 | |
48 months | | 0.241 | | | 0.263 | | | 0.283 | | | 0.301 | | | 0.317 | | | 0.332 | | | 0.344 | | | 0.356 | | | 0.361 | |
45 months | | 0.235 | | | 0.258 | | | 0.279 | | | 0.298 | | | 0.315 | | | 0.330 | | | 0.343 | | | 0.356 | | | 0.361 | |
42 months | | 0.228 | | | 0.252 | | | 0.274 | | | 0.294 | | | 0.312 | | | 0.328 | | | 0.342 | | | 0.355 | | | 0.361 | |
39 months | | 0.221 | | | 0.246 | | | 0.269 | | | 0.290 | | | 0.309 | | | 0.325 | | | 0.340 | | | 0.354 | | | 0.361 | |
36 months | | 0.213 | | | 0.239 | | | 0.263 | | | 0.285 | | | 0.305 | | | 0.323 | | | 0.339 | | | 0.353 | | | 0.361 | |
33 months | | 0.205 | | | 0.232 | | | 0.257 | | | 0.280 | | | 0.301 | | | 0.320 | | | 0.337 | | | 0.352 | | | 0.361 | |
30 months | | 0.196 | | | 0.224 | | | 0.250 | | | 0.274 | | | 0.297 | | | 0.316 | | | 0.335 | | | 0.351 | | | 0.361 | |
27 months | | 0.185 | | | 0.214 | | | 0.242 | | | 0.268 | | | 0.291 | | | 0.313 | | | 0.332 | | | 0.350 | | | 0.361 | |
24 months | | 0.173 | | | 0.204 | | | 0.233 | | | 0.260 | | | 0.285 | | | 0.308 | | | 0.329 | | | 0.348 | | | 0.361 | |
21 months | | 0.161 | | | 0.193 | | | 0.223 | | | 0.252 | | | 0.279 | | | 0.304 | | | 0.326 | | | 0.347 | | | 0.361 | |
18 months | | 0.146 | | | 0.179 | | | 0.211 | | | 0.242 | | | 0.271 | | | 0.298 | | | 0.322 | | | 0.345 | | | 0.361 | |
15 months | | 0.130 | | | 0.164 | | | 0.197 | | | 0.230 | | | 0.262 | | | 0.291 | | | 0.317 | | | 0.342 | | | 0.361 | |
12 months | | 0.111 | | | 0.146 | | | 0.181 | | | 0.216 | | | 0.250 | | | 0.282 | | | 0.312 | | | 0.339 | | | 0.361 | |
9 months | | 0.090 | | | 0.125 | | | 0.162 | | | 0.199 | | | 0.237 | | | 0.272 | | | 0.305 | | | 0.336 | | | 0.361 | |
6 months | | 0.065 | | | 0.099 | | | 0.137 | | | 0.178 | | | 0.219 | | | 0.259 | | | 0.296 | | | 0.331 | | | 0.361 | |
3 months | | 0.034 | | | 0.065 | | | 0.104 | | | 0.150 | | | 0.197 | | | 0.243 | | | 0.286 | | | 0.326 | | | 0.361 | |
0 months | | — | | | — | | | 0.042 | | | 0.115 | | | 0.179 | | | 0.233 | | | 0.281 | | | 0.323 | | | 0.361 | |
The exact fair market value and redemption date may not be set forth in the table above, in which case, if the fair market value is between two values in the table or the redemption date is between two redemption dates in the table, the number of Pear Class A Common Shares to be issued for each Warrant exercised will be determined by a straight-line interpolation between the number of shares set forth for the higher and lower fair market values and the earlier and later redemption dates, as applicable, based on a 365 or 366-day year, as applicable. For example, if the volume weighted average price of Pear Class A Common Shares for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of the Warrants is $11.00 per share, and at such time there are 57 months until the expiration of the Warrants, holders may choose to, in connection with this redemption feature, exercise their Warrants for 0.277 shares of Pear Class A Common Shares for each whole Warrant. For an example where the exact fair market value and redemption date are not as set forth in the table above, if the volume weighted average price of Pear Class A Common Shares for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of the Warrants is $13.50 per share, and at such time there are 38 months until the expiration of the Warrants, holders may choose to, in connection with this redemption feature, exercise their Warrants for 0.298 shares of Pear Class A Common Shares for each whole Warrant. In no event will the Warrants be exercisable on a cashless basis in connection with this redemption feature for more than 0.361 shares of Pear Class A Common Shares per warrant (subject to adjustment). Finally, as reflected in the table above, if the Warrants are out of the money and about to expire, they cannot be exercised on a cashless basis in connection with a redemption by us pursuant to this redemption feature, since they will not be exercisable for any Pear Class A Common Shares.
This redemption feature differs from the typical warrant redemption features used in some other blank check offerings, which typically only provide for a redemption of warrants for cash (other than the Private Placement Warrants) when the trading price for the Pear Class A Common Shares exceeds $18.00 per share for a specified period of time. This redemption feature is structured to allow for all of the outstanding Warrants to be redeemed when the Pear Class A Common Shares are trading at or above $10.00 per public share, which may be at a time when the trading price of Pear Class A Common Shares is below the exercise price of the Warrants. We have
established this redemption feature to provide us with the flexibility to redeem the Warrants without the Warrants having to reach the $18.00 per share threshold set forth above under “—Redemption of Warrants when the price per Pear Class A Common Share equals or exceeds $18.00.” Holders choosing to exercise their Warrants in connection with a redemption pursuant to this feature will, in effect, receive a number of shares for their Warrants based on an option pricing model with a fixed volatility input as of the of this prospectus. This redemption right provides us with an additional mechanism by which to redeem all of the outstanding Warrants, and therefore have certainty as to our capital structure as the Warrants would no longer be outstanding and would have been exercised or redeemed. We will be required to pay the applicable redemption price to Warrant holders if we choose to exercise this redemption right and it will allow us to quickly proceed with a redemption of the Warrants if we determine it is in our best interest to do so. As such, we would redeem the Warrants in this manner when we believe it is in our best interest to update our capital structure to remove the Warrants and pay the redemption price to the Warrant holders.
As stated above, we can redeem the Warrants when the Pear Class A Common Shares are trading at a price starting at $10.00, which is below the exercise price of $11.50, because it will provide certainty with respect to our capital structure and cash position while providing Warrant holders with the opportunity to exercise their Warrants on a cashless basis for the applicable number of shares. If we choose to redeem the Warrants when the Pear Class A Common Shares are trading at a price below the exercise price of the Warrants, this could result in the Warrant holders receiving fewer Pear Class A Common Shares than they would have received if they had chosen to wait to exercise their Warrants for Pear Class A Common Shares if and when such Pear Class A Common Shares was trading at a price higher than the exercise price of $11.50.
No fractional Pear Class A Common Shares will be issued upon exercise. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, we will round down to the nearest whole number of the number of Pear Class A Common Shares to be issued to the holder. If, at the time of redemption, the Warrants are exercisable for a security other than the Pear Class A Common Shares pursuant to the Warrant Agreement, the Warrants may be exercised for such security. At such time as the Warrants become exercisable for a security other than the Pear Class A Common Shares, the Company will use its commercially reasonable efforts to register under the Securities Act the security issuable upon the exercise of the Warrants.
Redemption Procedures
A holder of a Warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such Warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 9.8% (or such other amount as a holder may specify) of the Pear Class A Common Shares outstanding immediately after giving effect to such exercise.
Anti-Dilution Adjustments
If the number of outstanding Pear Class A Common Shares is increased by a stock dividend payable in Pear Class A Common Shares, or by a split-up of Pear Class A Common Shares or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number Pear Class A Common Shares issuable on exercise of each Warrant will be increased in proportion to such increase in the outstanding amount of Pear Class A Common Shares. A rights offering to holders Pear Class A Common Shares entitling holders to purchase Pear Class A Common Shares at a price less than the fair market value will be deemed a stock dividend of a number of shares of Pear Class A Common Shares equal to the product of (1) the number of Pear Class A Common Shares actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Pear Class A Common Shares) multiplied by (2) one minus the quotient of (x) the price per Pear Class A Common Share paid in such rights offering divided by (y) the fair market value. For these purposes (1) if the rights offering is for securities convertible into or exercisable for Pear Class A Common Shares, in determining the price payable for Pear Class A Common Shares, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (2) fair market value means the volume weighted average price of Pear Class A Common Shares as reported during the ten trading day period ending on the trading day prior to the first date on which the Pear Class A Common Shares trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the Warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other assets to the holders of Pear Class A Common Shares on account of such Pear Class A Common Shares (or other shares of our capital stock into which the Warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each Pear Class A Common Share in respect of such event.
If the number of outstanding Pear Class A Common Shares is decreased by a consolidation, combination, reverse stock split or reclassification of Pear Class A Common Shares or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number Pear Class A Common Shares issuable on exercise of each Warrant will be decreased in proportion to such decrease in outstanding Pear Class A Common Shares.
Whenever the number of Pear Class A Common Shares purchasable upon the exercise of the Warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of Pear Class A Common Shares purchasable upon the exercise of the Warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of Pear Class A Common Shares so purchasable immediately thereafter.
In case of any reclassification or reorganization of the outstanding Pear Class A Common Shares (other than those described above or that solely affects the par value of such Pear Class A Common Shares), or in the case of any merger or consolidation of us with or into another entity or conversion into another type of entity (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our outstanding Pear Class A Common Shares), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the Warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Warrants and in lieu of the Pear Class A Common Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the Warrants would have received if such holder had exercised their Warrants immediately prior to such event. However, if such holders were entitled to exercise a right of election as to the kind or amount of securities, cash or other assets receivable upon such consolidation or merger, then the kind and amount of securities, cash or other assets for which each Warrant will become exercisable will be deemed to be the weighted average of the kind and amount received per share by such holders in such consolidation or merger that affirmatively make such election, and if a tender, exchange or redemption offer has been made to and accepted by such holders (other than a tender, exchange or redemption offer made by the Company in connection with redemption rights held by stockholders of the company as provided for in the Company’s Certificate of Incorporation) under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding Pear Class A Common Shares, the holder of a Warrant will be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a stockholder if such Warrant holder had exercised the Warrant prior to the expiration of such tender or exchange offer, accepted such offer and all of the Pear Class A Common Shares held by such holder had been purchased pursuant to such tender or exchange offer, subject to adjustments (from and after the consummation of such tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in the Warrant Agreement. Additionally, if less than 70% of the consideration receivable by the holders of Pear Class A Common Shares in such a transaction is payable in the form of common stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the Warrant properly exercises the Warrant within thirty days following public disclosure of such transaction, the warrant exercise price
will be reduced as specified in the Warrant Agreement based on the per share consideration minus Black-Scholes Warrant Value (as defined in the Warrant Agreement) of the Warrant.
The Warrants will be issued in registered form under the Warrant Agreement. The Warrant Agreement provides that the terms of the Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding Public Warrants to make any change that adversely affects the rights of the registered holders of Public Warrants.
The Warrant holders do not have the rights or privileges of holders of Pear Class A Common Shares and any voting rights until they exercise their Warrants and receive Pear Class A Common Shares. After the issuance of Pear Class A Common Shares upon exercise of the Warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by Pear stockholders.
Private Placement Warrants
The Private Placement Warrants (including the Pear Class A Common Shares issuable upon exercise of the Private Placement Warrants) are not transferable, assignable or salable until 30 days after the completion of the Business Combination (except under limited exceptions) and they are not be redeemable by us so long as they are held by the Sponsor or its permitted transferees. The Sponsor, or its permitted transferees, has the option to exercise the Private Placement Warrants on a cashless basis and will be entitled to certain registration rights. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants. If the Private Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by the holders on the same basis as the Public Warrants. If the Reference Value is less than $18.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like), then the Private Placement Warrants must also concurrently be called for redemption on the same terms as the outstanding Public Warrants, as described above.
If holders of the Private Placement Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their Private Placement Warrants for that number of Pear Class A Common Shares equal to the quotient obtained by dividing (x) the product of the number of Pear Class A Common Shares underlying the Private Placement Warrants, multiplied by the excess of the “fair market value” (defined below) over the exercise price of the Private Placement Warrants by (y) the fair market value. The “fair market value” shall mean the average closing price of the Pear Class A Common Shares for the 10 trading days ending on the third trading day prior to the date on which the notice of exercise is sent to the Warrant agent.
Transfer Agent and Warrant Agent
Continental Stock Transfer & Trust Company is the transfer agent for the Pear Class A Common Shares and the warrant agent for the Warrants.
Trading Symbol and Market
Pear Class A Common Shares and Public Warrants are listed on Nasdaq under the symbols “PEAR” and “PEARW,” respectively.
SECURITIES ACT RESTRICTIONS ON RESALE OF OUR SECURITIES
Rule 144
Pursuant to Rule 144 under the Securities Act (“Rule 144”), a person who has beneficially owned restricted Pear Class A Common Shares or Private Warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been our affiliate at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and has filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as it was required to file reports) preceding the sale.
Persons who have beneficially owned restricted Pear Class A Common Shares or Private Warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
•1% of the total number of Pear Class A Common Shares then outstanding; or
•the average weekly reported trading volume of Class A Common Shares or Warrants, as applicable, during the four calendar weeks preceding the date on which notice of the sale if filed with the SEC.
Sales by affiliates of Pear Class A Common Stock or Warrants under Rule 144 are also limited by manner of sale provisions and notice requirements and by the availability of current public information about Pear.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule 144 is not available for the resale of securities initially issued by shell companies (other than business-combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
•the issuer of the securities that was formerly a shell company has ceased to be a shell company;
•the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
•the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials) other than Form 8-K reports; and
•at least one year has elapsed from the time that the issuer filed current Form 10-type information with the SEC reflecting its status as an entity that is not a shell company
We are no longer a shell company, and so, once the conditions listed above are satisfied, Rule 144 will become available for the resale of the above-noted restricted securities.
Lock-Up Agreement
Pursuant to the Ancillary Agreements, we entered into lock-up agreements with the Sponsor, holders of certain of the PIPE Shares, parties to the Registration Rights Agreement and certain Pear US stockholders, effective at Closing. The Pear Class A Common Shares held by the aforementioned parties are subject to resale and transfer restrictions for a period of 180 days after the Closing Date, subject to customary exceptions.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material U.S. federal income tax consequences relating to the purchase, ownership and disposition of Pear Class A Common Shares and warrants, which we collectively refer to as Pear “securities”. This discussion is limited to certain U.S. federal income tax considerations to investors that will hold securities as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and that purchased such securities from the Selling Securityholders pursuant to this offering.
This discussion is a summary only and does not describe all of the tax consequences that may be relevant to you in light of your particular circumstances, including but not limited to the alternative minimum tax, the Medicare tax on certain net investment income and the different consequences that may apply if you are subject to special rules that apply to certain types of investors, including but not limited to:
•banks, financial institutions or financial services entities;
•broker-dealers;
•governments or agencies or instrumentalities thereof;
•regulated investment companies;
•real estate investment trusts;
•expatriates or former long-term residents of the United States;
•persons that actually or constructively own five percent or more (by vote or value) of our shares;
•persons that acquired our securities pursuant to an exercise of employee share options, in connection with employee share incentive plans or otherwise as compensation;
•insurance companies;
•dealers or traders subject to a mark-to-market method of accounting with respect to our securities;
•persons holding our securities as part of a “straddle,” constructive sale, hedge, wash sale, conversion or other integrated or similar transaction;
•U.S. holders (as defined below) whose functional currency is not the U.S. dollar;
•partnerships (or entities or arrangements classified as partnerships or other pass-through entities for U.S. federal income tax purposes) and any beneficial owners of such partnerships;
•tax-exempt entities;
•controlled foreign corporations; and
•passive foreign investment companies.
If a partnership (including an entity or arrangement treated as a partnership or other pass-thru entity for U.S. federal income tax purposes) holds our securities, the tax treatment of a partner, member or other beneficial owner in such partnership will generally depend upon the status of the partner, member or other beneficial owner, the activities of the partnership and certain determinations made at the partner, member or other beneficial owner level. If you are a partner, member or other beneficial owner of a partnership holding our securities, you are urged to consult your tax advisor regarding the tax consequences of the purchase, ownership and disposition of our securities.
This discussion is based on the Code, and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations as of the date hereof, which are subject to change, possibly on a retroactive basis, and changes to any of which subsequent to the date of this prospectus may affect the tax consequences
described herein. This discussion does not address any aspect of state, local or non-U.S. taxation, or any U.S. federal taxes other than income taxes (such as gift and estate taxes).
We have not sought, and do not expect to seek, a ruling from the U.S. Internal Revenue Service (the “IRS”) as to any U.S. federal income tax consequence described herein. The IRS may disagree with the discussion herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion. You are urged to consult your tax advisor with respect to the application of U.S. federal tax laws to your particular situation, as well as any tax consequences arising under the laws of any state, local or foreign jurisdiction.
THIS DISCUSSION IS ONLY A SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS ASSOCIATED WITH THE PURCHASE, OWNERSHIP AND DISPOSITION OF PEAR SECURITIES ACQUIRED PURSUANT TO THIS OFFERING. EACH PROSPECTIVE INVESTOR IN PEAR SECURITIES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF PEAR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL NON-INCOME, STATE, LOCAL, AND NON-U.S. TAX LAWS OR ANY APPLICABLE INCOME TAX TREATY.
U.S. Holders
This section applies to you if you are a “U.S. holder.” A U.S. holder is a beneficial owner of Pear Class A Common Shares or warrants who or that is, for U.S. federal income tax purposes:
•an individual who is a citizen or resident of the United States;
•a corporation (or other entity taxable as a corporation) organized in or under the laws of the United States, any state thereof or the District of Columbia;
•an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
•a trust, if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (as defined in the Code) have authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under Treasury Regulations to be treated as a United States person.
Taxation of Distributions. If we pay distributions in cash or other property (other than certain distributions of Pear Class A Common Shares or rights to acquire Pear Class A Common Shares) to U.S. holders of Pear Class A Common Shares, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. holder’s adjusted tax basis in its Pear Class A Common Shares. Any remaining excess will be treated as gain realized on the sale or other disposition of its Pear Class A Common Shares and will be treated as described under “U.S. Holders - Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Pear Class A Common Shares and Warrants” below.
Dividends we pay to a U.S. holder that is treated as a taxable corporation generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions (including, but not limited to, dividends treated as investment income for purposes of investment interest deduction limitations), and provided certain holding period requirements are met, dividends we pay to a non-corporate U.S. holder may constitute “qualified dividend income” that will be subject to tax at the applicable maximum tax rate accorded to long-term capital gains. If the applicable holding period requirements are not satisfied, then a corporation may not be able to qualify for the dividends received deduction and would have taxable income equal to the entire dividend amount, and non-corporate U.S. holders may be subject to tax on such dividend at regular ordinary income tax rates instead of the preferential rate that applies to qualified dividend income.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Pear Class A Common Shares and Warrants.
Upon a sale or other taxable disposition of Pear Class A Common Shares or warrants, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. holder’s adjusted tax basis in its Pear Class A Common Shares or warrants. Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for its Pear Class A Common Shares or warrants so disposed of exceeds one year. Long-term capital gains recognized by non-corporate U.S. holders may be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.
Generally, the amount of gain or loss recognized by a U.S. holder is an amount equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. holder’s adjusted tax basis in its Pear Class A Common Shares or warrants so disposed of. A U.S. holder’s adjusted tax basis in its Pear Class A Common Shares or warrants generally will equal the U.S. holder’s acquisition cost less, in the case of Pear Class A Common Shares, any prior distributions treated as a return of capital.
Exercise, Lapse, or Redemption of a Warrant. Except as discussed below with respect to the cashless exercise of a warrant, a U.S. holder generally will not recognize gain or loss upon the exercise of a warrant. A U.S. holder’s tax basis in a Pear Class A Common Share received upon exercise of the warrant generally will be an amount equal to the sum of the U.S. holder’s initial investment in the warrant and the exercise price. The U.S. holder’s holding period for the Pear Class A Common Share received upon exercise of the warrant generally will commence on the date of exercise of the warrant or the date following the date of exercise of the warrant; however, in either case the holding period will not include the period during which the U.S. holder held the warrant. If a warrant is allowed to lapse unexercised, a U.S. holder generally will recognize a capital loss equal to such holder’s tax basis in the warrant.
The tax consequences of a cashless exercise of a warrant are not clear under current tax law. A cashless exercise may be tax-free, either because the exercise is not a gain realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either tax-free situation, a U.S. holder’s basis in the Pear Class A Common Shares received would equal the holder’s basis in the warrants used to effect the cashless exercise. If the cashless exercise is not treated as a gain realization event, a U.S. holder’s holding period in the Pear Class A Common Shares generally would be treated as commencing on the date of exercise of the warrant or the date following the date of exercise of the warrant; however, in either case the holding period will not include the period during which the U.S. holder held the warrant. If the cashless exercise were treated as a recapitalization, the holding period of the Pear Class A Common Shares would include the holding period of the warrant.
It is also possible that a cashless exercise could be treated in part as a taxable exchange in which gain or loss would be recognized. In such event, a portion of the warrants to be exercised on a cashless basis could, for U.S. federal income tax purposes, be deemed to have been surrendered in consideration for the exercise price of the remaining warrants, which would be deemed to be exercised. For this purpose, a U.S. holder could be deemed to have surrendered warrants having an aggregate fair market value equal to the exercise price for the total number of warrants to be deemed exercised. The U.S. holder would recognize capital gain or loss in an amount equal to the difference between the fair market value of the warrants deemed surrendered and the U.S. holder’s tax basis in such warrants. In this case, a U.S. holder’s tax basis in the Pear Class A Common Shares received would equal the sum of the U.S. holder’s initial investment in the warrants deemed exercised and the exercise price of such warrants. A U.S. holder’s holding period for the Pear Class A Common Shares in such case generally would commence on the date following the date of exercise (or possibly the date of exercise) of the warrant.
Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. holders should consult their tax advisors regarding the tax consequences of a cashless exercise.
Possible Constructive Distributions. The terms of each warrant provide for an adjustment to the number of Pear Class A Common Shares for which the warrant may be exercised or to the exercise price of the warrant in certain
events as discussed in the section of this registration statement captioned “Description of Securities-Warrants.” An adjustment which has the effect of preventing dilution generally is not taxable. U.S. holders of the warrants would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the warrant holders’ proportionate interest in Pear assets or earnings and profits (for instance, through an increase in Pear Class A Common Shares that would be obtained upon exercise or through a decrease in the exercise price of the warrant) as a result of a distribution of cash or other property such as other securities to the holders of Pear Class A Common Shares which is taxable to the U.S. holders of such Pear Class A Common Shares, or as a result of the issuance of a stock dividend to holders of shares of Pear Class A Common Shares as described under “-Taxation of Distributions” above. Such constructive distributions would be subject to tax as described under that section in the same manner as if the U.S. holders of the warrants received a cash distribution from us equal to the fair market value of such increased interest. Generally, a U.S. holder’s adjusted tax basis in its warrants should be increased to the extent of any constructive distribution treated as a dividend. For certain informational reporting purposes, we are required to determine the date and amount of any such constructive distributions and publicly report such information or report such information to the IRS and holders of warrants not exempt from information reporting. Proposed Treasury Regulations, which we may rely on prior to the issuance of final regulations, specify how the date and amount of constructive distributions are determined.
Information Reporting and Backup Withholding. In general, information reporting requirements may apply to distributions paid to a U.S. holder and to the proceeds of the sale or other disposition of Pear Class A Common Shares, unless the U.S. holder is an exempt recipient. Backup withholding may apply to such payments if the U.S. holder fails to provide a taxpayer identification number, a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a credit against a U.S. holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided the required information is timely furnished to the IRS.
Non-U.S. Holders
This section applies to you if you are a “Non-U.S. holder.” As used herein, the term “Non-U.S. holder” means a beneficial owner of Pear Class A Common Shares or warrants who or that is for U.S. federal income tax purposes:
•a non-resident alien individual (other than certain former citizens and residents of the United States subject to U.S. tax as expatriates);
•a foreign corporation; or
•an estate or trust that is not a U.S. holder;
but generally does not include an individual who is present in the United States for 183 days or more in the taxable year of the disposition of their securities. If you are such an individual, you should consult your tax advisor regarding the U.S. federal income tax consequences of the purchase, ownership or sale or other disposition of our securities.
Taxation of Distributions. In general, any distributions (other than certain distributions of Pear stock or rights to acquire Pear stock) we make to a Non-U.S. holder of Pear Class A Common Shares, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes and, provided such dividends are not effectively connected with the Non-U.S. holder’s conduct of a trade or business within the United States, we will be required to withhold tax from the gross amount of the dividend at a rate of 30%, unless such Non-U.S. holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E). Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the Non-U.S. holder’s adjusted tax basis in its Pear Class A Common Shares and, to the extent such distribution exceeds the Non-U.S. holder’s adjusted tax basis, as gain realized from the sale or other disposition of its Pear Class A Common Shares, which will be treated as described under “Non-U.S. Holders - Gain on Sale, Taxable Exchange or Other Taxable Disposition of Pear Class A Common Shares and
Warrants” below. In addition, if we determine that we are likely to be classified as a “United States real property holding corporation” (see “Non-U.S. Holders - Gain on Sale, Taxable Exchange or Other Taxable Disposition of Pear Class A Common Shares and Warrants” below), we may withhold 15% of any distribution that exceeds our current and accumulated earnings and profits.
The withholding tax generally does not apply to dividends paid to a Non-U.S. holder who provides an IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. holder’s conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. federal income tax as if the Non-U.S. holder were a U.S. resident, subject to an applicable income tax treaty providing otherwise. A corporate Non-U.S. holder receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower applicable treaty rate).
Gain on Sale, Taxable Exchange or Other Taxable Disposition of Pear Class A Common Shares and Warrants. A Non-U.S. holder generally will not be subject to U.S. federal income or withholding tax in respect of gain recognized on a sale, taxable exchange or other taxable disposition of its Pear Class A Common Shares or warrants (including an expiration of warrants) unless:
•the gain is effectively connected with the conduct by the Non-U.S. holder of a trade or business within the United States (and, under certain income tax treaties, is attributable to a United States permanent establishment or fixed base maintained by the Non-U.S. holder); or
•we are or have been a “United States real property holding corporation” (a “USRPHC”) for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the Non-U.S. holder’s holding period for its Pear Class A Common Shares, except, in the case where shares of Pear Class A Common Shares and warrants are regularly traded on an established securities market, the Non-U.S. holder has owned, directly or constructively, at all times within the shorter of the five-year period preceding the disposition of its Pear Class A Common Shares and warrants or such Non-U.S. holder’s holding period for such Pear Class A Common Shares and warrants, 5% or less of Pear Class A Common Shares. It is unclear how the rules for determining the 5% threshold for this purpose would be applied with respect to our Pear Class A Common Shares and warrants, including how a Non-U.S. holder’s ownership of warrants, if any, impacts the 5% threshold determination with respect to its Pear Class A Common Shares. There can be no assurance that our Pear Class A Common Shares and warrants will be treated as regularly traded on an established securities market for this purpose. Non-U.S. holders should consult their own tax advisors regarding the application of the foregoing rules in light of their particular facts and circumstances.
Unless an applicable treaty provides otherwise, gain described in the first bullet point above will be subject to tax at generally applicable U.S. federal income tax rates as if the Non-U.S. holder were a U.S. resident. Any gains described in the first bullet point above of a Non-U.S. holder that is treated as a foreign corporation for U.S. federal income tax purposes may also be subject to an additional “branch profits tax” imposed at a 30% rate (or lower treaty rate).
If the second bullet point above applies to a Non-U.S. holder, gain recognized by such holder on the sale, exchange or other disposition of its securities will be subject to tax at generally applicable U.S. federal income tax rates. In addition, a buyer of our securities from such holder may be required to withhold U.S. federal income tax at a rate of 15% of the amount realized upon such disposition. We will be classified as a USRPHC if the fair market value of our “United States real property interests” equals or exceeds 50% of the sum of the fair market value of our worldwide real property interests plus our other assets used or held for use in a trade or business, as determined for U.S. federal income tax purposes.
Exercise, Lapse, or Redemption of a Warrant. The characterization for U.S. federal income tax purposes of the exercise, redemption or lapse of a warrant held by a Non-U.S. holder will generally correspond to the characterization described under “-U.S. Holders-Exercise, Lapse, or Redemption of a Warrant” above, although to the extent a cashless exercise or redemption results in a taxable exchange, the consequences would follow those
described above in “-Gain or Loss on Sale, Taxable Exchange, or Other Taxable Disposition of Pear Class A Common Shares and Warrants.”
Possible Constructive Distributions. The terms of each warrant provide for an adjustment to the number of Pear Class A Common Shares for which the warrant may be exercised or to the exercise price of the warrant in certain events as discussed in the section of this prospectus captioned “Description of Securities-Warrants.” An adjustment which has the effect of preventing dilution generally is not taxable. Non-U.S. holders of the warrants would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the warrant holders’ proportionate interest in our assets or earnings and profits (for instance, through an increase in the number of shares of Pear Class A Common Shares that would be obtained upon exercise or through a decrease in the exercise price of the warrant) as a result of a distribution of cash or other property such as other securities to the holders of shares of Pear Class A Common Shares, or as a result of the issuance of a stock dividend to holders of shares of Pear Class A Common Shares. Such constructive distribution to a Non-U.S. holder of warrants would be treated as if such Non-U.S. holder had received a cash distribution from us equal to the fair market value of such increased interest (taxed as described above under “- Taxation of Distributions”). For certain informational reporting purposes, we are required to determine the date and amount of any such constructive distributions and publicly report such information or report such information to the IRS and holders of warrants not exempt from information reporting. Proposed Treasury Regulations, which taxpayers may generally rely on prior to the issuance of final regulations, specify how the date and amount of constructive distributions are determined.
Information Reporting and Backup Withholding. Information returns generally will be filed with the IRS in connection with payments to a Non-U.S. holder of distributions on Pear Class A Common Shares. Proceeds from a sale or other taxable disposition of our securities within the United States or conducted through certain U.S.-related brokers may be subject to backup withholding or information reporting unless a Non-U.S. holder complies with certification procedures to establish that it is not a United States person. The certification procedures required to claim a reduced rate of withholding under a treaty generally will satisfy such certification requirements. Proceeds of a disposition of our securities conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a Non-U.S. holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA Withholding Taxes. Provisions commonly referred to as “FATCA” impose withholding of 30% on payments of dividends on Pear Class A Common Shares (or constructive dividends, if any, with respect to the warrants), or (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of, our securities paid (or deemed paid) to “foreign financial institutions” (which is broadly defined for this purpose and in general includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by United States persons of interests in or accounts with those entities) have been satisfied by, or an exemption applies to, the payee (typically certified as to by the delivery of a properly completed IRS Form W-8BEN-E). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. Under certain circumstances, a Non-U.S. holder might be eligible for refunds or credits of such withholding taxes, and a Non-U.S. holder might be required to file a U.S. federal income tax return to claim such refunds or credits. Thirty percent withholding under FATCA was scheduled to apply to payments of gross proceeds from the sale or other disposition of property that produces U.S.-source interest or dividends beginning on January 1, 2019, but on December 13, 2018, the IRS released proposed regulations that, if finalized in their proposed form, would eliminate the obligation to withhold on gross proceeds. Such proposed regulations also delayed withholding on certain other payments received from other foreign financial institutions that are allocable, as provided for under final Treasury Regulations, to payments of U.S.-source dividends, and other fixed or determinable annual or periodic income. Although these proposed Treasury Regulations are not final, taxpayers generally may rely on them until final Treasury Regulations are issued. However, there can be no assurance that final Treasury Regulations will provide the same exceptions from FATCA withholding as the proposed Treasury Regulations. Prospective investors should consult their tax advisors regarding the effects of FATCA on their investment in securities.
PLAN OF DISTRIBUTION
We are registering the issuance by us of (a) up to 5,013,333 Pear Class A Common Shares issuable upon the exercise of the Private Placement Warrants (b) up to 9,199,944 Pear Class A Common Shares issuable upon the exercise of the Public Warrants and (c) 12,395,625 Pear Class A Common Shares that may be issued from time to time upon achievement of certain stock price thresholds (the “Earn Out Shares”). We are also registering the resale by the Selling Securityholders of up to 73,575,840 additional Pear Class A Common Shares (including 5,013,333 Pear Class A Common Shares issuable upon the exercise of the Private Placement Warrants) and 5,013,333 Private Placement Warrants.
Once issued and upon effectiveness of the registration statement of which this prospectus forms a part, the securities beneficially owned by the Selling Securityholders covered by this prospectus may be offered and sold from time to time by the Selling Securityholders. The term “Selling Securityholders” includes donees, pledgees, transferees or other successors in interest selling securities received after the date of this prospectus from a Selling Securityholder as a gift, pledge, partnership distribution or other transfer. The Selling Securityholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing or at prices related to the then current market price or in negotiated transactions. Each Selling Securityholder reserves the right to accept and, together with its respective agents, to reject, any proposed purchase of securities to be made directly or through agents. The Selling Securityholders and any of their permitted transferees may sell their securities offered by this prospectus on any stock exchange, market or trading facility on which the securities are traded or in private transactions.
Subject to any limitations set forth in any applicable agreement that provides for registration rights, the Selling Securityholders may use any one or more of the following methods when selling the securities offered by this prospectus:
•purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this prospectus;
•ordinary brokerage transactions and transactions in which the broker solicits purchasers;
•one or more underwritten offerings;
•block trades in which the broker-dealer so engaged will attempt to sell the securities as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
•an exchange distribution in accordance with the rules of the applicable exchange;
•in market transactions, including transactions on a national securities exchange or quotations service or over-the-counter market;
•distributions to their members, partners or stockholders
•settlement of short sales entered into after the date of the registration statement of which this prospectus is a part is declared effective by the SEC;
•agreements with broker-dealers to sell a specified number of the securities at a stipulated price per share;
•in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through sales agents;
•directly to purchasers, including through a specific bidding, auction or other process or in privately negotiated transactions;
•through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
•through a combination of any of the above methods of sale; or
•any other method permitted pursuant to applicable law.
In addition, a Selling Securityholder that is an entity may elect to make an in-kind distribution of securities to its members, partners, stockholders or other equityholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus. Such members, partners, stockholders or other equityholders that are not affiliates of ours would thereby receive freely tradeable securities pursuant to the distribution through a registration statement. To the extent a distributee is an affiliate of ours (or to the extent otherwise required by law), we may file a prospectus supplement in order to permit the distributees to use the prospectus to resell the securities acquired in the distribution.
The Selling Securityholders also may transfer the securities in other circumstances, in which case the transferees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus. Upon being notified by a Selling Securityholder that a donee, pledgee, transferee, other successor-in-interest intends to sell our securities, we will, to the extent required, promptly file a supplement to this prospectus to name specifically such person as a Selling Securityholder.
To the extent required, the Pear Class A Common Shares and Private Placement Warrants to be sold, the names of the Selling Securityholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
The Selling Securityholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Pear Class A Common Shares and Private Placement Warrants in the course of hedging the positions they assume. The Selling Securityholders may also sell the Pear Class A Common Shares and Private Placement Warrants short and deliver these securities to close out their short positions, or loan or pledge the Pear Class A Common Shares and Private Placement Warrants to broker-dealers that in turn may sell these shares. The Selling Securityholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Securityholders also may in the future resell a portion or all of the Pear Class A Common Shares and Private Placement Warrants in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule, or pursuant to other available exemptions from the registration requirements of the Securities Act.
Selling Securityholders may use this prospectus in connection with resales of the Pear Class A Common Shares and Private Placement Warrants. This prospectus and any accompanying prospectus supplement will identify the Selling Securityholders, the terms of the Pear Class A Common Shares and any material relationships between us and the Selling Securityholders. In offering the securities covered by this prospectus, the Selling Securityholders and any underwriters, broker-dealers or agents who execute sales for the Selling Securityholders may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. Any discounts, commissions, concessions or profit they earn on any resale of those securities may be underwriting discounts and commissions under the Securities Act. Unless otherwise set forth in a prospectus supplement, the Selling Securityholders will receive all the net proceeds from the resale of the Pear Class A Common Shares and Private Placement Warrants. If any Selling Securityholder is an “underwriter” within the meaning of Section 2(11) of the Securities Act, then the Selling Securityholder will be subject to the prospectus delivery requirements of the Securities Act. Underwriters and their controlling persons, dealers and agents may be entitled, under agreements entered into with us and the
Selling Securityholder, to indemnification against and contribution toward specific civil liabilities, including liabilities under the Securities Act.
In order to comply with the securities laws of certain states, if applicable, the securities must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the securities may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
We have advised the Selling Securityholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the Selling Securityholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the Selling Securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Securityholders may indemnify any broker-dealer that participates in transactions involving the sale of the Pear Class A Common Shares and Private Placement Warrants against certain liabilities, including liabilities arising under the Securities Act.
We are required to pay all fees and expenses incident to the registration of shares of the Pear Class A Common Shares and Private Placement Warrants to be offered and sold pursuant to this prospectus.
LEGAL MATTERS
Foley Hoag LLP has passed upon the validity of the Pear Class A Common Shares and Private Placement Warrants offered by this prospectus and certain other legal matters related to this prospectus.
EXPERTS
The financial statements of Pear Therapeutics, Inc. as of December 31, 2021 and 2020 and for the years then ended included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report expresses an unqualified opinion on the financial statements and includes an explanatory paragraph relating to going concern). Such financial statements have been so included in reliance upon the report of such firm as experts in accounting and auditing.
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
(a)Dismissal of independent registered public accounting firm
On December 3, 2021, the Audit Committee of the Board approved the engagement of Deloitte & Touche LLP (“Deloitte”) as Pear’s independent registered public accounting firm to audit Pear’s consolidated financial statements as of and for the year ended December 31, 2021. Marcum LLP (“Marcum”) served as independent registered public accounting firm of THMA prior to the Business Combination. Accordingly, Marcum was informed that they have been dismissed as Pear’s independent registered public accounting firm.
The report of Marcum on THMA’s balance sheet as of December 31, 2020, the statements of operations, changes in stockholders’ equity and cash flows for the period from December 1, 2020 (THMA inception) to December 31, 2020, and the related notes to the financial statements, did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to audit scope or accounting principles. However, the opinion was modified as management of THMA concluded that THMA has a working capital deficiency as of December 31, 2020 and lacks the financial resources it needs to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. These conditions raise substantial doubt about THMA’s ability to continue as a going concern.
During the period from December 1, 2020 (THMA inception) to December 31, 2020, and the subsequent interim period through December 3, 2021, there were no “disagreements” (as such term is defined in Item 304(a)(1)(iv) of Regulation S-K under the Exchange Act) between Pear and Marcum on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Marcum, would have caused it to make reference to the subject matter of the disagreements in its reports on THMA’s financial statements for such period.
During the period from December 1, 2020 (THMA inception) to September 30, 2021, and the subsequent interim period through December 3, 2021, there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K under the Exchange Act), except that for the quarter ended March 31, 2021, based upon an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer of THMA concluded that its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective solely as a result of the restatement of its financial statements as of and for such periods in light of the SEC Staff Statement dated April 12, 2021, which required THMA to reclassify the outstanding warrants as liabilities on its balance sheet. Based on the foregoing, it was determined that THMA had a material weakness as of March 31, 2021 relating to its internal controls over financial reporting, and such material weakness had not yet been remediated for the quarter and nine months ended September 30, 2021.
Pear provided Marcum with a copy of the foregoing disclosures and requested that Marcum furnish Pear with a letter addressed to the Commission stating whether it agrees with the statements made by Pear set forth above. A copy of Marcum’s letter, dated December 3, 2021, is filed as Exhibit 16.1 hereto.
(b)Disclosures regarding the new independent auditor
As described above, on December 3, 2021, the Audit Committee approved the engagement of Deloitte as Pear’s independent registered public accounting firm to audit Pear’s consolidated financial statements as of and for the year ended December 31, 2021. Deloitte served as the independent registered public accounting firm of Pear US prior to the Business Combination. During the period from December 1, 2020 (inception) to December 31, 2020, and the subsequent interim period through December 3, 2021, THMA did not consult with Deloitte with respect to (i) the application of accounting principles to a specified transaction, either completed or proposed, the type of audit opinion that might be rendered on THMA’s financial statements, and neither a written report nor oral advice was provided to Pear that Deloitte concluded was an important factor considered by Pear in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any other matter that was the subject of a disagreement or a reportable event (as defined above).
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1, including exhibits, under the Securities Act of 1933, as amended, with respect to the Pear Class A Common Shares and Private Placement Warrants offered by this prospectus. This prospectus constitutes only a part of the registration statement. Some items are contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our securities, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or document referred to are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.
In addition, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public on a website maintained by the SEC located at www.sec.gov. We also maintain a website at https://peartherapeutics.com/. Through our website, we make available, free of charge, annual, quarterly and current reports, proxy statements and other information as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, this prospectus. Information contained on our website is not a part of or incorporated by reference into this prospectus and the inclusion of our website and investor relations website addresses in this prospectus is an inactive textual reference only.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and accompanying notes.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Stockholders and the Board of Directors of Pear Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Pear Therapeutics, Inc. and its subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2021 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has experienced recurring losses from operations and recurring negative operating cash flows and may be unable to remain in compliance with certain financial covenants required under its credit facility which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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/s/ Deloitte & Touche LLP |
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Boston, Massachusetts |
March 28, 2022 |
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We have served as the Company’s auditor since 2017. |
Pear Therapeutics, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 169,567 | | | $ | 110,900 | |
Short-term investments | 5,004 | | | 13,535 | |
| | | |
Accounts receivable | 1,794 | | | 257 | |
Prepaid expenses and other current assets | 8,876 | | | 1,365 | |
Total current assets | 185,241 | | | 126,057 | |
Property and equipment, net | 6,255 | | | 4,277 | |
Restricted cash | 411 | | | 1,161 | |
| | | |
Other long-term assets | 5,253 | | | 871 | |
Total assets | $ | 197,160 | | | $ | 132,366 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 1,806 | | | $ | 4,506 | |
Accrued expenses and other current liabilities | 17,946 | | | 9,568 | |
Deferred revenues | 421 | | | 267 | |
Debt | 26,993 | | | 26,345 | |
Total current liabilities | 47,166 | | | 40,686 | |
Embedded debt derivative | 675 | | | 675 | |
Warrant liabilities | 8,528 | | | 2,650 | |
Earn-out liabilities | 48,363 | | | — | |
Other long-term liabilities | 1,994 | | | 1,239 | |
Total liabilities | 106,726 | | | 45,250 | |
Commitments and contingencies (Note 8) | | | |
Legacy convertible preferred stock (Note 10) | — | | | — | |
Stockholders’ equity: | | | |
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of December 31, 2021; and no shares issued and outstanding as of December 31, 2021 and December 31, 2020 | — | | | — | |
Common stock, $0.0001 par value; 690,000,000 authorized as of December 31, 2021; and 137,836,028 and 106,721,864 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | 14 | | | 11 | |
Additional paid-in capital | 338,404 | | | 269,946 | |
Accumulated deficit | (247,983) | | | (182,841) | |
Accumulated other comprehensive (loss) income | (1) | | | — | |
Total stockholders’ equity | 90,434 | | | 87,116 | |
Total liabilities and stockholders’ equity | $ | 197,160 | | | $ | 132,366 | |
The accompanying notes are an integral part of these consolidated financial statements.
Pear Therapeutics, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(dollars in thousands, except per share amounts)
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Revenue | | | |
Product revenue | $ | 3,748 | | | $ | 149 | |
Collaboration and license revenue | 460 | | | 9,235 | |
Total revenue | 4,208 | | | 9,384 | |
Cost and operating expenses | | | |
Cost of product revenue | 5,233 | | | 1,718 | |
Research and development | 37,041 | | | 28,084 | |
Selling, general, and administrative | 67,619 | | | 56,226 | |
Total cost and operating expenses | 109,893 | | | 86,028 | |
Loss from operations | (105,685) | | | (76,644) | |
Other income (expenses): | | | |
Interest and other (expense) income, net | (4,144) | | | (1,767) | |
Change in estimated fair value of earn-out liabilities | 47,038 | | | — | |
Change in estimated fair value of warrant liabilities | (298) | | | (795) | |
Loss on extinguishment of debt | — | | | (998) | |
Loss on issuance of legacy convertible preferred stock | (2,053) | | | (16,819) | |
Total other income (expense) | 40,543 | | | (20,379) | |
Net loss | $ | (65,142) | | | $ | (97,023) | |
Unrealized (loss) gain on short-term investments | $ | (1) | | | $ | (29) | |
Comprehensive loss | $ | (65,143) | | | $ | (97,052) | |
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Net loss | $ | (65,142) | | | $ | (97,023) | |
Loss on repurchase of convertible preferred stock | — | | | (11,053) | |
Net loss attributable to common stockholders | $ | (65,142) | | | $ | (108,076) | |
Net loss per share: | | | |
Basic and diluted | $ | (0.57) | | | $ | (1.21) | |
Weighted average common shares outstanding: | | | |
Basic and diluted | 113,328,450 | | | 89,216,091 | |
The accompanying notes are an integral part of these consolidated financial statements.
Pear Therapeutics, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Convertible Preferred Stock | | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount | | | Shares | | Amount | | | | |
Balance at January 1, 2020 | 44,693,053 | | | $ | 144,827 | | | | 14,859,315 | | | $ | 1 | | | $ | 3,771 | | | $ | (69,844) | | | $ | 29 | | | $ | (66,043) | |
Retroactive application of recapitalization (Note 1) | (44,693,053) | | | (144,827) | | | | 72,826,372 | | | 8 | | | 144,820 | | | — | | | — | | | 144,828 | |
Adjusted balance, beginning of period | — | | | — | | | | 87,686 | | | 9 | | | 148,591 | | | (69,844) | | | 29 | | | 78,785 | |
Issuance of Legacy Pear Series D convertible preferred stock, net of issuance costs of $768 | — | | | — | | | | 29,956 | | | 3 | | | 127,828 | | | — | | | — | | | 127,831 | |
Repurchase of preferred and common shares | — | | | — | | | | (11,941,100) | | | (1) | | | (8,752) | | | (15,974) | | | — | | | (24,727) | |
Exercise of common stock options | — | | | — | | | | 1,021,730 | | | — | | | 409 | | | — | | | — | | | 409 | |
Stock-based compensation expense | — | | | — | | | | — | | | — | | | 1,813 | | | — | | | — | | | 1,813 | |
Other comprehensive loss | — | | | — | | | | — | | | — | | | — | | | — | | | (29) | | | (29) | |
Net loss | — | | | — | | | | — | | | — | | | — | | | (97,023) | | | — | | | (97,023) | |
Issuance of warrants | — | | | — | | | | — | | | — | | | 57 | | | — | | | — | | | 57 | |
Balance at December 31, 2020 | — | | | $ | — | | | | 106,721,878 | | | $ | 11 | | | $ | 269,946 | | | $ | (182,841) | | | $ | — | | | $ | 87,116 | |
| |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Issuance of Legacy Pear Series D convertible preferred stock, net of issuance costs of $83 | — | | | — | | | | 4,503,618 | | | — | | | 21,970 | | | — | | | — | | | 21,970 | |
Exercise of common stock options | — | | | — | | | | 1,130,921 | | | — | | | 859 | | | — | | | — | | | 859 | |
Stock-based compensation expense | — | | | — | | | | — | | | — | | | 3,810 | | | — | | | — | | | 3,810 | |
Exercise of Legacy Pear warrants | — | | | — | | | | 1,079,686 | | | — | | | 10,907 | | | — | | | — | | | 10,907 | |
Reverse recapitalization, net of transaction costs (Note 1) | — | | | — | | | | 24,399,925 | | | 3 | | | 142,800 | | | — | | | — | | | 142,803 | |
Recognition of warrant liabilities in connection with the Business Combination (Note 3) | — | | | — | | | | — | | | — | | | (16,487) | | | — | | | — | | | (16,487) | |
Recognition of earn-out liabilities (Note 3) | — | | | — | | | | — | | | — | | | (95,401) | | | | | | | (95,401) | |
Other comprehensive income | — | | | — | | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Net loss | — | | | — | | | | | | — | | | — | | | (65,142) | | | — | | | (65,142) | |
Balance at December 31, 2021 | — | | | $ | — | | | | 137,836,028 | | | $ | 14 | | | $ | 338,404 | | | $ | (247,983) | | | $ | (1) | | | $ | 90,434 | |
The accompanying notes are an integral part of these consolidated financial statements.
Pear Therapeutics, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Operating Activities: | | | |
Net loss | $ | (65,142) | | | $ | (97,023) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation expense | 1,689 | | | 381 | |
Amortization of intangible asset | 563 | | | 50 | |
Amortization of debt discount | 648 | | | 498 | |
Loss on extinguishment of debt | — | | | 998 | |
Accretion and amortization of interest income | 22 | | | (106) | |
Stock-based compensation expense | 3,810 | | | 9,026 | |
Loss on issuance of legacy convertible preferred stock | 2,053 | | | 16,819 | |
Change in fair value of warrants | 298 | | | 795 | |
Change in fair value of earn-out liabilities | (47,038) | | | — | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (1,192) | | | 751 | |
Prepaid expenses and other assets | (8,979) | | | 109 | |
Accounts payable | (3,094) | | | 1,730 | |
Accrued expenses, other liabilities and non-current liabilities | 7,144 | | | 3,953 | |
Deferred revenues | 175 | | | (5,875) | |
Net cash used in operating activities | (109,043) | | | (67,894) | |
Investing Activities: | | | |
Proceeds from maturities of short-term investments | 16,525 | | | 79,600 | |
Purchases of short-term investments | (8,014) | | | (16,025) | |
Purchases of property and equipment | (3,278) | | | (3,900) | |
Purchases of intangible assets | (1,350) | | | — | |
Milestone based license fee payment | (1,000) | | | (750) | |
Net cash provided by investing activities | 2,883 | | | 58,925 | |
Financing Activities: | | | |
Proceeds from issuance of convertible preferred stock, net | 19,917 | | | 111,054 | |
Proceeds from Business Combination, net of transactions costs paid | 144,301 | | | — | |
Repayment of note assumed in the Business Combination | (1,000) | | | — | |
Proceeds from issuance of debt | — | | | 31,000 | |
Principal payments on debt | — | | | (17,280) | |
Deferred financing fees and related debt issuance costs | — | | | (1,500) | |
| | | |
Proceeds from exercise of stock options | 859 | | | 409 | |
Net cash provided by financing activities | 164,077 | | | 91,703 | |
Net increase in cash, cash equivalents and restricted cash | 57,917 | | | 82,734 | |
Cash, cash equivalents and restricted cash—beginning of period | 112,061 | | | 29,327 | |
Cash, cash equivalents and restricted cash—end of period | $ | 169,978 | | | $ | 112,061 | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest | $ | 3,709 | | | $ | 2,039 | |
Supplemental disclosure of non-cash investing and financing information: | | | |
| | | |
Issuance of stock upon exercise of Legacy Pear warrants | $ | 10,907 | | | $ | — | |
Recognition of warrant liability | $ | 16,487 | | | $ | 1,860 | |
Recognition of earn-out liabilities | $ | 95,401 | | | $ | — | |
Note payable and net liabilities assumed in the Business Combination (excluding warrant liabilities) | $ | 1,147 | | | $ | — | |
Deferred offering and equity issuance costs included in accounts payable and accrued expenses | $ | 700 | | | $ | 42 | |
Purchase of intangible asset with seller financing | $ | 1,011 | | | $ | — | |
| | | |
Purchases of property and equipment in accounts payable and accrued expenses | $ | 388 | | | $ | 38 | |
| | | |
Fair value of embedded derivative | $ | — | | | $ | 675 | |
The accompanying notes are an integral part of these consolidated financial statements.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. NATURE OF BUSINESS
Organization
Pear Therapeutics, Inc. and subsidiaries (the "Company" or "Pear"), is a leader in prescription digital therapeutics, or PDTs. The Company’s PDTs treat diseases with clinically validated software.
On December 3, 2021, (the “Closing Date”), Thimble Point Acquisition Corp. (“THMA”) consummated the previously announced merger pursuant to the Business Combination Agreement, dated June 21, 2021, by and among THMA, Pear Therapeutics, Inc. (now Pear Therapeutics (US), Inc.) and Oz Merger Sub, Inc., pursuant to which Oz Merger Sub, Inc. merged with and into Pear Therapeutics (US), Inc., with Pear Therapeutics (US), Inc. becoming our wholly owned subsidiary (the “Business Combination”). Upon the closing of the Business Combination, THMA changed its name to Pear Therapeutics, Inc. and Pear Therapeutics, Inc. changed its name to Pear Therapeutics (US), Inc.
In connection with the Business Combination, THMA completed the sale and issuance of 10,280,000 shares of Class A common stock in a fully committed common stock private placement at a purchase price of $10.00 per share (“PIPE Shares”) for an aggregate purchase price of $102,800 (“PIPE Investment”), and a Forward Purchase Agreement Assignment, dated as of December 2, 2021, by and among THMA, the Anchor Investor, and a Pipe Investor (the “Forward Purchase Assignment”); which closed simultaneously with the consummation of the Business Combination. Upon the closing of the Business Combination, the PIPE Shares were automatically converted into shares of the Company's Class A common stock on a one-for-one basis. In addition, all of the remaining outstanding THMA Class A common shares were separated, pursuant to their terms, into one share of Class A common stock (which totaled 832,899 shares Class A common stock, “Public Shares”) and one-third (1/3) of one redeemable warrant (and THMA’s units ceased trading on the Nasdaq). Further, LP SPAC 1 LLC (the “Anchor Investor”) purchased 6,387,026 shares of Class A common stock at a purchase price of $10.00 per share in connection with the Forward Purchase Agreement, dated as of February 1, 2021, by and between THMA and the Anchor Investor (the “Forward Purchase Agreement”), as amended from time to time, including by the Amendment to Forward Purchase Agreement dated as of June 21, 2021 and the Second Amendment to Forward Purchase Agreement dated as of November 14, 2021 (the “Amended Forward Purchase Agreement”) entered into with THMA on February 1, 2021 (“THMA Sponsor Shares”). Gross proceeds from the Merger totaled approximately $175,001 which included funds held in THMA’s trust account (after giving effect to redemptions). Transaction costs totaled approximately $32,779.
Unless otherwise indicated or the context otherwise requires, references in this prospectus to the “Company”, “our”, and “Pear” refer to the consolidated operations of Pear Therapeutics, Inc. and its subsidiaries. References to THMA refer to the company prior to the consummation of the Business Combination and references to “Legacy Pear” refer to Pear Therapeutics, Inc. (now Pear Therapeutics (US), Inc.) prior to the consummation of the Business Combination.
Legacy Pear was deemed the accounting acquirer in the Business Combination. This determination was primarily based on Legacy Pear’s stockholders prior to the Business Combination having a majority of the voting power in the combined company, Legacy Pear having the ability to appoint a majority of the Board of Directors of the combined company, Legacy Pear’s existing management comprising the senior management of the combined company, Legacy Pear comprising the ongoing operations of the combined company, Legacy Pear being the larger entity based on historical revenues and business operations, and the combined company assuming Legacy Pear’s name. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Pear issuing stock for the net assets of THMA, accompanied by a recapitalization. Under this method of accounting, THMA who was the legal acquirer, is treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Pear issuing stock for the net assets of THMA, accompanied by a recapitalization. The net assets of THMA are stated at historical cost, with no goodwill or other intangible assets recorded. The equity structure has been restated in all comparative periods up to the Closing Date to reflect the number of shares of the Company’s Class A common stock, $0.0001 par value per share, issued to Legacy Pear stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Legacy Pear’s Convertible Preferred Stock (“Legacy Convertible
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Preferred Stock”) and Legacy Pear common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio of approximately 1.47 established in the Business Combination. Legacy Pear’s convertible preferred stock previously classified as mezzanine was retroactively adjusted, converted into Class A common stock, and reclassified to permanent as a result of the reverse recapitalization. See Note 3 for more information.
THMA, now Pear Therapeutics, Inc., a Delaware corporation was incorporated on December 1, 2020. Pear Therapeutics (US), Inc., previously known as Pear Therapeutics, Inc. (“Legacy Pear”), is a Delaware corporation incorporated on August 14, 2013. The Company is headquartered in Boston, Massachusetts.
Going Concern
The Company is subject to a number of risks and uncertainties common to early-stage technology-based companies, including, but not limited to, rapid technological changes, protection of its proprietary technology and intellectual property, commercialization of existing and new products, development by competitors of competing products, dependence on key personnel, compliance with government regulations, including compliance with the US. Food and Drug Administration, or FDA, and the ability to secure additional capital to fund operations.
The Company obtained FDA marketing authorization for its three products, reSET® (2017), reSET-O® (2018), and Somryst® (2020). In October 2019, after terminating our agreement with Sandoz Inc., our then collaboration partner, we began the direct commercialization of reSET® and reSET-O®.
The Company has incurred recurring losses since inception and anticipates net losses and negative operating cash flows for the near future and may be unable to remain in compliance with certain financial covenants required under its credit facility. For the year ended December 31, 2021, the Company had a net loss of $65,142 and as of December 31, 2021 had an accumulated deficit of $247,983. As of December 31, 2021, the Company had $174,571 of cash and cash equivalents and short-term investments. While the Company has recorded revenue, revenues have been insufficient to fund operations. Accordingly, the Company has funded its operations to date through a combination of proceeds raised from equity and debt issuances, including the Business Combination. The Company’s operating costs include the cost of developing and commercializing products as well as providing research services. As a consequence, the Company will need to raise additional equity and debt financing that may not be available, if at all, at terms acceptable to the Company to fund future operations. As a result, the Company could be required to delay, scale back or abandon some or all of its development programs and other operations, which could materially harm the Company’s business, prospects, financial condition and operating results. Management believes these uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. Because of these uncertainties, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Due to the substantial doubt about the Company’s ability to continue operating as a going concern for twelve months from the issuance date of these financial statements and the material adverse change clause in the loan agreement with its lender, the amounts due as of December 31, 2021, have been classified as current in the consolidated balance sheet. The lender has not invoked the material adverse change clause as of the date of issuance of these financial statements. The accompanying consolidated financial statements do not reflect any other adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. The Company is subject to various covenants related to the Perceptive Credit Facility entered into on June 30, 2020 (Note 7) and given the substantial doubt about the Company’s ability to continue as a going concern, there is a risk that it may not meet its covenants in the future.
COVID-19 Related Significant Risks and Uncertainties
There continues to be uncertainties regarding the pandemic of the novel coronavirus, or COVID-19. The pandemic has significantly impacted the economic conditions in the US, as federal, state and local governments react to the public health crisis, creating significant uncertainties in the US economy. The downstream impact of various lockdown orders and related economic pullback affect our business and our customers to varying degrees. the Company is closely monitoring the impact of COVID-19 on all aspects of its business, including how it will impact
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
its customers, patients, employees, suppliers, vendors, and business partners. The Company is unable to predict the specific impact that COVID-19 may have on its business, financial position, and operations moving forward due to the numerous uncertainties. Any estimates made herein may change as new events occur and additional information is obtained, and actual results could differ materially from any estimates made herein under different assumptions or conditions. The Company will continue to assess the evolving impact of COVID-19.
In response to the COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief and Economic Security Act of 2020, or the CARES Act, which was signed into law on March 27, 2020. The CARES Act provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due by December 31, 2021, and the remaining 50% due by December 31, 2022. During the year ended December 31, 2020, the Company deferred payments of $854 of social security taxes, of which $427 is included in accrued expenses and other liabilities and the remaining $427 is included in other long-term liabilities. The company paid $427 during the year ended December 31, 2021, and had $427 included in accrued expenses and other liabilities within the consolidated balance sheet as of December 31, 2021.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with US generally accepted accounting principles, or GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB.
The consolidated financial statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021 and 2020 include the accounts of Pear and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements herein.
Certain monetary amounts, percentages, and other figures included elsewhere in these consolidated financial statements have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Adjustment has been made to the Consolidated Statement of Operations for the year ended December 31, 2020, to present the change in fair value of warrant liabilities as a separate line item; this amount was included in the Interest and other (expense) income, net line item in prior years.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates and changes in estimates are reflected in reported results in the period in which they become known.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Cash, Cash Equivalents, and Restricted Cash
The Company considers only those highly liquid investments, readily convertible to cash, that mature within 90 days from the date of purchase to be cash equivalents. The Company’s cash equivalents include money market funds and overnight deposits.
The following table reconciles cash, cash equivalents, and restricted cash reported within the Company’s consolidated balance sheets to the total amounts shown in the consolidated statements of cash flows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Reconciliation of cash, cash equivalents and restricted cash: | | | |
Cash and cash equivalents | $ | 169,567 | | | $ | 110,900 | |
| | | |
Restricted cash - long-term | 411 | | | 1,161 | |
Total cash, cash equivalents, and restricted cash | $ | 169,978 | | | $ | 112,061 | |
Investments
Investments include marketable securities with maturities of less than one year or where management’s intent is to use the investments to fund current operations or to make them available for current operations. All investments in marketable securities are classified as available for sale and are reported at fair value with unrealized gains and losses excluded from earnings and reported net of tax in accumulated other comprehensive income (loss), which is a component of stockholders’ equity. Unrealized losses that are determined to be other than temporary, based on current and expected market conditions, are recognized in earnings. Declines in fair value determined to be credit-related are charged to earnings. The cost of marketable securities sold is determined by the specific identification method.
Concentration of Credit Risk
Financial instruments that are potentially subject to a significant concentration of credit risk consist primarily of cash, cash equivalents, investments, restricted cash and accounts receivable. The Company attempts to minimize the risk related to investments by working with highly rated financial institutions that invest in a broad and diverse range of financial instruments as defined by the Company. The Company has established guidelines relative to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. The Company maintains its funds in accordance with its investment policy, which defines allowable investments, specifies credit quality standards and is designed to limit credit exposure to any single issuer. Through December 31, 2021, the Company has not experienced any losses on such deposits. One collaboration partner represented 100% of the Company’s total deferred revenue as of December 31, 2020.
Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of non-performance. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs that may be used to measure fair value are:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
•Level 2: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
•Level 3: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Expenditures for repairs and maintenance are expensed as incurred. Depreciation expense is recognized using the straight-line method over the estimated useful lives, which are typically:
| | | | | |
| Estimated Useful Life |
Equipment | 3 years |
Internal-use software | 3 - 5 years |
Furniture and fixtures | 5 years |
Leasehold improvements | Shorter of economic useful life or the remaining lease term |
The Company capitalizes costs incurred to develop internal-use software during the application development stage. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Internal and external costs incurred in connection with the development of upgrades or enhancements that result in additional functionality are also capitalized. Amortization commences when the software is available for its intended use and is amortized on a straight-line basis over the software’s estimated useful life, calculated using a mid-quarter convention.
Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in other income (expense) in the consolidated statements of operations and other comprehensive loss. Major replacements and improvements are capitalized. Expenditures for repairs and maintenance are expensed as incurred.
Intangible Assets
Intangible assets consist of identifiable intangible assets, including developed technology, resulting from the Company’s acquisitions. Acquired identifiable finite-lived intangible assets are amortized on a straight-line basis or accelerated method over the estimated useful lives of the assets. The basis of amortization approximates the pattern in which the assets are utilized, over their estimated useful lives.
Impairment of Long-Lived Assets and Intangible Assets Subject to Amortization
Long-live assets primarily include property and equipment and intangible assets, which are included in other long-term assets on the consolidated balance sheets. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company did not recognize any impairment losses on long-lived assets for the years ended December 31, 2021 and 2020.
Leases
Rent expense for non-cancelable operating leases, including rent escalation clauses, tenant improvement allowances, and rent-free periods when applicable, is recognized on a straight-line basis over the term of the lease with the difference between required lease payments and rent expense recorded as deferred rent. The lease term begins on the
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
commencement date as defined in the lease agreement or when the Company takes possession of or begins to control the physical use of the property, whichever is earlier. Refer to Note 8 for further information.
Derivative Liabilities
The Company accounts for derivative financial instruments as either equity or liabilities in accordance with ASC Topic 815, Derivatives and Hedging, or ASC 815, based on the characteristics and provisions of each instrument. Embedded derivatives are required to be bifurcated from the host instruments and recorded at fair value if the derivatives are not clearly and closely related to the host instruments on the date of issuance. Derivative instrument liabilities are classified in the consolidated balance sheets as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
The Company’s Perceptive Credit Facility (see Note 7 for more information) contains certain features that, in accordance with ASC 815, are not clearly and closely related to the host instrument and represent derivatives liabilities that are required to be re-measured at fair value each reporting period. Additionally, Legacy Pear issued Series A and Series D preferred stock warrants, which were classified as derivative liabilities recorded at fair value. See Note 4 and Note 7 for more information. The changes in the fair value of the warrants are recorded as other income (expense) in the Company’s consolidated statements of operations and comprehensive loss.
Legacy Pear Convertible Preferred Stock
In connection with the Business Combination, all Legacy Preferred Shares were converted to Class A common stock. See Notes 1, 3, and 10 for further information.
The Company recorded shares of Legacy Pear convertible preferred stock at their respective estimated fair values on the dates of issuance, net of issuance costs. Legacy Pear’s convertible preferred stock was classified outside of stockholders’ deficit because the holders of such shares had liquidation and redemption rights in the event of a deemed liquidation event that, in certain situations, are not solely within the control of the Company, such as a merger, acquisition, and sale of all or substantially all of the Company’s assets.
Warrant Liabilities
Management evaluates all of the Company’s financial instruments, including issued Warrants to purchase its Class A common stock, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
As of December 31, 2021, there are 5,013,333 Private Placement Warrants that are exercisable to purchase shares of Class A common stock to investors as well as 9,199,944 Public Warrants. All of the Company’s outstanding Warrants are recognized as assets or liabilities in accordance with ASC 815-40 and adjusts the warrant asset or liability to fair value at each reporting period. The assets or liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the statement of operations. The Public Warrants are traded on the NASDAQ and are recorded at fair value using the closing stock price as of the measurement date. The Private Placement Warrants, which have a single holder, have similar terms and are subject to substantially the same redemption features as the Public Warrants. Accordingly, the most advantageous market for the Private Placement Warrants is determined from the perspective of the holder of such warrants as an asset. Since any transfer to a non-permitted transferee (i.e., to a market participant) would cause the Private Placement Warrants to become public warrants, the fair value of the Private Placement Warrants is based on the quoted price of the Public Warrants.
Earn-Out Liabilities
In connection with the Business Combination, holders of Legacy Pear Common Shares and Legacy Pear Preferred Shares received the contingent right to receive additional Class A common stock (the “Earn-Out Shares”) upon the achievement of certain earn-out targets. As the contingent earn-out consideration contains a settlement provision that precludes it from being indexed to the Company’s stock, it is classified as a liability under ASC 480. The fair value
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
of the contingent earn-out consideration is estimated as of the acquisition date at the present value of the expected contingent payments using a Monte Carlo simulation. The fair value estimates use unobservable inputs that reflect our own assumptions as to the Company’s ability to meet the earn-out targets and discount rates used in the calculations. The unobservable inputs are defined in ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs.
We review the probabilities of achievement of the earn-out targets to determine the impact on the fair value of the earn-out consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability will increase or decrease, up to the contractual limit, as applicable. Changes in the estimated fair value of the contingent earn-out consideration are recorded in other (expense) income in the Consolidated Statements of Operations and Comprehensive Loss and are reflected in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact or cause volatility in our operating results.
Revenue Recognition
The Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and its related amendments, or, collectively, ASC 606.
At inception, the Company determines whether contracts are within the scope of ASC 606 or other topics. For contracts that are determined to be within the scope of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods and services. To achieve this core principle, the Company applies the following five steps (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when the performance obligation is satisfied. The Company only applies the five-step model to contracts when it determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. To the extent a contract includes multiple promised goods and services, the Company applies judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in management’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment, which is discussed in further detail for each of the Company’s collaboration agreements in Note 9. In addition, none of the Company’s contracts as of December 31, 2021, contained a significant financing component.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company typically determines standalone selling prices using an adjusted market assessment approach model.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.
Product Revenue Recognition—Product revenue includes sales of the Company’s products, reSET, reSET-O and Somryst, all of which are PDTs that have received marketing authorization by the FDA. reSET and reSET-O are FDA-authorized, 12-week, prescription-only therapeutics for substance use disorder, or SUD, and opioid use disorder, or OUD, respectively, to be used as adjuncts to standard outpatient treatment. Our third product, Somryst, achieved FDA marketing authorization in March 2020, for the treatment of chronic insomnia and the Company began to commercialize Somryst in October 2020. Sales of our products include multiple performance obligations, some of which are satisfied at the point in time when the products are made available to the customer (under a bulk order) or when a prescription is fulfilled, and some of which are recognized over the term of the contract or over the prescription period.
For the year ended December 31, 2021, the majority of our revenue was generated through bulk purchases from three customers, all of whom were state governments or agencies, who represented 34%, 23%, and 10% respectively of total revenue.
Licensing, Milestone and Contract Revenue—Prior to 2021, the Company’s revenue has primarily been generated through collaborative research, development and commercialization agreements, under which it out-licensed certain rights to its products to third parties. The terms of these agreements generally contained multiple performance obligations, which included (i) licenses, or options to obtain licenses, to the Company’s technology and (ii) research and development activities to be performed on behalf of the collaborative partner. Payments to the Company under these arrangements typically include one or more of the following: nonrefundable, up-front license fees; funding of research and/or development efforts; development, regulatory and commercial milestone payments; royalties on net sales of licensed products; and profit-share payments. Each of these payments resulted in license and collaboration revenue, except for revenue from royalties on net sales of licensed products, which are classified as royalty revenue.
Licenses of Intellectual Property—If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the licenses. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Research and Development Funding—Arrangements that include reimbursements of research and development costs are generally combined with other promises and are generally considered to have variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. If and when the Company assesses that these reimbursements are probable, the Company adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenue and earnings in the period of adjustment. Research and development funding arrangements that include milestones are recognized as described below.
Development Milestone Payments—At the inception of each arrangement that includes nonrefundable payments for contingent milestones, including preclinical research and development, clinical development and regulatory milestones, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligation under the contract is satisfied.
At the end of each reporting period, the Company reevaluates the probability of the achievement of contingent milestones and the likelihood of a significant reversal of such milestone revenue and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and earnings in the period of adjustment. This regular reassessment may result in recognition of revenue related to a contingent milestone payment before the milestone event has been achieved.
Commercial Milestone Payments and Royalties—For arrangements that include sales-based royalties, including milestone payments based on the level of sales and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.
Deferred Revenue—In general, deferred revenue arises from amounts received in advance of the culmination of the earnings process and is recognized as revenue in future periods as performance obligations are satisfied. Deferred revenue expected to be recognized within the next twelve months is classified as a current liability. Upfront payment contract liabilities resulting from the Company’s license agreements do not represent a financing component as the payment is not financing the transfer of goods or services, and the technology underlying the licenses granted reflects research and development expenses already incurred by the Company.
Commissions—During the years ended December 31, 2021 and 2020, the Company paid commissions to its internal sales team. The Company acts as a principal in the contracts with their partners as the Company controls the product, establishes the price and bears the risk of non-performance. The Company records the revenue on a gross basis and commissions are recorded as a sales and marketing expense in the consolidated statements of operations and comprehensive loss. The Company recognizes its commission expense as a point-in-time expense as contract obligations are primarily completed within a one-year contract period.
Accounts Receivable and Allowance for Doubtful Accounts—In general, accounts receivable consists of amounts due from customers, net of customer allowances for cash discounts and chargebacks. Our contracts with customers have standard payment terms that generally require payment within 30 days. We analyze accounts that are past due for collectability and periodically evaluate the creditworthiness of our customers. As of December 31, 2021 and 2020, we determined an allowance for doubtful accounts was not required based upon our review of contractual payment terms and individual customer circumstances.
Stock-Based Compensation
The Company’s stock-based compensation program allows for grants of common stock options, restricted stock awards and restricted stock units. Grants are awarded to employees and non-employees, including directors.
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. ASC 718 requires all stock-based payments to employees and non-employees to be recognized as an expense in the consolidated statements of operations and comprehensive loss based on their fair values. The Company estimates the fair value of options granted using the Black-Scholes option pricing model, or Black-Scholes. The fair value of the Company’s common stock is used to determine the fair value of restricted stock awards.
Stock-based compensation awards are subject to service-based vesting periods. Compensation expense related to awards to employees and non-employees with service-based vesting conditions are recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. The Company classifies stock-based compensation expense in the consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. See Note 11 for a description of the types of stock-
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
based awards granted, the compensation expense related to such awards and detail of equity-based awards outstanding.
Black-Scholes requires inputs based on certain subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate, and (iv) expected dividends. Due to the lack of a public market for the Company’s common stock and continued lack of sufficient company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The Company uses the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees and non-employees, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the options due to its lack of sufficient historical data. The risk-free interest rate is based on US Treasury securities with a maturity date commensurate with the expected term of the associated award. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The Company recognizes forfeitures as they occur.
Due to the absence of an active market for the Company’s common stock prior to the Business Combination, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. In determining the exercise prices for stock options granted, the Company considered the estimated fair value of the common stock as of the measurement date. The estimated fair value of the common stock has been determined at each grant date based upon a variety of factors, including the illiquid nature of the common stock, arm’s-length sales of the Company’s capital stock (including convertible preferred stock), the effect of the rights and preferences of the preferred shareholders and the prospects of a liquidity event. Among other factors are the Company’s financial position and historical financial performance, the status of technological developments within the Company’s research, the composition and ability of the current research and management team, an evaluation or benchmark of the Company’s competition and the current business climate in the marketplace. Significant changes to the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date.
Cost of Product Revenue
Cost of product revenue consists primarily of costs that are closely correlated or directly related to the delivery of the Company’s products, including pharmacy costs, royalties paid under license agreements related to our commercialized products, amortization of milestone payments capitalized related to commercialized products, hosting costs, and personnel-related costs, including salaries and bonuses and employee benefits.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development expense primarily consists of expenses incurred in performing research and development activities, including salaries and bonuses, employee benefits, stock-based compensation, facility costs, depreciation, contract services and other outside vendors engaged in conducting development activities and clinical trials, as well as the cost of licensing technology and costs related to collaboration arrangements.
We also include in research and development expenses the costs associated with software development of PDTs to support future commercial opportunities. Development costs of software to be sold, leased, or otherwise marketed are subject to capitalization, beginning when technological feasibility for the product has been established and ending when the product is available for general release. Such costs have not been significant to date as the time lapse between technological feasibility and release is typically short and thus has been included in research and development costs. Costs incurred to enhance our existing products after the general release of the product are expensed in the period they are incurred and included in research and development costs in the accompanying consolidated statements of operations and comprehensive loss.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Milestone Payments
The Company, from time to time, will enter into strategic agreements with third parties, which give the Company rights to develop, market and/or sell PDTs, the rights to which are owned by such third parties. As a result of these agreements, the Company may be obligated to make payments to these third parties contingent upon the achievement of certain pre-determined criteria. For milestones achieved prior to marketing approval of the product, such payments are expensed as research and development. After marketing approval, any additional milestone payments are capitalized and amortized to cost of product revenue over the remaining useful life of the asset. All capitalized milestone payments are tested for recoverability whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel-related expenses, including salaries and bonuses, employee benefits, stock-based compensation and marketing expenses, costs to support the commercialization of our products, allocated facilities expenses, depreciation expenses, insurance, executive management travel and professional services expenses, including legal, talent acquisition, audit, accounting and tax-related services. Facilities costs consist of rent and maintenance of facilities. Costs associated with advertising are expensed in the period incurred and are included in selling, general and administrative expenses. Advertising expenses were $5,693 and $1,561 for the years ended December 31, 2021 and 2020, respectively.
Patent Costs
All patent-related costs incurred in connection with the filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Such amounts incurred are classified as selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s financial statements and tax returns. Deferred tax assets and liabilities are determined based upon the differences between the financial statement carrying amounts, and the tax bases of existing assets and liabilities for the loss and credit carryforwards using enacted tax rates expected to be in effect in the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that these assets may not be realized. The Company determines whether a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes.
Comprehensive Loss
For the years ended December 31, 2021 and 2020, the Company’s comprehensive income (loss) consists of its net loss and unrealized gains and losses from investments.
Net Loss Per Share
The Company follows the two-class method when computing net loss per share, or EPS, as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents.
The Company’s convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2021 and 2020.
As the Merger has been accounted for as a reverse recapitalization, the consolidated financial statements of the merged entity reflect the continuation of the pre-merger Pear Therapeutics, Inc. financial statements; Pear Therapeutics, Inc. equity has been retroactively adjusted to the earliest period presented to reflect the legal capital of the legal acquirer, THMA. As a result, net loss per share was also retrospectively adjusted for periods ended prior to the Merger. See Note 3 for details of this recapitalization and Note 13 for discussion of the retrospective adjustment of net loss per share.
Segment and Geographic Information
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its President and Chief Executive Officer, or CEO. The Company views its operations as and manages its business in one operating segment operating exclusively in the US.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an emerging growth company, or EGC, such as us to take advantage of an extended transition period to comply with the new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time the Company is no longer considered to be an EGC, which means that when a standard is issued or revised, it has different applications for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt-out” of such extended transition period or (ii) no longer qualify as an EGC.
Deferred Offering Costs
Deferred offering costs include certain legal, accounting, consulting and other third-party fees incurred directly related to an anticipated business combination. The Company defers offering costs classified as a long-term asset until the closing or termination of the business combination. At the closing of the business combination, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital. Should the business combination for which those costs relate no longer be considered probable of being consummated, all deferred offering costs will be charged to operating expenses in the statement of operations at such time.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB, issued ASU 2016-02, Leases (Topic 842), which requires lessees to record most leases on the balance sheet and recognize the expense in the statement of operations and comprehensive loss in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
make lease payments and a right-to-use asset for the underlying asset for the lease term. This standard is applicable to the Company for the annual reporting periods beginning after December 15, 2021. The Company adopted ASC 842 on January 1, 2022 and expects the adoption of ASC 842 to incrementally increase our assets and liabilities, respectively by the right of use asset in the range of $10,500 to $11,700 and by the lease liabilities in the range of $11,500 to $12,700. The impact to the accumulated deficit is expected to be immaterial.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets such as available for sale debt securities, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The new standard is effective for annual reporting periods beginning after December 15, 2022. The Company is still evaluating the impact of ASU 2016-13 on the Company’s consolidated financial statements; however, it does not expect the impact to be material.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes-Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This standard is effective for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company is currently evaluating the potential impact that ASU 2019-12 will have on its consolidated financial statements and related disclosures; however, it does not expect the impact to be material.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This update simplifies the accounting for convertible debt instruments by removing certain accounting separation models as well as the accounting for debt instruments with embedded conversion features that are not required to be accounted for as derivative instruments. The update also updates and improves the consistency of earnings per share calculations for convertible instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact that the implementation of this update will have on the Company’s consolidated financial statements and related disclosures.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
3. BUSINESS COMBINATION
As discussed in Note 1, on December 3, 2021, the Company consummated a business combination pursuant to the Business Combination Agreement (“BCA”) with THMA dated June 21, 2021. The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, THMA, who was the legal acquirer, was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Pear issuing stock for the net assets of THMA, accompanied by a recapitalization.
Upon the closing of the Business Combination, holders of Legacy Pear common stock received shares of Class A common stock in an amount determined by application of the exchange ratio of approximately 1.47 (the “Exchange Ratio”), which was based on Legacy Pear’s implied price per share prior to the Business Combination. For periods prior to the Business Combination, the reported share and per share amounts have been retroactively converted (“Retroactive Conversion”) by applying the Exchange Ratio. The consolidated assets, liabilities and results of operations prior to the Business Combination are those of Legacy Pear.
In addition, holders of Legacy Pear Common Shares (and Legacy Pear Preferred Shares who converted their shares into Legacy Pear Common Shares in connection with the Merger) received the contingent right to receive up to 12,395,625 additional Class A common stock (the “Earn-Out Shares”) upon the achievement of certain earn-out targets. The holders of Legacy Pear common stockholders can contingently receive up to 12,395,625 shares in the aggregate of additional Class A common stock in three equal tranches of 4,131,875 shares respectively, upon the Company achieving $12.50, $15.00, or $17.50, respectively, as its volume-weighted average price per share for any 20 trading days within a 30 consecutive trading day period (as adjusted for share splits, reverse share splits, share dividends, reorganizations, recapitalizations, reclassifications, combination, exchange of shares, or the like).
Further, the Company assumed the outstanding Public Warrants to purchase 9,199,944 shares of the Company’s Class A common stock at $11.50 per share and the outstanding Private Placement Warrants, held by LJ10 LLC, (the “Sponsor”) (the “Private Placement Warrants”) to purchase 5,013,333 shares of the Company’s Class A common stock at $11.50 per share. The Public and Private Placement Warrants expire five years after the completion of the Business Combination.
In connection with the Business Combination, the Company incurred approximately $32,779 of equity issuance costs, consisting of underwriting, legal, and other professional fees, $31,400 of which were recorded to additional paid-in capital as a reduction of proceeds and $1,379 of which was recorded as an expense in selling, general, and administrative expenses on the consolidated statement of comprehensive income.
See Note 7 for information on the Legacy Pear warrants that were exercised prior to the Business Combination.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The following table reconciles the elements of the Business Combination to the consolidated statement of cash flows and the consolidated statement of changes in equity:
| | | | | |
| Year Ended December 31, 2021 |
Cash - THMA trust and cash (net of redemptions) | $ | 8,331 | |
Cash - PIPE Investors and Forward Purchase Assignment | 102,800 | |
Cash - Forward Purchase Agreement (Anchor Investor) | 63,870 | |
Gross proceeds (excluding cash due at December 31, 2021 from the Trust Account) | 175,001 | |
Less: transaction costs and advisory fees paid | (30,700) | |
Net proceeds from the Business Combination | 144,301 | |
Less: warrant liabilities assumed | (16,487) | |
Less: repayment of note assumed in the Business Combination | (1,000) | |
Less: accrued transaction costs at December 31, 2021 | (700) | |
Plus: cash receivable from Trust | 345 | |
Less: net liabilities assumed in the Business Combination | (146) | |
Reverse merger, net of transaction costs | $ | 126,313 | |
The number of shares of common stock outstanding immediately following the consummation of the business combination was as follows:
| | | | | |
| Class A Common Stock |
THMA Public Shares | 832,899 | |
THMA Initial Stockholders | 6,900,000 | |
THMA Sponsor Shares | 6,387,026 | |
Shares Issued to PIPE Investors and Forward Purchase Assignment | 10,280,000 | |
Legacy Pear Equityholders(1) | 113,399,293 | |
Total shares of common stock immediately after business combination | 137,799,218 | |
__________________
(1)The number of Legacy Pear shares was determined from the shares of Legacy Pear shares outstanding immediately prior to the closing of the Business Combination converted at the Exchange Ratio of approximately 1.47. All fractional shares were rounded down.
Public Warrants and Private Placement Warrants
As of the Closing Date, the total value of the liability associated with the Public and Private Placement Warrants was $16,487 measured at fair value based on the public warrant quoted price. The Company concluded the warrants met the definition of a liability and have been classified as such on the balance sheet in accordance with the accounting policy described within Note 2. At December 31, 2021, the fair value of the warrant liability was $8,528. See Note 10 for further information on the Public and Private Placement Warrants.
Earn-Out Liabilities
The Company accounts for the potential issuance of the Earn-Out Shares as a contingent consideration arrangement, a liability for which was initially valued and recorded at $95,401, which was estimated by using a Monte Carlo Simulation Method for each earn out period. Key inputs and assumptions used in this were the Company’s stock price, expected term, volatility, the risk-free rate, and dividend yield. Some of these inputs are Level 3 assumptions that are updated each reporting period as the earn-out liabilities are recorded at fair value on a recurring basis. The Company revalued the earn-out liabilities as of December 31, 2021 and determined the fair value to be $48,363. The change in the fair value of the earn-out liabilities were recorded in other income (expense) on the statement of operations.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
4. FAIR VALUE MEASUREMENTS
The tables below present certain of our assets and liabilities measured at fair value categorized by the level of input used in the valuation of each asset and liability.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
Description | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Cash equivalents: | | | | | | | | |
Money market funds | | $ | 129,184 | | | $ | 129,184 | | | $ | — | | | $ | — | |
Debt investments: | | | | | | | | |
Corporate bonds | | 1,007 | | | — | | | 1,007 | | | — | |
Commercial paper | | 3,998 | | | — | | | 3,998 | | | — | |
Total debt investments | | 5,005 | | | — | | | 5,005 | | | — | |
Total assets | | $ | 134,189 | | | $ | 129,184 | | | $ | 5,005 | | | $ | — | |
Long-term liabilities: | | | | | | | | |
Embedded debt derivative | | $ | 675 | | | $ | — | | | $ | — | | | $ | 675 | |
Warrant liabilities | | 8,528 | | | 5,520 | | | 3,008 | | | |
Earn-out liabilities | | 48,363 | | | — | | | — | | | 48,363 | |
Total liabilities | | $ | 57,566 | | | $ | 5,520 | | | $ | 3,008 | | | $ | 49,038 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
Description | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Cash equivalents: | | | | | | | | |
Money market funds | | $ | 96,835 | | | $ | 96,835 | | | $ | — | | | $ | — | |
Debt investments: | | | | | | | | |
Corporate bonds | | 3,543 | | | — | | | 3,543 | | | — | |
Commercial paper | | 9,992 | | | — | | | 9,992 | | | — | |
Total debt investments | | 13,535 | | | — | | | 13,535 | | | — | |
Total assets | | 110,370 | | | 96,835 | | | $ | 13,535 | | | — | |
Long-term liabilities: | | | | | | | | |
Embedded debt derivative | | $ | 675 | | | $ | — | | | $ | — | | | $ | 675 | |
Warrant liabilities | | 2,650 | | | — | | | — | | | 2,650 | |
Total liabilities | | $ | 3,325 | | | $ | — | | | $ | — | | | $ | 3,325 | |
The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of financial instruments between levels during the years ended December 31, 2021 and December 31, 2020.
Cash equivalents—Money market funds included within cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
Investments—The Company measures its investments at fair value on a recurring basis and classifies those instruments within Level 2 of the fair value hierarchy. Marketable securities, including corporate bonds and commercial paper, are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined using models or other valuation methodologies. The Company recorded unrealized losses of $1 and $29 in other comprehensive income (loss) on short-term investments for the years ended December 31, 2021 and 2020, respectively.
Embedded debt derivative — As described in Note 7, the Company concluded that the contingent put options contained in the Perceptive Credit Facility that could require mandatory repayment upon the occurrence of an event
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
of default, change of control and certain other events represent an embedded derivative required to be bifurcated from the debt host instrument. The embedded debt derivative is measured at fair value using a probability-weighted cash flow valuation methodology, having a fair value of $675 at December 31, 2020, the date of issuance and December 31, 2021. The determination of the fair value of an embedded debt derivative includes inputs not observable in the market and as such, represents a Level 3 measurement. The methodology utilized requires inputs based on certain subjective assumptions, specifically, probabilities of mandatory debt repayment prior to maturity ranging between 0-10%.
Warrant liabilities — As a result of the Business Combination on December 3, 2021, the Company recorded a liability for Public and Private Placement Warrants to purchase Class A common stock in the Company’s consolidated financial statements. See Note 3 for further information. The Public Warrants are traded on Nasdaq and are recorded at fair value using the closing stock price as of the measurement date. The Private Placement Warrants, which have a single holder, have similar terms and are subject to substantially the same redemption features as the Public Warrants. Accordingly, the most advantageous market for the Private Placement Warrants is determined from the perspective of the holder of such warrants as an asset. Since any transfer to a non-permitted transferee (i.e., to a market participant) would cause the Private Placement Warrants to become public warrants, the fair value of the Private Placement Warrants is based on the quoted price of the Public Warrants.
As of the Closing Date, the total value of the liability associated with the Public and Private Placement Warrants was $16,487 measured at fair value based on the public warrant quoted price on Nasdaq (Ticker: PEARW). The Company concluded that the warrants met the definition of a liability and have been classified as such on the balance sheet in accordance with the accounting policy described within Note 2. At December 31, 2021, the fair value of the warrant liability was $8,528.
Prior to the Business Combination, Legacy Pear issued warrants to purchase Series A and Series D convertible preferred stock, which were exercised on December 1, 2021 and November 30, 2021, respectively, in connection with the Business Combination. The Company measured the fair value of the liabilities related to the Legacy Pear warrants to purchase Series A and Series D convertible preferred stock, using Level 3 inputs. As of December 31, 2020, the fair market value of the Series A and D warrants were estimated using an option pricing model (“OPM”).
The following significant assumptions used in the valuation model to estimate the fair value of the Legacy pear warrant liabilities were as follows:
| | | | | | | | | | | | | | | | |
| | | | December 31, 2020 |
Warrants | | | | Series A | | Series D |
Fair value of underlying preferred stock | | | | $ | 2.00 | | | $ | 7.21 | |
Expected life (years) | | | | 2.00 | | | 2.00 | |
Expected volatility | | | | 75.7 | % | | 75.7 | % |
Risk-free interest rate | | | | 0.13 | % | | 0.13 | % |
The following table reconciles the change in the fair value of the Series A and Series D warrant liabilities valued using Level 3 inputs:
| | | | | | | | | | | |
| Warrant Liabilities |
| Series A | | Series D |
Fair value as of December 31, 2019 | $ | 52 | | | $ | — | |
Issuance of warrants | — | | | 1,803 | |
Change in fair value | 2 | | | 793 | |
Fair value as of December 31, 2020 | 54 | | | 2,596 | |
Change in fair value | 433 | | | 7,824 | |
Exercise of warrants | (487) | | | (10,420) | |
Fair value as of December 31, 2021 | $ | — | | | $ | — | |
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Earn-out liabilities — Upon the closing of the Business Combination, the Earn-Out Shares were accounted for as a liability because the triggering events that determine the number of shares to be earned included events that were indexed to the common stock of the Company, with the change fair value recognized in Change in the estimated fair value of earn-out liabilities in the consolidated statement of operations.
The estimated fair value of the Earn-out Shares was determined using a Monte Carlo Simulation Method (“MCSM”) using the following assumptions at each valuation date:
| | | | | |
| December 31, 2021 |
Stock price | $ | 6.20 | |
Risk-free interest rate | 1.25 | % |
Expected term (in years) | 4.92 |
Expected volatility | 55.00 | % |
Dividend yield | — | % |
Current stock price: The stock price was based on the closing price as of the valuation date.
Risk-free interest rate: The risk-free interest rate is based on the US Treasury yield curve in effect at the time of issuance for zero-coupon US Treasury notes with maturities corresponding to the expected seven-year term of the earn-out period.
Expected term: The expected term is the contractual term of the earn-out period.
Expected volatility: The volatility rate was determined using an average of historical volatilities of selected industry peers deemed to be comparable to the Company’s business corresponding to the expected seven-year term of the awards.
Expected dividend yield: The expected dividend yield is zero as the Company currently has no history or expectation of declaring dividends in the foreseeable future.
Refer to Note 3 for more information on the triggering events of the Earn-Out Shares. The change in fair value of the earn-out liabilities resulted in other income of $47,038 recognized in the Consolidated Statement of Operations for the year ended December 31, 2021.
The following table reconciles the change in the fair value of the earn-out liabilities valued using Level 3 inputs:
| | | | | | | | |
| | Earn-Out Liabilities |
Fair value as of December 31, 2020 | | $ | — | |
Initial fair value of Earn-out liabilities as of the Business Combination | | 95,401 | |
Change in fair value | | (47,038) | |
Fair value as of December 31, 2021 | | $ | 48,363 | |
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
5. PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Internal-use software | $ | 6,591 | | | $ | 3,682 | |
Equipment | 579 | | | 441 | |
Construction in process | 362 | | | — | |
Furniture and fixtures | 586 | | | 383 | |
Leasehold improvements | 509 | | | 455 | |
Total property and equipment | 8,627 | | | 4,961 | |
Less: accumulated depreciation | (2,372) | | | (684) | |
Property and equipment, net | $ | 6,255 | | | $ | 4,277 | |
Depreciation expense was $1,689 and $381 for the years ended December 31, 2021 and 2020, respectively.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Compensation and related benefits | $ | 11,855 | | | $ | 6,953 | |
Commercial and marketing related costs | 1,821 | | | 1,492 | |
Professional services | 1,710 | | | 335 | |
Research and development costs | 781 | | | 355 | |
| | | |
| | | |
Other | 1,779 | | | 433 | |
Total | $ | 17,946 | | | $ | 9,568 | |
7. INDEBTEDNESS
Perceptive Credit Facility
On June 30, 2020, the Perceptive Close Date, the Company entered into a Credit Agreement and Guaranty, or Perceptive Credit Facility, with Perceptive Credit Holdings III, LP, as administrative agent and lender with a syndicate of other lenders, collectively Perceptive. The Perceptive Credit Facility, as amended, consists of a secured term loan facility in an aggregate amount of up to $50,000, which will be made available under the following three tranches: (i) Tranche 1 - $30,000, available at the Perceptive Closing Date; (ii) Tranche 2 - $10,000, available no earlier than December 31, 2021; and (iii) Tranche 3 - $10,000, available no later than December 31, 2021. The Company did not draw down on the available borrowings under Tranche 2 or Tranche 3.
The Perceptive Credit Facility will bear interest through maturity at a variable rate based upon the one-month LIBOR rate plus 11.0%, subject to a LIBOR floor of 1.0%. As of December 31, 2021, the interest rate was 12.0%. The Company is required to make interest-only payments until May 31, 2024, after which point the Company will be required to make monthly payments of principal equal to 3.0% of the then outstanding principal until maturity on June 30, 2025, or the Maturity Date. If the Company prepays the loan prior to the Maturity Date, it will be required to pay a prepayment fee guaranteeing Perceptive a 1.5 times return on any prepaid amount. A change of control, which includes a new entity or group owning more than 35.0% of the Company’s voting stock, or prior to an IPO, the failure of the existing holders to own at least 35.0% of the Company’s voting stock, trigger a mandatory prepayment of the term loan. The Business Combination did not trigger this clause as existing holders retained greater than 35% of the combined Company’s voting stock. The Company paid issuance costs of $750 in connection with its entry into the Perceptive Credit Facility.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The Company concluded the contingent put options that could require mandatory repayment upon the occurrence of an event of default, change of control and certain other events represent an embedded derivative required to be bifurcated from the debt host instrument and accounted for separately and recorded an embedded debt derivative of $675 as of December 31, 2020 and December 31, 2021. Any changes to the derivative liability in future periods will be recognized as interest and other (expense) income, net in the consolidated statements of operations and comprehensive loss.
The Perceptive Credit Facility is secured by substantially all the assets of the Company, including our intellectual property. The Credit Facility requires the Company to (i) maintain a minimum aggregate cash balance of $5,000 in one or more controlled accounts, and (ii) as of the last day of each fiscal quarter commencing with the fiscal quarter ending March 31, 2022, report revenues for the trailing 12-month period that exceed the amounts set forth in the Perceptive Credit Facility which range from $5,750 for the fiscal quarter ending March 31, 2022 to $125,000 for the fiscal quarter ending March 31, 2025. The Perceptive Credit Facility contains various affirmative and negative covenants that limit the Company’s ability to engage in specified types of transactions. The Company was in compliance with the covenants under the Perceptive Credit Facility as of December 31, 2021.
On the Perceptive Closing Date, Perceptive received a warrant certificate exercisable into 775,000 shares of Legacy Pear Series C preferred stock, and had the Company borrowed under Tranche 2 or Tranche 3, the Company would have been obligated to issue two additional warrants, the Additional Warrants, to Perceptive each to purchase up to 50,000 shares of Legacy Pear Series C preferred stock. In the event the Company issued Legacy Pear Series D preferred stock, Perceptive had the right to convert the Legacy Pear Series C preferred stock warrant into a warrant to purchase Legacy Pear Series D preferred stock, and the exercise price shall be automatically adjusted to equal the original per share price for Legacy Pear Series D preferred stock. On the Perceptive Closing Date, the Company issued freestanding Legacy Pear Series C preferred stock warrants to Perceptive, which were converted to Legacy Pear Series D preferred stock warrants at the time of the Legacy Pear Series D funding round. The Legacy Pear Series D preferred stock warrants were exercisable for 1,012,672 shares of Legacy Pear Series D preferred stock. The Legacy Pear Series D preferred stock warrants have an exercise price of $5.51 per share and would have expired in 2030 and were exercisable at any time prior to the ten-year anniversary of the Perceptive Closing Date of the Perceptive Credit Facility. At issuance, the Company determined that the warrant is liability-classified and would be remeasured at fair value each reporting period, with changes in fair value recorded in the consolidated statements of operations and comprehensive loss. The Additional Warrants would have been issued as warrants to purchase 65,333 shares of Legacy Pear Series D-1 preferred stock. On November 30, 2021, Perceptive net exercised 1,012,672 Legacy Pear Series D warrants pursuant to which Perceptive obtained 629,057 shares of Legacy Pear Series D-1 preferred stock in a cashless exercise, and subsequently converted the 629,057 shares of Legacy Pear Series D-1 preferred stock into 629,057 shares of Legacy Pear common stock which were then converted into 926,232 shares of Class A common stock as adjusted by the exchange ratio based on a per share price of $9.87 per share, the THMA closing price on June 22, 2021. See Notes 1 and 3 for more information.
On March 25, 2022, we amended the Perceptive Credit Facility to adjust certain covenants under the agreement. The amendment included among other things, reducing the required minimum trailing 12-month revenue for the fiscal quarter ending March 31, 2022 through the fiscal quarter ending March 31, 2025.
On the Perceptive Closing Date, the Company received proceeds of $28,500, net of fees and expenses of $1,500. As of December 31, 2021, no further borrows were taken under the Credit Facility. The outstanding balance of the Perceptive Credit Facility was:
| | | | | | | | |
Perceptive Credit Facility | | December 31, 2021 |
Principal | | $ | 30,000 | |
Less: Debt issuance costs and discount at issuance | | (3,007) | |
Net carrying amount | | $ | 26,993 | |
As discussed in Note 1, due to the substantial doubt about the Company’s ability to continue operating as a going concern for twelve months from the issuance date of these financial statements, the amounts due as of December 31,
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
2021, have been classified as current in the consolidated balance sheet. Future minimum payments, including contractual interest, under the Perceptive Credit Facility as of December 31, 2021 are as follows:
| | | | | | | | |
Year ended December 31, | | Amounts |
| | |
2022 | | 3,650 | |
2023 | | 3,650 | |
2024 | | 10,603 | |
2025 | | 24,039 | |
Total | | $ | 41,942 | |
Less: | | |
Interest payable | | (11,942) | |
Unamortized debt issuance costs | | (3,007) | |
Current portion of long-term debt | | (26,993) | |
Long-term debt | | $ | — | |
SVB Term Loan (Extinguished June 30, 2020)
On June 30, 2020, using the proceeds from the Perceptive Credit Facility, the Company paid the then outstanding principal of $14,889, outstanding interest, a termination fee of $169 and a final payment amount of $1,080, which was equal to 6.75% of all amounts borrowed under the term loan on its then existing loan and security agreement with Silicon Valley Bank, or SVB, or the SVB Term Loan resulting in a loss on extinguishment of debt of $998.
As part of entering into the amendments to the SVB Term Loan in 2019 and 2018, the Company issued warrants to purchase 17,019 and 28,486 shares of Legacy Pear common stock, respectively, at an exercise price of $1.60 and $1.05 per share, respectively, in cash or pursuant to the net exercise provisions of the warrants. The Company estimated the fair value of the warrants at issuance to be $27 and $30, respectively, using the Black Scholes option-pricing model. The warrants would have expired on June 28, 2029 and June 8, 2028, respectively. In addition, in connection with a borrowing in 2020 the Company issued warrants to purchase 35,817 shares of common stock at an exercise price of $1.60 per share in cash or pursuant to the net exercise provisions of the warrants. The Company estimated the fair value of the warrants at issuance to be $57, using the Black Scholes option-pricing model. The warrants are automatically exercised through cashless exercise if not exercised prior to the expiration date.
In addition, in 2016 with the initial SVB Term Loan, the Company granted the lender a Legacy Pear Series A preferred stock warrant which is exercisable for 32,711 shares of Legacy Pear Series A preferred stock. The exercise price of the Legacy Pear Series A preferred stock warrant was $0.9171 per share and the Series A preferred stock warrant would have expired on December 22, 2026. On December 1, 2021, in connection with the Business Combination, described in Note 3, SVB net exercised warrants to purchase 32,711 Legacy Pear Series A preferred shares at $0.9171 per share and 28,486 and 52,836 Legacy pear common stock warrants at $1.05 and $1.60 per share, respectively for 81,322 shares of Legacy Pear common stock, par value $0.0001 per share, pursuant to which SVB received 30,673 Legacy Pear Series A Pear preferred shares and 73,547 Legacy Pear Common Shares, and subsequent conversion of the Legacy Pear Common Shares and Legacy Pear Series A preferred shares into 153,454 Class A common stock as adjusted by the exchange ratio of approximately 1.47 based on a per share price of $14.72, the per share consideration in connection with the merger.
8. COMMITMENTS AND CONTINGENCIES
Leases
As of December 31, 2021, the Company leases office space under non-cancelable operating leases in three cities, Boston, Massachusetts, consisting of approximately 19,000 square feet that will expire on June 1, 2028, including approximately 900 square feet that the Company will take over on January 1, 2022, San Francisco, California, consisting of approximately 17,000 square feet that will expire on July 31, 2025 and Raleigh, North Carolina,
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
consisting of approximately 7,700 square feet that will expire on May 31, 2026. We have the right and option to extend each of the Boston and Raleigh leases for a five year period.
We recognized rent expense of $2,798 and $2,067 for the years ended December 31, 2021 and 2020, respectively. The Company has $1,007 and $577 in deferred rent recorded within other long-term liabilities in the consolidated balance sheet as of December 31, 2021 and 2020, respectively.
Future commitments under non-cancelable lease agreements are as follows:
| | | | | | | | |
Years ended December 31, | | Lease Commitments |
2022 | | 2,809 | |
2023 | | 2,912 | |
2024 | | 3,176 | |
2025 | | 2,734 | |
2026 and thereafter | | 3,879 | |
Total | | 15,510 | |
In addition to rent, certain leases require the Company to pay additional amounts for taxes, insurance, maintenance and other operating expenses.
Licenses Related to our Commercial Products
As of December 31, 2021, the Company has four license agreements related to its commercialized products.
The Invention Science Fund I, LLC
The Company entered into a contribution and license agreement for Pharmaceutical Field of Use, or FOU, with The Invention Science Fund I, LLC, or ISF, in February 2015, as amended on February 28, 2018, or ISF Contribution and License Agreement. The ISF Contribution and License Agreement superseded an original contribution and license agreement between the Company and ISF dated December 31, 2013. Under the ISF Contribution and License Agreement, ISF granted the Company certain licenses under specified patent rights to develop and commercialize licensed products either independently and/or with a drug combination product for use in connection with the treatment of central nervous system disorders. The ISF Contribution and License Agreement contains minimum annual royalty obligations. To the extent there are sales of a licensed product, the Company is required to pay low-single-digit royalties on net revenue. For the years ended December 31, 2021 and December 31, 2020, the Company recorded minimum annual royalty fees of $1,050 and $800 to ISF, respectively.
Red 5 Group, LLC
In January 2015, the Company entered into a software license agreement with Red 5 Group, LLC, or Red 5, and in March 2018, the parties entered into an amended and restated software license agreement, or Amended Red 5 Group License. Under the original software license agreement, Red 5 licensed the Company certain technology and materials relating to the treatment of psychological and substance use disorders, pursuant to which the Company, received, inter alia, an exclusive, worldwide, sublicensable, royalty-bearing license to develop and commercialize integrated products incorporating the licensed technology and materials. The Company agreed to use commercially reasonable efforts to develop integrated products in accordance with the development plan, to introduce any integrated products that gain regulatory approval into the commercial markets, to market integrated products that have gained regulatory approval following such introduction into the market, and to make integrated products that have gained regulatory approval reasonably available to the public.
In March 2018, pursuant to the Amended Red 5 Group License, the parties expanded the scope of exclusivity of the license, increased certain specified annual license maintenance fees, and required the Company to pay Red 5 an amendment fee, which was paid in April 2018. On July 1, 2021, the parties amended the Amended Red 5 Group License to further clarify certain terms and increase the royalty rate by a de minimis amount.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
To the extent achieved, the Company is obligated to pay up to an aggregate of $400 if certain milestones related to product regulatory approval and commercial sales are achieved in respect to a software/drug combination, which is not currently being pursued by the Company. To the extent there are sales of an integrated product, the Company is required to pay single-digit royalties on net revenues. The Company is entitled to certain reductions and offsets against its royalty and milestone payment obligations, including the annual license maintenance fees.
On July 1, 2021, the parties amended the Amended Red 5 License Agreement to further clarify certain terms and increase the royalty rate by a de minimis amount.
The Company pays minimum annual maintenance fees to Red 5 Group, LLC, or Red 5, in connection with reSET and reSET-O. For the years ended December 31, 2021 and December 31, 2020, the Company recorded minimum annual maintenance fees of $250 and $103 to Red 5, respectively.
BeHealth Solutions, LLC and University of Virginia Patent Foundation
In March 2018, the Company and BeHealth Solutions, LLC, or BeHealth, entered into an assignment, license and services agreement, or the BeHealth Agreement, as well as a consulting agreement. The BeHealth Agreement closed in June 2018 and the Company paid an up-front fee. Under the BeHealth Agreement, the Company obtained license rights to certain technology and materials relating to a therapeutic treatment for insomnia. The consulting agreement is for services to be charged on a time-and-materials basis.
During the year ended December 31, 2020, the Company paid a milestone payment to BeHealth of $750 upon the FDA’s marketing authorization of Somryst, a PDT intended for use in the treatment of adults with chronic insomnia. During September 2021, a commercial milestone under the license agreement with BeHealth was achieved and the Company paid $1,000 during the year ended December 31, 2021. The milestone payments are capitalized in other long-term assets in the accompanying consolidated balance sheets and amortized on a straight-line basis to cost of product revenue over the estimated useful life of five years.
The BeHealth Agreement continues in force until the expiration of all milestone and royalty payment obligations, unless terminated earlier in accordance with its terms. The Company could be obligated to make payments of up to an additional $26,000 in the aggregate upon achievement of various commercial milestones and a mid-to-high-single-digit royalty on net sales.
The Company pays royalties based on net revenues of the sales of Somryst to BeHealth Solutions, LLC, or BeHealth, and the University of Virginia Patent Foundation, or UVPF. The Company recorded de minimis royalties to BeHealth and UVPF for the years ended December 31, 2021 and 2020, respectively.
Guarantees and Indemnifications
As permitted under Delaware law, the Company indemnifies its officers, directors and employees for certain events or occurrences that happen by reason of the relationship with, or position held at, the Company. In addition, the indemnification agreements entered into with our board members, Messrs. Schwab and Lynch, also provide certain indemnification rights to the entities with which they are affiliated. The Company maintains director and officer liability insurance coverage that would generally enable it to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions. Further, the Company is a party to a variety of agreements in the ordinary course of business under which it may be obligated to indemnify third parties with respect to certain matters. For the years ended December 31, 2021 and 2020, the Company had not experienced any losses related to these indemnification obligations, and no claims were outstanding as of December 31, 2021. The Company does not expect significant claims related to these indemnification obligations and consequently concluded that the fair value of these obligations is negligible and no related accruals were recorded.
Purchase Commitment
On June 17, 2021, and later amended on August 3, 2021, the Company entered into a non-cancelable purchase obligation for a subscription to the Palantir Foundry cloud platform, including support services, updates, and related
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
professional services with Palantir for $9,300 payable over three years, continuing through September 30, 2024. Through December 31, 2021, the Company recorded $2,983 under the terms of the agreement, $2,503 of which is included in prepaid expenses on the consolidated balance sheet as of December 31, 2021.
Assignment and License Agreement
In November 2021, the Company and Waypoint Health Innovations, LLC (“Waypoint”) entered into an Assignment Agreement and Intellectual Property License Agreement (collectively, the “Waypoint Agreement”). The Waypoint Agreement closed in December 2021, under which the Company obtained software, documentation, and other intellectual property rights relating to the therapeutic treatment of depression. At the same time, the Company entered into a consulting agreement with the Chief Executive Officer of Waypoint to provide certain services to Pear to be charged on a time-and-materials basis. The Company made an upfront payment of $1,350, and is required to make annual payments starting in the second half of 2022 of $250 per year through 2026 or until a commercial milestone payment is made under the agreement. The upfront payment and the net present value of the annual payments of $1,011 were capitalized and recorded as an intangible asset in consolidated balance sheet at December 31, 2021, and will be amortized over five years. The net present value of the annual payments was recognized as a seller financing liability, and classified within accrued expenses and other current liabilities and other long-term liabilities on the balance sheet.
The Company will be obligated to pay mid-single digit royalties on net revenues of any commercialized products that incorporate the assets obtained under the Waypoint Agreement. Additionally, the Company could be obligated to make payments of up to an additional $2,500 in the aggregate upon achievement of certain regulatory and commercial milestones. Through December 31, 2021, no royalties have been paid to Waypoint.
Legal Proceedings
The Company is also involved from time to time in various legal proceedings arising in the normal course of business. Although the outcomes of potential legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flow.
9. PAST COLLABORATION AND LICENSE AGREEMENT
Novartis Agreement (Terminated in June 2020)
In March 2018, the Company entered into a collaboration agreement with Novartis Institutes for Biomedical Research, or NIBR, or the Novartis Agreement, to develop PDTs for Schizophrenia and Multiple Sclerosis, or MS. The two companies worked together towards developing new treatments for patients with schizophrenia and MS to better address the full burden of their illnesses.
On March 30, 2020, NIBR terminated the collaboration agreement for convenience with the Company relative to both the schizophrenia and MS programs. The termination was subject to a 90-day notice period and was effective as of June 29, 2020.
Under the Novartis Agreement, the Company received a non-refundable up-front payment of $5,000. The agreement included research and development funding, as well as future regulatory and commercial milestones and mid-to-high single-digit royalties on net sales of the two products. Contemporaneous with the Novartis Agreement, NIBR purchased 1,158,292 shares of Legacy Pear Series B preferred stock at $4.3167 per share, resulting in aggregate proceeds to the Company of $5,000. The Company allocated the proceeds from NIBR’s purchase of Legacy Pear Series B preferred stock to stockholders’ equity since the purchase price was equal to the price paid by other Legacy Pear Series B investors and the transaction was completed within a short period following the initial Legacy Pear Series B closing. The Company invoiced NIBR and received $3,105 for reimbursement of research and development costs during the year ended December 31, 2020.
NIBR had a buyout option with respect to each of the Schizophrenia and MS products, together the Buyout Option. If the Buyout Option was exercised, the license would have converted to a fully paid, perpetual, irrevocable and
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
exclusive (as to the application) license. The Company determined that the Buyout Option was not priced at a significant discount due to the early nature of both the development efforts and the PDTs market as a whole. Accordingly, the Buyout Option did not represent a material right and was not considered a separate performance obligation.
The Company concluded that the license agreement is within the scope of ASC 606. The Company identified several material promises under the Novartis Agreement, including (i) the license of intellectual property, (ii) continued technical development, regulatory and preclinical activities of the products and (iii) participating on a JSC. The Company determined that the material promises were not distinct from one another and, therefore, combined them as a single performance obligation, or the Novartis Combined License and Development.
The NIBR initial transaction price was composed solely of the $5,000 up-front payment and the initial agreed-upon reimbursement of costs related to certain technical and clinical development activities, or the Pear Novartis Development Efforts. Any potential future payments pursuant to additional Pear Novartis Development Efforts or achievement of regulatory, net sales milestones or royalties were evaluated under the most likely amount method and were not included in the Novartis initial transaction price because the amounts were considered variable consideration and were initially fully constrained. As part of the evaluation of the constraint, the Company considered numerous factors, including that receipt of such payments was largely outside the control of the Company. These amounts were added to the transaction price when the related regulatory or net sales milestones are achieved or as relates to Pear Novartis Development Efforts, as additional amounts are formally approved by the JSC. Due to the lack of historical perspective on efforts necessary to commercialize PDTs, future reimbursements related to continued Pear Novartis Development Efforts could not be reasonably estimated beyond the amounts that were approved at the JSC annually for the succeeding 12 months. Adjustments were recorded on a cumulative catch-up basis. Due to a milestone achievement and increases in JSC approved budgets, the transaction price was increased, resulting in a cumulative catch-up impact on collaboration revenue of approximately $600 for the year ended December 31, 2019.
As the Company identified only one distinct performance obligation in the Novartis Agreement, the entirety of the NIBR transaction price was allocated to the Novartis Combined License and Development and was being recognized over the expected term of the agreement, which has been estimated at five years, ratably over the performance period, which, in management’s judgment, was the best measure of progress toward satisfying the performance obligation. The Company utilizes judgment to assess the nature of the combined performance obligation and the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
In connection with the termination of the agreement, on the effective date of the termination, June 29, 2020, deferred revenue of $8,261 was recognized.
As of December 31, 2020, there was no remaining deferred revenue from NIBR under this agreement.
10. CAPITAL STOCK
The Company’s authorized capital stock consists of (a) 690,000,000 shares of common stock, par value $0.0001 per share; and (b) 10,000,000 shares of preferred stock, par value $0.0001 per share. As of December 31, 2021, there were 137,836,028 shares of Class A common stock issued and outstanding and 14,213,277 Warrants to purchase the Company’s Class A common stock outstanding. As of December 31, 2021, there were no shares of preferred stock issued or outstanding.
Legacy Convertible Preferred Stock
In connection with the Business Combination, the Legacy Convertible Preferred Stock was retroactively adjusted, converted into Class A common stock, and reclassified to permanent equity as a result of the reverse recapitalization. As of December 31, 2021, there is no Legacy Convertible Preferred Stock authorized, issued or outstanding. The
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
following table summarizes details of Legacy Convertible Preferred Stock authorized, issued and outstanding immediately prior to the Business Combination:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Legacy Convertible Preferred Series | | Par Value | | Authorized(1) | | Issued and Outstanding(1) | | Carrying Value | | | | |
Series A | | $ | 0.0001 | | | 20,385,183 | | | 20,308,856 | | | $ | 26,708 | | | | | |
Series B | | 0.0001 | | | 11,808,789 | | | 11,808,789 | | | 50,686 | | | | | |
Series C | | 0.0001 | | | 8,951,819 | | | 8,951,819 | | | 64,197 | | | | | |
Series D-1 | | 0.0001 | | | 16,436,653 | | | 15,293,315 | | | 109,633 | | | | | |
Series D-2 | | 0.0001 | | | 8,109,888 | | | 8,109,888 | | | 40,168 | | | | | |
Total | | | | 65,692,332 | | | 64,472,667 | | | $ | 291,392 | | | | | |
__________________
(1)Shares authorized, shares issued and outstanding, and the conversion price/share have been adjusted to reflect the exchange of Legacy Pear’s common stock for Class A common stock at an exchange ratio of approximately 1.47 as a result of the Business Combination. See Note 3 for further information.
The relevant features of the Legacy Pear Series A preferred stock, Legacy Pear Series B preferred stock, Legacy Pear Series C preferred stock and Legacy Pear Series D preferred stock, collectively, the Legacy Preferred Stock, prior to the conversion in the Business Combination, were as follows:
Conversion—The holders of Legacy Pear preferred stock had the right, at their option at any time, to convert any such shares of Legacy Preferred Stock into fully paid and nonassessable shares of Legacy Pear common stock The conversion ratio is determined by dividing the purchase price by the conversion price, which is equal to $0.9171, $4.3167, $7.1935, $6.5388, and $3.9458 per share for the Legacy Pear Series A, B, C, D-1, and D-2 preferred stock, respectively. The conversion price was subject to change if certain dilutive events occurred. Conversion was mandatory upon the closing of a firm commitment, underwritten initial public offering in which the aggregate net proceeds to the Company were at least $100,000 and have an offering price to the public of at least $11.01 per share or upon the election of a majority of the holders of the Legacy Preferred Stock.
Anti-Dilution Features—Legacy Pear Series D preferred stock contained anti-dilutive features apart from customary adjustments for splits and reverse splits of common stock (collectively, “down round features”). When a series of convertible preferred stock contains non-standard down round features, the Company is required to adjust the conversion price in the event of future stock sales at a lower unit price. In the event down round adjustments are triggered, the values attributable to the adjustment to the convertible preferred stock conversion price are recorded as an increase to additional paid-in capital and an increase to accumulated deficit. For the years ended December 31, 2020 and 2021 no down round features were triggered.
Voting Rights—The holders of the Legacy Preferred Stock voted together with the holders of common stock as a single class and each holder of outstanding shares of Legacy Preferred Stock was entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Legacy Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. The holders of record of the shares of Legacy Pear Series D preferred stock, exclusively and as a separate class, were entitled to elect one director of the Company. The holders of record of the shares of Legacy Pear Series B preferred stock, exclusively and as a separate class, were entitled to elect one director of the Company. The holders of record of the shares of Legacy Pear Series A preferred stock, exclusively and as a separate class, were entitled to elect three directors of the Company; and any remaining directors were elected by the holders of record of shares of Legacy Preferred Stock and common stock, voting together as a single class on an as-converted to common stock basis.
Dividends—The holders of Legacy Convertible Preferred Stock were entitled to receive dividends at the rate of 8% of the original issue price for each series of Legacy Convertible Preferred Stock payable only when, as and if, declared by the Company’s board of directors. Through the date of the Business Combination, no dividends had been declared.
Liquidation Rights—In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the affairs of the Company, each holder of a share of the Legacy Pear Series D preferred stock then outstanding was
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
entitled to be paid out of the assets of the Company available for distribution before any payment shall be made to the holders of Legacy Pear Series C, Legacy Pear Series B, Legacy Pear Series A preferred stock and common stock an amount equal to the original purchase price per share ($6.5388 and $3.9458 for Legacy Pear Series D-1 and D-2, respectively), plus any dividends declared, but unpaid thereon. From the remaining assets, Legacy Pear Series C preferred stock then outstanding was entitled to be paid out of the assets of the Company available for distribution before any payment shall be made to the holders of Legacy Pear Series B, Legacy Pear Series A preferred stock and common stock an amount equal to $7.1935 per share, plus any dividends declared, but unpaid thereon. From the remaining assets, Legacy Pear Series B preferred stock then outstanding was entitled to be paid out of the assets of the Company available for distribution before any payment shall be made to the holders of Legacy Pear Series A preferred stock and common stock an amount equal to $4.3167 per share, plus any dividends declared, but unpaid thereon. From the remaining assets, each holder of a share of the Legacy Pear Series A preferred stock then outstanding was entitled to be paid out of the assets of the Company available for distribution before any payment shall be made to the holders of common stock an amount equal to $0.9171 per share, plus any dividends declared, but unpaid thereon. Any remaining assets were to be distributed among the holders of the shares of Preferred Stock and common stock on a pro-rata basis.
Redemption Rights—Legacy Preferred Stockholders are not entitled to any redemption rights other than those under their liquidation rights previously discussed above.
Legacy Pear Series D Convertible Preferred Stock Issuance
On November 2, 2020, the Company authorized the issuance of 13,377,998 shares of Legacy Pear Series D-1 convertible preferred stock, or the Legacy Pear Series D-1 Preferred Stock, at $4.4400 per share and the issuance of 9,861,666 shares of Legacy Pear Series D-2 convertible preferred stock, or the Legacy Pear Series D-2 Preferred Stock, at $2.6800 per share. On that date, various existing and new investors entered into the Legacy Pear Series D preferred stock purchase agreements, or the Legacy Pear Series D Agreements, which resulted in the issuance of an aggregate 20,344,538 shares of Legacy Pear Series D preferred stock for aggregate gross cash proceeds of $112,000. In conjunction with the issuance of Legacy Pear Series D preferred stock, the Company incurred issuance costs totaling $768. In connection with the Legacy Pear Series D-1 Preferred Stock and Legacy Pear D-2 Preferred Stock issuance, the Company recorded a loss of $16,819, which represents the amount by which the estimated fair value of the shares exceeded the cash proceeds received.
In addition, in connection with the Legacy Pear Series D-2 Preferred Stock offering, the Company commenced a tender offer to purchase up to 8,109,888 shares of Legacy Pear common stock or securities convertible into shares of Legacy Pear common stock from certain employees with tenure over four years, former employees and other stockholders, at a purchase price of $3.9433 per share for an aggregate cost of $31,980 excluding fees and expenses of $20. The tender offer expired on December 7, 2020. In connection with the tender offer, the Company purchased 2,788,732 shares of Legacy Pear common stock from the President and CEO, and 41,100 Legacy Pear common shares from certain eligible employees, at a purchase price of $3.9433 per share totaling $11,159 and resulting in a stock-based compensation expense of $7,254, representing the difference between the purchase price and the estimated fair value of the Legacy Pear common stock on the date of the sale. The Company also repurchased 1,656,467 Legacy Pear common shares from other shareholders for a total purchase price of 6,532. In total, the Company repurchased 4,486,299 shares of Legacy Pear common stock from investors having a total purchase price of $17,691.
In addition, the Company repurchased 3,617,798 shares of Legacy Pear Series A preferred stock and 5,791 shares of Legacy Pear Series B preferred stock from certain investors having a total purchase price of $14,289, which exceeded the carrying value of the Legacy Pear preferred stock by $11,053. The excess amount paid over the carrying value for the Legacy Pear common and Legacy Pear preferred stock repurchased from investors has been recorded as a reduction to additional paid-in capital and accumulated deficit in the consolidated statement of stockholders’ equity.
On February 23, 2021, the Company issued 3,058,665 shares of Legacy Pear Series D-1 convertible preferred stock at the price of $6.5388 per share, resulting in proceeds of $20,000, or the Legacy Pear Series D-1 Extension and incurred issuance costs totaling $83. In connection with the Legacy Pear Series D-1 Extension, the Company
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
recorded a loss of $2,053, which represents the amount by which the fair value of the Legacy Pear shares exceeded the cash proceeds received.
As a result of the Business Combination, all of the shares of Legacy Pear stock were converted into Legacy Pear common stock. Each share of Legacy Pear common stock issued and outstanding immediately prior to the closing were canceled and converted into Class A common stock at an exchange ratio of approximately 1.47. See Note 1 for more information.
Warrants to Purchase Class A Common Stock
In THMA’s initial public offering, it sold units at a price of $10.00 per unit, which consisted of one share of Class A Common Stock, $0.0001 par value, and one-half of a redeemable warrant (each, a “Public Warrants”) that entitles the holders the right to purchase one share of our Class A common stock at a price of $11.50 per share and became exercisable as of 30 days from the date of the Business Combination. The Public Warrants may only be exercised for a whole number of shares, at any time commencing 30 days after the completion of the Business Combination. A warrant holder may exercise its Public Warrants only for a whole number of Class A common stock. This means only a whole warrant may be exercised at a given time by a warrant holder. The Public Warrants expire five years after the completion of the Business Combination, or earlier upon redemption or liquidation.
The Company may redeem the outstanding Public Warrants in whole and not in part at a price of $0.01 per Pubic Warrant upon a minimum of 30 days’ prior written notice of redemption, and only in the event that the last sale price of the closing price of the Company’s Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption is given. If the Company redeems the Public Warrants as described above, it will have the option to require all Public Warrant holders that wish to exercise to do so on a “cashless basis”. As of December 31, 2021, the Company did not redeem the outstanding Public Warrants. As of December 31, 2021, there were 9,199,944 outstanding Public Warrants.
The Company may redeem the outstanding Public Warrants in whole and not in part at a price of $0.10 per Pubic Warrant once the Public Warrants become exercisable, in whole and not in part at $0.10 per Public Warrant upon a minimum of 30 days’ prior written notice of redemption, provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the shares of Class A common stock, and the closing price of the Class A common stock equals or exceeds $10.00 per share (as adjusted) on the trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
The exercise price and number of Class A common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price.
Simultaneously with the consummation of THMA’s initial public offering, THMA Sponsor LJ1, LLC (the “Sponsor”) purchased an aggregate of 5,013,333 warrants to purchase one share of Class A common stock at an exercise price of $11.50 (the “Private Placement Warrants”) at a price of $1.50 per warrant, generating total proceeds of $7,520 in the aggregate in a private placement.
The Warrant Agreement, dated as of February 1, 2021, by and between the Company and Continental Stock Transfer & Trust Company also obligated the Company to use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act of 1933, as amended (the “Securities Act”), of the issuance of the shares of Common Stock issuable upon exercise of the Public Warrants, and to cause the same to become effective and remain effective while the Public Warrants remain outstanding. On December 23, 2021, the Company’s registration statement covering the registration of such shares became effective.
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that, so long as they are held by the Sponsor or its permitted transferees: (1) they will not be redeemable by the Company for $0.01 if the criteria listed above under “Redemption of Warrants When the Price
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
per Class A Ordinary Share Equals or Exceeds $18.00”; (2) they (including the ordinary shares issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the Sponsor until 30 days after the completion of the Business Combination; (3) they may be exercised by the holders on a cashless basis; and (4) they (including the ordinary shares issuable upon exercise of these warrants) are entitled to registration rights.
11. STOCK-BASED COMPENSATION AND BENEFIT PLANS
For the years ended December 31, 2021 and 2020, the Company incurred stock-based compensation expenses of $3,810 and $9,026, respectively.
Stock Incentive Plans
On December 20, 2013, Legacy Pear’s board of directors adopted the 2013 Stock Incentive Plan, or the 2013 Plan, which provided for the grant of stock options, both incentive stock options and nonqualified stock options and restricted stock, to be granted to officers, directors, consultants, and service providers. As last amended and approved by the board of directors on November 3, 2020, the Company was permitted to grant up to 16,727,451 incentive awards under the 2013 Plan.
In connection with the closing of the Business Combination, the Company adopted the 2021 Incentive Award Plan (the “2021 Plan”) a shareholder-approved plan that provides for broad-based equity grants to employees and certain non-employees, including executive officers and permits the granting of restricted stock units (“RSUs”), stock grants, performance based awards, stock options and stock appreciation rights, as well as cash bonus awards.
Each stock option from the 2013 Plan that was outstanding immediately prior to the Business Combination, whether vested or unvested, were cancelled and exchanged for a stock option to purchase our Class A common stock in the 2021 Plan at a ratio of approximately 1.47. The per share exercise price for each stock option was divided by the ratio of approximately 1.47.
A total of 32,000,000 shares of our Class A common stock are initially reserved for issuance under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will automatically increase each January 1, beginning on January 1, 2022 and ending in 2031, by 5% of the outstanding number of Class A common stock on the immediately preceding December 31, or such lesser amount as determined by the plan administrator (Board of Directors).
All stock-based awards are measured based on the grant date fair value and are generally recognized on a straight-line basis in the Company’s consolidated statement of operations and comprehensive loss over the period during which the employee is required to perform services in exchange for the award (generally requiring a four-year vesting period). RSUs granted under the 2021 Plan generally vest over three years, based on continued employment, and are settled upon vesting in shares of the Company’s Class A common stock on a one-for-one basis.
During the years ended December 31, 2021 and 2020, the Company granted stock options, to purchase 9,541,714 and 3,848,401 shares of common stock with aggregate grant date fair values of $30,205 and $2,605, respectively.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Common Stock Options
The combined stock option activity for the year ended December 31, 2021, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | Weighted Average Exercise Price (1) | | Weighted-Average Remaining Contractual Life (years) | | Aggregate Intrinsic Value |
| | | | | | | |
| | | | | | | |
Options outstanding at 12/31/2020, as converted | 13,620,077 | | | $ | 0.94 | | | 7.12 | | |
Granted | 9,541,714 | | | 5.31 | | | | |
Exercised | (1,130,923) | | | 0.76 | | | | |
Canceled and forfeited | (2,648,893) | | | 1.48 | | | | |
Options outstanding at December 31, 2021 | 19,381,975 | | | 3.02 | | 8.16 | | $ | 71,543 | |
Exercisable at December 31, 2021 | 7,341,730 | | | $ | 0.85 | | | 6.59 | | $ | 39,251 | |
__________________
(1)Number of options and the weighted average exercise price have been adjusted to reflect the exchange of Legacy Pear’s common stock for Class A common stock at an exchange ratio of approximately 1.47 in December 2021 as a result of the Business Combination. See Note 3 for further information.
The weighted-average grant date fair value of stock options granted during the years ended December 31, 2021 and 2020, was $5.31 and $1.00 per share, respectively. The fair value of stock options that vested during the year ended December 31, 2021 was $1,852.
As of December 31, 2021, the total unrecognized compensation costs related to non-vested stock options were approximately $28,894 and are expected to be recognized over a weighted average period of 3.4 years.
Stock Compensation Expense
The assumptions used to estimate the grant date fair value using the Black-Scholes option pricing model were as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Risk-free interest rate | 1.01 | % | | 0.54 | % |
Expected volatility | 68.85 | % | | 67.65 | % |
Expected term (years) | 5.54-6.68 | | 5.57-6.70 |
Expected dividend yield | — | % | | — | % |
The Company has classified stock-based compensation in its consolidated statements of operations and comprehensive loss as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Cost of product revenue | $ | 133 | | | $ | — | |
Research and development | 1,522 | | | 793 | |
Selling, general, and administrative (1) | 2,155 | | | 8,233 | |
Total stock-based compensation expense | $ | 3,810 | | | $ | 9,026 | |
__________________
(1)In connection with the tender offer in 2020, the Company purchased 2,788,732 shares of common stock from the CEO, and 41,100 common shares from certain eligible employees, at a purchase price of $3.9433 per share totaling $11,159 and resulting in a stock-based compensation expense of $7,254, representing the difference between the purchase price and the estimated fair value of the common stock on the date of the sale.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Employee Stock Purchase Plan
In connection with the closing of the Business Combination, the Company adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The 2021 ESPP is a shareholder-approved plan under which substantially all employees may voluntarily enroll to purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the 2021 ESPP are limited to 15% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year.
A total of 1,800,000 shares of our Class A common stock are reserved and authorized for issuance under the 2021 ESPP. In addition, the number of Class A common stock available for issuance under the 2021 ESPP automatically increased each January 1 of each calendar year beginning on January 1, 2022, and ending in 2031, by the lesser of 3,600,000 shares of the Company’s common stock, 5% of the outstanding number of shares of Class A common stock on the immediately preceding December 31, or such lesser amount as determined by the plan administrator. As of December 31, 2021, no shares have been issued under the 2021 ESPP.
12.INCOME TAXES
A reconciliation of the US federal statutory income rate to the Company’s effective income tax rate is as follows:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 |
Federal statutory income tax rate | 21.0 | % | | 21.0 | % |
State income taxes, net of federal benefit | 8.2 | % | | 5.1 | % |
Permanent differences | 12.6 | % | | (5.8) | % |
Federal and state research and development tax credits | 3.0 | % | | 1.8 | % |
Other | (1.0) | % | | 0.4 | % |
Provision to return adjustment | (3.2) | % | | (0.3) | % |
Change in deferred tax asset valuation allowance | (40.6) | % | | (22.2) | % |
Effective income tax rate | — | % | | — | % |
The components of the Company’s deferred tax assets are as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 55,930 | | | $ | 34,040 | |
Deferred revenues | 377 | | | 10 | |
Research and development credit carryforwards | 7,258 | | | 4,988 | |
Accrued expenses and other | 2,796 | | | 1,145 | |
Stock-based compensation | 576 | | | 167 | |
Depreciation | (227) | | | (100) | |
Amortization | (277) | | | — | |
Other | 240 | | | — | |
Total deferred tax assets | 66,673 | | | 40,250 | |
Less: valuation allowance | (66,673) | | | (40,250) | |
Net deferred tax assets | $ | — | | | $ | — | |
The Company had no income tax expense due to the operating loss incurred for the years ended December 31, 2021 and 2020. The Company’s management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and has determined that it is more likely than not that the Company will null recognize the benefits of the net deferred tax assets. As a result, the Company recorded a full valuation allowance at
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
December 31, 2021 and 2020. The valuation allowance increased by $26,423 during the year ended December 31, 2021, due to the increase in deferred tax assets, primarily due to net operating loss carryforwards, research and development tax credits and accrued expenses. The valuation allowance increased by $21,566 for the year ended December 31, 2020.
As of December 31, 2021, the Company has unused federal and state net operating loss carryforwards, or NOLs, available for carryforward of $218,908 and $172,082 respectively. The federal and state NOL carryforwards begin to expire after 2034. Approximately $201,538 of the federal NOLs have an indefinite carryover period. The Company also had available research and development credits for federal and state income tax purposes of $6,229 and $1,303, respectively. Utilization of the NOL, research and development credits and other tax attributes may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or could occur in the future. The Company has not yet completed an evaluation of the ownership changes through December 31, 2021.
As of December 31, 2021 and 2020, the Company had no uncertain tax positions. The Company recognizes both interest and penalties associated with unrecognized tax benefits as a component of income tax expense. The Company has not recorded any interest or penalties for unrecognized tax benefits since its inception.
In the normal course of business, the Company and its subsidiaries may be periodically examined by various taxing authorities. The Company files income tax returns in the US on a federal basis and in certain US states. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. With few exceptions, the Company is no longer subject to income tax examinations for years prior to 2017.
13.NET LOSS PER SHARE
For periods in which the Company reports a net loss attributable to common stockholders, potentially dilutive securities have been excluded from the computation of diluted net loss per share as their effects would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at period end, from the computation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Convertible preferred stock (as converted to common stock) | — | | | 61,414,002 | |
Outstanding common stock options | 19,381,975 | | | 13,620,077 | |
Warrants to purchase Legacy Pear common stock | — | | | 1,126,705 | |
Private placement warrants to purchase common stock | 5,013,333 | | | — | |
Public warrants to purchase common stock | 9,199,944 | | | — | |
Earn-Out Shares | 12,395,625 | | | — | |
Total | 45,990,877 | | | 76,160,784 | |
__________________(1) Prior period results have been adjusted to reflect the exchange of Legacy Pear common stock for Class A common stock at an exchange ratio of approximately 1.47 as a result of the Business Combination. See Note 3 for further information.
Pear Therapeutics, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company for the year ended December 31:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Numerator: | | | |
Net loss | $ | (65,142) | | | $ | (97,023) | |
Loss on repurchase of convertible preferred stock | $ | — | | | $ | (11,053) | |
Net loss attributable to common shareholders | $ | (65,142) | | | $ | (108,076) | |
Denominator: | | | |
Weighted-average common shares outstanding, basic and diluted (1) | 113,328,450 | | | 89,216,091 | |
Net loss per share attributable to common stockholders, basic and diluted (1) | $ | (0.57) | | | $ | (1.21) | |
__________________(1)The weighted-average common shares and thus the net loss per share calculations and potentially dilutive security amounts for all periods prior to the Business Combination have been retrospectively adjusted to the equivalent number of shares outstanding immediately after the Business Combination to effect the reverse recapitalization. Historically reported weighted average shares outstanding have been multiplied by the exchange ratio of approximately 1.47. See Note 3 for further information.
14.RELATED-PARTY TRANSACTIONS
Certain holders of Legacy Pear Series A preferred stock formerly had representation on the Company’s board of directors and purchased shares of Legacy Pear Series B preferred stock pursuant to the Legacy Pear Series B Agreement. Certain holders of Legacy Pear Series A and B preferred stock formerly had representation on the Company’s board of directors and purchased shares of Legacy Pear Series C preferred stock pursuant to the Legacy Pear Series C Agreement. Certain holders of Legacy Pear Series A, B and C preferred stock formerly had representation on the Company’s board of directors and purchased shares of Legacy Pear Series D preferred stock pursuant to the Legacy Pear Series D Agreement.
In December 2020, in connection with the Legacy Pear D-2 Preferred Stock offering, the Company completed a tender offer. In connection with the tender offer, the Company purchased 2,788,732 shares of Legacy Pear common stock from the CEO, and 41,100 Legacy Pear common shares from certain eligible employees, at a purchase price of $3.9433 per share totaling $11,159 and resulting in a stock-based compensation expense of $7,254, representing the difference between the purchase price and the estimated fair value of the Legacy Pear common stock on the date of the sale. The Company also repurchased 1,656,467 Legacy Pear common shares from certain other shareholders for a total purchase price of $6,532. In total, the Company repurchased 4,486,299 shares of Legacy Pear common stock from investors having a total purchase price of $17,691.
15.SUBSEQUENT EVENTS
The Company has completed an evaluation of all subsequent events after the audited balance sheet date of December 31, 2021 through the filing date of its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 with the SEC, to ensure that these consolidated financial statements include appropriate disclosure of events both recognized in the consolidated financial statements as of December 31, 2021, and events which occurred subsequently but were not recognized in the consolidated financial statements. The Company has concluded that no subsequent events have occurred that require disclosure, except as disclosed within these consolidated financial statements and as described in Note 7.
* * * * * *
95,711,409 Shares of Class A Common Stock
5,013,333 Warrants to Purchase Shares of Class A Common Stock
PROSPECTUS
, 2022
You should rely only on the information contained in this prospectus or any supplement or amendment hereto. We have not authorized anyone to provide you with different information. You should not assume that the information contained in this prospectus or any supplement or amendment hereto is accurate as of any date other than the date of this prospectus or any such supplement or amendment. 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.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be borne by the registrant in connection with the securities being registered hereby.
| | | | | | | | | | | |
Expense | | Estimated Amount |
Securities and Exchange Commission registration fee | | $ | 60,481.32 | |
Accounting fees and expenses | | | * |
Legal fees and expenses | | | * |
Financial printing and miscellaneous expenses | | | * |
Total | | $ | * |
_________________
*These fees are calculated based on the securities offered and the number of issuances and accordingly cannot be defined at this time.
Item 14. Indemnification of Directors and Officers
Section 102 of the General Corporation Law of the State of Delaware permits a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our restated certificate of incorporation provides that no director of the Registrant shall be personally liable to it or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability, except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.
Section 145 of the General Corporation Law of the State of Delaware provides that a corporation has the power to indemnify a director, officer, employee, or agent of the corporation, or a person serving at the request of the corporation for another corporation, partnership, joint venture, trust or other enterprise in related capacities against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with an action, suit or proceeding to which he was or is a party or is threatened to be made a party to any threatened, ending or completed action, suit or proceeding by reason of such position, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Our certificate of incorporation provides that we will indemnify our present and former directors and officers to the maximum extent permitted by the DGCL and that such indemnification will not be exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw provision, agreement, vote of stockholders or disinterested directors or otherwise.
We have entered into indemnification agreements with each of 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.
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.
Item 15. Recent Sales of Unregistered Securities.
In December 2020, the Sponsor purchased an aggregate of 5,750,000 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.004 per share.
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 5,013,333 Private Placement Warrants at a purchase price of $1.50 per warrant for gross proceeds of $7,520,000.
In connection with the execution of the Business Combination Agreement, we entered into the Amendment to the Forward Purchase Agreement with the Anchor Investor pursuant to which the Anchor Investor agreed to purchase such number of THMA Class A Common Shares equal to the sum of (x) 2,300,000 and (y) such additional THMA Class A Common Shares as the Anchor Investor may elect to purchase up to the lesser of (A) the number of THMA Class A Common Shares redeemed by THMA’s Public Stockholders and (B) 2,700,000, in each case, for a purchase price of $10.00 per share.
On November 14, 2021, we entered into the Second Amendment to the Forward Purchase Agreement pursuant to which, among other things, the Anchor Investor increased its binding forward purchase commitment (the “Backstop”), subject to cutback, from $23.0 million to up to $73.0 million and removed any optional element to the Backstop. The Backstop was subject to certain reductions if gross transaction proceeds exceeded each of $175.0 million and $250.0 million, respectively. The Anchor Investor was permitted to offer certain investors of PIPE Shares (the “PIPE Investors”), the opportunity to participate in the Backstop in an amount up to $23.0 million, subject to cutback if proceeds exceeded $175.0 million.
On December 2, 2021, we entered into the Forward Purchase Agreement Assignment, pursuant to which, among other things, the Anchor Investor assigned its right to purchase 500,000 shares of THMA Class A Common Stock to a PIPE Investor.
On the Closing Date, in connection with the consummation of the Merger, the Pipe Investors purchased an aggregate of 9,780,000 PIPE Shares, for a purchase price of $10.00 per share and an aggregate purchase price of $97.8 million pursuant to separate PIPE Subscription Agreements entered into and effective as of June 21, 2021. Pursuant to the PIPE Subscription Agreements, we gave certain registration rights to the PIPE Investors with respect to the PIPE Shares.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. We believe each of these transactions was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (and Regulation D promulgated thereunder) as transactions by an issuer not involving any public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed on the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.
Item 16. Exhibits and Financial Statements Schedules
(a)Exhibits.
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| | | | Incorporated by Reference |
Exhibit Number | | Description | | Schedule/Form | | File No. | | Exhibit | | Filing Date |
| | | | | | | | | | |
2.1 | | | | 8-K | | 001-39969 | | 2.1 | | June 22, 2021 |
| | | | | | | | | | |
3.1 | | | | 8-K | | 001-39969 | | 3.1 | | December 8, 2021 |
| | | | | | | | | | |
3.2 | | | | 8-K | | 001-39969 | | 3.2 | | December 8, 2021 |
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4.1 | | | | S-1 | | 333-252150 | | 4.2 | | January 15, 2021 |
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4.2 | | | | S-1 | | 333-252150 | | 4.3 | | January 15, 2021 |
| | | | | | | | | | |
4.3 | | | | 8-K | | 001-39969 | | 4.1 | | February 4, 2021 |
| | | | | | | | | | |
5.1 | | | | S-1 | | 333-261876 | | 5.1 | | December 23, 2021 |
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10.1 | | | | 8-K | | 001-39969 | | 10.1 | | December 8, 2021 |
| | | | | | | | | | |
10.2 | | | | 8-K | | 001-39969 | | 10.6 | | June 22, 2021 |
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10.3 | | | | 8-K | | 001-39969 | | 10.1 | | November 15, 2021 |
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10.4 | | | | 8-K | | 001-39969 | | 10.1 | | June 22, 2021 |
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10.5 | | | | 8-K | | 001-39969 | | 10.2 | | November 15, 2021 |
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10.6 | | | | 8-K | | 001-39969 | | 10.2 | | June 22, 2021 |
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10.7 | | | | 8-K | | 001-39969 | | 10.4 | | June 22, 2021 |
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10.8 | | | | 8-K | | 001-39969 | | 10.8 | | December 8, 2021 |
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10.9 | | | | 8-K | | 001-39969 | | 10.9 | | December 8, 2021 |
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10.10 | | | | 8-K | | 001-39969 | | 10.10 | | December 8, 2021 |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10.11 | | | | 8-K | | 001-39969 | | 10.11 | | December 8, 2021 |
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10.12 | | | | 8-K | | 001-39969 | | 10.12 | | December 8, 2021 |
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10.13 | | | | 8-K | | 001-39969 | | 10.13 | | December 8, 2021 |
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10.14 | | | | 8-K | | 001-39969 | | 10.14 | | December 8, 2021 |
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10.15 | | | | 8-K | | 001-39969 | | 10.15 | | December 8, 2021 |
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10.16 | | | | S-4/A | | 001-39969 | | 10.19 | | October 25, 2021 |
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10.17 | | | | 8-K | | 001-39969 | | 10.3 | | June 22, 2021 |
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10.18 | | | | 8-K | | 001-39969 | | 99.1 | | November 15, 2021 |
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10.19 | | | | 8-K | | 001-39969 | | 10.19 | | December 8, 2021 |
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10.20 | | | | S-4/A | | 001-39969 | | 10.20 | | October 25, 2021 |
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10.21 | | | | S-4/A | | 001-39969 | | 10.21 | | October 25, 2021 |
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10.22 | | | | S-4/A | | 001-39969 | | 10.22 | | October 25, 2021 |
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10.23 | | | | S-4/A | | 001-39969 | | 10.23 | | October 25, 2021 |
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10.24 | | | | S-4/A | | 001-39969 | | 10.24 | | October 25, 2021 |
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10.25 | | | | S-4/A | | 001-39969 | | 10.28 | | October 25, 2021 |
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10.26 | | | | S-1 | | 333-261876 | | 10.26 | | December 23, 2021 |
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10.27 | | | | S-4/A | | 001-39969 | | 10.31 | | October 25, 2021 |
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10.28 | | | | S-4/A | | 001-39969 | | 10.32 | | October 25, 2021 |
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10.29 | | | | S-4/A | | 001-39969 | | 10.33 | | October 25, 2021 |
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10.30 | | | | S-4/A | | 001-39969 | | 10.34 | | October 25, 2021 |
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10.31 | | | | 8-K | | 001-39969 | | 10.31 | | December 8, 2021 |
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10.32 | | | | 8-K | | 001-39969 | | 10.32 | | December 8, 2021 |
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10.33 | | | | | | | | | | |
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10.34 | | | | | | | | | | |
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10.35 | | Amended and Restated Security Agreement, dated as of March 25, 2022, by and among Pear Therapeutics, Inc., Pear Therapeutics (US), Inc., Perceptive Credit Holdings III, LP, as administrative agent, and the other parties thereto. | | | | | | | | |
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10.36 | | Amended and Restated Intercompany Subordination Agreement, dated as of March 25, 2022, by and among Pear Therapeutics, Inc., Pear Therapeutics (US), Inc., Perceptive Credit Holdings III, LP, as administrative agent, and the other parties thereto. | | | | | | | | |
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16.1 | | | | 8-K | | 001-39969 | | 16.1 | | December 8, 2021 |
21.1 | | | | 8-K | | 001-39969 | | 21.1 | | December 8, 2021 |
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23.1 | | | | S-1 | | 333-261876 | | 23.1 | | December 23, 2021 |
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23.2 | | | | | | | | | | |
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23.3 | | | | S-1 | | 333-261876 | | 23.3 | | December 23, 2021 |
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24.1 | | | | S-1 | | 333-261876 | | | | December 23, 2021 |
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101.INS | | Inline XBRL Instance Document | | | | | | | | |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | |
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101.DEF | | Inline XBRL Taxonomy Definition Linkbase Document | | | | | | | | |
| | | | | | | | | | |
101.LAB | | Inline XBRL Taxonomy Label Linkbase Document | | | | | | | | |
| | | | | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | |
| | | | | | | | | | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | |
| | | | | | | | | | |
107 | | | | | | | | | | |
__________________
*Previously filed
**Certain exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of all omitted exhibits and schedules to the Securities and Exchange Commission upon its request.
+ Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit.
(b)Financial Statement Schedules.
See the index to the consolidated financial statements included on page F-1 for a list of the financial statements included in this registration statement. 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:
1.To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)To include any prospectus required by section 10(a)(3) of the Securities Act;
(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
2.That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3.To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
4.That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
5.That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii)Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii)The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, State of Massachusetts, on the 28th day of March, 2022.
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PEAR THERAPEUTICS, INC. |
| |
By: | /s/ Corey M. McCann |
| Name: | Dr. Corey M. McCann |
| Title: | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
Signature | | Title | | Date |
| | | | |
/s/ Corey M. McCann | | Chief Executive Officer, President and Director | | March 28, 2022 |
Dr. Corey M. McCann | | (Principal Executive Officer) | |
| | | | |
/s/ Christopher D.T. Guiffre | | Chief Financial Officer and Chief Operating Officer | | March 28, 2022 |
Christopher D.T. Guiffre | | (Principal Financial Officer) | |
| | | | |
/s/ Ellen E. Snow | | Vice President, Corporate Controller | | March 28, 2022 |
Ellen E. Snow | | (Principal Accounting Officer) | |
| | | | |
* | | Director | | March 28, 2022 |
Alison Bauerlein | | |
| | | | |
* | | Director | | March 28, 2022 |
Jorge M. Gomez | | |
| | | | |
* | | Director | | March 28, 2022 |
Zack Lynch | | |
| | | | |
* | | Director | | March 28, 2022 |
Kirthiga Reddy | | |
| | | | |
* | | Director | | March 28, 2022 |
Nancy M. Schlichting | | |
| | | | |
* | | Director | | March 28, 2022 |
Andrew Schwab | | |
| | | | |
| | | | | |
*By: | /s/ Christopher D.T. Guiffre |
| |
| Christopher D.T. Guiffre |
| Attorney-in-Fact |
Exhibit 10.34
Execution Version
THIRD AMENDMENT TO CREDIT AGREEMENT AND GUARANTY
This THIRD AMENDMENT TO CREDIT AGREEMENT AND GUARANTY, dated as of March 25, 2022 (this “Agreement”), is made by and among PEAR THERAPEUTICS, INC., a Delaware corporation (f/k/a THIMBLE POINT ACQUISITION CORP.) (“Holdings”), PEAR THERAPEUTICS (US), INC., a Delaware corporation (f/k/a PEAR THERAPEUTICS, INC.) (the “Borrower”), certain Subsidiaries of the Borrower, and PERCEPTIVE CREDIT HOLDINGS III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”) and as the Majority Lender.
RECITALS
WHEREAS, reference is made to the Credit Agreement and Guaranty, dated as of June 30, 2020, among the Borrower, certain Subsidiaries of the Borrower from time to time party thereto, the lenders from time to time party thereto (the “Lenders”) and the Administrative Agent (as subsequently amended, supplemented or otherwise modified, from time to time, including pursuant to this Agreement, the “Credit Agreement”);
WHERAS, after giving effect to the transactions contemplated by the Business Combination Agreement, dated as of June 21, 2021, by and among Holdings, Oz Merger Sub, Inc. and the Borrower, the Borrower is a wholly-owned Subsidiary of Holdings;
WHEREAS, subject to the terms and the conditions set forth in this Agreement, the Borrower has requested that the Credit Agreement be amended and restated as provided herein, in order to, among other things, provide for Holdings as a party thereunder;
WHEREAS, the Administrative Agent and the Majority Lenders are willing to do so on the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the Lender party hereto constitutes the Majority Lenders.
NOW, THEREFORE, for good and valuable consideration (including the Borrower’s covenants and agreements set forth below), the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS TO CREDIT AGREEMENT
Section 1.01. Defined Terms. Unless otherwise defined herein or the context otherwise requires, capitalized terms used in this Agreement (including the preambles and recitals hereto and hereof) shall have the meanings ascribed to such terms in the Credit Agreement.
Section 1.02. Amendment to Credit Agreement. As of, and subject to the occurrence of, the Effective Date, the Credit Agreement is hereby amended and restated in its entirety to read as set forth in Exhibit A hereto (the Credit Agreement, as so amended and restated, the “Amended and Restated Credit Agreement”). Each of the existing Exhibits to the Credit Agreement will remain in full force and effect. The parties hereto agree that as of, and subject to the occurrence of, the Effective Date, the waiver set forth in Section 1.02 of the Waiver, Amendment and
Agreement, dated as of June 11, 2021, by and among the Borrower, the Administrative Agent and the Lenders shall have no further force and effect.
Section 1.03. No Other Waivers, Amendments or other Modifications Implied or Intended. Any term or provision hereof to the contrary notwithstanding, the waivers, amendments and other modification contemplated hereby relate solely to the specific sections or provisions of the Credit Agreement expressly referenced herein and relate solely to the periods or transactions expressly referenced herein, and no other or additional waiver, amendment or other modification is made, implied or intended to be made with respect to any other term or provision of any Loan Document, or any Obligation of any Obligor or any rights or remedies of any Secured Party under any Loan Document, whether now existing or occurring in the future (including any future Default), including, but not limited to, the right to declare all or any portion of the outstanding principal amount of the Loans and other Obligations to be immediately due and payable, imposing a default rate of interest in respect of the Obligations in accordance with Section 3.02(b) of the Amended and Restated Credit Agreement or pursuing any or all other rights and remedies available to any Secured Party as a secured party under the UCC, the Security Documents or any other Loan Document.
ARTICLE II
CONDITIONS PRECEDENT
Section 2.01. Conditions to Effectiveness of this Agreement. The amendments and other modifications set forth in this Agreement shall become effective upon the prior or simultaneous satisfaction of each of the following conditions in a manner reasonably satisfactory to the Administrative Agent (the date when all such conditions are so satisfied being the “Effective Date”):
(a) Counterparts. The Administrative Agent shall have received counterparts of (i) this Agreement, (ii) the Amended and Restated Credit Agreement and (iii) each other Loan Document required to be delivered pursuant to Section 6.03 of the Amended and Restated Credit Agreement as a condition precedent to the effectiveness thereof, in each case executed by each party thereto.
(b) Amended and Restated Credit Agreement Conditions. All conditions to effectiveness set forth in Section 6.02 of the Amended and Restated Credit Agreement shall have been satisfied.
(c) Costs and Expenses, etc. The Agent shall have received all fees, costs and expenses due and payable pursuant to Section 14.03 of the Amended and Restated Credit Agreement (including without limitation the reasonable fees and expenses of Morrison & Foerster LLP, counsel to the Administrative Agent, which have been invoiced prior to the Effective Date), together with any other fees separately agreed to by the Borrower and the Agent and the Lenders.
(d) Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries, shall be reasonably satisfactory in form and substance to the Agent and its counsel, and the Agent and its counsel shall have received all
information, approvals, resolutions, opinions, documents or instruments as the Agent or its counsel shall have reasonably requested.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties. To induce the Administrative Agent and the Majority Lender to enter into this Agreement, each Obligor party hereto represents and warrants to the Administrative Agent and the Majority Lender as set forth below.
(a) Validity, etc. This Agreement and each Loan Document (after giving effect to this Agreement on the Effective Date) each constitutes the legal, valid and binding obligation of each Obligor party thereto, enforceable in accordance with its respective terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.
(b) Representations and Warranties, etc. Immediately prior to, and immediately after giving effect to this Agreement on the Effective Date, the following statements shall be true and correct:
(i) the representations and warranties set forth in the Amended and Restated Credit Agreement and each other Loan Document that are qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct; and
(ii) the representations and warranties set forth in the Amended and Restated Credit Agreement and each other Loan Document that are not qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct in all material respects.
(c) Authorizations and Approvals. No authorization or approval or other action by, and no notice or filing with, any Governmental Authority or any other Person (other than those that have been duly obtained or made and which are in full force and effect) is required for the due execution and delivery of this Agreement and performance of this Agreement and the Amended and Restated Credit Agreement (as amended hereby) by any Obligor party to this Agreement.
(d) No Defaults. No Default or Event of Default shall have occurred and be continuing.
ARTICLE IV
CONFIRMATION AND COVENANTS
Section 4.01. Reaffirmation. Each Obligor hereby consents to the amendment and other agreements and modifications to the Credit Agreement and other Loan Documents contemplated pursuant to this Agreement and hereby agrees that, after giving effect to this Agreement on the Effective Date, the Credit Agreement and each other Loan Document, and all Obligations thereunder (including the guarantees made pursuant to any Guaranty), are and shall continue to be in full force and effect and the same are hereby ratified in all respects, except that upon the occurrence of the Effective Date, all references in such Loan Documents to the “Credit
Agreement”, “Loan Documents”, “thereunder”, “thereof”, or words of similar import shall mean the Amended and Restated Credit Agreement and the other Loan Documents, as amended or otherwise modified by this Agreement. Each Obligor further consents and agrees that, notwithstanding the effectiveness of this Agreement, all Liens and security interests granted and created under or pursuant to any Loan Document shall continue to be valid and perfected to the same extent as immediately prior to the Effective Date.
Section 4.02. Validity, etc. Each Obligor hereby represents and warrants, that immediately after giving effect to this Agreement on the Effective Date, each Loan Document to which it is a party continues to be a legal, valid and binding obligation of such Obligor, enforceable against such Person in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.
ARTICLE V
MISCELLANEOUS
Section 5.01. Miscellaneous, etc. In addition to the foregoing, the parties hereto agree as follows:
(a) Severability. In case any provision of or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
(b) Integration. This Agreement, together with the other Loan Documents, incorporates all negotiations of the parties hereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof and supersedes any and all prior agreements, written or oral, with respect thereto.
(c) Cross-References; Headings. References in this Agreement to any Article or Section are, unless otherwise specified, to such Article or Section of this Agreement. Headings and captions used in this Agreement are included for convenience of reference only and shall not be given any substantive effect.
(d) Loan Document Pursuant to Credit Agreement. This Agreement shall constitute a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with all of the terms and provisions of the Amended and Restated Credit Agreement, including Article XIV thereof and all rules of interpretation set forth in Article I thereof. The failure of any Obligor to perform its obligations hereunder shall constitute a Default pursuant to Section 11.01(d) of the Amended and Restated Credit Agreement.
(e) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
(f) Counterparts, Electronic Signatures, etc. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of an executed signature page of this Agreement by facsimile transmission or electronic transmission (in PDF format) shall be effective as delivery of a manually executed counterpart hereof. Any signature (including, without limitation, (x) any electronic symbol or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record and (y) any facsimile transmission or PDF format signature) hereto or to any other certificate, agreement or document related to the transactions contemplated hereby, and any contract formation or record-keeping, in each case, through electronic means, shall have the same legal validity and enforceability as a manually executed signature or use of a paper-based record-keeping system to the fullest extent permitted by applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any similar state law based on the Uniform Electronic Transactions Act, and the parties hereto hereby waive any objection to the contrary.
(g) Governing Law. THIS AGREEMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
[Signature pages to follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written.
| | | | | | | | |
HOLDINGS: |
| | |
PEAR THERAPEUTICS, INC. |
By | /s/ Ronan O’Brien |
| Name: Ronan O’Brien |
| Title: Secretary |
| | |
| | |
BORROWER: |
| | |
PEAR THERAPEUTICS (US), INC. |
| | |
By | /s/ Ronan O’Brien |
| Name: Ronan O’Brien |
| Title: General Counsel & Chief Compliance Officer |
| | | | | | | | |
ADMINISTRATIVE AGENT AND LENDER: |
| | |
PERCEPTIVE CREDIT HOLDINGS III, LP |
| | |
By: PERCEPTIVE CREDIT OPPORTUNITIES GP, LLC, its general partner |
| | |
| | |
By | /s/ Sandeep Dixit |
| Name: | Sandeep Dixit |
| Title: | Chief Credit Officer |
| | |
| | |
By | /s/ Sam Chawla |
| Name: | Sam Chawla |
| Title: | Portfolio Manager |
EXHIBIT A
Amended and Restated Credit Agreement
(See attached.)
AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
dated as of
March 25, 2022
by and among
PEAR THERAPEUTICS, INC.,
as Holdings,
PEAR THERAPEUTICS (US), INC.,
as the Borrower,
THE SUBSIDIARY GUARANTORS FROM TIME TO TIME PARTY HERETO,
as the Subsidiary Guarantors,
THE LENDERS FROM TIME TO TIME PARTY HERETO,
as the Lenders,
and
PERCEPTIVE CREDIT HOLDINGS III, LP
as the Administrative Agent
U.S. $50,000,000
| | | | | | | | | | | |
| | | Page |
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SECTION 1 DEFINITIONS | 1 |
| | | |
| 1.01 | Certain Defined Terms | 1 |
| | | |
| 1.02 | Accounting Terms and Principles | 30 |
| | | |
| 1.03 | Interpretation | 31 |
| | | |
| 1.04 | Divisions | 32 |
| | | |
SECTION 2 THE COMMITMENTS AND THE LOANS | 32 |
| | | |
| 2.01 | Loans | 32 |
| | | |
| 2.02 | Borrowing Procedures | 32 |
| | | |
| 2.03 | Notes | 32 |
| | | |
| 2.04 | Use of Proceeds | 32 |
| | | |
SECTION 3 PAYMENTS OF PRINCIPAL AND INTEREST | 33 |
| | | |
| 3.01 | Repayments and Prepayments Generally; Application | 33 |
| | | |
| 3.02 | Interest | 33 |
| | | |
| 3.03 | Prepayments; Early Prepayment Fee | 33 |
| | | |
| 3.04 | Closing Fee | 35 |
| | | |
SECTION 4 PAYMENTS, ETC. | 35 |
| | | |
| 4.01 | Payments | 35 |
| | | |
| 4.02 | Computations | 36 |
| | | |
| 4.03 | Set-Off | 36 |
| | | |
SECTION 5 YIELD PROTECTION, ETC. | 37 |
| | | |
| 5.01 | Additional Costs | 37 |
| | | |
| 5.02 | Illegality | 38 |
| | | |
| 5.03 | Taxes | 38 |
| | | |
| 5.04 | Mitigation Obligations | 42 |
| | | |
SECTION 6 CONDITIONS PRECEDENT | 42 |
| | | |
| 6.01 | Conditions to the Borrowing of the Tranche 1 Loans | 42 |
| | | |
| 6.02 | Conditions to Effectiveness | 47 |
| | | |
SECTION 7 REPRESENTATIONS AND WARRANTIES | 49 |
| | | |
| 7.01 | Power and Authority | 49 |
| | | |
| 7.02 | Authorization; Enforceability | 49 |
| | | |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | |
| | | Page |
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| 7.03 | Governmental and Other Approvals; No Conflicts | 50 |
| | | |
| 7.04 | Financial Statements; Material Adverse Change | 50 |
| | | |
| 7.05 | Properties | 50 |
| | | |
| 7.06 | No Actions or Proceedings | 54 |
| | | |
| 7.07 | Compliance with Laws and Agreements | 55 |
| | | |
| 7.08 | Taxes | 56 |
| | | |
| 7.09 | Full Disclosure | 56 |
| | | |
| 7.10 | Investment Company Act and Margin Stock Regulation | 57 |
| | | |
| 7.11 | Solvency | 57 |
| | | |
| 7.12 | Equity Holders, Subsidiaries and Other Investments | 57 |
| | | |
| 7.13 | Indebtedness and Liens | 57 |
| | | |
| 7.14 | Material Agreements | 57 |
| | | |
| 7.15 | Restrictive Agreements | 58 |
| | | |
| 7.16 | Real Property | 58 |
| | | |
| 7.17 | Pension Matters | 58 |
| | | |
| 7.18 | Priority of Obligations; Collateral; Security Interest | 58 |
| | | |
| 7.19 | Regulatory Approvals | 59 |
| | | |
| 7.20 | Transactions with Affiliates | 59 |
| | | |
| 7.21 | Sanctions | 59 |
| | | |
| 7.22 | Anti-Corruption | 59 |
| | | |
| 7.23 | Deposit and Disbursement Accounts | 60 |
| | | |
| 7.24 | Royalties and Other Payments | 60 |
| | | |
| 7.25 | Non-Competes | 60 |
| | | |
| 7.26 | Internal Controls | 60 |
| | | |
SECTION 8 AFFIRMATIVE COVENANTS | 60 |
| | | |
| 8.01 | Financial Statements and Other Information | 60 |
| | | |
| 8.02 | Notices of Material Events | 62 |
| | | |
| 8.03 | Existence; Conduct of Business | 64 |
| | | |
| 8.04 | Payment of Obligations | 64 |
| | | |
| 8.05 | Insurance | 65 |
| | | |
TABLE OF CONTENTS
(continued)
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| | | Page |
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| 8.06 | Books and Records; Inspection Rights | 65 |
| | | |
| 8.07 | Compliance with Laws and Other Obligations | 65 |
| | | |
| 8.08 | Maintenance of Properties, Etc | 65 |
| | | |
| 8.09 | Licenses | 66 |
| | | |
| 8.10 | Action under Environmental Laws | 66 |
| | | |
| 8.11 | Use of Proceeds | 66 |
| | | |
| 8.12 | Certain Obligations Respecting Subsidiaries; Further Assurances | 66 |
| | | |
| 8.13 | Termination of Non-Permitted Liens | 68 |
| | | |
| 8.14 | Intellectual Property | 68 |
| | | |
| 8.15 | Maintenance of Regulatory Approvals, Contracts, Intellectual Property, Etc | 68 |
| | | |
| 8.16 | ERISA and Foreign Pension Plan Compliance | 68 |
| | | |
| 8.17 | Cash Management | 68 |
| | | |
| 8.18 | Litigation Cooperation | 69 |
| | | |
| 8.19 | Board Observation Rights | 69 |
| | | |
SECTION 9 NEGATIVE COVENANTS | 70 |
| | | |
| 9.01 | Indebtedness | 70 |
| | | |
| 9.02 | Liens | 72 |
| | | |
| 9.03 | Fundamental Changes, Acquisitions, Etc | 73 |
| | | |
| 9.04 | Lines of Business | 74 |
| | | |
| 9.05 | Investments | 74 |
| | | |
| 9.06 | Restricted Payments | 75 |
| | | |
| 9.07 | Payments of Indebtedness | 76 |
| | | |
| 9.08 | Change in Fiscal Year | 76 |
| | | |
| 9.09 | Sales of Assets, Etc | 76 |
| | | |
| 9.10 | Transactions with Affiliates | 77 |
| | | |
| 9.11 | Restrictive Agreements | 77 |
| | | |
| 9.12 | Modifications and Terminations of Material Agreements and Organic Documents | 77 |
| | | |
| 9.13 | Sales and Leasebacks | 78 |
| | | |
| 9.14 | Hazardous Material | 78 |
| | | |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | |
| | | Page |
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| 9.15 | Accounting Changes | 78 |
| | | |
| 9.16 | Compliance with ERISA | 78 |
| | | |
| 9.17 | Sanctions; Anti-Corruption Use of Proceeds | 78 |
| | | |
| 9.18 | Inbound and Outbound Licenses | 78 |
| | | |
| 9.19 | Activities of the Massachusetts Securities Subsidiary | 79 |
| | | |
SECTION 10 FINANCIAL COVENANTS | 79 |
| | | |
| 10.01 | Minimum Liquidity | 79 |
| | | |
| 10.02 | Minimum Revenue | 79 |
| | | |
SECTION 11 EVENTS OF DEFAULT | 80 |
| | | |
| 11.01 | Events of Default | 80 |
| | | |
| 11.02 | Remedies | 83 |
| | | |
| 11.03 | Additional Remedies | 84 |
| | | |
SECTION 12 THE ADMINISTRATIVE AGENT | 84 |
| | | |
| 12.01 | Appointment and Duties | 84 |
| | | |
| 12.02 | Binding Effect | 85 |
| | | |
| 12.03 | Use of Discretion | 86 |
| | | |
| 12.04 | Delegation of Rights and Duties | 86 |
| | | |
| 12.05 | Reliance and Liability | 86 |
| | | |
| 12.06 | Administrative Agent Individually | 87 |
| | | |
| 12.07 | Lender Credit Decision | 87 |
| | | |
| 12.08 | Expenses; Indemnities | 87 |
| | | |
| 12.09 | Resignation of the Administrative Agent | 88 |
| | | |
| 12.10 | Release of Collateral or Guarantors | 89 |
| | | |
| 12.11 | Additional Secured Parties | 89 |
| | | |
SECTION 13 GUARANTEE | 90 |
| | | |
| 13.01 | The Guarantee | 90 |
| | | |
| 13.02 | Obligations Unconditional | 90 |
| | | |
| 13.03 | Reinstatement | 91 |
| | | |
| 13.04 | Subrogation | 91 |
| | | |
| 13.05 | Remedies | 91 |
| | | |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | |
| | | Page |
| | | |
| 13.06 | Instrument for the Payment of Money | 92 |
| | | |
| 13.07 | Continuing Guarantee | 92 |
| | | |
| 13.08 | General Limitation on Guarantee Obligations | 92 |
| | | |
SECTION 14 MISCELLANEOUS | 92 |
| | | |
| 14.01 | No Waiver | 92 |
| | | |
| 14.02 | Notices | 92 |
| | | |
| 14.03 | Expenses, Indemnification, Etc | 93 |
| | | |
| 14.04 | Amendments, Etc | 94 |
| | | |
| 14.05 | Successors and Assigns | 94 |
| | | |
| 14.06 | Survival | 97 |
| | | |
| 14.07 | Captions | 97 |
| | | |
| 14.08 | Counterparts; Electronic Signatures | 97 |
| | | |
| 14.09 | Governing Law | 97 |
| | | |
| 14.10 | Jurisdiction, Service of Process and Venue | 97 |
| | | |
| 14.11 | Waiver of Jury Trial | 98 |
| | | |
| 14.12 | Waiver of Immunity | 98 |
| | | |
| 14.13 | Entire Agreement | 98 |
| | | |
| 14.14 | Severability | 99 |
| | | |
| 14.15 | No Fiduciary Relationship | 99 |
| | | |
| 14.16 | Confidentiality | 99 |
| | | |
| 14.17 | Interest Rate Limitation | 100 |
| | | |
| 14.18 | Early Prepayment Fee | 100 |
| | | |
| 14.19 | Judgment Currency | 100 |
| | | |
| 14.20 | USA PATRIOT Act | 101 |
| | | |
| 14.21 | Acknowledgement and Consent to Bail-In of EEA Financial Institutions | 101 |
| | | |
| 14.22 | Amendment and Restatement; No Novation | 101 |
SCHEDULES AND EXHIBITS
| | | | | | | | |
Schedule 1 | - | Commitments |
Schedule 2 | - | Deposit Accounts, Securities Accounts and Commodity Accounts of the Massachusetts Securities Subsidiary |
Schedule 7.05(b) | - | Products |
Schedule 7.05(c) | - | Obligor Intellectual Property |
Schedule 7.06(a) | - | Certain Litigation |
Schedule 7.06(c) | - | Labor Matters |
Schedule 7.07(d) | - | Healthcare Law Matters |
Schedule 7.08 | - | Taxes |
Schedule 7.12(a) | - | Holders of Equity Interests of the Borrower |
Schedule 7.12(b) | - | Subsidiaries of the Borrower |
Schedule 7.12(c) | - | Other Equity Interests Owned by Borrower or its Subsidiaries |
Schedule 7.13(a) | - | Existing Indebtedness |
Schedule 7.13(b) | - | Existing Indebtedness to be Repaid on the Closing Date |
Schedule 7.13(c) | - | Existing Liens |
Schedule 7.14 | - | Material Agreements |
Schedule 7.15 | - | Restrictive Agreements |
Schedule 7.16 | - | Real Property |
Schedule 7.17 | - | Pension Matters |
Schedule 7.19(b) | - | Regulatory Approvals |
Schedule 7.20 | - | Transactions with Affiliates |
Schedule 7.23 | - | Deposit and Disbursement Accounts |
Schedule 7.24 | - | Royalties and Other Payments |
Schedule 7.25 | - | Non-Competes |
Schedule 9.05 | - | Existing Investments |
Schedule 9.13 | - | Permitted Sales and Leasebacks |
| | |
Exhibit A | - | Form of Note |
Exhibit B | - | Form of Borrowing Notice |
Exhibit C | - | Form of Guarantee Assumption Agreement |
Exhibit D-1 | - | Form of U.S. Tax Compliance Certificate (For Foreign Lenders That Are Not Partnerships for U.S. Federal Income Tax Purposes) |
Exhibit D-2 | - | Form of U.S. Tax Compliance Certificate (For Foreign Participants That Are Not Partnerships for U.S. Federal Income Tax Purposes) |
Exhibit D-3 | - | Form of U.S. Tax Compliance Certificate (For Foreign Participants That Are Partnerships for U.S. Federal Income Tax Purposes) |
Exhibit D-4 | - | Form of U.S. Tax Compliance Certificate (For Foreign Lenders That Are Partnerships for U.S. Federal Income Tax Purposes) |
Exhibit E | - | Form of Compliance Certificate |
Exhibit F | - | Form of Assignment and Assumption |
Exhibit G | - | Form of Information Certificate |
Exhibit H | - | Form of Intercompany Subordination Agreement |
Exhibit I | - | Form of Solvency Certificate |
AMENDEDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
This Amended and Restated Credit Agreement and Guaranty, dated as of March 25, 2022 (this “Agreement”), by and among (i) Pear Therapeutics, Inc., a Delaware corporation (f/k/a Thimble Point Acquisition Corp.) (“Holdings”), (ii) Pear Therapeutics (US), Inc., a Delaware corporation (f/k/a Pear Therapeutics, Inc.) (the “Borrower”), whose direct parent is Holdings as of the date hereof, (iii) certain Subsidiaries of Holdings that may be required to provide Guarantees from time to time hereunder, (iv) Perceptive Credit Holdings III, LP (the “Closing Date Lender”) and each other lender that may from time to time become a party hereto (each, including the Closing Date Lender, a “Lender” and collectively, the “Lenders”), and (v) Perceptive Credit Holdings III, LP, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).
WITNESSETH:
WHEREAS, pursuant to the Credit Agreement and Guaranty, dated as of June 30, 2020, by and among the Borrower, the Subsidiary guarantors party thereto, the Lenders party thereto and the Administrative Agent (as amended or otherwise modified prior to the Effective Date, the “Original Credit Agreement”), the Lenders have provided a senior secured delayed draw term loan facility to the Borrower in an aggregate principal amount of $50,000,000, with up to $30,000,000 in aggregate principal amount of Loans to be available on the Closing Date, up to $10,000,000 in aggregate principal amount of Loans to be available after the Closing Date but prior to December 31, 2021, and up to $10,000,000 in aggregate principal amount of Loans to be available after the Closing Date but prior to December 31, 2021, of which, as of the date hereof, the Borrower has borrowed $30,000,000 in aggregate principal amount of Loans; and
WHEREAS, pursuant to the Third Amendment to Credit Agreement and Guaranty, dated as of the date hereof (the “Restatement Amendment”), Holdings, the Borrower, the Administrative Agent and the Lenders have agreed, subject to the terms and conditions set forth herein and in the Restatement Amendment, to enter into this Agreement and to amend and restate the Original Credit Agreement in its entirety as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.01 Certain Defined Terms. As used herein (including the preamble and recitals), the following terms have the following respective meanings:
“510(k)” means (i) any premarket notification and corresponding FDA clearance for a Device pursuant to FDA regulations, (ii) all substantially equivalent or similar notifications, applications and clearances with respect to any non-U.S. Regulatory Authority, including the EMA, and (iii) all amendments, supplements and other additions and modifications thereto, and all documents, data and other information concerning any applicable Device which are necessary for, filed with, incorporated by reference in or otherwise support any of the foregoing.
“Acquisition” means any transaction, or any series of related transactions, by which any Person directly or indirectly, by means of an amalgamation, consolidation, merger, purchase of Equity Interests or other assets, tender offer, or similar transaction having the same effect as any of the foregoing, (i) acquires any business or all or substantially all of the assets of any other Person, (ii) acquires all or substantially all of a business line or unit or division of any other Person, (iii) acquires control of Equity Interests of another Person representing more than fifty percent (50%) of the ordinary voting power for the election of directors or other governing body if the business affairs of such Person are managed by a board of directors or other governing body, determined on a fully-diluted, as-if-converted or exercised basis, or (iv) acquires control of more than fifty percent (50%) of the Equity Interests in any Person engaged in any business that is not managed by a board of directors or other governing body, determined on a fully-diluted, as-if-converted or exercised basis.
“Administrative Agent” has the meaning set forth in the preamble hereto.
“Advanced Development” means, with respect to a proposed Product, that such proposed Product is in either a pivotal clinical trial or later stage of development.
“Adverse Regulatory Event” means the occurrence of any of the following events or circumstances:
(a) the failure of Holdings or any of its Subsidiaries to hold, directly or through licensees or agents, in full force and effect, all Regulatory Approvals necessary or required for Holdings, the Borrower or any such Subsidiary to conduct its respective operations and businesses;
(b) if required by any applicable Law, the failure of Holdings or any of its Subsidiaries to make or file with the FDA or any other applicable Regulatory Authority, in compliance with such applicable Law, any required notice, registration, listing, supplemental application or notification or report;
(c) in connection with any clinical, preclinical, safety or other studies or tests being conducted by (or on behalf of) Holdings or any of its Subsidiaries for purposes of obtaining regulatory clearance of, or any Regulatory Approval for, any Product or any Product Commercialization and Development Activities (i) the failure of any clinical, pre-clinical, safety or other required trial, study or test to be conducted in material compliance with any applicable Law or Regulatory Approval; (ii) the failure of any related clinical trial site to be monitored in material compliance with all applicable Laws and Regulatory Approvals; or (iii) the receipt by Holdings or any of its Subsidiaries of written notice from the FDA or any other Regulatory Authority requiring the termination or suspension of any such clinical, preclinical, safety or other study or test;
(d) Holdings or any of its Subsidiaries or, to the knowledge of Holdings, the Borrower, any agent, supplier, licensor or licensee of Holdings, the Borrower or any of its Subsidiaries, receives from any Regulatory Authority any written notice with respect to any Product or any Product Commercialization and Development Activities from any Regulatory Authority asserting (i) that such Person lacks a required Regulatory Approval
with respect to such Product or Product Commercialization and Development Activity, (ii) a material lack of compliance by such Person with any applicable Laws or Regulatory Approvals (or any similar order, injunction or decree) or (iii) that such Regulatory Authority has commenced any regulatory action, investigation or inquiry (other than non-material routine or periodic inspections or reviews) with respect to any Product or any Product Commercialization and Development Activities, in each case other than items contested in good faith by the Borrower by appropriate action; or
(e) with respect to any Product or Product Commercialization and Development Activity, (i) any Regulatory Authority commences any criminal, injunctive, seizure, detention or civil penalty action or (ii) Holdings, the Borrower or any Subsidiary enters into any consent decree, plea agreement or other settlement with any Regulatory Authority with respect to any of the foregoing.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided that with respect to any Lender, an Affiliate of such Lender shall include, without limitation, all of such Lender’s Related Funds.
“Agreement” has the meaning set forth in the preamble hereto.
“Amendment No. 2” means that certain Amendment No. 2 to Credit Agreement, dated as of December 3, 2021, among the Borrower, certain Subsidiaries of the Borrower, the Majority Lenders and the Administrative Agent for the Majority Lender.
“Amendment No. 2 Effective Date” means December 3, 2021.
“Applicable Margin” means eleven percent (11.0%), as such percentage may be increased pursuant to Section 3.02(b).
“Asset Sale” has the meaning set forth in Section 9.09.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee of such Lender in substantially the form of Exhibit F.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks,
investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy.”
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any employee benefit plan as defined in Section 3(3) of ERISA (whether governed by the laws of the United States or otherwise) that is subject to Title I of ERISA or Section 4975 of the Code and to which any Obligor or Subsidiary thereof incurs or otherwise has any obligation or liability, contingent or otherwise.
“Board” means, with respect to any Person, the board of directors (or equivalent management or oversight body) of such Person or any committee thereof duly authorized to act on behalf of such board or equivalent body.
“Borrower” has the meaning set forth in the preamble hereto.
“Borrowing” means the borrowing of the Tranche 1 Loans on the Closing Date.
“Borrowing Date” means the Closing Date (for Tranche 1 Loans).
“Borrowing Notice” means a written notice substantially in the form of Exhibit B.
“Business Day” means a day (other than a Saturday or Sunday) on which commercial banks are not authorized or required to close in New York, New York.
“Capital Lease Obligation” means, as to any Person, any obligation of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property, which obligation is required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP and, for purposes of this Agreement, the amount of any such obligation shall be the capitalized amount thereof, determined in accordance with GAAP.
“Casualty Event” means the damage, destruction or condemnation, as the case may be, of any property of any Person.
“Change of Control” means an event or series of events (including any Acquisition) that causes or results in any of the following: (i) any Person or “group” (as defined above) (other than the Specified Holders) acting in concert shall have acquired beneficial ownership, directly or indirectly, of, or shall have acquired by Contract or otherwise, or shall have entered into a Contract or arrangement that, upon consummation, will result in its or their acquisition of, control over, voting stock of Holdings representing more than fifty percent (50%) of the combined voting power of all voting stock of Holdings, determined on a fully-diluted, as if converted or exercised basis, (ii) Holdings shall cease to own, directly, beneficially and of record, one hundred percent (100%) of the issued and outstanding Equity Interests of the Borrower, free and clear of all Liens, (iii) the Borrower shall cease to own, directly or indirectly, beneficially and of record, one hundred percent (100%) of the issued and outstanding Equity Interests of each of its Subsidiaries, free and clear of
all Liens, or (iv) the sale of all or substantially all of the property or business of Holdings, the Borrower and its Subsidiaries, taken as a whole.
“Claim” means any written claim, demand, complaint, grievance, action, application, suit, cause of action, order, charge, indictment, prosecution, judgment or other similar process, assessment or reassessment, whether made, converted or assessed in connection with a debt, liability, dispute, breach, failure or otherwise.
“Closing Date” means June 30, 2020.
“Closing Date Lender” has the meaning set forth in the preamble hereto.
“Closing Fee” has the meaning set forth in Section 3.04.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.
“Collateral” means any asset or property in which a Lien is purported to be granted under any Loan Document, including future acquired or created assets or property (or all such assets or property, as the context may require).
“Commitment” means, with respect to each Lender, the obligation of such Lender to make Loans to the Borrower on the applicable Borrowing Date in accordance with the terms and conditions of this Agreement, which commitments are in the amounts set forth opposite such Lender’s name on Schedule 1 hereto, as such Schedule may be amended from time to time pursuant to an Assignment and Assumption or otherwise; provided that the aggregate Commitments of all Lenders on the Closing Date equal $50,000,000.
“Commodity Account” means any commodity account, as such term is defined in Section 9-102 of the NY UCC.
“Competitor” means (i) any competitor of the Borrower or any of its Subsidiaries primarily operating in the same line of business as the Borrower or any of its Subsidiaries and (ii) any of its Affiliates (other than any Person that is a bona fide debt fund primarily engaged in the making, purchasing, holding or other investing in commercial loans, notes, bonds or similar extensions of credit or securities in the ordinary course of its business) that are either (x) identified by name in writing by the Borrower to the Administrative Agent from time to time or (y) clearly identifiable on the basis of such Affiliate’s name.
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Contract” means any contract, license, lease, agreement, obligation, promise, undertaking, understanding, arrangement, document, commitment, entitlement, indenture, instrument, or engagement under which a Person has, or will have, any liability or contingent liability (in each case, whether written or oral, express or implied, and whether in respect of
monetary or payment obligations, performance obligations or otherwise), in each case, other than the Loan Documents.
“Control” means, in respect of a particular Person, the possession, by one or more other Persons, directly or indirectly, of the power to direct or cause the direction of the management or policies of such particular Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” (and similar derivatives) have meanings correlative thereto.
“Controlled Account” has the meaning set forth in Section 8.17(a).
“Controlled Investment Affiliates” means, as to any Person (the “Controlling Person”), any Affiliate of such Controlling Person that (i) is Controlled, directly or indirectly by such Controlling Person, or (ii) was organized by such Controlling Person (or any Person Controlled by such Controlling Person) for the purpose of making equity or debt investments in Holdings or the Borrower or other portfolio companies of such Controlling Person.
“Copyright” means all copyrights, copyright registrations and applications for copyright registrations, including all renewals and extensions thereof, all rights to recover for past, present or future infringements thereof, and all other rights whatsoever accruing thereunder or pertaining thereto throughout the world.
“Coverage Sponsor” means any commercial entity, including health plans, self-insured employers, unions, accountable care organizations, special needs plans, worker’s compensation insurance plans, behavioral health organizations, pharmacy benefit managers, formulary optimization managers, medical benefit managers, third party administrators or any governmental entity, including Medicare, Medicaid, the State Children’s Health Insurance Program, the Department of Defense TRICARE and TRICARE for Life programs, the Veterans Health Administration program and the Indian Health Service program.
“Covered Insured Lives” means all individuals, employees and dependents for whom the Coverage Sponsor has an obligation to manage, adjudicate, pay or disburse claim payments.
“Default” means any Event of Default and any event that, upon the giving of notice, the lapse of time or both, would constitute an Event of Default.
“Default Rate” has the meaning set forth in Section 3.02(b).
“Deposit Account” means any deposit account, as such term is defined in Section 9-102 of the NY UCC.
“Designated Jurisdiction” means any country or territory to the extent that such country or territory is the subject of any Sanction.
“Device” means any medical instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent or other similar or related item, including any component, part or accessory, that (i) is intended for use in connection with the diagnosis of disease, malady or other conditions or in the cure, mitigation, treatment or prevention of disease or malady, in man or other
animals, or is intended to affect the structure or any function of the body of man or other animals, (ii) does not achieve its primary intended purpose or purposes through chemical action within or on the body of man or other animals and (iii) is not dependent upon being metabolized for the achievement of its primary intended purpose or purposes.
“Device Clearance Application” means any de novo application or request submitted under Section 513(f) of the FD&C Act (21 U.S.C. § 360c(f)), or any 510(k) submitted under Section 510(k) of the FD&C Act (21 U.S.C. § 360(k)) seeking clearance from the FDA for a Device that is substantially equivalent to a legally marketed predicate Device, as defined in the FD&C Act, or any corresponding or similar non-U.S. application or request in any non-U.S. jurisdiction, including, with respect to the European Union, any equivalent submission to a Standard Body pursuant to an applicable directive of the European Council with respect to any CE marking (or, if applicable, a self-certification of conformity with respect to any such directive through a “declaration of conformity”).
“Disqualified Equity Interests” means, with respect to any Person, any Equity Interest of such Person that, by its terms (or by the terms of any security or other Equity Interest into which it is convertible or for which it is exchangeable upon exercise or otherwise), or upon the happening of any event or condition (i) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), including pursuant to a sinking fund obligation or otherwise, (ii) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part, (iii) provides for the scheduled payments of dividends or other distributions in cash or other securities that would constitute Disqualified Equity Interests, or (iv) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is ninety-one (91) days after the Maturity Date.
“Dollars” and “$” means lawful money of the United States of America.
“Early Prepayment Fee” means, with respect to any prepayment of all or any portion of the outstanding principal amount of the Loans on any Prepayment Date, whether pursuant to clause (a) or (b) of Section 3.03 or otherwise (including as a result of acceleration, an Insolvency Proceeding or other Event of Default), the positive difference (if any) of (i) the product of (A) the principal amount of such prepayment multiplied by (B) 1.50, less (ii) the sum of (A) the principal amount of such prepayment, plus (B) the amount of interest on such prepaid principal amount paid to the Lenders prior to such Prepayment Date, plus (C) the amount of interest on such prepaid principal amount to be paid to the Lenders on such Prepayment Date, plus (D) an amount equal to the product of (x) the total amount of the Closing Fee paid hereunder prior to such Prepayment Date multiplied by (y) a fraction (expressed as a percentage) having a numerator equal to such prepaid principal amount and a denominator equal to the aggregate original principal amount of the Loans made as of such Prepayment Date; provided that for purposes of calculating the amounts described in clauses (ii) (B) and (C) above, no portion of interest applicable to the Default Rate, whether paid or payable, shall be included in such calculation.
“EEA Financial Institution” means (i) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (ii) any entity established in an EEA Member Country which is a parent of an institution described in clause (i) of this definition, or (iii) any financial institution established in an EEA
Member Country which is a subsidiary of an institution described in clauses (i) or (ii) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Effective Date” means March 25, 2022.
“Eligible Transferee” means and includes (i) any commercial bank, (ii) any insurance company, (iii) any finance company, (iv) any financial institution, (v) any investment fund that invests in loans or other obligations for borrowed money, (vi) with respect to any Lender, any of its Affiliates, and (vii) any other “accredited investor” (as defined in Regulation D of the Securities Act) that is principally in the business of managing investments or holding assets for investment purposes; provided that, an Eligible Transferee shall not include (x) any Competitor, or (y) any Person that primarily invests in distressed debt or other distressed financial assets; provided further that (A) neither clause (x) or (y) above shall apply retroactively to any Person that previously acquired an assignment or participation interest hereunder to the extent such Person was not a Competitor or a Person of the type described in clause (y) above at the time of the applicable assignment or participation, as the case may be, and (B) with respect to both clauses (x) and (y) above, the Administrative Agent shall not have any duty or obligation to carry out due diligence in order to identify or determine whether a Person would be excluded as an Eligible Transferee as a result of the application of either such clause.
“Environmental Law” means any Law or Governmental Approval relating to pollution or protection of the environment or the treatment, storage, disposal, release, threatened release or handling of hazardous materials, and all local laws and regulations, whether U.S. or non-U.S., related to environmental matters and any specific agreements entered into with any competent authorities which include commitments related to environmental matters.
“Equity Interests” means, with respect to any Person (for purposes of this defined term, an “issuer”), all shares of, interests or participations in, or other equivalents in respect of such issuer’s capital stock, including all membership interests, partnership interests or equivalent, and all debt or other securities (including warrants, options and similar rights) directly or indirectly exchangeable, exercisable or otherwise convertible into, such issuer’s capital stock, whether now outstanding or issued after the Closing Date, and in each case, however classified or designated and whether voting or non-voting.
“Equivalent Amount” means, with respect to an amount denominated in a single currency, the amount in another currency that could be purchased by the amount in the former currency determined by reference to the Exchange Rate at the time of determination.
“ERISA” means the United States Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means, collectively, any Obligor, Subsidiary thereof, and any Person under common control, or treated as a single employer, with any Obligor or Subsidiary thereof, within the meaning of Section 414(b), (c), (m) or (o) of the Code.
“ERISA Event” means (i) a reportable event as defined in Section 4043 of ERISA with respect to a Title IV Plan, excluding, however, such events as to which the PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event; (ii) the applicability of the requirements of Section 4043(b) of ERISA with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, to any Title IV Plan where an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such plan within the following thirty (30) days; (iii) a withdrawal by any Obligor or any ERISA Affiliate thereof from a Title IV Plan or the termination of any Title IV Plan resulting in liability under Sections 4063 or 4064 of ERISA; (iv) the withdrawal of any Obligor or any ERISA Affiliate thereof in a complete or partial withdrawal (within the meaning of Section 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by any Obligor or any ERISA Affiliate thereof of notice from any Multiemployer Plan that it is insolvent pursuant to Section 4241 or 4245 of ERISA; (v) the filing of a notice of intent to terminate, the treatment of a plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Title IV Plan or Multiemployer Plan; (vi) the imposition of liability on any Obligor or any ERISA Affiliate thereof pursuant to Sections 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the failure by any Obligor or any ERISA Affiliate thereof to make any required contribution to a Title IV Plan, or the failure to meet the minimum funding standard of Section 412 of the Code with respect to any Title IV Plan (whether or not waived in accordance with Section 412(c) of the Code) or the failure to make by its due date a required installment under Section 430 of the Code with respect to any Title IV Plan or the failure to make any required contribution to a Multiemployer Plan; (viii) the determination that any Title IV Plan is considered an at-risk plan or the receipt of notice that a Multiemployer Plan is in endangered to critical status, within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA, as applicable; (ix) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan; (x) the imposition of any liability under Title I or Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Obligor or any ERISA Affiliate thereof; (xi) an application for a funding waiver under Section 303 of ERISA or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Title IV Plan; (xii) the occurrence of a non-exempt prohibited transaction under Sections 406 or 407 of ERISA for which any Obligor or any Subsidiary thereof may be directly or indirectly liable; (xiii) a violation of the applicable requirements of Section 404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the Code by any fiduciary or disqualified person for which any Obligor or any ERISA Affiliate thereof may be directly or indirectly liable; (xiv) the occurrence of an act or omission which could reasonably be expected to give rise to the imposition on any Obligor or any ERISA Affiliate thereof of fines, penalties, taxes or related charges under Chapter 43 of the Code or under Sections 409, 502(c), (i) or (1) or 4071 of ERISA; (xv) the assertion of a material claim (other than routine claims for benefits) against any Plan or the assets thereof, or against any Obligor or any Subsidiary thereof in connection with any such Plan; (xvi) receipt from the IRS of notice of the failure of any Qualified Plan to qualify under Section 401(a) of the Code,
or the failure of any trust forming part of any Qualified Plan to fail to qualify for exemption from taxation under Section 501(a) of the Code; (xvii) the imposition of any Lien (or the fulfillment of the conditions for the imposition of any Lien) on any of the rights, properties or assets of any Obligor or any ERISA Affiliate thereof, in either case pursuant to Title I or Title IV of ERISA, including Section 302(f) or 303(k) of ERISA or to Section 401(a)(29) or 430(k) of the Code; (xviii) the establishment or amendment by any Obligor or any Subsidiary thereof of any “welfare plan”, as such term is defined in Section 3(1) of ERISA, that provides post-employment welfare benefits in a manner that would increase the liability of any Obligor; or (xix) any Foreign Benefit Event.
“ERISA Funding Rules” means the rules regarding minimum required contributions (including any installment payment thereof) to Title IV Plans, as set forth in Sections 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“Event of Default” has the meaning set forth in Section 11.01.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exchange Rate” means, as of any date of determination, the rate at which any currency may be exchanged into another currency, as set forth on the relevant Reuters screen at or about 11:00 a.m. (New York City time) on such date. In the event that such rate does not appear on the Reuters screen, the “Exchange Rate” shall be determined by reference to such other publicly available service for displaying exchange rates as may be reasonably designated by the Administrative Agent.
“Excluded Accounts” means (x) the Deposit Accounts, Securities Accounts and Commodity Accounts of the Massachusetts Securities Subsidiary identified on Schedule 2 hereto, and (y) any other Deposit Account of Holdings or any of its Subsidiaries (other than the Massachusetts Securities Subsidiary or any Immaterial Subsidiary) (i) into which there are no funds on deposit other than those intended solely to cover wages and payroll for employees of the Borrower or any such Subsidiaries for a period of service no longer than one month at any time (and related contributions to be made on behalf of such employees to health and benefit plans) plus balances for outstanding checks for wages and payroll from prior periods; (ii) constituting employee withholding accounts and contain only funds deducted from pay otherwise due to employees for services rendered to be applied toward the Tax obligations of such employees; (iii) constituting escrow accounts into which there are deposited contractually escrowed funds in connection with Permitted Acquisitions; and (iv) constituting trust or fiduciary accounts into which there are no funds on deposit other than deposits held in trust for the benefit of a third-party (other than any Affiliate of the Borrower).
“Excluded Subsidiary” means (i) the Massachusetts Securities Subsidiary and (ii) any Immaterial Subsidiary.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient: (i) Taxes imposed on or measured by net income (however denominated), franchise Taxes and branch profits Taxes, in each case, (x) imposed by the United States as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivisions thereof) or (y) that are Other Connection Taxes, (ii) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (1) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 5.03(h)) or (2) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 5.03, amounts with respect to such Taxes were payable either to such Lender's assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (iii) Taxes attributable to such Recipient’s failure to comply with Section 5.03(f), and (iv) any U.S. federal withholding Taxes imposed under FATCA.
“Exclusive License” (and its derivatives) means and refers to any outbound license of Intellectual Property that is exclusive (whether as to use, geography or otherwise) and is not terminable by the licensor at any time upon ninety (90) days’ (or less) prior written notice.
“Expense Deposit” means the cash deposit referenced in the Proposal Letter.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“FD&C Act” means the U.S. Food, Drug and Cosmetic Act of 1938 (or any successor thereto), as amended from time to time, and the rules, regulations, guidelines, guidance documents and compliance policy guides issued or promulgated thereunder.
“FDA” means the U.S. Food and Drug Administration and any successor entity.
“Federal Funds Effective Rate” means, for any day, the greater of (i) the rate calculated by the Federal Reserve Bank of New York based on such day’s federal funds transactions by depositary institutions (as determined in such manner as the Federal Reserve Bank of New York sets forth on its public website from time to time) and published on the next succeeding Business Day by the Federal Reserve Bank of New York as the federal funds effective rate and (ii) zero percent (0%).
“Foreign Benefit Event” means, with respect to any Foreign Pension Plan, (a) the existence of unfunded liabilities in excess of the amount permitted under any applicable Law, or in excess of the amount that would be permitted absent a waiver from a Governmental Authority,
(b) the failure to make the required contributions or payments, under any applicable Law, on or before the due date (and any applicable grace period) for such contributions or payments, (c) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan or to appoint a trustee or similar official to administer any such Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension Plan, (d) the incurrence of any liability in excess of $1,500,000 by Holdings or any of its Subsidiaries under applicable Law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein, or (e) the occurrence of any transaction that is prohibited under any applicable Law and that could reasonably be expected to result in the incurrence of any liability by Holdings or any of its Subsidiaries, or the imposition on Holdings or any of its Subsidiaries of any fine, excise tax or penalty resulting from any noncompliance with any applicable Law, in each case in excess of $1,500,000.
“Foreign Lender” means a Lender that is not a U.S. Person.
“Foreign Pension Plan” means any benefit plan that under applicable Law, other than the Laws of the United States or any political subdivision thereof, is required to be funded through a trust or other funding vehicle other than a trust or funding vehicle maintained exclusively by a Governmental Authority.
“GAAP” means generally accepted accounting principles in the United States, as in effect from time to time, set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants, in the statements and pronouncements of the Financial Accounting Standards Board and in such other statements by such other entity as may be in general use by significant segments of the accounting profession that are applicable to the circumstances as of the date of determination. All references to “GAAP” used herein shall be to GAAP applied consistently with the principles used in the preparation of the financial statements delivered pursuant to Section 6.01(e)(i).
“Governmental Approval” means any consent, authorization, approval, order, license, franchise, permit, certification, accreditation, registration, clearance, exemption, filing or notice that is issued or granted by or from (or pursuant to any act of) any Governmental Authority, including any application or submission related to any of the foregoing.
“Governmental Authority” means any nation, government, branch of power (whether executive, legislative or judicial), state, province or municipality or other political subdivision thereof and any entity exercising executive, legislative, judicial, monetary, regulatory or administrative functions of or pertaining to government, including without limitation regulatory authorities, governmental departments, agencies, commissions, bureaus, officials, ministers, courts, bodies, boards, tribunals and dispute settlement panels, and other law-, rule- or regulation-making organizations or entities of any state, territory, county, city or other political subdivision of any country, in each case whether U.S. or non-U.S., including the FDA and any other agency, branch or other governmental body that has regulatory, supervisory or administrative authority or oversight over, or is charged with the responsibility or vested with the authority to administer or enforce, any Healthcare Laws.
“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other monetary obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other monetary obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other monetary obligation of the payment thereof, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other monetary obligation or (iv) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or monetary obligation; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.
“Guarantee Assumption Agreement” means a Guarantee Assumption Agreement substantially in the form of Exhibit C, executed by any entity that, pursuant to Section 8.12 is required to become a “Subsidiary Guarantor”.
“Guaranteed Obligations” has the meaning set forth in Section 13.01.
“Hazardous Material” means any substance, element, chemical, compound, product, solid, gas, liquid, waste, by-product, pollutant, contaminant or material which is hazardous or toxic, and includes, without limitation, (i) asbestos, polychlorinated biphenyls and petroleum (including crude oil or any fraction thereof) and (ii) any material classified or regulated as “hazardous” or “toxic” or words of like import pursuant to an Environmental Law.
“Healthcare Laws” means, collectively, all Laws and Regulatory Approvals applicable to any Product, the ownership or use of any Product or the regulation of any Product Commercialization and Development Activities conducted by or on behalf of Holdings or any of its Subsidiaries, whether U.S. or non-U.S., federal, state, local or equivalent, relating to the provision of medical or other professional healthcare services or supplies, billing and collection practices relating to the payment for healthcare services or supplies, insurance law (including law related to payment for “no-fault” claims) and workers compensation law as they relate to the provision of, and billing and payment for, healthcare services, patient healthcare, patient healthcare information, patient abuse, the quality and adequacy of medical care, rate-setting, equipment, personnel, operating policies, fee splitting, including, without limitation, the federal Anti-kickback Statute (42 U.S.C. § 1320a-7b(b)) (the “Federal Anti-Kickback Statute”), the Physician Self-Referral Statute (42 U.S.C. § 1395nn) (the “Stark Law”), the Physician Payments Sunshine Act (42 U.S.C. § 1320a-7h), the civil False Claims Act (31 U.S.C. §§ 3729 et seq.), the criminal False Claims Act (42 U.S.C. § 1320a-7b(a)), all criminal laws relating to health care fraud and abuse, including but not limited to 18 U.S.C. Sections 286, 287, 1035, 1347 and 1349, and the health care fraud criminal provisions under the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. §§ 1320d et seq.), the exclusion law (42 U.S.C. § 1320a-7), the civil monetary penalties law (42 U.S.C. § 1320a-7a), HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (42 U.S.C. §§ 17921 et seq.), the FD&C Act, the statutes, regulations and binding directives of applicable federal healthcare programs, including but not
limited to Medicare (Title XVIII of the Social Security Act) and Medicaid (Title XIX of the Social Security Act), any binding collection and reporting requirements relating to applicable federal health care programs, the statutes, regulations, and binding directives relating to the processing of any applicable rebate, chargeback or adjustment, under applicable rules and regulations pursuant to the Medicaid Drug Rebate Program (42 U.S.C. § 1396r-8), any state supplemental rebate program, Medicare average sales price reporting (42 U.S.C. § 1395w-3a), the Public Health Service Act (42 U.S.C. § 256b), the VA Federal Supply Schedule (38 U.S.C. § 8126) or under any state pharmaceutical assistance program or U.S. Department of Veterans Affairs agreement, and any successor government programs, and any rules and regulations promulgated pursuant to the statutes listed herein.
“Healthcare Permit” means, with respect to any Person and its ordinary course business activities, any Regulatory Approval (i) issued or required under any Healthcare Laws applicable to such activities of such Person, including activities related to the provision of billing or invoicing for the sale of goods or services regulated or administered under any Healthcare Laws, or (ii) issued to such Person or required to be held by such Person under any Healthcare Laws.
“Hedging Agreement” means any interest rate exchange agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.
“Holdings” has the meaning set forth in the preamble hereto.
“IDE” means an application, including an application filed with any Regulatory Authority, for authorization to commence human clinical studies with respect to any Device, including (i) an Investigational Device Exemption as defined in the FD&C Act or any successor application or procedure filed with the FDA, (ii) an abbreviated Investigational Device Exemption as specified in FDA regulations in 21 C.F.R. § 812.2(b), (iii) any equivalent of any of the foregoing pursuant to or under any non-U.S. country or regulatory jurisdiction, (iv) all amendments, variations, extensions and renewals of any of the foregoing that may be filed with respect thereto, and (v) all related documents and correspondence thereto, including documents and correspondence with Institutional Review Boards, whether U.S. or the non-U.S. equivalent.
“Immaterial Subsidiary” means, as of any time of determination, any Subsidiary of Holdings that (i) individually constitutes or holds less than $1,000,000 in total assets and generates less than $1,000,000 of annual Revenue, and (ii) when taken together with all other then existing Immaterial Subsidiaries, such Subsidiary and such Immaterial Subsidiaries, in the aggregate, constitute or hold less than $2,000,000 in total assets and generate less than $2,000,000 of annual Revenue.
“Indebtedness” of any Person means, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or similar instruments, (iii) all obligations of such Person upon which interest charges are customarily paid, (iv) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (v) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business), (vi) all Indebtedness of others secured by (or
for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (vii) all Guarantees by such Person of Indebtedness of others, (viii) all Capital Lease Obligations of such Person, (ix) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (x) obligations under any Hedging Agreement, currency swaps, forwards, futures or derivatives transactions, (xi) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, (xii) any Disqualified Equity Interests of such Person, and (xiii) all other obligations required to be classified as indebtedness of such Person under GAAP. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
“Indemnified Party” has the meaning set forth in Section 14.03(b).
“Indemnified Taxes” means (i) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any Obligation and (ii) to the extent not otherwise described in clause (i), Other Taxes.
“Information Certificate” means an Information and Collateral Certificate, in substantially the form set forth in Exhibit G.
“Insolvency Proceeding” means (i) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (ii) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of any Person’s creditors generally or any substantial portion of such Person’s creditors, in each case undertaken under U.S. federal, state or foreign law, including the Bankruptcy Code.
“Intellectual Property” means all Patents, Trademarks, Copyrights and Technical Information, whether registered or not, U.S. or non-U.S., including (without limitation) all of the following:
(i) applications, registrations, amendments and extensions relating to such Intellectual Property;
(ii) rights and privileges arising under any applicable Laws with respect to such Intellectual Property;
(iii) rights to sue for or collect any damages for any past, present or future infringements of such Intellectual Property; and
(iv) rights of the same or similar effect or nature in any jurisdiction corresponding to such Intellectual Property throughout the world.
“Intercompany Subordination Agreement” means the Amended and Restated Intercompany Subordination Agreement, dated as of the Effective Date, by and among Holdings,
the Borrower and each of Holdings’ Subsidiaries, pursuant to which all obligations in respect of any Indebtedness owing to any such Person by Holdings, the Borrower or any of Holdings’ Subsidiaries shall be subordinated to the prior payment in full in cash of all Obligations, such agreement to be substantially in the form attached hereto as Exhibit H, as amended or otherwise modified from time to time.
“Interest Period” means, with respect to any Borrowing, (i) initially, the period commencing on (and including) the Borrowing Date on which such Borrowing occurred and ending on (and including) the last day of the calendar month in which such Borrowing was made, and (ii) thereafter, the period beginning on (and including) the first day of each succeeding calendar month and ending on the earlier of (and including) (x) the last day of such calendar month and (y) the Maturity Date.
“Interest Rate” means, for any Interest Period, the sum of (i) the Applicable Margin plus (ii) the greater of (x) the Reference Rate as of the second Business Day immediately preceding the first day of such Interest Period and (y) one percent (1.00%).
“Invention” means any novel, inventive or useful art, apparatus, method, process, machine (including any article or device), manufacture or composition of matter, or any novel, inventive and useful improvement in any art, method, process, machine (including article or device), manufacture or composition of matter.
“Investment” means, for any Person: (i) the acquisition (whether for cash, property, services or securities or otherwise) of Equity Interests, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person (including any “short sale” or sale of any securities at a time when such securities are not owned by the Person entered into such sale); (ii) the making of any deposit with, or advance, loan, assumption of debt, or other extension of credit to, or capital contribution in any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person), but excluding any such advance, loan or extension of credit having a term not exceeding ninety (90) days arising in connection with the sale of inventory or supplies by such Person in the ordinary course of business; (iii) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness of any other Person and (without duplication) any amount advanced, lent or extended to such Person; or (iv) the entering into of any Hedging Agreement. The amount of an Investment will be determined at the time the Investment is made without giving effect to any subsequent changes in value.
“IRS” means the U.S. Internal Revenue Service.
“Law” means any U.S. or non-U.S. federal, state, provincial, territorial, municipal or local statute, treaty, rule, guideline, regulation, ordinance, code or administrative or judicial precedent or authority, including any interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“Lenders” has the meaning set forth in the preamble hereto.
“Lien” means any mortgage, lien, pledge, charge or other security interest, or any lease, title retention agreement, mortgage, restriction, easement, right-of-way, option or adverse claim (of ownership or possession) or other encumbrance of any kind or character whatsoever or any preferential arrangement that has the practical effect of creating a security interest.
“Loan” means any Tranche 1 Loan.
“Loan Documents” means, collectively, this Agreement, the Notes, the Security Documents, the Proposal Letter, each Warrant Certificate, any Guarantee Assumption Agreement, any Information Certificate, the Intercompany Subordination Agreement, and any other guaranty, security agreement, subordination agreement, intercreditor agreement or other present or future document, instrument, agreement, certificate or other amendment, waiver or modification of the foregoing delivered to the Administrative Agent or any Lender in connection with this Agreement (including, without limitation, in connection with Section 8.12) or any of the other Loan Documents, in each case, as amended or otherwise modified.
“Loss” means judgments, debts, liabilities, expenses, costs, damages or losses, contingent or otherwise, whether liquidated or unliquidated, matured or unmatured, disputed or undisputed, contractual, legal or equitable, including loss of value, reasonable professional fees, including reasonable fees and disbursements of legal counsel on a full indemnity basis, and all costs incurred in investigating or pursuing any Claim or any proceeding relating to any Claim.
“Majority Lenders” means, at any time, Lenders having at such time in excess of fifty percent (50%) of the aggregate Commitments (or, if such Commitments are terminated, the outstanding principal amount of the Loans) then in effect.
“Margin Stock” means “margin stock” within the meaning of Regulation U and Regulation X.
“Massachusetts Securities Subsidiary” means Pear Therapeutics Securities Corporation, a Massachusetts corporation.
“Material Adverse Change” and “Material Adverse Effect” mean any event, occurrence, fact, development or circumstance that has had, or could be reasonably expected to have, a material adverse change in or effect on (i) the business condition (financial or otherwise), operations, performance or property of Holdings and its Subsidiaries taken as a whole, (ii) the ability of any Obligor to perform its obligations under the Loan Documents, as and when due, or (iii) the legality, validity, binding effect or enforceability against any Obligor of the Loan Documents or the rights and remedies of the Administrative Agent or the Lenders under any Loan Document.
“Material Agreement” means any Contract to which Holdings or any of its Subsidiaries is a party or a beneficiary from time to time, or to which any assets or properties of Holdings or any of its Subsidiaries are bound (i) the absence or termination of which could reasonably be expected to result in a Material Adverse Effect or (ii) without duplication during any period of twelve (12) consecutive months is reasonably expected to, directly or indirectly, (x) result in payments or receipts (including royalty, licensing or similar payments) made to Holdings or any of its
Subsidiaries in an aggregate amount in excess of $1,500,000, or (y) require payments or expenditures (including royalty, licensing or similar payments) to be made by Holdings or any of its Subsidiaries in an aggregate amount in excess of $1,500,000.
“Material Indebtedness” means, at any time, any Indebtedness of Holdings or any of its Subsidiaries, the outstanding principal amount of which, individually or in the aggregate, exceeds $1,000,000 (or the Equivalent Amount in other currencies).
“Material Intellectual Property” means all Obligor Intellectual Property currently owned or exclusively licensed in connection with Product Commercialization and Development Activities (i) necessary for the operation of the business of Holdings and its Subsidiaries as currently conducted or as currently contemplated to be conducted, (ii) the loss of which could reasonably be expected to result in a Material Adverse Effect, or (iii) that has a fair market value in excess of $1,500,000.
“Material Regulatory Event” means an Adverse Regulatory Event that (i) individually has resulted in, or could reasonably be expected to result in, a fine, penalty or Loss (including a loss of Revenue) in excess of $2,500,000 or (ii) when taken together with each other Adverse Regulatory Event that has occurred since the Closing Date, has resulted in, or could reasonably be expected to result in, a fine, penalty or Loss (including a loss of Revenue) in excess of $2,500,000.
“Maturity Date” means the earliest to occur of (i) June 30, 2025 and (ii) the acceleration of the Obligations pursuant to Section 11.02, when used herein, the term “scheduled Maturity Date” means the date set forth in clause (i) above.
“Medicaid” means that government-sponsored entitlement program under Title XIX, P.L. 89-97 of the Social Security Act, which provides federal grants to states for medical assistance based on specific eligibility criteria, as set forth on Section 1396, et seq. of Title 42 of the United States Code.
“Medicare” means that government-sponsored insurance program under Title XVIII, P.L. 89-97, of the Social Security Act, which provides for a health insurance system for eligible elderly and disabled individuals, as set forth at Section 1395, et seq. of Title 42 of the United States Code.
“Multiemployer Plan” means any multiemployer plan, as defined in Section 400l(a)(3) of ERISA, to which any ERISA Affiliate incurs or otherwise has any obligation or liability, contingent or otherwise.
“Net Cash Proceeds”, means, (i) with respect to any Casualty Event experienced or suffered by Holdings, the Borrower or any of its Subsidiaries, the amount of cash proceeds received (directly or indirectly) including, without limitation, in the form of insurance proceeds or condemnation awards in respect of such Casualty Event, from time to time by or on behalf of such Person after deducting therefrom only (x) reasonable costs and expenses related thereto incurred by Holdings, the Borrower or such Subsidiary in connection therewith, and (y) Taxes (including transfer Taxes or net income Taxes) paid or payable in connection therewith; and (ii) with respect to any Asset Sale by Holdings, the Borrower or any of its Subsidiaries, the amount of cash proceeds received (directly or indirectly) from time to time by or on behalf of such Person after deducting therefrom only (x) reasonable costs and expenses related thereto incurred by Holdings, the
Borrower or such Subsidiary in connection therewith, (y) Taxes (including transfer Taxes or net income Taxes) paid or payable in connection therewith and (z) reserves for future indemnity obligations and losses only to the extent actually applied; provided that, in each case of clauses (i) and (ii), costs and expenses shall only be deducted to the extent, that the amounts so deducted are (x) actually paid to a Person that is not an Affiliate of Holdings, the Borrower or any of its Subsidiaries and (y) properly attributable to such Casualty Event or Asset Sale, as the case may be.
“Note” means a promissory note, in substantially the form of Exhibit A hereto, executed and delivered by the Borrower to any Lender in accordance with Section 2.03.
“NY UCC” means the UCC as in effect from time to time in New York.
“Obligations” means, all amounts, obligations, liabilities, covenants and duties of every type and description (including all Guaranteed Obligations and Warrant Obligations) owing by any Obligor to any Secured Party, any indemnitee hereunder or any participant, arising out of, under, or in connection with, any Loan Document, whether direct or indirect (regardless of whether acquired by assignment), absolute or contingent, due or to become due, whether liquidated or not, now existing or hereafter arising and however acquired, and whether or not evidenced by any instrument or for the payment of money, including, without duplication, (i) all Loans, (ii) all interest, whether or not accruing after the filing of any petition in bankruptcy or after the commencement of any insolvency, reorganization or similar proceeding, and whether or not a claim for post-filing or post-petition interest is allowed in any such proceeding, and (iii) all other fees, expenses (including reasonable fees, charges and disbursement of counsel), interest, commissions, charges, costs, disbursements, indemnities and reimbursement of amounts paid and other sums chargeable to such Obligor under any Loan Document.
“Obligor Intellectual Property” means, at any time of determination, Intellectual Property owned by, licensed to or otherwise held by Holdings, the Borrower or any Subsidiary Guarantor at such time including, without limitation, the Intellectual Property listed on Schedule 7.05(c).
“Obligor Party” has the meaning set forth in Section 14.03(b).
“Obligors” means, collectively, Holdings, the Borrower, the Subsidiary Guarantors and any Subsidiary of the Borrower required to become a Subsidiary Guarantor or execute and deliver or become a party to a Security Document pursuant to Section 8.12, and their respective successors and permitted assigns.
“Observer” has the meaning set forth in Section 8.20(a).
“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“One-Month LIBOR” means, with respect to any applicable Interest Period hereunder, the one-month London Interbank Offered Rate for deposits in Dollars at approximately 11:00 a.m. (London, England time), as determined by the Administrative Agent from the appropriate Bloomberg or Telerate page selected by the Administrative Agent (or any successor thereto or similar source reasonably determined by the Administrative Agent from time to time), which shall be that one-month London Interbank Offered Rate for deposits in Dollars in effect two (2) Business
Days prior to the first day of such Interest Period rounded up to the nearest one hundredth (1/100) of one percent (1%). The Administrative Agent’s determination of interest rates shall be binding on all parties to the Loan Documents in the absence of manifest error.
“Organic Document” means, for any Person, such Person’s formation documents, including, as applicable its certificate of incorporation, by-laws, certificate of partnership, partnership agreement, certificate of formation, limited liability agreement, operating agreement and all shareholder agreements, voting trusts and similar arrangements applicable to such Person’s Equity Interests, or any equivalent document of any of the foregoing.
“Original Credit Agreement” has the meaning set forth in the first recital hereto.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 5.03(h)).
“Participant” has the meaning set forth in Section 14.05(e).
“Participant Register” has the meaning set forth in Section 14.05(g).
“Patents” means all patents and patent applications, including (i) the Inventions and improvements described and claimed therein, (ii) the reissues, divisions, continuations, renewals, extensions, and continuations in part thereof, and (iii) all income, royalties, damages and payment now or hereafter due and payable with respect thereto, (iv) all damages and payment for past or future infringements thereof, and rights to sue thereof, and (v) all rights whatsoever accruing thereunder or pertaining thereto throughout the world.
“Patriot Act” has the meaning set forth in Section 14.20.
“Payment Date” means (i) the last day of each Interest Period (provided that if such last day of any Interest Period is not a Business Day, then the Payment Date shall be the next succeeding Business Day) and (ii) the Maturity Date.
“PBGC” means the United States Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
“Permitted Acquisition” means (x) the Waypoint Product Acquisition; provided that such Acquisition is consummated in accordance with the terms and conditions of the Waypoint Product
Acquisition Agreement without any material waiver, amendment or other modification thereto (unless approved in writing by the Administrative Agent prior to the effectiveness thereof, which approval may not be unreasonably withheld), and (y) any other Acquisition by the Borrower or any of its Subsidiaries; provided that, in the case of any such other Acquisition made pursuant to this clause (y):
(a) immediately prior to, and after giving effect to such Acquisition, (i) all representations and warranties contained in this Agreement and the other Loan Documents that are qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct, (ii) all representations and warranties contained in this Agreement and the other Loan Documents that are not qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct in all material respects, and (iii) no Default shall have occurred and be continuing or could reasonably be expected to result therefrom;
(b) all transactions in connection therewith shall be consummated in accordance with all applicable Laws;
(c) in the case of an Acquisition of Equity Interests of any Person, all of such Equity Interests (except for any such securities in the nature of directors’ qualifying shares required pursuant to any applicable Law) shall be owned by Holdings or a wholly-owned, direct or indirect Subsidiary of the Borrower, and, in the event of an Acquisition that results in the creation or acquisition of a new Subsidiary of Holdings, the Borrower shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of the Borrower, each of the actions set forth in Section 8.12(a), if applicable;
(d) such Person (in the case of an Acquisition of Equity Interests of such Person) or assets (in the case of an Acquisition of assets or a division of such Person) shall be engaged or used, as the case may be, in businesses or lines of business that would be permitted pursuant to Section 9.04;
(e) on a pro forma basis after giving effect to such Acquisition, the Obligors and their Subsidiaries shall be in compliance with the financial covenants set forth in Section 10;
(f) to the extent that the purchase price for any such Acquisition is paid in cash, the amount thereof, when taken together with the purchase price paid in cash for all other Acquisitions consummated or effected since the Closing Date, does not exceed $5,000,000 in the aggregate (or the Equivalent Amount thereof);
(g) the fair market value of the consideration paid in such Acquisition (exclusive of Qualified Equity Interests of Holdings or the Borrower), when taken together with the fair market value of consideration paid in connection with all other Permitted Acquisitions consummated or effected since the Closing Date (inclusive of cash, deferred purchase price payments, whether in respect of earn-out payments, post-closing adjustments, payments on “seller notes” or otherwise, to the extent actually paid, but excluding Qualified Equity Interests of Holdings or the Borrower), does not exceed $10,000,000 in the aggregate;
(h) at least five (5) Business Days prior to the proposed date of the Acquisition, the Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower (prepared in reasonable detail), certifying that the Acquisition complies with the requirements of this definition, and which certificate shall include a summary (prepared in reasonable detail), certifying as to any contingent liabilities and prospective research and development costs associated with the Person, business or assets being acquired;
(i) to the extent that the purchase price for any such Acquisition is paid in Equity Interests, all such Equity Interests shall be Qualified Equity Interests;
(j) in the case of any Acquisition that has a purchase price in excess of $5,000,000, the Borrower shall have provided the Administrative Agent with at least fifteen (15) calendar days’ prior written notice of any such Acquisition, together with (i) a copy of the draft purchase agreement related to the proposed Acquisition (and any related documents requested by the Administrative Agent), (ii) any available quarterly and annual financial statements of the Person whose Equity Interests or assets are being acquired for the twelve (12) month period ending thirty (30) days immediately prior to such Acquisition, including any audited financial statements that are available, (iii) a summary of due diligence conducted by or on behalf of Holdings, the Borrower or its applicable Subsidiary, as applicable, prior to such Acquisition, (iv) summary information regarding any contingent liabilities or prospective research and development costs associated with the Person, business or assets being acquired and (v) any other information reasonably requested by the Administrative Agent and available to the Obligors; and
(k) neither Holdings nor any of its Subsidiaries shall, in connection with (and upon giving effect to) any such Acquisition, assume or remain liable with respect to, or be subject to (x) any Indebtedness of the related seller or the business, Person or properties acquired, except to the extent permitted pursuant to Section 9.01(g), (y) any Lien on any business, Person or assets acquired, except to the extent permitted pursuant to Section 9.02, or (z) any other liability (including Tax, ERISA or environmental liabilities) in excess of $1,500,000 in the aggregate since the Closing Date.
“Permitted Cash Equivalent Investments” means (i) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any state thereof having maturities of not more than one year from the date of acquisition, (ii) commercial paper maturing no more than two hundred and seventy (270) days after the date of its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. and (iii) registered money market funds at least ninety five percent (95%) of the assets of which constitute Permitted Cash Equivalent Investments of the kinds described in in clauses (i) and (ii) above.
“Permitted Indebtedness” means any Indebtedness permitted under Section 9.01.
“Permitted Liens” means any Liens permitted under Section 9.02.
“Permitted Refinancing” means, with respect to any Indebtedness permitted to be refinanced, extended, renewed or replaced hereunder, any refinancings, extensions, renewals and
replacements of such Indebtedness; provided that such refinancing, extension, renewal or replacement shall not (i) increase the outstanding principal amount of the Indebtedness being refinanced, extended, renewed or replaced (except in the amount of accrued interest, upfront fees and transaction costs), (ii) contain terms relating to outstanding principal amount, amortization, maturity, collateral security (if any) or subordination (if any), or other material terms that, taken as a whole, are less favorable in any material respect to Holdings and its Subsidiaries or the Secured Parties than the terms of any agreement or instrument governing the Indebtedness being refinanced, (iii) have an applicable interest rate or equivalent yield that exceeds the interest rate or equivalent yield of the Indebtedness being refinanced, (iv) contain any new requirement to grant any Lien or to give any Guarantee that was not an existing requirement of the Indebtedness being refinanced and (v) after giving effect to such refinancing, extension, renewal or replacement, no Default shall have occurred (or could reasonably be expected to occur) as a result thereof.
“Person” means any individual, corporation, company, voluntary association, partnership, limited liability company, joint venture, trust, unincorporated organization or Governmental Authority or other entity of whatever nature.
“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which Holdings, the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“Positive Reimbursement Coverage” means a Coverage Sponsor has announced the decision to place a Product on its formulary or to cover a Product as a medically necessary service as part of its benefits.
“Prepayment Date” has the meaning set forth in Section 3.03(a)(i).
“Prepayment Price” has the meaning set forth in Section 3.03(a)(i).
“Product” means (i) those products and Devices set forth on Schedule 7.05(b) and (ii) any other products or Devices developed, distributed, imported, exported, labeled, promoted, licensed, marketed, sold or otherwise commercialized by Holdings or any of its Subsidiaries, but excluding any such products or Devices that, if in development or which may be developed, have not yet reached the stage of Advanced Development.
“Product Commercialization and Development Activities” means, with respect to any Product, any combination of (i) research, development, manufacturing, quality compliance, use, sale, licensing, importation, exportation, shipping, storage, handling, designing, labeling, marketing, promotion, supply, dispensing, distribution, testing, packaging, purchasing or other commercialization activity, (ii) receipt of payment or other remuneration in respect of any of the foregoing (including, without limitation, in respect of licensing, royalty or similar payments) or (iii) any similar or other activities the purpose of which is to commercially exploit such Product.
“Product Related Information” means, with respect to any Product, all books, records, lists, ledgers, files, manuals, Contracts, correspondence, reports, plans, drawings, data and other information of every kind (in any form or medium), including related to Intellectual Property, and
all techniques and other know-how, that is necessary or useful for any Product Commercialization and Development Activities relating to such Product, including (i) branding materials, packaging and other marketing, promotion and sales materials and information, (ii) clinical data, information included or supporting any Regulatory Approval and all other documents, records, files, data and other information relating to Product Commercialization and Development Activities, (iii) litigation and dispute records, and accounting records, and (iv) all other information, techniques and know-how necessary or useful in connection with the Product Commercialization and Development Activities for any Product.
“Product Standards” means all safety, quality and other specifications and standards applicable to any Product, including all medical device and other standards promulgated by Standards Bodies.
“Prohibited Payment” means any bribe, rebate, payoff, influence payment, kickback or other payment or gift of money or anything of value (including meals or entertainment) to any officer, employee or ceremonial office holder of any government or instrumentality thereof, political party or supra-national organization (such as the United Nations), any political candidate, any royal family member or any other person who is connected or associated personally with any of the foregoing that is prohibited under any applicable Law for the purpose of influencing any act or decision of such payee in such payee’s official capacity, inducing such payee to do or omit to do any act in violation of such payee’s lawful duty, securing any improper advantage or inducing such payee to use such payee’s influence with a government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality.
“Proportionate Share” means, with respect to each Lender, the percentage obtained by dividing (i) the sum of all Commitments (or, if the Commitments are terminated, the outstanding principal amount of the Loans) of such Lender then in effect by (ii) the sum of all Commitments (or, if the Commitments are terminated, the outstanding principal amount of the Loans) of all Lenders then in effect.
“Proposal Letter” means the Proposal Letter, dated May 19, 2020, between the Borrower and Perceptive Advisors LLC (as supplemented by the outline of proposed terms and conditions attached thereto).
“Qualified Equity Interest” means, with respect to any Person, any Equity Interest of such Person that is not a Disqualified Equity Interest.
“Qualified Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) other than a Multiemployer Plan (i) that is or was at any time maintained or sponsored by any Obligor or any ERISA Affiliate thereof or to which any Obligor or any ERISA Affiliate thereof has ever made, or was ever obligated to make, contributions, and (ii) that is intended to be tax qualified under Section 401(a) of the Code.
“Real Property Security Documents” means any landlord consents, bailee letters, any mortgage or deed of trust or any other real property security document executed or required hereunder to be executed by any Obligor and granting a security interest in real property owned by any Obligor in favor of the Secured Parties for purposes of securing the Obligations.
“Recipient” means any Lender, the Administrative Agent or any other recipient of any payment to be made by or on account of any Obligation, as applicable.
“Reference Rate” means One-Month LIBOR; provided that if One-Month LIBOR can no longer be determined by the Administrative Agent (in its sole but reasonable discretion) or the Governmental Authority having jurisdiction over the quotation or determination of London Interbank Offered Rates ceases to supervise or sanction such rates for purposes of interest rates on loans, then the Administrative Agent and Holdings shall endeavor, in good faith, to establish an alternate rate of interest to One-Month LIBOR that gives due consideration to the then prevailing market convention for determining a rate of interest for middle-market loans in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable; provided, further that, until such alternate rate of interest is agreed upon by the Administrative Agent and the Borrower, the Reference Rate for purposes hereof and of each other Loan Document shall be the Wall Street Journal Prime Rate.
“Referral Source” has the meaning set forth in Section 7.07(c).
“Refinanced Debt” means the Loan and Security Agreement dated December 22, 2016 between the Borrower and Silicon Valley Bank, as amended.
“Register” has the meaning set forth in Section 14.05(d).
“Regulation T” means Regulation T of the Board of Governors of the Federal Reserve System, as amended.
“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System, as amended.
“Regulation X” means Regulation X of the Board of Governors of the Federal Reserve System, as amended.
“Regulatory Approval” means, with respect to any Product or Product Commercialization and Development Activities, any Governmental Approval, whether U.S. or non-U.S. that is required to be held or maintained by, or for the benefit of, Holdings, the Borrower or any of its Subsidiaries with respect thereto, including all applicable IDEs, 510(k)s, Device Clearance Applications, Product Standards, supplements, amendments, pre-approvals and post-approvals, governmental price, reimbursement approvals and approvals of applications for regulatory exclusivity, clearances, licenses, notifications, registrations or authorizations of any Regulatory Authority, in each case necessary for the ownership, use or other commercialization of such Product or for such Product Commercialization and Development Activities.
“Regulatory Authority” means any Governmental Authority, whether U.S. or non-U.S., that is concerned with or has regulatory or supervisory oversight with respect to any Product or any Product Commercialization and Development Activities relating to any Product, including the FDA and all equivalent Governmental Authorities, whether U.S. or non-U.S.
“Related Fund” means, with respect to any Lender, a fund which is managed or advised by the same investment manager or investment adviser as such Lender or, if it is managed by a different investment manager or investment adviser, a fund whose investment manager or investment adviser is an Affiliate of the investment manager or investment adviser of such Lender.
“Related Parties” has the meaning set forth in Section 14.16.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Responsible Officer” of any Person means each of the president, chief executive officer, chief financial officer, controller and similar officer of such Person.
“Restatement Amendment” has the meaning set forth in the first recital hereto.
“Restricted Payment” means any dividend or other distribution (whether in cash, Equity Interests or other property) with respect to any Equity Interests of Holdings or any of its Subsidiaries, any payment of interest, principal or fees in respect of any Indebtedness owed by Holdings or any of its Subsidiaries to any holder of any Equity Interests of Holdings or any of its Subsidiaries, or any payment (whether in cash, Equity Interests or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests of Holdings or any of its Subsidiaries, or any option, warrant or other right to acquire any such Equity Interests of Holdings or any of its Subsidiaries.
“Restrictive Agreement” means any Contract or other arrangement that prohibits, restricts or imposes any condition upon (i) the ability of Holdings or any of its Subsidiaries (other than any Excluded Subsidiary for so long as it remains an Excluded Subsidiary) to create, incur or permit to exist any Lien upon any of its properties or assets (other than (x) customary provisions in Contracts (including without limitation leases and licenses of Intellectual Property) restricting the assignment thereof and (y) restrictions or conditions imposed by any Contract governing secured Permitted Indebtedness permitted under Section 9.01(g), to the extent that such restrictions or conditions apply only to the property or assets securing such Indebtedness), or (ii) the ability of Holdings or any of its Subsidiaries (other than any Excluded Subsidiary for so long as it remains an Excluded Subsidiary) to make Restricted Payments with respect to any of their respective Equity Interests, to make or repay loans or advances to Holdings, Borrower or any such Subsidiary, or to Guarantee Indebtedness of Holdings, the Borrower or any such Subsidiary.
“Revenue” means, for any relevant fiscal period, the consolidated total net revenues of Holdings and its Subsidiaries for such fiscal period generated in the ordinary course of business, as recognized on the income statement of Holdings and its Subsidiaries for such fiscal period, determined on a consolidated basis in accordance with GAAP; provided that no more than $5,000,000 of Revenue received from or in connection with contingent milestone payments under licensing and collaborations agreements shall be included in the calculation of Revenue for all purposes hereunder.
“Sanction” means any international economic sanction administered or enforced by the United States government (including, without limitation, OFAC), the United Nations Security
Council, the European Union or its Member States, Her Majesty’s Treasury or other relevant sanctions authority.
“Secured Party” means each Lender, the Administrative Agent, each other Indemnified Party, any other holder of any Obligation, and any of their respective permitted transferees or assigns.
“Securities Account” means any securities account, as such term is defined in Section 8-501 of the NY UCC.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Security Agreement” means the Amended and Restated Security Agreement, dated as of the Effective Date, among the Borrower as the grantor party thereto and the Administrative Agent, granting a security interest in all of Holdings’ and the Borrower’s personal property in favor of the Administrative Agent.
“Security Documents” means, collectively, the Security Agreement, each Real Property Security Document, each Short-Form IP Security Agreement, and each other security agreement, control agreement or financing statement, registration, recordation, filing, instrument or approval required, entered into or recommended to grant, perfect and otherwise render enforceable Liens in favor of the Secured Parties for purposes of securing the Obligations, including (without limitation) pursuant to Section 8.12.
“Short-Form IP Security Agreements” means short-form copyright, patent or trademark (as the case may be) security agreements, substantially in the form Exhibit C, Exhibit D or Exhibit E to the Security Agreement, entered into by one or more Obligors in favor of the Secured Parties, each in form and substance reasonably satisfactory to the Administrative Agent (and as amended, modified or replaced from time to time).
“Solvent” means, with respect to any Person at any time, that (i) the present fair saleable value of the property of such Person is greater than the total amount of liabilities (including contingent liabilities) of such Person, (ii) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person has not incurred and does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature and (iv) such Person would be able to obtain a letter from its auditors that did not contain a going concern qualification.
“Specified Asset Sale” means any Asset Sale of the type described in any of clauses (d), (e), (g), (h), (i) or (j) of Section 9.09.
“Specified Holders” means (i) 5AM Ventures IV, LP, (ii) 5AM Co-Investors IV, LP, (iii) 5AM Opportunities I, L.P., (iv) Arboretum Ventures IV, L.P. and (v) Temasek Capital Management Pte. Ltd., and each Controlled Investment Affiliate of any Person specified in clauses (i) through (v) of this definition.
“Specified Intellectual Property” means any Intellectual Property to be licensed through an Exclusive License or sold by Holdings, the Borrower or its Subsidiaries on arm’s length terms to a non-affiliated pharmaceutical or life science company, or a joint venture or similar arrangement with such a company.
“Standard Bodies” means any of the organizations that create, sponsor or maintain safety, quality or other standards, including ISO, ANSI, CEN and SCC and the like.
“Subsidiary” means, with respect to any Person (for purposes of this definition, the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (i) of which securities or other ownership interests representing more than fifty percent (50%) of the equity or more than fifty percent (50%) of the ordinary voting power or, in the case of a partnership, more than fifty percent (50%) of the general partnership interests are, as of such date, owned, controlled or held, directly or indirectly or (ii) that is, as of such date, otherwise Controlled, by the parent or one or more direct or indirect subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.
“Subsidiary Guarantor” means, initially as of the Closing Date, each Subsidiary of the Borrower identified under the caption “SUBSIDIARY GUARANTORS” on the signature pages hereto and, thereafter, each Subsidiary of the Borrower that becomes, or is required to become, a “Subsidiary Guarantor” after the Closing Date pursuant to Section 8.12.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Technical Information” means all trade secrets and other proprietary or confidential information of a scientific, technical or commercial nature related to Product Commercialization and Development Activities.
“Title IV Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) other than a Multiemployer Plan (i) that is or was at any time maintained or sponsored by any Obligor or any ERISA Affiliate thereof or to which any Obligor or any ERISA Affiliate thereof has ever made, or was obligated to make, contributions, and (ii) that is or was subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA.
“Trademarks” means all trade names, trademarks and service marks, logos, trademark and service mark registrations, and applications for trademark and service mark registrations, including (i) all renewals of trademark and service mark registrations, (ii) all rights to recover for all past, present and future infringements thereof and all rights to sue therefor, and (iii) all rights whatsoever accruing thereunder or pertaining thereto throughout the world, together, in each case, with the goodwill of the business connected with the use thereof.
“Tranche 1 Loan” has the meaning set forth in the first recital hereto.
“Transactions” means the negotiation, preparation, execution, delivery and performance by each Obligor of this Agreement and the other Loan Documents to which such Obligor is (or is intended to be) a party, the making of the Loans hereunder, the repayment of the Refinanced Debt, and all other transactions contemplated pursuant to this Agreement and the other Loan Documents.
“UCC” means, with respect to any applicable jurisdictions, the Uniform Commercial Code as in effect in such jurisdiction, as may be modified from time to time.
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“United States” or “U.S.” means the United States of America, its fifty (50) states and the District of Columbia.
“U.S. Person” means a “United States person” as defined in Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” has the meaning set forth in Section 5.03(f)(ii)(B)(3).
“Wall Street Journal Prime Rate” means the Wall Street Journal Prime Rate, as published and defined in The Wall Street Journal.
“Warrant Certificate” means a Warrant Certificate in substantially the form of Exhibit J to the Original Credit Agreement, to be delivered pursuant to Section 6.01(g) (as a condition precedent to the Borrowing of Tranche 1 Loans), as amended or otherwise modified pursuant to the terms thereof.
“Warrant Obligations” means all Obligations of the Borrower owing to Perceptive Advisors LLC or one of its managed funds (and no other Person) arising out of, under or in connection with the Warrant Certificates; provided that, any term or provision hereof or of any other Loan Document to the contrary notwithstanding, neither the Borrower nor any other Person is providing (or intends to provide) the holder of the Warrant Certificate with any Guarantee or assurance of economic return or against risk of loss in respect of the Warrant Certificate or any Equity Interests issuable upon exercise thereof, and neither the term “Obligations” nor the term “Warrant Obligations” shall be deemed to include, directly or indirectly, any such Guarantee or assurance.
“Waypoint Product Acquisition” means the Acquisition by the Borrower of the Assets (as defined in the Waypoint Product Acquisition Agreement) from Waypoint Health Innovations, LLC.
“Waypoint Product Acquisition Agreement” means that certain Assignment Agreement, dated as of November 30, 2021, between the Borrower and Waypoint Health Innovations, LLC, pursuant to which the Borrower has agreed, among other things, to acquire the Assets (as defined in the Waypoint Product Acquisition Agreement.
“Withdrawal Liability” means, at any time, any liability incurred (whether or not assessed) by any ERISA Affiliate and not yet satisfied or paid in full at such time with respect to any Multiemployer Plan pursuant to Section 4201 of ERISA.
“Withholding Agent” means the Borrower, any other Obligor and the Administrative Agent, as applicable.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
1.02 Accounting Terms and Principles. Unless otherwise specified, all accounting terms used in each Loan Document shall be interpreted, and all accounting determinations and computations thereunder (including under Section 10 and any definitions used in such calculations) shall be made, in accordance with GAAP. Unless otherwise expressly provided, all financial covenants and defined financial terms shall be computed on a consolidated basis for Holdings and its Subsidiaries, in each case without duplication. If the Borrower requests an amendment to any provision hereof to eliminate the effect of (a) any change in GAAP or the application thereof or (b) the issuance of any new accounting rule or guidance or in the application thereof, in either case, occurring after the date of this Agreement, then the Lenders and Borrower agree that they will negotiate in good faith amendments to the provisions of this Agreement that are directly affected by such change or issuance with the intent of having the respective positions of the Lenders and Borrower after such change or issuance conform as nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed upon, (i) the provisions in this Agreement shall be calculated as if no such change or issuance has occurred and (ii) the Borrower shall provide to the Lenders a written reconciliation in form and substance reasonably satisfactory to the Lenders, between calculations of any baskets and other requirements hereunder before and after giving effect to such change or issuance.
1.03 Interpretation. For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires,
(a) the terms defined in this Agreement include the plural as well as the singular and vice versa;
(b) words importing gender include all genders;
(c) any reference to a Section, Annex, Schedule or Exhibit refers to a Section of, or Annex, Schedule or Exhibit to, this Agreement;
(d) any reference to “this Agreement” refers to this Agreement, including all Annexes, Schedules and Exhibits hereto, and the words herein, hereof, hereto and hereunder and words of similar import refer to this Agreement and its Annexes, Schedules and Exhibits as a whole and not to any particular Section, Annex, Schedule, Exhibit or any other subdivision;
(e) references to days, months and years refer to calendar days, months and years, respectively;
(f) all references herein to “include” or “including” shall be deemed to be followed by the words “without limitation”;
(g) the word “from” when used in connection with a period of time means “from and including” and the word “until” means “to but not including”;
(h) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer broadly to any and all assets and properties, whether tangible or intangible, real or personal, including cash, securities, rights under contractual obligations and permits and any right or interest in any such assets or property;
(i) accounting terms not specifically defined herein (other than “property” and “asset”) shall be construed in accordance with GAAP;
(j) where any provision in this Agreement or any other Loan Document refers to an action to be taken by any Person, or an action which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly;
(k) the word “will” shall have the same meaning as the word “shall”;
(l) references to any Lien granted or created hereunder or pursuant to any other Loan Document securing any Obligations shall be deemed to be a Lien for the benefit of the Secured Parties; and
(m) references to any Law will include all statutory and regulatory provisions amending, consolidating, replacing, supplementing or interpreting such Law from time to time.
Unless otherwise expressly provided herein, references to organizational documents, agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all
subsequent amendments, restatements, extensions, supplements and other modifications thereto permitted by the Loan Documents.
If any obligation to pay any amount pursuant to the terms and conditions of any Loan Document falls due on a day which is not a Business Day, then such required payment date shall be extended to the immediately following Business Day. For the purposes of calculations made pursuant to the terms of this Agreement or otherwise for purposes of compliance herewith, GAAP will be deemed to treat operating leases in a manner consistent with their current treatment under GAAP as in effect on the date of this Agreement, notwithstanding any modifications or interpretive changes thereto that may occur thereafter.
1.04 Divisions. For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (i) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (ii) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its Equity Interests at such time.
SECTION 2
The Commitments and the Loans
2.01 Loans.
(a) On the terms and subject to the conditions of this Agreement, each Lender agrees to make a Tranche 1 Loan to the Borrower, in a single Borrowing on the Closing Date, in an aggregate principal amount for all Lenders not to exceed $30,000,000.
(b) No amounts repaid or prepaid with respect to any Loan may be reborrowed.
(c) Any term or provision hereof (or of any other Loan Document) to the contrary notwithstanding, Loans made to the Borrower will be denominated solely in Dollars and will be repayable solely in Dollars and no other currency.
2.02 Borrowing Procedures. At least three (3), but not more than seven (7), Business Days prior to any proposed Borrowing Date (or at least one (1), but not more than five (5) Business Day(s) prior to the Borrowing on the Closing Date), the Borrower shall deliver to the Administrative Agent an irrevocable Borrowing Notice, which notice, if received by the Administrative Agent on a day that is not a Business Day or after 12:00 noon (New York City time) on a Business Day, shall be deemed to have been delivered on the next Business Day.
2.03 Notes. If requested by any Lender, any Loan of such Lender shall be evidenced by one or more Notes. The Borrower shall prepare, execute and deliver to the Lender such Notes in the form attached hereto as Exhibit A.
2.04 Use of Proceeds. The Borrower shall use the proceeds of the Loans for purposes of (i) in the case of Tranche 1 Loans, the repayment of the Refinanced Debt and certain other Indebtedness, (ii) working capital and general corporate purposes, and (iii) without duplication, the payment of
fees and expenses associated with this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby.
SECTION 3
PAYMENTS OF PRINCIPAL AND INTEREST
3.01 Repayments and Prepayments Generally; Application.
(a) There will be no scheduled repayments of principal on the Loans prior to May 31, 2024. Thereafter, on each Payment Date occurring prior to the scheduled Maturity Date (and commencing on the fourth anniversary of the Closing Date), the Borrower shall make a payment of principal on the Loans in an amount equal to three percent (3.00%) of the aggregate original principal amount of all Loans made on and after the Closing Date and as of such Payment Date. On the Maturity Date the Borrower shall repay the entire remaining outstanding balance of the Loans in full and in cash.
(b) The Borrower agrees that all amounts payable hereunder or under any other Loan Document, in respect of any Loans, fees or interest accrued or accruing thereon, or any other Obligations, shall be repaid and prepaid solely in Dollars pursuant to the terms of this Section 3. Except as otherwise provided in this Agreement, proceeds of each payment (including each repayment and prepayment of Loans) by the Borrower shall be deemed to be made ratably to the Lenders in accordance with their respective Proportionate Shares of the Loans being repaid or prepaid.
3.02 Interest.
(a) Interest Generally. The outstanding principal amount of the Loans, as well as the amount of all other outstanding Obligations, shall accrue interest at the Interest Rate on and from the Closing Date. The Administrative Agent’s determination of the Interest Rate shall be binding on the Borrower, its Subsidiaries and the Lenders in the absence of manifest error.
(b) Default Interest. Notwithstanding the foregoing, upon notice from the Administrative Agent upon the occurrence and during the continuance of any Event of Default, the Applicable Margin shall increase automatically by four percent (4.0%) per annum (the Interest Rate, as increased pursuant to this Section 3.02(b), being the “Default Rate”). If any Obligation is not paid when due under any applicable Loan Document, the amount thereof shall accrue interest at the Default Rate.
(c) Interest Payment Dates. Accrued interest on the Loans shall be payable in cash, in arrears, on each Payment Date with respect to the most recently completed Interest Period, and upon the payment or prepayment of the Loans (on the principal amount being so paid or prepaid); provided that interest payable at the Default Rate, or any accrued interest not paid on the Maturity Date, shall be payable from time to time in cash on demand by the Administrative Agent until paid in full.
3.03 Prepayments; Early Prepayment Fee.
(a) Optional Prepayments.
(i) Subject to prior written notice pursuant to clause (a)(ii) below and the payment of the Early Prepayment Fee pursuant to clause (c) below, the Borrower shall have the right to optionally prepay, in whole or in part, the outstanding principal amount of the Loans on any Business Day (a “Prepayment Date”); provided that in addition to such prepaid principal amount and the Early Prepayment Fee, the Borrower shall also make payment in full in cash on such Prepayment Date of all accrued but unpaid interest on the principal amount of the Loans being prepaid (such aggregate amount, the “Prepayment Price”).
(ii) A notice of optional prepayment shall be effective only if received by the Administrative Agent not later than 2:00 p.m. (New York City time) on a date not less than three (3) (nor more than five (5)) Business Days prior to the proposed Prepayment Date. Each notice of optional prepayment shall specify the proposed Prepayment Date, the principal amount of the Loans to be prepaid, the amount of accrued and unpaid interest that will be paid on the Prepayment Date, and, in reasonable detail, a calculation of the Early Prepayment Fee payable on such Prepayment Date in connection with such proposed prepayment.
(b) Mandatory Prepayments. Within five (5) Business Days of the receipt of Net Cash Proceeds from the occurrence of any Casualty Event or Specified Asset Sale, Holdings and the Borrower shall apply an amount equal to one hundred percent (100%) of the Net Cash Proceeds received by Holdings or any of its Subsidiaries with respect to such Casualty Event or Specified Asset Sale, as the case may be, to (i) the prepayment of outstanding Loans and (ii) the payment of accrued and unpaid interest on the principal amount of the Loans being prepaid and the payment of the Early Prepayment Fee. Such Net Cash Proceeds shall be allocated to such prepayment and payments such that the full amount of principal, interest and prepayment fees payable hereunder shall be paid with such Net Cash Proceeds. Notwithstanding the foregoing, so long as no Default has occurred and is continuing or shall immediately result therefrom, if, within three (3) Business Days following the occurrence of any such Casualty Event or Specified Asset Sale, a Responsible Officer of the Borrower delivers to the Administrative Agent a notice to the effect that the Borrower or the applicable Subsidiary intends to apply the Net Cash Proceeds from such Casualty Event or Specified Asset Sale, to repair, refurbish, restore, replace or rebuild the asset subject to such Casualty Event or Specified Asset Sale or to the cost of purchase or constructing other assets useful in the business of the Borrower or its Subsidiaries, then such Net Cash Proceeds of such Casualty Event or Specified Asset Sale may be applied for such purpose in lieu of such mandatory prepayment otherwise required pursuant to this clause (b) to the extent such Net Cash Proceeds of such Casualty Event or Asset Sale are actually applied for such purpose; provided that, in the event that Net Cash Proceeds have not been so applied within one hundred and eighty (180) days following the occurrence of such Casualty Event or Specified Asset Sale (or, if within such 180-day period the Borrower enters into a binding commitment to purchase or acquire such assets, within ninety (90) days from entering into such binding commitment), the Borrower shall make a mandatory prepayment of the Loans in an aggregate amount equal to one hundred percent (100%) of the unused balance of such Net Cash Proceeds received by Holdings or any of its Subsidiaries with respect to such Casualty Event or Specified Asset Sale, as the case may be, together with payment of accrued and unpaid interest on the principal amount of the Loans being so prepaid and the applicable Early Prepayment Fee, with such amount of Net Cash Proceeds being allocated to the prepayment of principal, the payment of accrued and unpaid interest on such principal amount of the Loans being prepaid and the payment of the Early Prepayment Fee such that the full payable with respect to such mandatory prepayment is paid with such unused balance of Net Cash Proceeds.
(c) Early Prepayment Fee. Without limiting the foregoing, whenever any prepayment of Loans is made hereunder pursuant to Section 3.03(a) or Section 3.03(b) or otherwise, whether voluntary, involuntary, as a result of a Default, acceleration or otherwise, the Early Prepayment Fee shall be payable in full in cash on the applicable Prepayment Date for such prepayment.
(d) Application. Proceeds of any prepayment made pursuant to clauses (a) or (b) above shall be applied in the following order of priority, with proceeds being applied to a succeeding level of priority only if amounts owing pursuant to the immediately preceding level of priority have been paid in full in cash; provided that all such applications to Lenders shall be made in accordance with their respective Proportionate Shares:
(i) first, to the payment of that portion of the Obligations payable to the Administrative Agent constituting fees, indemnities, costs, expenses, and other amounts then due and owing (including fees and disbursements and other charges of counsel payable under Section 14.03);
(ii) second, to the payment of that portion of the Obligations payable to the Lenders constituting fees (other than the Early Prepayment Fee), indemnities, expenses, and other amounts then due and owing including fees and disbursements and other charges of counsel payable under Section 14.03 ratably among them in proportion to the respective amounts described in this clause (ii) payable to them;
(iii) third, to the payment of any accrued and unpaid interest and any fees then due and owing;
(iv) fourth, to the payment of unpaid principal of the Loans;
(v) fifth, to the payment of any Early Prepayment Fee then due and payable;
(vi) sixth, to the payment in full of all other Obligations then due and payable to the Administrative Agent and the Lenders, ratably among them in proportion to the respective amounts described in this clause (vi) payable to them; and
(vii) seventh, to Holdings, the Borrower or such other Persons as may lawfully be entitled to or directed by the Borrower to receive the remainder.
3.04 Closing Fee. On the Closing Date, the Borrower shall pay to the Administrative Agent (for the benefit of the Lenders) a fee equal to 1.50% of the aggregate Commitments of all Lenders (the “Closing Fee”). Upon receipt of payment from the Borrower, the Administrative Agent will promptly thereafter distribute like funds relating to any such payment to the Lenders pro rata on the basis of each Lender’s Proportionate Share. Once paid by the Borrower, the Closing Fee shall be non-refundable.
SECTION 4
PAYMENTS, ETC.
4.01 Payments.
(a) Payments Generally. Each payment of principal, interest and other amounts to be made by the Obligors under this Agreement or any other Loan Document shall be made (i) in
Dollars, in immediately available funds, without deduction, set off or counterclaim, to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, to the deposit account of the Administrative Agent designated by the Administrative Agent by notice to Holdings, the Borrower, and (ii) not later than 2:00 p.m. (New York City time) on the date on which such payment is due (each such payment made after such time on such due date shall be deemed to have been made on the next succeeding Business Day).
(b) Application of Payments. All such payments referenced in clause (a) above shall be applied as set forth in Section 3.03(d) above.
(c) Non-Business Days. If the due date of any payment under this Agreement (whether in respect of principal, interest, fees, costs or otherwise) would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day; provided that if such next succeeding Business Day would fall after the Maturity Date, payment shall be made on the immediately preceding Business Day.
4.02 Computations. All computations of interest and fees hereunder shall be computed on the basis of a year of three hundred and sixty (360) days and actual days elapsed during the period for which payable.
4.03 Set-Off.
(a) Set-Off Generally. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent, each of the Lenders and each of their Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Administrative Agent, any Lender and any of their Affiliates to or for the credit or the account of any Obligor against any and all of the Obligations, whether or not such Person shall have made any demand and although such obligations may be unmatured. Any Person exercising rights of set off hereunder agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent, the Lenders and each of their Affiliates under this Section 4.03 are in addition to other rights and remedies (including other rights of set-off) that such Persons may have.
(b) Exercise of Rights Not Required. Nothing contained in Section 4.03(a) shall require the Administrative Agent, any Lender or any of their Affiliates to exercise any such right or shall affect the right of such Persons to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Obligor.
(c) Payments Set Aside. To the extent that any payment by or on behalf of any Obligor is made to the Administrative Agent or any Lender, or the Administrative Agent, any Lender or any Affiliate of the foregoing exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent, such Lender or such Affiliate in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (i) to
the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (ii) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Effective Rate from time to time in effect.
SECTION 5
YIELD PROTECTION, ETC.
5.01 Additional Costs.
(a) Changes in Law Generally. If, on or after the date hereof (or, with respect to any Lender, such later date on which such Lender becomes party to this Agreement), the adoption of any Law, or any change in any Law, or any change in the interpretation or administration thereof by any court or other Governmental Authority charged with the interpretation or administration thereof, or compliance by the Administrative Agent or any of the Lenders (or its lending office) with any request or directive (whether or not having the force of law) of any such Governmental Authority, shall impose, modify or deem applicable any reserve (including any such requirement imposed by the Board of Governors of the Federal Reserve System), special deposit, contribution, insurance assessment or similar requirement, in each case that becomes effective after the date hereof (or, with respect to any Lender, such later date on which such Lender becomes party to this Agreement), against assets of, deposits with or for the account of, or credit extended by, a Lender (or its lending office) or other Recipient or shall impose on a Lender (or its lending office) or other Recipient any other condition affecting the Loans or the Commitment, and the result of any of the foregoing is to increase the cost to such Lender or such other Recipient of making or maintaining the Loans, or to reduce the amount of any sum received or receivable by such Lender or other Recipient under this Agreement or any other Loan Document, or subject any Lender or other Recipient to any Taxes on its loans, loan principal, commitments or other obligations, or its deposits, reserves, other liabilities or capital (if any) attributable thereto (other than (i) Indemnified Taxes, (ii) Taxes described in clauses (ii) through (iv) of the definition of “Excluded Taxes” and (iii) Connection Income Taxes), then the Borrower shall pay to such Lender or other Recipient within five (5) Business Days after demand such additional amount or amounts as will compensate such Lender for such increased cost or reduction.
(b) Change in Capital Requirements. If a Lender shall have reasonably determined that, on or after the date hereof (or, with respect to any Lender, such later date on which such Lender becomes party to this Agreement), the adoption of any applicable Law regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, in each case that becomes effective after the date hereof (or, with respect to any Lender, such later date on which such Lender becomes party to this Agreement), has or would have the effect of reducing the rate of return on capital of a Lender (or its parent) as a consequence of a Lender’s obligations hereunder or the Loans to a level below that which a Lender (or its parent) could have achieved but for such adoption, change, request or directive by
an amount reasonably deemed by it to be material, then the Borrower shall pay to such Lender within five (5) Business Days after demand such additional amount or amounts as will compensate such Lender (or its parent) for such reduction.
(c) Notification by Lender. Each Lender shall promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof (or, with respect to any Lender, such later date on which such Lender becomes party to this Agreement), which will entitle such Lender to compensation pursuant to this Section 5.01. Before giving any such notice pursuant to this Section 5.01(c) such Lender shall designate a different lending office if such designation (x) will, in the reasonable judgment of such Lender, avoid the need for, or reduce the amount of, such compensation and (y) will not, in the reasonable judgment of such Lender, be materially disadvantageous to such Lender. A certificate of such Lender claiming compensation under this Section 5.01, setting forth in reasonable detail the computation of the additional amount or amounts to be paid to it hereunder, shall be conclusive and binding on the Borrower in the absence of manifest error.
(d) Delays in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section 5.01 for any increased costs that occur or arise in any fiscal year of such Lender unless such Lender notifies the Borrower thereof within sixty (60) days following the receipt by such Lender of its annual audited financial statements for such fiscal year.
(e) Other Changes. Notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to constitute a change in Law for all purposes of this Section 5.01, regardless of the date enacted, adopted or issued.
5.02 Illegality. Notwithstanding any other provision of this Agreement, if, on or after the date hereof (or, with respect to any Lender, such later date on which such Lender becomes party to this Agreement), the adoption of or any change in any applicable Law or in the interpretation or application thereof by any competent Governmental Authority shall make it unlawful for a Lender or its lending office to make or maintain the Loans (and, in the reasonable opinion of such Lender, the designation of a different lending office would either not avoid such unlawfulness or would be disadvantageous to such Lender), then such Lender shall promptly notify the Borrower thereof, following which (i) such Lender’s Commitment shall be suspended until such time as such Lender may again make and maintain the Loans hereunder and (ii) if such Law shall so mandate, the Loans shall be prepaid by the Borrower on or before such date as shall be mandated by such Law in an amount equal to the Prepayment Price applicable on such Prepayment Date in accordance with Section 3.03(a).
5.03 Taxes.
(a) Payments Free of Taxes. Any and all payments by or on account of any Obligation shall be made without deduction or withholding for any Taxes, except as required by applicable Law. If any applicable Law (as determined in the reasonable discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable Law and, if such Tax is an Indemnified Tax, then the sum payable by such Obligor shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 5.03) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(b) Payment of Other Taxes by the Borrower. The Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable Law, or at the option of the Administrative Agent or each Lender, timely reimburse it for the payment of any Other Taxes.
(c) Evidence of Payments. As soon as practicable after any payment of Taxes by the Borrower to a Governmental Authority pursuant to this Section 5, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(d) Indemnification by Holdings and the Borrower. Holdings and the Borrower shall indemnify and reimburse each Recipient, within three (3) Business Days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 5) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender shall be conclusive absent manifest error.
(e) Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 14.05(g) relating to the maintenance of a Participant Register, and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or
otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this clause (e).
(f) Status of Lenders.
(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding; provided that, other than in the case of U.S. federal withholding Taxes, such Lender has received written notice from the Borrower advising it of the availability of such exemption or reduction and containing all applicable documentation. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent shall deliver such other documentation prescribed by applicable Law as reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 5.03(f)(ii)(A), (ii)(B), and (ii)(D)) shall not be required if in such Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing, if the Borrower is a U.S. Person:
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of IRS Form W-9 (or successor form) certifying that such Lender is exempt from U.S. federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E as applicable (or successor forms) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E as applicable (or successor forms) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(2) executed copies of IRS Form W-8ECI (or successor form);
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit D-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, or a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E as applicable (or successor forms); or
(4) to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY (or successor form), accompanied by IRS Form W-8ECI (or successor form), IRS Form W-8BEN or IRS Form W-8BEN-E (or successor form), a U.S. Tax Compliance Certificate, substantially in the form of Exhibit D-2 or Exhibit D-3, IRS Form W-9 (or successor form), and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit D-4 on behalf of each such direct and indirect partner.
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by such applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Recipient’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment under FATCA. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Recipient agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(g) Treatment of Certain Tax Benefits. If any party to this Agreement determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 5.03 (including by the payment of additional amounts pursuant to this Section 5.03), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 5.03 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this Section 5.03(g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) if such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 5.03(g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this Section 5.03(g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This Section 5.03(g) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(h) Survival. Each party’s obligations under this Section 5.03 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all Obligations under any Loan Document.
5.04 Mitigation Obligations. If the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or to any Governmental Authority for the account of any Lender pursuant to Section 5.01 or Section 5.03, then such Lender shall (at the request of the Borrower) use commercially reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign and delegate its rights and obligations hereunder to another of its offices, branches or Affiliates if, in the sole, reasonable judgment of such Lender, such designation or assignment and delegation would (i) eliminate or reduce amounts payable pursuant to Section 5.01 or this Section 5.03, as the case may be, in the future, (ii) not subject such Lender to any unreimbursed cost or expense and (iii) not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment and delegation.
SECTION 6
CONDITIONS PRECEDENT
6.01 Conditions to the Borrowing of the Tranche 1 Loans. The obligation of the Closing Date Lender to make its Tranche 1 Loan on the Closing Date shall be subject to the execution and
delivery of this Agreement by the parties hereto, the delivery of a Borrowing Notice as required pursuant to Section 2.02, the delivery of a funds flow memorandum summarizing, in reasonable detail, the use of proceeds of the Tranche 1 Loans, and the prior or concurrent satisfaction (or waiver thereof by the Administrative Agent) of each of the conditions precedent set forth below in this Section 6.01.
(a) Secretary’s Certificate, Etc. The Administrative Agent shall have received from each Obligor party to a Loan Document on the Closing Date:
(i) a copy of a good standing certificate or the equivalent thereof, dated a date reasonably close to the Closing Date, for each such Person and
(ii) a certificate, dated as of the Closing Date, duly executed and delivered by such Person’s secretary or assistant secretary, managing member, general partner or equivalent, as to:
(A) resolutions of each such Person’s Board then in full force and effect authorizing the execution, delivery and performance of each Loan Document and the Transactions, to be executed and delivered by such Person;
(B) the incumbency and signatures of those of its officers, managing member or general partner or equivalent authorized to act with respect to each Loan Document to be executed and delivered by such Person; and
(C) true and complete copies of each Organic Document of such Person and copies thereof;
which certificates shall be in form and substance reasonably satisfactory to the Administrative Agent and upon which the Administrative Agent and the Lenders may conclusively rely until they shall have received a further certificate of the secretary, assistant secretary, managing member, general partner or equivalent of any such Person cancelling or amending the prior certificate of such Person.
(b) Information Certificate. The Administrative Agent shall have received a fully completed Information Certificate, in form and substance reasonably satisfactory to the Administrative Agent, dated as of the Closing Date, duly executed and delivered by a Responsible Officer of the Borrower, which is true and correct as of the Closing Date. All documents and agreements required to be appended to the Information Certificate, if any, shall be in form and substance reasonably satisfactory to the Administrative Agent and the Lenders, shall have been executed and delivered by the requisite parties and shall be in full force and effect.
(c) Closing Date Certificate. The following statements shall be true and correct, and the Administrative Agent shall have received a certificate, dated as of the Closing Date and in form and substance reasonably satisfactory to the Administrative Agent, duly executed and delivered by a Responsible Officer of the Borrower certifying that: (i) both immediately before and after giving effect to the Borrowing on the Closing Date, (x) the representations and warranties set forth in each Loan Document that are qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct; provided that to the extent that such representations and warranties
specifically refer to an earlier date, they shall be true and correct as of such earlier date, (y) the representations and warranties set forth in each Loan Document that are not qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct in all material respects; provided that to the extent that such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects as of such earlier date, and (z) no Default or Event of Default has occurred and is continuing, or could reasonably be expected to result from the Borrowing of the Tranche 1 Loans, or the consummation of any Transactions contemplated to occur on the Closing Date, and (ii) all of the conditions set forth in this Section 6.01 have been satisfied (or waived in writing by the Administrative Agent). All documents and agreements required to be appended to the certificate delivered pursuant to this Section 6.01(c), if any, shall be in form and substance reasonably satisfactory to the Administrative Agent, shall have been executed and delivered by the requisite parties, and shall be in full force and effect.
(d) Delivery of Notes. The Administrative Agent shall have received a Note in favor of each Lender evidencing such Lender’s Tranche 1 Loan, duly executed and delivered by a Responsible Officer of the Borrower.
(e) Financial Information, Etc. The Administrative Agent shall have received:
(i) audited consolidated financial statements of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2019; and
(ii) unaudited consolidated balance sheets of the Borrower and its Subsidiaries for each fiscal quarter ended after December 31, 2019 and at least twenty (20) Business Days prior to the Closing Date, together with the related consolidated statement of operations for each such fiscal quarter.
(f) Minimum Liquidity Compliance. The Administrative Agent shall have received evidence reasonably satisfactory to it that, immediately after giving effect to the Borrowing on the Closing Date, the Borrower will be in compliance with the covenant set forth in Section 10.01.
(g) Closing Date Warrant Certificate. The Closing Date Lender shall have received an executed counterpart of a Warrant Certificate, exercisable into 775,000 shares of the Borrower’s Series C preferred stock (or, in accordance with the terms of the Warrant Certificate, the Borrower’s Series D preferred stock), duly executed and delivered by the Borrower.
(h) Insurance. The Administrative Agent shall have received certificates of insurance evidencing that the insurance required to be maintained pursuant to Section 8.05 is in full force and effect, together with endorsements naming the Administrative Agent, for the benefit of the Lenders, as additional insured and loss payee thereunder, in each case, in form and substance reasonably satisfactory to the Administrative Agent.
(i) Solvency. The Administrative Agent shall have received a solvency certificate substantially in the form of Exhibit I, duly executed and delivered by the chief financial or accounting Responsible Officer of the Borrower, dated as of the Closing Date, in form and substance reasonably satisfactory to the Administrative Agent.
(j) Security Documents. The Administrative Agent shall have received executed counterparts of all Security Documents of all Obligors, each dated as of the Closing Date, duly executed and delivered by each such Obligor, together with:
(i) The delivery of all certificates (in the case of Equity Interests that are securities (as defined in the UCC)) evidencing the issued and outstanding capital securities owned by the Borrower and each Subsidiary that are required to be pledged under such Security Documents, which certificates in each case shall be accompanied by undated instruments of transfer duly executed in blank, or, in the case of Equity Interests that are uncertificated securities (as defined in the UCC), confirmation and evidence reasonably satisfactory to the Administrative Agent and the Lenders that the security interest required to be pledged therein under such Security Documents has been transferred to and perfected by the Administrative Agent for the benefit of the Secured Parties in accordance with Articles 8 and 9 of the NY UCC and all Laws otherwise applicable to the perfection of the pledge of such Equity Interests;
(ii) financing statements naming each Obligor as a debtor and the Administrative Agent as the secured party, or other similar instruments, registrations, or documents, in each case suitable for filing, filed under the UCC (or equivalent law) of all jurisdictions as may be necessary or, in the reasonable opinion of the Administrative Agent, desirable to perfect the Liens of the Secured Parties pursuant to such Security Documents;
(iii) UCC-3 termination statements, as may be necessary to release all Liens (other than Permitted Liens) and other rights of any Person in any collateral described in the Security Documents previously granted by any Person;
(iv) all Short-Form IP Security Agreements and Real Property Security Documents required to be provided under the Security Agreement, each dated as of the Closing Date, duly executed and delivered by the Borrower.
(k) Lien Searches. The Administrative Agent shall be reasonably satisfied with Lien searches regarding the Borrower and its Subsidiaries made within thirty (30) days prior to the Borrowing of the Tranche 1 Loans.
(l) Controlled Accounts. The Administrative Agent shall have received evidence reasonably satisfactory to it that all Deposit Accounts, Securities Accounts, Commodities Accounts, lockboxes or other similar accounts of each Obligor are Controlled Accounts.
(m) Opinions of Counsel. The Administrative Agent shall have received one or more legal opinions, dated as of the Closing Date and addressed to the Administrative Agent and the Lenders, from independent legal counsel to the Borrower and if necessary, other legal counsel satisfactory to the Administrative Agent, in each case, in form and substance reasonably acceptable to the Administrative Agent.
(n) Payoff of Indebtedness. To the extent applicable, all outstanding Indebtedness not permitted hereby of the Borrower and its Subsidiaries, including the Refinanced Debt, together with all accrued and unpaid interest and related fees, costs and expenses, shall be indefeasibly paid in full, and the Administrative Agent shall have received executed payoff letters, in form and substance reasonably satisfactory to the Administrative Agent, evidencing such indefeasible payment in full (and irrevocable termination) of such outstanding Indebtedness (including the
Refinanced Debt) and the termination and release of all guarantees and Liens, if any, in connection therewith.
(o) Material Adverse Change. Since December 31, 2019, no Material Adverse Change shall have occurred.
(p) Anti-Terrorism Laws. The Administrative Agent shall have received, as applicable, all documentation and other information that it has requested at least three (3) Business Days prior to the Closing Date and that is required by bank regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act and the Beneficial Ownership Regulation.
(q) All Other Loan Documents. The Administrative Agent shall have received all other Loan Documents in form and substance reasonably satisfactory to the Administrative Agent and its counsel, and the Administrative Agent and its counsel shall have received all information, approvals, resolutions, opinions, documents or instruments as the Administrative Agent and its counsel may reasonably request.
(r) Satisfactory Legal Form. All documents, including any attachments or appendices thereto, executed, delivered or submitted pursuant hereto by or on behalf of the Borrower or any of its respective Subsidiary Guarantors shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel, and the Administrative Agent and its counsel shall have received all information, approvals, resolutions, opinions, documents or instruments as the Administrative Agent or its counsel may reasonably request.
(s) Governmental Approvals and Third Party Consents. The Administrative Agent shall have received evidence that the Borrower and the applicable Subsidiaries have obtained all Governmental Approvals and third party permits, licenses, approvals and consents necessary in connection with the execution, delivery and performance of the Loan Documents, the consummation of the Transactions or the operation and conduct of its business and ownership of its properties (including its Product Commercialization and Development Activities).
(t) Closing Fee, Expenses, Etc. The Administrative Agent shall have received for its account and the account of each Lender, the Closing Fee, together with all other fees, costs and expenses due and payable pursuant to the Proposal Letter and Section 14.03, including all closing costs and fees and all unpaid reasonable expenses of the Administrative Agent and the Lenders incurred in connection with the Transactions (including the Administrative Agent’s legal fees and expenses) in excess of the Expense Deposit.
(u) Material Agreement. The Administrative Agent shall have received true and complete executed copies of all Material Agreements, together with all amendments, waivers, exhibits, schedules and annexes thereto. The Administrative Agent shall have received a certificate from a Responsible Officer of the Borrower certifying that each such Material Agreement, together with all amendments, waivers, exhibits, schedules and annexes thereto, are true and complete and in full force and effect as of the Closing Date. The Administrative Agent shall be satisfied in its reasonable discretion with the terms and conditions of each Material Agreement (together with all amendments, waivers, exhibits, schedules and annexes thereto).
(v) Option to Invest. The Borrower shall have entered into a binding agreement with the Lenders, in form and substance reasonably satisfactory to the Lenders, pursuant to which the Borrower shall grant to the Lenders an irrevocable option to invest up to $10,000,000 in the Equity Interests of the Borrower.
6.02 Conditions to Effectiveness. The effectiveness of this Agreement shall be subject to the execution and delivery of this Agreement by the parties hereto, and the prior or concurrent satisfaction (or waiver thereof by the Administrative Agent) of each of the conditions precedent in the Restatement Amendment and set forth below in this Section 6.02.
(a) Secretary’s Certificate, Etc. The Administrative Agent shall have received from each Obligor party to a Loan Document on the Effective Date:
(i) a copy of a good standing certificate or the equivalent thereof, dated a date reasonably close to the Effective Date, for each such Person and
(ii) a certificate, dated as of the Effective Date, duly executed and delivered by such Person’s secretary or assistant secretary, managing member, general partner or equivalent, as to:
(A) resolutions of each such Person’s Board then in full force and effect authorizing the execution, delivery and performance of each Loan Document and the Transactions, to be executed and delivered by such Person;
(B) the incumbency and signatures of those of its officers, managing member or general partner or equivalent authorized to act with respect to each Loan Document to be executed and delivered by such Person; and
(C) true and complete copies of each Organic Document of such Person and copies thereof;
which certificates shall be in form and substance reasonably satisfactory to the Administrative Agent and upon which the Administrative Agent and the Lenders may conclusively rely until they shall have received a further certificate of the secretary, assistant secretary, managing member, general partner or equivalent of any such Person cancelling or amending the prior certificate of such Person.
(b) Information Certificate. The Administrative Agent shall have received a fully completed Information Certificate, in form and substance reasonably satisfactory to the Administrative Agent, dated as of the Effective Date, duly executed and delivered by a Responsible Officer of Holdings and the Borrower, which is true and correct as of the Effective Date. All documents and agreements required to be appended to the Information Certificate, if any, shall be in form and substance reasonably satisfactory to the Administrative Agent and the Lenders, shall have been executed and delivered by the requisite parties and shall be in full force and effect.
(c) Effective Date Certificate. The following statements shall be true and correct, and the Administrative Agent shall have received a certificate, dated as of the Effective Date and in
form and substance reasonably satisfactory to the Administrative Agent, duly executed and delivered by a Responsible Officer of Holdings and the Borrower certifying that: (i) both immediately before and after giving effect to Effective Date, (x) the representations and warranties set forth in each Loan Document that are qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct; provided that to the extent that such representations and warranties specifically refer to an earlier date, they shall be true and correct as of such earlier date, (y) the representations and warranties set forth in each Loan Document that are not qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct in all material respects; provided that to the extent that such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects as of such earlier date, and (z) no Default has occurred and is continuing, or could reasonably be expected to result from the consummation of any Transactions contemplated to occur on the Effective Date, and (ii) all of the conditions set forth in this Section 6.02 have been satisfied (or waived in writing by the Administrative Agent). All documents and agreements required to be appended to the certificate delivered pursuant to this Section 6.02(c), if any, shall be in form and substance reasonably satisfactory to the Administrative Agent, shall have been executed and delivered by the requisite parties, and shall be in full force and effect.
(d) Solvency. The Administrative Agent shall have received a solvency certificate substantially in the form of Exhibit I, duly executed and delivered by the chief financial or accounting Responsible Officer of Holdings, dated as of the Effective Date, in form and substance reasonably satisfactory to the Administrative Agent.
(e) Lien Searches. The Administrative Agent shall be reasonably satisfied with Lien searches regarding Holdings and its Subsidiaries made within a recent date prior to the Effective Date.
(f) Controlled Accounts. The Administrative Agent shall have received evidence reasonably satisfactory to it that all Deposit Accounts, Securities Accounts, Commodities Accounts, lockboxes or other similar accounts of each Obligor are Controlled Accounts.
(g) Amended and Restated Security Agreement and Intercompany Subordination Agreement. The Administrative Agent shall have received executed counterparts of the Security Agreement and the Intercompany Subordination Agreement, together with:
(i) the delivery of all certificates (in the case of Equity Interests that are securities (as defined in the UCC)) evidencing the issued and outstanding capital securities owned by Holdings and each Subsidiary that are required to be pledged under such Security Documents, which certificates in each case shall be accompanied by undated instruments of transfer duly executed in blank, or, in the case of Equity Interests that are uncertificated securities (as defined in the UCC), confirmation and evidence reasonably satisfactory to the Administrative Agent and the Lenders that the security interest required to be pledged therein under such Security Documents has been transferred to and perfected by the Administrative Agent for the benefit of the Secured Parties in accordance with Articles 8 and 9 of the NY UCC and all Laws otherwise applicable to the perfection of the pledge of such Equity Interests; and
(ii) financing statements naming each Obligor as a debtor and the Administrative Agent as the secured party, or other similar instruments, registrations, or documents, in each case suitable for filing, filed under the UCC (or equivalent law) of all jurisdictions as may be necessary or, in the
reasonable opinion of the Administrative Agent, desirable to perfect the Liens of the Secured Parties pursuant to such Security Documents.
(h) Opinions of Counsel. The Administrative Agent shall have received one or more legal opinions, dated as of the Effective Date and addressed to the Administrative Agent and the Lenders, from independent legal counsel to Holdings and the Borrower and if necessary, other legal counsel satisfactory to the Administrative Agent, in each case, in form and substance reasonably acceptable to the Administrative Agent.
(i) Costs and Expenses, Etc. The Administrative Agent shall have received for its account and the account of each Lender all reasonable and documented fees, costs and expenses due and payable to them pursuant to Section 14.03 (including, in each case, the Administrative Agent’s and each Lender’s reasonable and documented legal fees and out-of-pocket expenses).
(j) Satisfactory Legal Form. All documents, including any attachments or appendices thereto, executed, delivered or submitted pursuant hereto by or on behalf of any Obligor shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel, and the Administrative Agent and its counsel shall have received all information, approvals, resolutions, opinions, documents or instruments as the Administrative Agent or its counsel may reasonably request.
SECTION 7
REPRESENTATIONS AND WARRANTIES
The Obligors hereby jointly and severally represent and warrant to the Administrative Agent and each Lender that:
7.01 Power and Authority. Each Obligor and each of its Subsidiaries (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) has all requisite corporate or other power, and has all Governmental Approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted, including all requisite Regulatory Approvals, (iii) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, and (iv) has full power, authority and legal right to enter into and perform its obligations under each of the Loan Documents to which it is a party and, in the case of the Borrower, to borrow the Loans hereunder.
7.02 Authorization; Enforceability. Each Transaction to which an Obligor or any of its Subsidiaries is a party (or to which it or any of its assets or properties is subject) are within such Person’s corporate or other powers and have been duly authorized by all necessary corporate action including, if required, approval by all necessary holders of Equity Interests. This Agreement has been duly executed and delivered by each Obligor and constitutes, and each of the other Loan Documents to which it is a party when executed and delivered by such Obligor, will constitute, a legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of
creditors’ rights and (ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
7.03 Governmental and Other Approvals; No Conflicts. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or any other Person (other than those that have been duly obtained or made and which are in full force and effect) is required for the due execution, delivery or performance by any Obligor of each Loan Document to which it is a party, except for filings and recordings in respect of perfecting or recording the Liens created pursuant to the Security Documents. The execution, delivery and performance by each Obligor of each Loan Document to which it is a party will not (i) violate or conflict with any Law, (ii) violate or conflict with any Organic Document of any Obligor, (iii) violate or conflict with any Governmental Approval of any Governmental Authority, (iv) violate or result in a default under any Material Agreement binding upon an Obligor or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or (v) result in the creation or imposition of any Lien (other than Permitted Liens) on any asset of such Obligor. Each Obligor, its Subsidiaries and their respective properties and businesses are in compliance in all material respects with all applicable Laws (including Healthcare Laws) and Governmental Approvals applicable to such Person and its properties or businesses, as the case may be. The Loan Documents and the Transactions contemplated therein do not conflict with or violate any Organic Documents, Material Agreements or other Contracts, or any Governmental Approval of any Governmental Authority binding upon Holdings, the Borrower or any its Subsidiaries. None of the Transactions will result in the creation or imposition of any Lien (other than Permitted Liens and Liens in favor of the Administrative Agent and the Lenders) on any asset of Holdings or any of its Subsidiaries.
7.04 Financial Statements; Material Adverse Change.
(a) Financial Statements. The Borrower has heretofore furnished to the Administrative Agent and the Lenders certain consolidated financial statements as provided for in Section 6.01(e). Such financial statements, and all other financial statements delivered by the Borrower pursuant hereto (whether prior to the Closing Date or otherwise) present fairly, in all material respects, the consolidated financial position and results of operations and cash flows of Holdings and its Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements of the type described in Section 8.01(b). Neither Holdings nor any of its Subsidiaries has any material contingent liabilities or unusual forward or long-term commitments not disclosed in the aforementioned financial statements.
(b) No Material Adverse Change. Since December 31, 2019, there has been no Material Adverse Change.
7.05 Properties.
(a) Property Generally. With respect to all real and personal assets and properties of each Obligor and each of its Subsidiaries (other than Intellectual Property which is covered in clause (c) below), such Obligor and each of its Subsidiaries has good and marketable fee simple title to, or valid leasehold interests in, all its real and personal property, whether tangible or
intangible, material to its business, including all Products and all properties and assets owned by such Obligor and its Subsidiaries relating to its Products or Product Commercialization and Development Activities, subject only to Permitted Liens and except as could not reasonably be expected to (i) interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes or (ii) prevent or interfere with the ability of such Obligor or any of its Subsidiaries to conduct its business in the ordinary course.
(b) Products. Schedule 7.05(b) contains a complete and accurate list and description (in reasonable detail) of all Products (set forth on an Obligor-by-Obligor or Subsidiary-by-Subsidiary basis, as the case may be).
(c) Intellectual Property.
(i) Schedule 7.05(c) contains, with respect to each Obligor and each of its Subsidiaries (set for forth on a Subsidiary-by-Subsidiary basis):
(A) a complete and accurate list of all applied for, issued, or registered Patents, owned by each Obligor or any of its Subsidiaries or exclusively licensed to such Obligor any of its Subsidiaries to conduct all Product Commercialization and Development Activities relating to the Products, including the jurisdiction and patent number;
(B) a complete and accurate list of all applied for or registered Trademarks, owned by each Obligor or any of its Subsidiaries or exclusively licensed to such Obligor or any of its Subsidiaries to conduct all Product Commercialization and Development Activities relating to the Products, including the jurisdiction, trademark application or registration number and the application or registration date, which would qualify as Material Intellectual Property;
(C) a complete and accurate list of all applied for or registered Copyrights, owned by each Obligor or any of its Subsidiaries or exclusively licensed to such Obligor or any of its Subsidiaries to conduct all Product Commercialization and Development Activities relating to the Products, which would qualify as Material Intellectual Property; and
(D) a summary of Technical Information necessary for all Product Commercialization and Development Activities relating to the Products, in each case which would qualify as Material Intellectual Property.
(ii) An Obligor or one of its Subsidiaries, as applicable, is the absolute registered beneficial owner of all right, title and interest in and to such Person’s Intellectual Property that it owns (including, without limitation, the Intellectual Property indicated on Schedule 7.05(c) as being owned solely by an Obligor or one of its Subsidiaries), with no breaks in chain of title and with good and marketable title, free and clear of any Liens or Claims of any kind whatsoever other than Permitted Liens, and, to the extent any such Intellectual Property qualifies as Material Intellectual Property, Holdings and its applicable Subsidiaries have the right to exercise its rights under such Intellectual Property in the
ordinary course of their respective businesses as currently conducted or proposed to be conducted. Without limiting the foregoing, and except as set forth on Schedule 7.05(c):
(A) other than as permitted by Section 9.09, no Obligor or any of its Subsidiaries has transferred ownership of any of its Material Intellectual Property, in whole or in part, to any Person who is not an Obligor;
(B) other than (1) customary restrictions in in-bound licenses of Intellectual Property and non-disclosure agreements, (2) as set forth on Schedule 7.05(c) or (3) as would have been or is permitted by Section 9.18, there are no judgments, covenants not to sue, permits, grants, licenses, Liens (other than Permitted Liens), Claims, or other agreements or arrangements relating to or otherwise adversely affecting any Material Intellectual Property, including any development, submission, services, research, license or support agreements, which bind, obligate or otherwise restrict an Obligor or any of its Subsidiaries with respect to any Material Intellectual Property;
(C) other than as set forth on Schedule 7.05(c), the use by an Obligor or any of its Subsidiaries of any of its respective Material Intellectual Property in the ordinary course of such Person’s businesses does not breach, violate infringe or interfere with or constitute a misappropriation of any valid rights arising under any Intellectual Property of any other Person;
(D) other than as set forth on Schedule 7.05(c), (1) there are no pending or, to Holdings’ or the Borrower’s knowledge, threatened Claims against an Obligor or any of its Subsidiaries relating to any Material Intellectual Property, including any Claims of adverse ownership, invalidity, infringement, misappropriation, violation or other opposition to or conflict with such Intellectual Property; and (2) during the five (5) years preceding the date this representation is being made no Obligor nor any of its Subsidiaries has received any written notice from, or Claim by, any other Person asserting that the business of such Obligor or any of its Subsidiaries, the use of Material Intellectual Property by such Obligor or any of its Subsidiaries, or any Product Commercialization and Development Activities with respect to any Product, infringes upon, violates or constitutes a misappropriation of, or may infringe upon, violate or constitute a misappropriation of, or otherwise interfere with, or otherwise offer a license with respect to, any Intellectual Property of any such other Person, in each case, in any material respect, which have not been finally resolved;
(E) none of Holdings or the Borrower has knowledge that any Material Intellectual Property is being infringed, violated, misappropriated or otherwise used by any other Person without the express authorization of Holdings, the Borrower or their applicable Subsidiary; and, without limiting the foregoing, no Obligor nor any of its Subsidiaries has put any other Person on notice of actual or potential infringement, violation or misappropriation of any Material Intellectual Property, and no Obligor nor
any of its Subsidiaries has initiated the enforcement of any Claim with respect to any Material Intellectual Property;
(F) all relevant current and former employees and contractors of an Obligor and each of its Subsidiaries have executed written confidentiality and invention assignment Contracts with such Obligor or its Subsidiary, as applicable, that irrevocably assigns to such Obligor or such Subsidiary, as applicable, or its designee all rights of such employees and contractors to any Inventions relating to the business of such Obligor or such Subsidiary, as applicable;
(G) the Obligor Intellectual Property, together with the lawful use of open source, freeware and third party licensed Intellectual Property by the Obligors and their Subsidiaries, is all the Intellectual Property necessary for the operation of the business of the Obligors and their Subsidiaries as it is currently conducted;
(H) each Obligor and each of its Subsidiaries have made available to the Administrative Agent accurate and complete copies of all Material Agreements relating to Material Intellectual Property; and
(I) each Obligor and each of its Subsidiaries have taken reasonable precautions to protect the secrecy, confidentiality and value of its Material Intellectual Property consisting of trade secrets and confidential information.
(iii) With respect to the Material Intellectual Property consisting of Patents, except as set forth on Schedule 7.05(c), and without limiting the representations and warranties in Section 7.05(c)(ii):
(A) none of Holdings, the Borrower or any Subsidiary is aware of any Claim asserted in writing by any other Person that any of the issued claims in such Patents owned by any Obligor or its applicable Subsidiary or exclusively licensed to any Obligor or any of its Subsidiaries to conduct all Product Commercialization and Development Activities relating to the Products, is not valid or enforceable;
(B) each inventor, who was an employee of an Obligor or any of its Subsidiaries, named in such Patents has executed written Contracts with an Obligor or its predecessor-in-interest that properly and irrevocably assigns to such Obligor or its predecessor-in-interest all of such inventor’s rights, title and interest to any of the Inventions claimed in such Patents;
(C) all such Patents are in good standing and none of the Patents, or the Inventions claimed in any such Patent, have been dedicated to the public;
(D) to Holdings’ and Borrower’s knowledge as of the date of this Agreement, all prior art material to such Patents was adequately disclosed to or considered by the respective patent offices during prosecution of such Patents;
(E) subsequent to the issuance of such Patents, no Obligor nor any of its Subsidiaries nor any of their respective predecessors-in-interest, has filed any disclaimer or made or permitted any other voluntary reduction in the scope of the claims set forth in such Patents;
(F) to the best of Holdings’ or Borrower’s knowledge, neither Holdings nor the Borrower is aware of any Claim by any Person that any allowable or allowed claim in such Patents is subject to any competing conception claims of allowable or allowed subject matter of any patent applications or patents of any third party, and such claims have not been the subject of any interference, and are not and have not been the subject of any re-examination, opposition or any other post-grant proceedings, and none of Holdings nor any of its Subsidiaries has knowledge of any Claim by any Person for any such interference, re-examination, opposition, inter partes review, post grant review, or any other post-grant proceedings;
(G) none of the Patents owned by or exclusively licensed to an Obligor or any of its Subsidiaries have ever been finally adjudicated to be invalid, unpatentable or unenforceable for any reason in any administrative, arbitration, judicial or other proceeding, and, with the exception of publicly available documents in the applicable patent office recorded with respect to any such Patents, no Obligor nor any of its Subsidiaries has received any notice asserting that such Patents are invalid, unpatentable or unenforceable; if any of such Patents is terminally disclaimed to another patent or patent application, all patents and patent applications subject to such terminal disclaimer are included in the Collateral;
(H) no Obligor nor any of its Subsidiaries has received a written opinion from patent counsel which concludes that a challenge to the validity or enforceability of any Patents is more likely than not to succeed;
(I) to Holdings’ or Borrower’s knowledge as of the date of this Agreement, no Obligor nor any of its Subsidiaries or any prior owner of any Patent, or any of their respective agents or representatives, have engaged in any conduct, or omitted to perform any necessary act, the result of which would invalidate or render unpatentable or unenforceable any Patent; and
(J) all maintenance fees, annuities, and the like due or payable on or with respect to any Patents have been timely paid or the failure to so pay could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change.
(iv) The Obligors own or hold rights to all Material Intellectual Property to conduct all Product Commercialization and Development Activities relating to the Products.
7.06 No Actions or Proceedings.
(a) Litigation. Except as specified on Schedule 7.06(a), there is no litigation, investigation or proceeding pending or, to the knowledge of each Obligor, threatened in writing, with respect to each Obligor or any of its Subsidiaries by or before any Governmental Authority or arbitrator that (i) could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect or a Material Regulatory Event, or (ii) involves this Agreement, any other Loan Document, or the Transactions.
(b) Environmental Matters. The operations and property of each Obligor comply with all applicable Environmental Laws, except to the extent the failure to so comply (either individually or in the aggregate) could not reasonably be expected to result in Material Adverse Effect.
(c) Labor Matters. There are no strikes, lockouts or other material labor disputes against each Obligor or any of its Subsidiaries or, to each Obligor’s knowledge, threatened in writing against or affecting such Obligor or any of its Subsidiaries, and no significant unfair labor practice complaint is pending against such Obligor or any of its Subsidiaries or, to the knowledge of the Borrower, threatened against any of them before any Governmental Authority. Except as set forth on Schedule 7.06(c), no Obligor nor any of its Subsidiaries is a party to any collective bargaining agreements or similar Contracts, no union representation exists on any facilities of such Obligor or any of its Subsidiaries and no Obligor nor any of its Subsidiaries has any knowledge of any union organizing activities that are taking place.
7.07 Compliance with Laws and Agreements.
(a) Each Obligor and each of its Subsidiaries is in compliance with all applicable Laws and all Contracts binding upon it or its property, except (other than with respect to Material Intellectual Property, as covered in Section 7.05(c)) where the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect or a Material Regulatory Event. No Default has occurred and is continuing, or will occur as a result of any Borrowing hereunder.
(b) Without limiting the generality of the foregoing, each Obligor and each of its Subsidiaries is in material compliance with all applicable Healthcare Laws and Healthcare Permits, and no Obligor nor any such Subsidiary has received written notice by a Governmental Authority of any material violation (or of any investigation, audit, or other proceeding involving allegations of any violation) of any Healthcare Laws, and no such investigation, inspection, audit or other proceeding involving allegations of any such violation has been, to the knowledge of such Obligor or any Subsidiary, threatened in writing.
(c) Each physician, other licensed healthcare professional, or any other Person who is in a position to refer patients or other business to an Obligor or any of its Subsidiaries (collectively, a “Referral Source”) who has a direct ownership, investment, or financial interest in such Obligor or any such Subsidiary paid fair market value for such ownership, investment or financial interest; any ownership or investment returns distributed to any Referral Source is in proportion to such Referral Source’s ownership, investment or financial interest; and no preferential treatment or more favorable terms were or are offered to such Referral Source compared to investors or owners who are not in a position to refer patients or other business. No Obligor nor any of its Subsidiaries,
directly or indirectly, has or will guarantee a loan, make a payment toward a loan or otherwise subsidize a loan for any Referral Source including, without limitation, any loans related to financing the Referral Source’s ownership, investment or financial interest in such Obligor or any such Subsidiary.
(d) Without limiting the generality of the foregoing, except where noncompliance individually or in the aggregate could not reasonably be expected to result in a Material Regulatory Event:
(i) all financial relationships between or among an Obligor and its Subsidiaries, on the one hand, and any Referral Source, on the other hand (A) comply with all applicable Healthcare Laws including, without limitation, the Federal Anti-Kickback Statute, the Stark Law and other applicable anti-kickback and self-referral laws, whether U.S. or non-U.S.; (B) reflect fair market value, have commercially reasonable terms, and were negotiated at arm’s length; and (C) do not obligate the Referral Source to purchase, use, recommend or arrange for the use of any products or services of such Obligor or any of its Subsidiaries; and
(ii) without limiting the generality of the foregoing, the Obligor and each of its Subsidiaries is in material compliance with all applicable Healthcare Laws, and none of the Obligors nor any of their Subsidiaries has received written notice by a Governmental Authority of any material violation (or of any investigation, audit, or other proceeding involving allegations of any violation) of any Healthcare Laws, and except as set forth on Schedule 7.07(d), no such investigation, inspection, audit or other proceeding involving allegations of any such violation has been, to the knowledge of Holdings or the Borrower, threatened in writing.
(e) No Obligor nor any of its Subsidiaries is debarred or excluded from participation under any state or federal health care program, including any state or federal workers’ compensation programs.
(f) No Obligor nor any of its Subsidiaries is a party to any corporate integrity agreements, deferred prosecution agreements, monitoring agreements, consent decrees, settlement orders, or similar agreements with, or imposed by, any Governmental Authority.
7.08 Taxes. Except as set forth on Schedule 7.08, each Obligor and each of its Subsidiaries has timely filed or caused to be filed all tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except Taxes that are being contested in good faith by appropriate proceedings diligently conducted and for which such Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves with respect thereto in accordance with GAAP.
7.09 Full Disclosure. None of the reports, financial statements, certificates or other written information furnished by or on behalf of the Obligors to the Administrative Agent or any Lender in connection with the negotiation of this Agreement and the other Loan Documents or delivered hereunder or thereunder (as modified or supplemented by other information so furnished), taken as a whole, contains any material misstatement of material fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, each Obligor represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
7.10 Investment Company Act and Margin Stock Regulation.
(a) Investment Company Act. No Obligor nor any of its Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.
(b) Margin Stock. No Obligor nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of the Loans will be used to buy or carry any Margin Stock in violation of Regulation T, Regulation U or Regulation X.
7.11 Solvency. Each Obligor and its Subsidiaries, on a consolidated basis, are, and, immediately after giving effect to the Borrowing and the use of proceeds thereof, will be, Solvent. Each Subsidiary is, and immediately after giving effect to the Borrowing and the use of proceeds thereof, will be Solvent.
7.12 Equity Holders, Subsidiaries and Other Investments.
(a) Set forth on Schedule 7.12(a) is a complete and correct list of all holders of Equity Interests of each Obligor, setting forth the name of such holder, the series or class of Equity Interest of such Obligor held by such holder, and the fully diluted percentage ownership of such Obligor beneficially held by such holder.
(b) Set forth on Schedule 7.12(b) is a complete and correct list of all direct and indirect Subsidiaries of each Obligor. Each such Subsidiary is duly organized and validly existing under the jurisdiction of its organization shown in Schedule 7.12(b), and the percentage ownership by such Obligor of each such Subsidiary thereof is as shown in Schedule 7.12(b).
(c) Set forth on Schedule 7.12(c) is a complete and correct list of all other Equity Interests owned or held by each Obligor or any of its direct or indirect Subsidiaries in any Person that does not qualify as a direct or indirect Subsidiary of such Obligor. Schedule 7.12(c) also sets forth, in reasonable detail, the type of Equity Interest held by each Obligor in such other Person and the fully-diluted percentage ownership held beneficially by each Obligor or one or more of its Subsidiaries, as the case may be, in such other Person.
7.13 Indebtedness and Liens. Set forth on Schedule 7.13(a) is a complete and correct list of all outstanding Indebtedness of each Obligor and each of its Subsidiaries. Set forth on Schedule 7.13(b) is a complete and correct list (in reasonable detail) of all Indebtedness outstanding on the Closing Date that will be repaid and satisfied in full on the Closing Date with proceeds of the Tranche 1 Loan. Schedule 7.13(c) is a complete and correct list of all Liens granted by the Obligors and their Subsidiaries with respect to their respective property and outstanding as of the Effective Date other than the Liens granted pursuant to the Loan Documents.
7.14 Material Agreements. Set forth on Schedule 7.14 is a complete and correct list of (i) each Material Agreement and (ii) each Contract creating or evidencing any Material Indebtedness. Accurate and complete copies of each Contract disclosed on such schedule have been made available to the Administrative Agent. No Obligor nor any of its Subsidiaries is in default under
any such Material Agreement or Contract creating or evidencing any Material Indebtedness, and no Obligor has knowledge of any default by any counterparty to such Material Agreement or Contract and there are no pending or, to the Obligor’s knowledge, threatened Claims against any Obligor or any of its Subsidiaries asserted in writing by any other Person relating to any Material Agreements, including any Claims of breach or default under any such Material Agreements. No Obligor nor any of its Subsidiaries has received any written information from, or Claim by, any Person that any Material Agreement is breached or is in default. There are no outstanding (and, the Obligors do not have knowledge of, any threatened in writing) disputes or disagreements with respect to any Material Agreement. Except as otherwise disclosed on Schedule 7.14, all material vendor purchase agreements and provider Contracts of each Obligor and its Subsidiaries, and all Material Agreements including a grant of rights under any Intellectual Property to each Obligor or any of its Subsidiaries are in full force and effect without material modification from the form in which the same were disclosed to the Lenders.
7.15 Restrictive Agreements. Except as set forth on Schedule 7.15, no Obligor nor any of its Subsidiaries is subject to any Restrictive Agreement, except those permitted under Section 9.11.
7.16 Real Property. Except as set forth on Schedule 7.16, no Obligor nor any of its Subsidiaries owns or leases (as tenant thereof) any real property.
7.17 Pension Matters. Schedule 7.17 sets forth a complete and correct list of, and that separately identifies, (i) all Title IV Plans, (ii) all Multiemployer Plans and (iii) all material Benefit Plans. Each Benefit Plan, and each trust thereunder, intended to qualify for tax exempt status under Section 401 or 501 of the Code or other applicable Law so qualifies. Except for those that could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, (x) each Benefit Plan and Foreign Pension Plan is in compliance with all applicable provisions of ERISA, the Code or other applicable Law, (y) there are no existing or pending or, to the knowledge of Holdings or the Borrower, threatened Claims (other than routine claims for benefits in the normal course of business), sanctions, actions, lawsuits or other proceedings or investigation involving any Benefit Plan to which an Obligor or any Subsidiary thereof incurs or otherwise has or could reasonably be expected to have an obligation or any liability or Claim and (z) no ERISA Event is reasonably expected to occur. Each Obligor and each of its ERISA Affiliates has met all applicable requirements under the ERISA Funding Rules with respect to each Title IV Plan, and no waiver of the minimum funding standards under the ERISA Funding Rules has been applied for or obtained. No ERISA Event has occurred or is reasonably expected to occur in connection with which obligations and liabilities (contingent or otherwise) remain outstanding. No ERISA Affiliate would have any Withdrawal Liability as a result of a complete withdrawal from any Multiemployer Plan on the date this representation is made.
7.18 Priority of Obligations; Collateral; Security Interest. Except as set forth on Schedule 7.13(a), the Obligations constitute the sole senior secured obligations and sole Indebtedness of Holdings and its Subsidiaries. No monetary Obligation arising hereunder or under any Loan Document, or arising in connection herewith or therewith, is subordinated to any other Indebtedness. Each Security Document is effective to create in favor of the Secured Parties a legal, valid and enforceable security interest in the Collateral subject to such Security Document, each such security interest is legal, valid and enforceable, and each such security interest is perfected
on a first-priority basis (subject to Permitted Liens that may apply to specific items of Collateral permitted pursuant to Section 9.02) and secures the Obligations.
7.19 Regulatory Approvals.
(a) Each Obligor and each of its Subsidiaries hold, and will continue to hold, either directly or through licensees and agents, all Regulatory Approvals, including all Healthcare Permits, necessary or required for such Obligor and each of its Subsidiaries to conduct their respective operations and businesses, including all Product Commercialization and Development Activities, in the manner currently conducted and proposed to be conducted in the ordinary course of business.
(b) Set forth on Schedule 7.19(b) is a complete and accurate list of all Regulatory Approvals of the type described in Section 7.19(a) above, which schedule sets forth the applicable Obligor or Subsidiary that holds such Regulatory Approval. All such Regulatory Approvals are (i) legally and beneficially owned or held exclusively by such Obligor or one of its Subsidiaries, as the case may be, free and clear of all Liens other than Permitted Liens, (ii) validly registered and on file with the applicable Regulatory Authority, in compliance with all registration, filing and maintenance requirements (including any fee requirements) thereof, and (iii) valid and in full force and effect with the applicable Regulatory Authority. All required notices, registrations, listing, supplemental applications or notification reports (including field alerts or other reports of adverse experiences) and other required filings have been filed with the appropriate Regulatory Authority, and all such filings are in compliance with all applicable Laws.
7.20 Transactions with Affiliates. Except as set forth on Schedule 7.20, no Obligor nor any of its Subsidiaries has entered into, renewed, extended or been a party to, any transaction (including the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind, other than services as a director, officer or employee) with any Affiliate during the three-year period prior to the Closing Date except on an arm’s length basis.
7.21 Sanctions. No Obligor nor any of its Subsidiaries, nor, to the knowledge of Holdings, the Borrower and each other Obligor, any of their respective directors, officers, or employees nor, to the knowledge of Holdings or the Borrower, any agents or other Persons acting on behalf of any of the foregoing (i) is currently the target of any Sanctions, (ii) is located, organized or residing in any Designated Jurisdiction, (iii) is or has been (within the previous five (5) years) engaged in any transaction with, or for the benefit of, any Person who is now or was then the target of Sanctions or who is located, organized or residing in any Designated Jurisdiction or (iv) is or has ever been in violation of or subject to an investigation relating to Sanctions. No Loan, nor the proceeds from any Loan, has been or will be used, directly or indirectly, to lend, contribute or provide to, or has been or will be otherwise made available to fund, any activity or business in any Designated Jurisdiction or to fund any activity or business of any Person located, organized or residing in any Designated Jurisdiction or who is the subject of any Sanctions, or in any other manner that will result in any violation by any Person (including the Administrative Agent, the Lenders and their Affiliates) of Sanctions.
7.22 Anti-Corruption. No Obligor nor any of its Subsidiaries, nor, to the knowledge of Holdings, the Borrower, any of their respective directors, officers or employees nor, to the
knowledge of Holdings, the Borrower, any agents or other Persons acting on behalf of any of the foregoing, directly or indirectly, has (i) violated or is in violation of any applicable anti-corruption Law, (ii) made, offered to make, promised to make or authorized the payment or giving of, directly or indirectly, any Prohibited Payment or (iii) been subject to any investigation by any Governmental Authority with regard to any actual or alleged Prohibited Payment.
7.23 Deposit and Disbursement Accounts. Schedule 7.23 contains a list of all banks and other financial institutions at which each Obligor or any of its Subsidiaries maintains Deposit Accounts, Securities Accounts, Commodity Accounts, lockboxes, or other similar accounts, and such Schedule correctly identifies the name and address of each bank or financial institution, the name in which the account is held, the type of account, and the complete account number therefor.
7.24 Royalties and Other Payments. Except as set forth on Schedule 7.24, no Obligor nor any of its Subsidiaries is obligated to pay any royalty, milestone payment, deferred payment or any other contingent payment in respect of any Product in an amount in excess of $1,500,000 in the aggregate.
7.25 Non-Competes. No Obligor nor any of its Subsidiaries nor any of their respective directors, officers or employees is subject to a non-compete agreement that prohibits or will interfere with any of the Product Commercialization and Development Activities, including the development, commercialization or marketing of any Product, except for non-compete covenants that protect an exclusive license or otherwise as set forth on Schedule 7.25.
7.26 Internal Controls. Holdings and the Borrower each acknowledge that its management is responsible for the preparation and fair presentation of the financial statements of Holdings, the Borrower and each of its Subsidiaries provided to the Administrative Agent and the Lenders pursuant to Sections 8.01(a), 8.01(b) and 8.01(c), in each case, in accordance with GAAP. Holdings and the Borrower have, suitable for a company of their size and stage of development, designed, implemented and maintained internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
SECTION 8
AFFIRMATIVE COVENANTS
The Obligors jointly and severally covenant and agree with the Administrative Agent and the Lenders that, until the Commitments have expired or been terminated and all Obligations (other than Warrant Obligations and inchoate indemnification and expense reimbursement obligations for which no Claim has been made) have been indefeasibly paid in full in cash:
8.01 Financial Statements and Other Information. Holdings shall furnish to the Administrative Agent (with sufficient copies for each Lender):
(a) Any monthly or other periodic financial statements (other than those described in clauses (b) and (c) below) if and to the extent Holdings provides the same to its Board.
(b) As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter of each fiscal year, (i) an unaudited consolidated balance sheet of Holdings and
its Subsidiaries as of the end of such fiscal quarter, and (ii) the related unaudited consolidated statements of income and cash flows of Holdings and its Subsidiaries for each such quarter and the portion of the fiscal year through the end of such fiscal quarter, in each case, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the corresponding period in the preceding fiscal year, together with (iii) a certificate of a Responsible Officer of Holdings stating that such financial statements (x) fairly present in all material respects the financial condition of Holdings and its Subsidiaries as at such date and the results of operations of Holdings and its Subsidiaries for the period ended on such date, and (y) have been prepared in accordance with GAAP consistently applied, subject to changes resulting from normal, year-end audit adjustments and the addition of notes.
(c) As soon as available and in any event within one hundred and twenty (120) days after the end of each fiscal year (i) the audited consolidated balance sheet of Holdings and its Subsidiaries as of the end of such fiscal year, and (ii) the related audited consolidated statements of income, shareholders’ equity and cash flows of Holdings and its Subsidiaries for such fiscal year, in each case prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the previous fiscal year, accompanied by a report and opinion thereon of Deloitte & Touche Ross LLP or another firm of independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception (other than (i) with respect to the Maturity Date and (ii) in connection with the audited financial statements of Holdings and its Subsidiaries for the fiscal year 2021) or any qualification or exception as to the scope of such audit, and in the case of such consolidated financial statements, certified by a Responsible Officer of Holdings.
(d) (i) At the time of delivery of financial statements delivered pursuant to Sections 8.01(b) and 8.01(c), a compliance certificate delivered by the chief financial or accounting Responsible Officer of Holdings as of the end of each such calendar month referenced in clause (x) above or the applicable accounting period referenced in clause (y) above, as the case may be, substantially in the form of Exhibit E including, with respect to the financial statement delivered pursuant to Section 8.01(c), details of any issues that are material that are raised by Holdings’ auditors, and setting forth reasonably detailed calculations demonstrating compliance with Section 10; (ii) together with the financial statements required pursuant to Sections 8.01(b) and 8.01(c), a management discussion and analysis in the format provided by Holdings to its Board; and (iii) within five (5) Business Days following the end of each calendar month, Holding’s chief financial officer shall provide the Administrative Agent with proof of compliance with Section 10.01, which proof may be in the form of copies of one or more bank statements demonstrating such compliance, accompanied by a certification thereof from the chief financial officer.
(e) As soon as available and in any event no later than ninety (90) days following the end of each fiscal year of Holdings, copies of an annual budget (or equivalent) for Holdings and its Subsidiaries, approved by Holdings Board, for the then current fiscal year, in form reasonably satisfactory to the Administrative Agent, accompanied by a certificate of the chief financial officer of Holdings certifying (in his or her capacity as an officer of Holdings and not in his or her individual capacity) that (i) such budget was prepared by Holdings in good faith, (ii) Holdings had at the time of preparation of the budget, and at all times thereafter (including on and as of the date
of delivery to the Administrative Agent of such budget) has continued to have, what Holdings in good faith believes is a reasonable basis for all of the assumptions contained in such budget and (iii) such budget was prepared in accordance with, and based upon, such assumptions.
(f) Copies of all letters of representatives signed by an Obligor to its auditors and, promptly upon receipt thereof, copies of all auditor reports delivered for each fiscal quarter.
(g) Promptly after the same are released, copies of all press releases.
(h) Promptly, and in any event within five (5) Business Days after receipt thereof by Holdings or any of its Subsidiaries, copies of each notice or other correspondence received from any securities regulator or exchange to the authority of which Holdings may become subject from time to time concerning any investigation or possible investigation or other similar inquiry by such agency regarding financial or other operational results of Holdings or any such Subsidiary.
(i) Promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to all the stockholders of Holdings or any of its Subsidiaries, and copies of all annual, regular, periodic and special reports and registration statements which Holdings or any of its Subsidiaries may file or be required to file with any securities regulator or exchange to the authority of which Holdings or any such Subsidiary, as applicable, may become subject from time to time.
(j) The information regarding insurance maintained by Holdings and its Subsidiaries as required under Section 8.05.
(k) As soon as possible and in any event within five (5) Business Days after an Obligor obtains knowledge of any Claim related to any Product or inventory involving more than $1,500,000, written notice thereof from a Responsible Officer of such Obligor which notice shall include a statement setting forth details of such Claim.
(l) Within five (5) days of delivery, copies of all statements, reports and notices (including board kits) made available to Holding’s Board; provided that any such material may be redacted by Holdings to exclude information relating to the Lenders (including Holdings’ strategy regarding the Loans).
(m) Such other information respecting the operations, properties, business, liabilities or condition (financial or otherwise) of Holdings and its Subsidiaries (including with respect to the Collateral) as the Administrative Agent or any Lender may from time to time reasonably request.
Information required to be delivered pursuant to Sections 8.01 (b), (c) or (i) shall be deemed to have been delivered if such information, or one or more annual or quarterly reports containing such information, shall be publicly available on “EDGAR” (provided, in each case, that Holdings has notified the Administrative Agent (including by e-mail) that such information is available in such a manner and, if requested by the Administrative Agent, shall have provided hard copies to the Administrative Agent).
8.02 Notices of Material Events. On or within five (5) Business Days (or such longer or shorter period as may be expressly set forth below) after a Responsible Officer of Holdings first learns of
or acquires knowledge with respect to any of the below events or circumstances, Holdings shall furnish to the Administrative Agent written notice thereof (prepared in reasonable detail).
(a) The occurrence of any Default.
(b) The occurrence of any event with respect to any property or assets of Holdings or any of its Subsidiaries resulting in a Loss aggregating $1,500,000 (or the Equivalent Amount in other currencies) or more.
(c) Any Claim, action, suit, notice of violation, hearing, investigation or other proceedings pending, or to Holdings’ or the Borrower’s knowledge, threatened in writing against or affecting Holdings or the Borrower or any of its Subsidiaries or with respect to the ownership, use, maintenance and operation of their respective businesses, operations or properties, whether made by a Governmental Authority or other Person that could reasonably be expected to result in a Loss of $1,500,000 or more.
(d) (i) On or prior to the date of any filing by any ERISA Affiliate of any notice of intent to terminate any Title IV Plan, a copy of such notice and (ii) promptly, and in any event within ten (10) days, after any Responsible Officer of any ERISA Affiliate knows or has reason to know (A) that an ERISA Event has occurred or is reasonably expected to occur or (B) that a request for a minimum funding waiver under Section 412 of the Code has been filed with respect to any Title IV Plan or Multiemployer Plan, a notice (which may be made by telephone if promptly confirmed in writing) describing such waiver request and any action that any ERISA Affiliate proposes to take with respect to either of the foregoing, together with a copy of any notice filed with the PBGC or the IRS pertaining thereto.
(e) (i) The termination of any Material Agreement other than in accordance with its terms, including as a result of a breach or default; (ii) the receipt by Holdings or any of its Subsidiaries of any material notice under any Material Agreement (and a copy thereof); (iii) the entering into of any new Material Agreement by Holdings or any of its Subsidiaries (and a copy thereof); or (iv) any material amendment to a Material Agreement (and a copy thereof).
(f) The reports and notices as required by the Security Documents.
(g) Within thirty (30) days of the date thereof, or, if earlier, on the date of delivery of any financial statements pursuant to Section 8.01, notice of any material change in accounting policies or financial reporting practices by the Obligors.
(h) Notice of any labor controversy resulting in or threatening to result in any strike, work stoppage, boycott, shutdown or other material labor disruption against or involving Holdings or any of its Subsidiaries.
(i) Any licensing agreements or similar arrangement entered into by Holdings or any of its Subsidiaries in connection with any infringement or alleged infringement of any Intellectual Property of another Person.
(j) Concurrently with the delivery of financial statements under Section 8.01(b) or (c), notice of the creation, development or other acquisition of any Intellectual Property by Holdings
or any of its Subsidiaries after the Closing Date and during such prior fiscal quarter for which such financial statements were delivered, which is registered or becomes registered or the subject of an application for registration with the U.S. Copyright Office or the U.S. Patent and Trademark Office, as applicable, or with any other equivalent foreign Governmental Authority.
(k) Any change to Holding’s or any of its Subsidiary Guarantors’ ownership of Deposit Accounts, Securities Accounts and Commodity Accounts, by delivering to the Administrative Agent, a notice setting forth a complete and correct list of all such accounts as of the date of such change.
(l) The acquisition by Holdings or any of its Subsidiaries, in a single or series or related transactions, of any fee interest in any real property having a fair market value in excess of $1,000,000.
(m) Any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect or a Material Regulatory Event.
Each notice delivered under this Section 8.02 shall be accompanied by a statement of a Responsible Officer of Holdings setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Nothing in this Section 8.02 is intended to waive, consent to or otherwise permit any action or omission that is otherwise prohibited by this Agreement or any other Loan Document.
Notwithstanding the foregoing, so long as Holdings or the Borrower is subject to the reporting requirements of Section 13 or Section 15 of the Exchange Act, Holdings covenants and agrees that neither it, nor any other Person acting on its behalf, will provide, or be obligated to provide, the Administrative Agent or any Lender or their respective representatives or agents with any information that Holdings reasonably believes constitutes material non-public information, unless prior thereto such receiving Person shall have confirmed to Holdings in writing that it consents to receive such information. Holdings acknowledges and confirms that each Secured Party shall be relying on the foregoing covenant in effecting transactions in securities of Holdings and the Borrower
8.03 Existence; Conduct of Business. Each Obligor shall, and shall cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence and all Governmental Approvals necessary or material to the conduct of its business; provided that the foregoing shall not prohibit any merger, amalgamation, consolidation, liquidation or dissolution permitted under Section 9.03.
8.04 Payment of Obligations. Each Obligor shall, and shall cause each of its Subsidiaries to, pay and discharge its obligations, including (i) all Taxes, fees, assessments and governmental charges or levies imposed upon it or upon its properties or assets prior to the date on which penalties attach thereto, and all lawful Claims for labor, materials and supplies which, if unpaid, might become a Lien upon any properties or assets such Obligor or any of its Subsidiaries, except to the extent such Taxes, fees, assessments or governmental charges or levies, or such claims are being contested in good faith by appropriate proceedings and are adequately reserved against in accordance with
GAAP, and (ii) all other lawful Claims which, if unpaid, would by Law become a Lien upon any properties or assets of such Obligor or any of its Subsidiaries, other than any Permitted Lien.
8.05 Insurance. Each Obligor shall, and shall cause each of its Subsidiaries to maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. Upon the reasonable request of the Administrative Agent, such Obligor shall furnish to the Administrative Agent from time to time: (i) information as to the insurance carried by such Obligor and each of its Subsidiaries and, if so requested, copies of all such insurance policies and (ii) a certificate from such Obligor’s insurance broker or other insurance specialist stating that all premiums then due on the policies relating to insurance on the Collateral have been paid and that such policies are in full force and effect. The Obligors shall use commercially reasonable efforts to ensure, or cause others to ensure, that all insurance policies required under this Section 8.05 shall provide that they shall not be terminated or cancelled nor shall any such policy be materially changed in a manner adverse to the insured Person without at least thirty (30) days’ (ten (10) days for nonpayment) prior written notice to such Obligor and the Administrative Agent. Receipt of notice of cancellation or modification of any such insurance policies or reduction of coverage or amounts thereunder shall entitle any Secured Party to renew any such policies, cause the coverage and amounts thereof to be maintained at levels required pursuant to the first sentence of this Section 8.05 or otherwise to obtain similar insurance in place of such policies, in each case at the expense of such Obligor (payable on demand). The amount of any such expenses shall accrue interest at the Default Rate if not paid on demand and shall constitute “Obligations.”
8.06 Books and Records; Inspection Rights. Each Obligor shall, and shall cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Each Obligor shall, and shall cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and reasonably inspect its properties, to reasonably examine and make extracts from its books and records, and to discuss its affairs, finances and condition (financial or otherwise) with its officers and independent accountants, all at such reasonable times (but not more often than once per year unless an Event of Default has occurred and is continuing) as the Administrative Agent or the Lenders may reasonably request. Each Obligor shall pay all reasonable costs and expenses of all such inspections.
8.07 Compliance with Laws and Other Obligations. Each Obligor shall, and shall cause each of its Subsidiaries to, (i) comply in all material respects with all applicable Laws and Governmental Approvals (including Environmental Laws and all Healthcare Laws) and (ii) maintain in full force and effect, remain in compliance with, and perform all terms of outstanding Material Indebtedness and all Material Agreements.
8.08 Maintenance of Properties, Etc. Each Obligor shall, and shall cause each of its Subsidiaries to, maintain and preserve all of its assets and properties, whether tangible or intangible, relating to its Products or Product Commercialization and Development Activities or otherwise, necessary or useful in the proper conduct of its business in good working order and condition in accordance
with the general practice of other Persons of similar character and size, ordinary wear and tear and damage from casualty or condemnation excepted.
8.09 Licenses. Each Obligor shall, and shall cause each of its Subsidiaries to, obtain and maintain all Governmental Approvals necessary in connection with the execution, delivery and performance of the Loan Documents, the consummation of the Transactions or the operation and conduct of its business and ownership of its properties (including its Product Commercialization and Development Activities).
8.10 Action under Environmental Laws. Each Obligor shall, and shall cause each of its Subsidiaries to, upon becoming aware of the release of any Hazardous Materials or the existence of any environmental liability under applicable Environmental Laws with respect to their respective businesses, operations or properties, take all actions, at their cost and expense, as shall be necessary or advisable to investigate and clean up the condition of their respective businesses, operations or properties, including all required removal, containment and remedial actions, to restore their respective businesses, operations and properties to a condition in compliance with applicable Environmental Laws.
8.11 Use of Proceeds. The proceeds of the Loans shall be used only as provided in Section 2.04. Without limiting the foregoing, no part of the proceeds of the Loans shall be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board of Governors of the Federal Reserve System, including Regulation T, Regulation U and Regulation X.
8.12 Certain Obligations Respecting Subsidiaries; Further Assurances. Subsidiary Guarantors. Holdings and the Borrower shall take such action from time to time as shall be necessary to ensure that (x) each of its Subsidiaries that is a party to this Agreement as of the Closing Date will be and will remain an Obligor and Subsidiary Guarantor hereunder (except as otherwise permitted by Section 9.03), and (y) each of its other Subsidiaries, whether direct or indirect, now existing or hereafter created (other than any Excluded Subsidiary), will, within ten (10) Business Days of becoming a Subsidiary, become a “Subsidiary Guarantor” pursuant to this Section 8.12. Without limiting the generality of the foregoing, if Holdings or any of its Subsidiaries form or acquire any new Subsidiary that is not an Excluded Subsidiary, then Holdings concurrently shall (unless otherwise agreed by the Administrative Agent in its sole discretion), within ten (10) Business Days of such event:
(i) cause such Subsidiary to become an “Obligor” and a “Subsidiary Guarantor” hereunder, a “Grantor” (or the equivalent thereof) under the applicable Security Document, and a “Subsidiary Party” under the Intercompany Subordination Agreement;
(ii) take such action or cause such Subsidiary to take such action (including joining the Security Agreement or the applicable Security Documents and delivering certificated Equity Interests together with undated transfer powers executed in blank, applicable control agreements, and other instruments) as shall be deemed reasonably necessary or desirable by the Administrative Agent to create and perfect, in favor of the Administrative Agent, for the benefit of the Secured Parties, valid and enforceable first priority Liens on substantially all of the personal property of such new Subsidiary as collateral security for the Obligations hereunder;
(iii) cause the parent of such Subsidiary to execute and deliver a pledge agreement in favor of the Administrative Agent, for the benefit of the Secured Parties, in respect of all outstanding issued Equity Interests of such Subsidiary; and
(iv) deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is consistent with those delivered by each Obligor pursuant to Section 6.01 or as the Administrative Agent shall have reasonably requested.
(b) Further Assurances.
(i) Each Obligor shall, and shall cause each of its direct or indirect Subsidiaries (including any newly formed or newly acquired Subsidiaries, but excluding Excluded Subsidiaries) to take such action from time to time as shall reasonably be requested by the Administrative Agent to effectuate the purposes and objectives of this Agreement and the applicable Security Documents.
(ii) In the event that Holdings or any of its Subsidiaries holds or acquires Obligor Intellectual Property during the term of this Agreement, then, upon the request of the Administrative Agent, Holdings or any such Subsidiary shall take any action as shall be reasonably necessary and reasonably requested by the Administrative Agent to ensure that the provisions of this Agreement and the Security Agreement shall apply thereto and any such Obligor Intellectual Property shall constitute part of the Collateral under the Security Documents.
(iii) Without limiting the generality of the foregoing, within ten (10) Business Days following written request from the Administrative Agent, Holdings shall cause each Person that is required to be a Subsidiary Guarantor or an Obligor hereunder to take such action from time to time (including executing and delivering such assignments, security agreements, control agreements and other instruments, and delivering certificated Equity Interests together with undated transfer powers executed in blank) as shall be reasonably requested by the Administrative Agent to create, in favor of the Secured Parties, perfected security interests and Liens in substantially all of the property of such Person as collateral security for the Obligations; provided that any such security interest or Lien shall be subject to the relevant requirements of the applicable Security Documents.
(iv) In the event that Holdings or any of its Subsidiaries acquires any real property with a value in excess of $1,000,000 during the term of this Agreement, Holdings shall promptly notify the Administrative Agent and provide the Administrative Agent with a description of such real property, the acquisition date thereof and the purchase price therefor. Upon the request of the Administrative Agent, Holdings or any such Subsidiary shall execute and deliver a Mortgage with respect to such acquired real property to secure the Obligations.
(c) Costs and Benefits. Notwithstanding any term or provision of this Section 8.12 to the contrary, without limiting the right of the Administrative Agent or the Lenders to require a Lien or a security interest in the Equity Interests of, or guaranty from, any newly acquired or created Subsidiary of Holdings (or any Subsidiary of Holdings that ceases to be an Immaterial Subsidiary), or a Lien or security interest on any assets or properties of Holdings or any of its Subsidiaries, so long as no Event of Default has occurred and is continuing, Holdings may request in writing to the Lenders that the Lenders waive the requirements of this Section 8.12 to provide a Lien, security interest or guaranty, as the case may be, due to the cost or burden thereof to Holdings and its Subsidiaries (when taken as a whole) being unreasonably excessive relative to the benefit that would inure to the Secured Parties, and describing such cost or burden in reasonable detail. Upon receipt of any such written notice, the Lenders shall review and consider such request
in good faith and, within five (5) Business Days of receipt of such request, shall determine in their sole but commercially reasonable discretion, and notify Holdings of such determination, whether the Lenders will grant such request for a waiver.
8.13 Termination of Non-Permitted Liens. In the event that an Obligor or any of its Subsidiaries shall obtain knowledge of, or be notified by the Administrative Agent or any Lender of the existence of, any outstanding Lien against any assets or property of such Obligor or any of its Subsidiaries, which Lien is not a Permitted Lien, such Obligor shall use its best commercially reasonable efforts to promptly terminate or cause the termination of such Lien.
8.14 Intellectual Property. In the event that an Obligor or any of its Subsidiaries creates, develops or acquires Obligor Intellectual Property during the term of this Agreement, then the provisions of this Agreement shall automatically apply thereto and any such Obligor Intellectual Property shall automatically constitute part of the Collateral under the Security Documents, without further action by any party, in each case from and after the date of such creation, development, or acquisition (except that any representations or warranties of any Obligor shall apply to any such Obligor Intellectual Property only from and after the date, if any, subsequent to such acquisition that such representations and warranties are brought down or made anew as provided herein).
8.15 Maintenance of Regulatory Approvals, Contracts, Intellectual Property, Etc. Each Obligor shall, and shall cause each of its Subsidiaries (to the extent applicable) to, (i) maintain in full force and effect all material Regulatory Approvals, Material Agreements, Material Intellectual Property and other rights, interests or assets (whether tangible or intangible) reasonably necessary for the operations of such Person’s business, including any Product Commercialization and Development Activities, (ii) maintain in full force and effect, and pay all costs and expenses relating to, such Regulatory Approvals, Material Agreements and Material Intellectual Property owned, used or controlled by such Obligor or any such Subsidiary that are used in or necessary for any related Product Commercialization and Development Activities, (iii) promptly after obtaining knowledge thereof, notify the Administrative Agent of any material infringement or violation by any Person of such Obligor’s or any such Subsidiaries’ Material Intellectual Property, and take commercially reasonable efforts to pursue any such infringement or other violation, (iv) use commercially reasonable efforts to pursue and maintain in full force and effect legal protection for all new Material Intellectual Property created, developed or acquired by such Obligor or any of its Subsidiaries, as the case may be, that is used in or necessary for the operations of the business of such Person, or in connection with any Product Commercialization and Development Activities relating to any Product, and (v) promptly after obtaining knowledge thereof, notify the Administrative Agent of any Claim by any Person that the conduct of the business of such Obligor or any of its Subsidiaries, including in connection with any Product Commercialization and Development Activities, has infringed upon any Intellectual Property of such Person.
8.16 ERISA and Foreign Pension Plan Compliance. Such Obligor shall comply, and shall cause each of its Subsidiaries to comply, in all material respects with the provisions of ERISA or applicable Law with respect to any Benefit Plans or Foreign Pension Plans to which such Obligor or any such Subsidiary is a party as an employer.
8.17 Cash Management. Each Obligor shall, and shall cause each of its Subsidiary to:
(a) maintain at all times all Deposit Accounts, Securities Accounts, Commodity Accounts, lockboxes and similar accounts (other than Excluded Accounts) held by each Obligor with a bank or financial institution that has executed and delivered to and in favor of the Administrative Agent an account control agreement, in form and substance reasonably acceptable to the Administrative Agent (each such Deposit Account, Securities Account, Commodity Account, lockbox or similar account, a “Controlled Account”);
(b) maintain each such Controlled Account as a cash collateral account, with all cash, checks and other similar items of payment in such account securing payment of the Obligations, and each Obligor shall have granted a Lien to the Administrative Agent, for the benefit of the Secured Parties, over such Controlled Accounts;
(c) deposit promptly, and in any event no later than five (5) Business Days after the date of receipt thereof, all cash, checks, drafts or other similar items of payment relating to or constituting payments made in respect of any and all accounts receivable, Contracts or any other rights and interests into one or more Controlled Accounts; and
(d) at any time after the occurrence and during the continuance of an Event of Default, at the request of the Administrative Agent, direct all payments constituting proceeds of accounts receivable to be directed into lockbox accounts pursuant to agreements in form and substance reasonably satisfactory to the Administrative Agent.
8.18 Litigation Cooperation. To the extent consistent with the preservation of attorney-client privilege, each Obligor shall, and shall cause each of its Subsidiaries to make reasonably available to the Administrative Agent, its (and its Subsidiaries’) officers, employees, agents, without expense to the Administrative Agent, books and records, to the extent that the Administrative Agent may deem them reasonably necessary to prosecute or defend against any third-party suit or proceeding instituted by or against the Administrative Agent or any Secured Party with respect to any Collateral, the subject of any Loan Document or relating to such Obligor or any of its Subsidiaries.
8.19 Board Observation Rights.
(a) Holdings shall permit one individual representing the Lenders and appointed by the Administrative Agent (the “Observer”) to attend and observe (but not vote) at all meetings of Holdings’ Board, whether in person, by telephone or otherwise as reasonably requested by the Observer. Holdings shall notify the Observer in writing at least five (5) Business Days in advance (or, if a shorter notice period is reasonably necessary given the circumstances, as soon as possible and in all circumstances at least twenty-four (24) hours in advance) of (i) the date and time for each general or special meeting of Holdings’ Board and (ii) the adoption of any resolutions or actions by Holdings’ Board or any committee thereof by written consent (describing, in reasonable detail, the nature and substance of such action). Concurrently with notice to the member of Holdings’ Board of any such meeting, Holdings shall deliver or cause to be delivered to the Observer all notices and any material delivered to any members of such Board in connection with the applicable meeting or action to be taken by written consent, including a draft of any material resolutions or actions proposed to be adopted by written consent. Prior to such meeting or adoption by written consent, the Observer shall be free to contact one or more members of Holdings’ Board
or committee and discuss the pending actions to be taken. Holdings’ Board may meet in executive session without the Observer present to the extent such Board or committee determines in good faith that the issue to be discussed at such session is not appropriate to be discussed with the Observer because (i) such issue directly involves the Loan Documents and discussion thereof would result in a conflict of interest with the Lenders with respect thereto or (ii) the discussion of such issue in the presence of the Observer would result in the loss of attorney-client privilege. The Observer may only be excluded from meetings or executive sessions to the extent the matter being discussed is of a type described in clauses (i) or (ii) above.
(b) Holdings reimburse the Observer for its reasonable out-of-pocket expenses (including the cost of travel, meals and lodging) in connection with the Observer’s attendance of such meetings in accordance with Holdings’ policies for reimbursement of directors.
SECTION 9
NEGATIVE COVENANTS
The Obligors jointly and severally covenant and agree with the Administrative Agent and the Lenders that, until the Commitments have expired or been terminated and all Obligations (other than Warrant Obligations and inchoate indemnification and expense reimbursement obligations for which no Claim has been made) have been indefeasibly paid in full in cash:
9.01 Indebtedness. The Obligors shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, whether directly or indirectly, except for the following:
(a) the Obligations;
(b) Indebtedness existing on the Closing Date and set forth on Schedule 7.13(a) and Permitted Refinancings thereof;
(c) Indebtedness of an Obligor owing to another Obligor; provided that, in each case, such Indebtedness shall be subordinated to the Obligations pursuant to the Intercompany Subordination Agreement;
(d) Guarantees by an Obligor of the Indebtedness of another Obligor to the extent such Indebtedness is otherwise permitted hereunder; provided that any subrogation claims of any such guarantying Obligor shall be subordinated to the Obligations pursuant to the Intercompany Subordination Agreement;
(e) ordinary course of business equipment financing and leasing; provided that (i) if secured, the collateral therefor consists solely of the assets being financed, the products and proceeds thereof and books and records related thereto, and (ii) the aggregate outstanding principal amount of such Indebtedness shall not exceed $1,500,000 (or the Equivalent Amount in other currencies) at any time;
(f) Indebtedness under Hedging Agreements permitted by Section 9.05(e);
(g) (i) to the extent constituting or qualifying as Indebtedness, all obligations of the Borrower to pay Earnout Payments (as defined in, and to the extent payable pursuant to, Exhibit D to the Waypoint Product Acquisition Agreement as in effect on the Amendment No. 2 Effective Date), and (ii) any additional Indebtedness assumed pursuant to any Permitted Acquisition; provided that, and without regard to any Indebtedness of the type described in subclause (i) of this Section 9.01(g), (x) the aggregate amount of such additional Indebtedness permitted pursuant to this Section 9.01(g)(ii) shall not exceed $1,500,000 at any time outstanding and (y) no such additional Indebtedness shall have been created or incurred in connection with, or in contemplation of, such Permitted Acquisition;
(h) Indebtedness in respect of any agreement providing for treasury, depositary or cash management services, including in connection with any automated clearing house transfers of funds or any similar transfers, netting services, overdraft protections and other cash management and similar arrangements, in each case in the ordinary course of business;
(i) advances or deposits from customers or vendors received in the ordinary course of business;
(j) workers’ compensation claims, payment obligations in connection with health, disability or other types of social security benefits, unemployment or other insurance obligations and reclamation and statutory obligations, in each case incurred in the ordinary course of business;
(k) Indebtedness not to exceed $1,500,000 at any time outstanding in respect of advances received under licensing and collaboration agreements;
(l) Indebtedness consisting of the deferred obligations to pay insurance premiums in respect of insurance policies pursuant to Section 8.05 insuring assets or businesses of an Obligor written or arranged in such Obligor’s ordinary course of business and which are payable within one (1) year; and
(m) Indebtedness incurred in connection with letters of credit that are secured solely by cash or cash equivalents and issued on behalf of the Borrower in the ordinary course of business in an aggregate amount outstanding not to exceed $1,000,000 at any time;
(n) Indebtedness of non-U.S. Subsidiaries of Holdings borrowed from Persons that are not Obligors, which Indebtedness is incurred for the purpose of financing working capital needs of such Subsidiaries (including leases of real and personal property used in the ordinary course), not to exceed (i) $750,000 in aggregate principal amount for all such Subsidiaries that are Obligors at any time outstanding and (iii) $1,000,000 in aggregate principal amount for all such Subsidiaries that are not Obligors at any time outstanding;
(o) unsecured Indebtedness of Obligors resulting from Guarantees of Indebtedness incurred by non-U.S. Subsidiaries pursuant to Section 9.01(n) above, not to exceed $500,000 in aggregate principal amount at any time outstanding;
(p) Indebtedness of non-U.S. Subsidiaries borrowed from Obligors, which Indebtedness, when taken together with any Investments made pursuant to Section 9.05(l)(ii)
below, shall not exceed $500,000 in aggregate principal amount for all such Subsidiaries at any time outstanding; and
(q) unsecured Indebtedness incurred by Obligors in an aggregate amount not to exceed $500,000 at any time outstanding.
9.02 Liens. The Obligors shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien on any property now owned by it or such Subsidiary, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except for the following:
(a) Liens securing the Obligations;
(b) any Lien on any property or asset of Holdings or any of its Subsidiaries existing on the Closing Date and set forth on Schedule 7.13(c); provided that (i) no such Lien shall extend to any other property or asset of Holdings or any of its Subsidiaries and (ii) any such Lien shall secure only those obligations which it secures on the Closing Date and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;
(c) Liens securing Indebtedness permitted under Section 9.01(g); provided that such Liens are restricted solely to the collateral permitted to be secured pursuant to Section 9.01(g);
(d) Liens imposed by any applicable Law arising in the ordinary course of business, including (but not limited to) carriers’, warehousemen’s, lessor’s and mechanics’ liens and other similar Liens arising in the ordinary course of business and which (x) do not in the aggregate materially detract from the value of the property subject thereto or materially impair the use thereof in the operations of the business of such Person or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject to such Liens and for which adequate reserves have been made if required in accordance with GAAP;
(e) pledges or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance or other similar social security legislation;
(f) Liens securing Taxes, assessments and other governmental charges, the payment of which is not yet due or is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required GAAP shall have been made;
(g) servitudes, easements, rights of way, restrictions and other similar encumbrances on real property imposed by any applicable Law and Liens consisting of zoning or building restrictions, easements, licenses, restrictions on the use of property or minor imperfections in title thereto which, in the aggregate, are not material, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of any of the Obligors or any of their Subsidiaries;
(h) with respect to any real property, (i) such defects or encroachments as might be revealed by an up-to-date survey of such real property; (ii) the reservations, limitations, provisos
and conditions expressed in the original grant, deed or patent of such property by the original owner of such real property pursuant to applicable Law; (iii) rights of expropriation, access or user or any similar right conferred or reserved by or in any applicable Law, which, in the aggregate for clauses (i), (ii) and (iii), are not material, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of any of the Obligors or any of their Subsidiaries and (iv) leases or subleases in the ordinary course of business;
(i) Liens securing Indebtedness permitted under Section 9.01(i); provided that (i) such Lien is not created in contemplation of or in connection with such Permitted Acquisition, (ii) such Lien shall not apply to any other property or assets of Holdings or any of its Subsidiaries other than the property or assets being acquired pursuant to such Permitted Acquisition, and (iii) such Lien shall secure only those obligations that it secured immediately prior to the consummation of such Permitted Acquisition and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;
(j) bankers’ liens, rights of setoff and similar Liens incurred on deposits made in the ordinary course of business;
(k) (i) licenses permitted pursuant to Section 9.18 and (ii) any ordinary course interest or title of a licensor, sublicensor, collaborator, lessor or sublessor with respect to any assets under any inbound license, collaboration agreement or lease agreement permitted pursuant to Section 9.18 (including Liens on Products that include Intellectual Property licensed to Holdings or its Subsidiaries to secure their payment obligations with respect to such license or collaboration agreement);
(l) Liens consisting of cash collateral securing Indebtedness under Hedging Agreements permitted by Section 9.01(f) and letters of credit permitted by Section 9.01(m);
(m) with respect to any Indebtedness incurred by a non-U.S. Subsidiary of Holdings pursuant to Section 9.01(n) above, Liens on assets and properties of such Subsidiary securing such Indebtedness; and
(n) other Liens securing other Indebtedness to the extent permitted hereby not to exceed $500,000 in an aggregate principal amount at any time outstanding.
Any term or provision of this Section 9.02 to the contrary notwithstanding, no Lien otherwise permitted under any of the foregoing clauses (b) through (n) shall apply to any Material Intellectual Property.
9.03 Fundamental Changes, Acquisitions, Etc. The Obligors shall not, and shall not permit any of its Subsidiaries to, (i) enter into any transaction of merger, amalgamation or consolidation, (ii) liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), (iii) sell or issue any Disqualified Equity Interests, or (iv) other than Permitted Acquisitions, make any Acquisition, except for the following (in each case to the extent that no Event of Default has occurred and is continuing, or could reasonably be expected to result therefrom):
(a) the merger, amalgamation or consolidation of any Subsidiary with or into any Obligor; provided that with respect to any such transaction involving Holdings or the Borrower, Holdings or the Borrower must be the surviving or successor entity of such transaction and with respect to any such transaction involving any other Obligor and a non-Obligor Subsidiary, such Obligor must be the surviving or successor entity of such transaction;
(b) the sale, lease, transfer or other disposition by any Subsidiary of any or all of its property (upon voluntary liquidation or otherwise) to any Obligor; and
(c) the sale, transfer or other disposition of the Equity Interests of any Subsidiary to any Obligor.
9.04 Lines of Business. The Obligors shall not, and shall not permit any of its Subsidiaries to, engage in any business other than the business engaged in on the Closing Date by such Persons or a business reasonably related thereto and reasonable extensions thereof, including the business of operating a pharmacy.
9.05 Investments. The Obligors shall not, and shall not permit any of its Subsidiaries to, make, directly or indirectly, or permit to remain outstanding any Investments, except for the following:
(a) Investments outstanding on the Closing Date and identified on Schedule 9.05;
(b) operating Deposit Accounts, Securities Accounts or Commodity Accounts with banks or financial institutions that are Controlled Accounts;
(c) extensions of credit in the nature of accounts receivable or notes receivable arising from the sales of goods or services in the ordinary course of business and prepaid royalties in the ordinary course of business;
(d) Permitted Cash Equivalent Investments in Controlled Accounts or Excluded Accounts;
(e) Hedging Agreements entered into in Holdings’ or any of its Subsidiaries’ ordinary course of business for the purpose of hedging currency risks or interest rate risks (but not for speculative purposes) and in an aggregate net exposure amount for all such Hedging Agreements not in excess of $1,500,000 (or the Equivalent Amount in other currencies);
(f) Investments consisting of security deposits with utilities and landlords to secure office space and other like Persons made in the ordinary course of business;
(g) employee loans, travel advances and guarantees in accordance with Holdings’ usual and customary practices with respect thereto (if permitted by applicable Law) which in the aggregate shall not exceed $1,500,000 outstanding at any time (or the Equivalent Amount in other currencies plus any amounts consisting of any employee’s deferred payment obligation for the purchase of Equity Interests in Holdings);
(h) Investments received in connection with any Insolvency Proceedings in respect of any customers, suppliers or clients and in settlement of delinquent obligations of, and other disputes with, customers, suppliers or clients;
(i) Investments in the form of Indebtedness owing by Obligors or any of their Subsidiaries to other Obligors or their Subsidiaries to the extent such Indebtedness is permitted pursuant to Section 9.01;
(j) Investments not to exceed $5,000,000 at any time outstanding in joint ventures and counterparties to collaboration and license agreements;
(k) Permitted Acquisitions;
(l) Investments by an Obligor in (i) any other Obligor and (ii) any non-U.S. Subsidiary described in Section 9.01(p); provided that the aggregate amount of such Investments made pursuant to this clause (l)(ii), when taken together with any Indebtedness incurred pursuant to Section 9.01(p) above, shall not exceed $500,000 in aggregate amount for all such Subsidiaries at any time outstanding; and
(m) other Investments not to exceed $1,500,000 in the aggregate at any time outstanding.
9.06 Restricted Payments. The Obligors shall not, and shall not permit any of its Subsidiaries to, declare or make, directly or indirectly, any Restricted Payment; provided that, notwithstanding the foregoing, the following Restricted Payments shall be permitted so long as no Event of Default could reasonably be expected to occur or result from the making of such Restricted Payment:
(a) dividends with respect to Holdings’ Equity Interests payable solely in shares of its Qualified Equity Interests;
(b) dividends paid by any Subsidiary to any Obligor;
(c) dividends paid by any foreign Subsidiary to another foreign Subsidiary;
(d) upon the death, incapacity or termination of any natural person that is a holder of Qualified Equity Interests of Holdings or the exercise of a right of first refusal or similar right in respect of any such holder, Holdings may repurchase the stock of such Qualified Equity Interests of such holder or such holder’s family, trusts, estates and heirs pursuant to stock repurchase agreements in an amount not to exceed $500,000 per fiscal year;
(e) the payment by Holdings or any of its Subsidiaries of cash in lieu of the issuance of fractional shares to the extent required by the applicable Organic Document of Holdings or such Subsidiary and in an aggregate amount not to exceed $25,000 per fiscal year for Holdings and all such Subsidiaries;
(f) Holdings may honor any non-cash (other than cash in lieu of fractional shares) conversion or exercise requests in respect of any convertible securities, options or warrants of
Holdings into Qualified Equity Interests of Holdings pursuant to the terms of such convertible securities, options or warrants or otherwise in exchange therefor; and
(g) the repurchase or other acquisition of Qualified Equity Interests of Holdings deemed to occur (i) upon the exercise of stock options, warrants, restricted stock units or other rights to purchase Qualified Equity Interests of Holdings if such Equity Interests represent a portion of the exercise price thereof or conversion price thereof and (ii) in connection with any tax withholding required upon the grant of or any exercise or vesting of any Qualified Equity Interests of Holdings (or options in respect thereof).
9.07 Payments of Indebtedness. The Obligors shall not, and shall not permit any of its Subsidiaries to, make any payments in respect of any Indebtedness other than (i) payments of the Obligations, (ii) scheduled payments and Permitted Refinancings of other Indebtedness to the extent such Indebtedness is permitted pursuant to Section 9.01 and (iii) voluntary prepayments of Indebtedness pursuant to Section 9.01(e) and, to the extent relating to the payment of the deferred purchase price of a Permitted Acquisition, Section 9.01(g).
9.08 Change in Fiscal Year. The Obligors shall not, and shall not permit any of its Subsidiaries to, change the last day of its fiscal year from that in effect on the Closing Date, except to change the fiscal year of a Subsidiary acquired in connection with an Acquisition to conform its fiscal year to that of the Borrower.
9.09 Sales of Assets, Etc. The Obligors shall not, and shall not permit any of its Subsidiaries to sell, lease, transfer, or otherwise dispose of any of its assets or property (including accounts receivable, Intellectual Property or Equity Interests of Subsidiaries), grant or enter into any Exclusive License, forgive, release or compromise any amount owed to such Obligor or such Subsidiary, in each case, in one transaction or series of transactions (any thereof, an “Asset Sale”), except for the following (provided that, in the case of any Asset Sale of the type described in clauses (c), (i) or (j) below, the Obligors shall not, and shall not permit any of its Subsidiaries to, allow any such Asset Sale to occur if any Event of Default has occurred and is continuing or could reasonably be expected to occur as a result of such Asset Sale):
(a) sales of inventory in the ordinary course of its business on ordinary business terms;
(b) the forgiveness, release or compromise of any amount owed to any Obligor or Subsidiary in the ordinary course of business;
(c) transfers of assets or property (other than any Material Intellectual Property) by any Obligor to any other Obligor;
(d) dispositions of any assets or property (including leaseholds, but other than any Material Intellectual Property) that is obsolete or worn out or no longer used or useful in the Business;
(e) in connection with any transaction permitted under Sections 9.03 or 9.05;
(f) the use of cash and Permitted Cash Equivalent Investments in the ordinary course of business or in connection with other business activities not prohibited or otherwise restricted hereby or by any other Loan Document;
(g) dispositions consisting of the sale, transfer, assignment or other disposition of unpaid and overdue accounts receivable in connection with the collection, compromise or settlement thereof;
(h) dispositions of property to the extent that such property is exchanged for credit against the purchase price of similar replacement property;
(i) dispositions in the form of any Exclusive License of Specified Intellectual Property permitted hereunder; and
(j) other dispositions of property not to exceed $1,500,000 in the aggregate in any fiscal year.
9.10 Transactions with Affiliates. The Obligors shall not, and shall not permit any of its Subsidiaries to, sell, lease, license or otherwise transfer any assets to, or purchase, lease, license or otherwise acquire any assets from, or otherwise engage in any other transactions with, any of its Affiliates, except:
(a) transactions between or among Obligors;
(b) customary compensation and indemnification of, and other employment arrangements with, directors, officers and employees of Holdings or any of its Subsidiaries in the ordinary course of business; and
(c) any other transaction that is (i) on fair and reasonable terms that are no less favorable (including with respect to the amount of cash or other consideration receivable or payable in connection therewith) to such Obligor or any such Subsidiary than it could obtain in an arm’s-length transaction with a Person that is not an Affiliate of such Obligor or any such Subsidiary, as applicable, and (ii) of the kind which would be entered into by a prudent Person in the position of such Obligor or any such Subsidiary with another Person that is not an Affiliate of such Obligor or any such Subsidiary, as applicable.
9.11 Restrictive Agreements. The Obligors shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any Restrictive Agreement other than (i) restrictions and conditions imposed by applicable Laws or by the Loan Documents and (ii) Restrictive Agreements listed on Schedule 7.15.
9.12 Modifications and Terminations of Material Agreements and Organic Documents. The Obligors shall not, and shall not permit any of its Subsidiaries to:
(a) waive, amend, modify, terminate, replace or otherwise modify any term or provision of any Organic Document in any manner materially adverse to the interests of the Administrative Agent or to the Lenders; or
(b) (x) take or omit to take any action that results in the termination of, or permits any other Person to terminate, any Material Agreement or Material Intellectual Property, or (y) waive, amend, terminate, replace or otherwise modify any term or provision of any Material Agreement in any manner materially adverse to the interests of the Secured Parties.
9.13 Sales and Leasebacks. Except as disclosed on Schedule 9.13, the Obligors shall not, and shall not permit any of its Subsidiaries to, become liable, directly or indirectly, with respect to any lease, whether an operating lease or a Capital Lease Obligation, of any property (whether real, personal, or mixed), whether now owned or hereafter acquired, (i) which such Person has sold or transferred or is to sell or transfer to any other Person and (ii) which such Person intends to use for substantially the same purposes as property which has been or is to be sold or transferred.
9.14 Hazardous Material. The Obligors shall not, and shall not permit any of its Subsidiaries to, use, generate, manufacture, install, treat, release, store or dispose of any Hazardous Material, except in compliance with all applicable Environmental Laws or where the failure to comply could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
9.15 Accounting Changes. The Obligors shall not, and shall not permit any of its Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required or permitted by GAAP.
9.16 Compliance with ERISA. No ERISA Affiliate shall cause or suffer to exist (i) any event that could result in the imposition of a Lien with respect to any Title IV Plan or Multiemployer Plan or (ii) any other ERISA Event that, in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No Obligor nor any of its Subsidiaries shall cause or suffer to exist any event that could result in the imposition of a Lien with respect to any Benefit Plan (other than Permitted Liens).
9.17 Sanctions; Anti-Corruption Use of Proceeds. The Obligors shall not, directly or indirectly, use the proceeds of the Loans, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other Person, (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any applicable anti-corruption Law, or (ii) (A) to fund any activities or business of or with any Person, or in any country or territory, that, at the time of such funding, is, or whose government is, the subject of Sanctions, or (B) in any other manner that would result in a violation of Sanctions by any Person (including any Person participating in the Loans, whether as Administrative Agent, Lender, underwriter, advisor, investor, or otherwise).
9.18 Inbound and Outbound Licenses.
(a) Inbound Licenses. The Obligors shall not, and shall not permit any of its Subsidiaries to, enter into or become or remain bound by any inbound license agreement requiring any Obligor or any of its Subsidiaries, as the case may be, during any twelve (12) month period during the term of such license agreement, to make aggregate payments in excess of $1,000,000 unless such Obligor has provided prior written notice to the Administrative Agent of the material terms of such license or agreement with a description of its anticipated and projected impact on such Obligor’s or such Subsidiary’s, as applicable, business or financial condition; provided that
inbound license agreements in the nature of over the counter or “shrink wrap” software that are commercially available to the public shall not be prohibited by this clause (a).
(b) Outbound Licenses. The Obligors shall not, and shall not permit any of its Subsidiaries to, enter into or become or remain bound by any outbound license of Intellectual Property unless such outbound license: (i) has been entered into on an arm’s-length basis, on commercially reasonable terms and in the ordinary course of business, (ii) is entered into for the purpose of Product Commercialization and Development Activities with respect to a Product, and (iii) subject to the terms of any customary non-disturbance or similar agreement relating to such license, to the extent such Intellectual Property constitutes Collateral, the terms of such license do not impair the Administrative Agent or the Lenders from fully exercising their rights under any of the Loan Documents in the event of a disposition or liquidation (including in connection with a foreclosure so long as any transfer of ownership is made subject to such license) of the rights, assets or property that is the subject of such license.
9.19 Activities of the Massachusetts Securities Subsidiary. The Massachusetts Securities Subsidiary shall not incur any Indebtedness or Liens, not make any Investments and shall not engage in any business activities and shall not own any property other than (a) activities permitted by, and Investments made in accordance with, Massachusetts General Law, Chapter 63, Section 38B, (b) activities and contractual rights incidental to the maintenance of its corporate existence, and (c) the performance of its obligations in its Organic Documents.
SECTION 10
FINANCIAL COVENANTS
10.01 Minimum Liquidity. The Borrower shall at all times maintain a minimum aggregate balance of five million dollars ($5,000,000) in cash in one or more Controlled Accounts maintained with one or more commercial banks or similar deposit-taking institutions in the U.S. that are free and clear of all Liens, other than Liens granted under the Loan Documents in favor of the Secured Parties.
10.02 Minimum Revenue. As of the last day of each fiscal quarter set forth below (each, a “Calculation Date”), Holdings and its Subsidiaries shall have received Revenue, for the trailing twelve (12) month consecutive period ending on such Calculation Date, in an aggregate amount not less than the corresponding amount set forth opposite such Calculation Date:
| | | | | |
Calculation Date | Revenue |
March 31, 2022 | $5,750,000 |
June 30, 2022 | $7,750,000 |
September 30, 2022 | $11,000,000 |
December 31, 2022 | $18,000,000 |
March 31, 2023 | $26,000,000 |
| | | | | |
Calculation Date | Revenue |
June 30, 2023 | $44,000,000 |
September 30, 2023 | $69,000,000 |
December 31, 2023 | $100,000,000 |
March 31, 2024 | $125,000,000 |
June 30, 2024 | $125,000,000 |
September 30, 2024 | $125,000,000 |
December 31, 2024 | $125,000,000 |
March 31, 2025 | $125,000,000 |
10.03 Required Equity Raise. On or prior to December 31, 2020, the Borrower shall have consummated the issuance and sale of its Series D preferred stock resulting in gross proceeds to the Borrower of at least $50,000,000. Promptly after the consummation of such issuance and sale, the Borrower shall deliver to the Administrative Agent, (x) true and complete copies of all agreements (including amendments to Organic Documents) entered into in connection therewith, (y) evidence that the Borrower has consummated such issuance and sale pursuant to such agreements, and (z) evidence that all necessary corporate actions, including approval by the Borrower’s Board and by all necessary holders of Equity Interests, have been obtained in connection with the foregoing clauses (x) and (y), in each case, in form and substance reasonably satisfactory to the Administrative Agent.
SECTION 11
EVENTS OF DEFAULT
11.01 Events of Default. Each of the following events shall constitute an “Event of Default”:
(a) Principal or Interest Payment Default. The Borrower shall fail to pay any principal of or interest on the Loans, when and as the same shall become due and payable, whether at the due date thereof, at a date fixed for prepayment thereof or otherwise.
(b) Other Payment Defaults. Any Obligor shall fail to pay any Obligation (other than an amount referred to in Section 11.01(a)) when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days.
(c) Representations and Warranties. Any representation or warranty made in writing or deemed made by or on behalf of Holdings or any of its Subsidiaries in or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof, or in any report, certificate, financial statement or other document furnished pursuant to
or in connection with this Agreement or any other Loan Document or any amendment or modification thereof, shall: (i) prove to have been incorrect when made or deemed made to the extent that such representation or warranty contains any materiality or Material Adverse Effect qualifier; or (ii) prove to have been incorrect in any material respect when made or deemed made to the extent that such representation or warranty does not otherwise contain any materiality or Material Adverse Effect qualifier.
(d) Certain Covenants. Any Obligor shall fail to observe or perform any covenant, condition or agreement contained in Sections 8.02, 8.03 (with respect to the Borrower’s existence), 8.11, 8.12, 8.17, Section 9 or Section 10.
(e) Other Covenants. Any Obligor shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in Section 11.01(a), 11.01(b) or 11.01(d)) or any other Loan Document, and, in the case of any failure that is capable of cure, such failure shall continue unremedied for a period of thirty (30) or more days after actual knowledge by a Responsible Officer or receipt of notice from the Administrative Agent.
(f) Payment Default on Other Indebtedness. Any Obligor or any of its Subsidiaries shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable after giving effect to any applicable grace or cure period as originally provided by the terms of such Indebtedness.
(g) Other Defaults on Other Indebtedness. (i) Any material breach of, or “event of default” or similar event under, any Contract governing any Material Indebtedness shall occur, or (ii) any event or condition occurs (x) that results in any Material Indebtedness becoming due prior to its scheduled maturity or (y) that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of such Material Indebtedness or any trustee or agent on its or their behalf to cause such Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this Section 11.01(g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Material Indebtedness.
(h) Insolvency, Bankruptcy, Etc.
(i) Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) becomes insolvent, or generally does not or becomes unable to pay its debts or meet its liabilities as the same become due, or admits in writing its inability to pay its debts generally, or declares any general moratorium on its indebtedness, or proposes a compromise or arrangement or deed of company arrangement between it and any class of its creditors.
(ii) Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) commits an act of bankruptcy or makes an assignment of its property for the general benefit of its creditors or makes a proposal (or files a notice of its intention to do so).
(iii) Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) institutes any proceeding seeking to adjudicate it an insolvent, or seeking liquidation, dissolution, winding-up, reorganization, compromise, arrangement, adjustment, protection, moratorium, relief, stay of proceedings of creditors generally (or any class of creditors), or composition of it or its debts or any other relief, under any applicable Law, whether U.S. or non-U.S., now or hereafter in effect relating to bankruptcy, winding-up, insolvency, reorganization, receivership, plans of arrangement or relief or protection of debtors or at common law or in equity, or files an answer admitting the material allegations of a petition filed against it in any such proceeding.
(iv) Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) applies for the appointment of, or the taking of possession by, a receiver, interim receiver, receiver/manager, sequestrator, conservator, custodian, administrator, trustee, liquidator, voluntary administrator, receiver and manager or other similar official for it or any substantial part of its property.
(v) Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) takes any action, corporate or otherwise, to approve, effect, consent to or authorize any of the actions described in this Section 11.01(h), or otherwise acts in furtherance thereof or fails to act in a timely and appropriate manner in defense thereof.
(vi) Any petition is filed, application made or other proceeding instituted in a court of competent jurisdiction against or in respect of Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries):
(A) seeking to adjudicate it as insolvent;
(B) seeking a receiving order against it;
(C) seeking liquidation, dissolution, winding-up, reorganization, compromise, arrangement, adjustment, protection, moratorium, relief, stay of proceedings of creditors generally (or any class of creditors), deed of company arrangement or composition of it or its debts or any other relief under any applicable Law, whether U.S. or non-U.S., now or hereafter in effect relating to bankruptcy, winding-up, insolvency, reorganization, receivership, plans of arrangement or relief or protection of debtors or at common law or in equity; or
(D) seeking the entry of an order for relief or the appointment of, or the taking of possession by, a receiver, interim receiver, receiver/manager, sequestrator, conservator, custodian, administrator, trustee, liquidator, voluntary administrator, receiver and manager or other similar official for it or any substantial part of its property,
and such petition, application or proceeding continues undismissed, or unstayed and in effect, for a period of sixty (60) days after the institution thereof; provided that if an order, decree or judgment is granted or entered (whether or not entered or subject to appeal) against Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) thereunder in the interim, such grace period will cease to apply; provided, further, that if Holdings or such Subsidiary files an answer admitting the material allegations of a petition filed against it in any such proceeding, such grace period will cease to apply.
(vii) Any other event occurs which, under the applicable Law of any applicable jurisdiction, has an effect equivalent to any of the events referred to in Section 11.01(h).
(i) Judgments. One or more judgments for the payment of money in an aggregate amount in excess of $1,500,000 (or the Equivalent Amount in other currencies) not covered by insurance shall be rendered against Holdings or any of its Subsidiaries or any combination thereof and the same shall remain undismissed, unsatisfied or undischarged for a period of thirty (30) calendar days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Obligor to enforce any such judgment.
(j) ERISA and Pension Plans. An ERISA Event shall have occurred that, in the reasonable opinion of the Administrative Agent, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of Holdings and its Subsidiaries in an aggregate amount exceeding $1,500,000 in the aggregate since the Closing Date.
(k) Change of Control. A Change of Control shall have occurred.
(l) Material Adverse Change, Etc. A Material Adverse Change, Material Adverse Effect or Material Regulatory Event shall have occurred.
(m) [Reserved].
(n) Hazardous Materials, Etc. Any Claim shall be asserted against Holdings or any of its Subsidiaries, whether accrued, absolute or contingent, based on or arising from the generation, storage, transport, handling or disposal of Hazardous Material by Holdings or any such Subsidiary, as applicable, or their predecessors, that are reasonably likely to be determined adversely to Holdings or any such Subsidiary, as applicable, and the amount thereof could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect (insofar as such amount is payable by Holdings or any such Subsidiary, as applicable, but after deducting any portion thereof that is reasonably expected to be paid by insurance or other creditworthy Persons jointly and severally liable therefor).
(o) Impairment of Security, Etc. If any of the following events occurs, and with respect to the following clause (i), other than as a result of the acts or omissions of the Administrative Agent or any Lender: (i) any Lien created by any of the Security Documents shall at any time not constitute a valid and perfected Lien on the applicable Collateral in favor of the Secured Parties, free and clear of all other Liens (other than Permitted Liens), (ii) except for expiration in accordance with its terms, any of the Security Documents or any Guarantee of any of the Obligations (including that contained in Section 13) shall for whatever reason cease to be in full force and effect, or (iii) any Obligor shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability of any such Lien or any Loan Document.
11.02 Remedies. Upon the occurrence and continuance of any Event of Default, then, and in every such event (other than an Event of Default described in Section 11.01(h)), and at any time thereafter during the continuance of such event, the Administrative Agent may, by notice to Holdings or the Borrower, declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be
declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations, shall become due and payable immediately (in the case of the Loans, at the Prepayment Price therefor), without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Obligor; and in case of an Event of Default described in Section 11.01(h), the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other Obligations, shall automatically become due and payable immediately (in the case of the Loans, at the Prepayment Price therefor), without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Obligor.
11.03 Additional Remedies. Upon the occurrence and during the continuance of an Event of Default, if Holdings or any of its Subsidiaries shall be in uncured default under a Material Agreement, the Administrative Agent or the Lenders shall have the right (but not the obligation) to cause the default or defaults under such Material Agreement to be remedied (including without limitation by paying any unpaid amount thereunder) and otherwise exercise any and all rights of Holdings or such Subsidiary, as the case may be, thereunder, as may be necessary to prevent or cure any default. Without limiting the foregoing, upon any such default, Holdings and each of its Subsidiaries shall promptly execute, acknowledge and deliver to the Administrative Agent such instruments as may reasonably be required of Holdings or such Subsidiary to permit the Administrative Agent and the Lenders to cure any default under the applicable Material Agreement or permit the Administrative Agent and the Lenders to take such other action required to enable the Administrative Agent and the Lenders to cure or remedy the matter in default and preserve the interests of the Administrative Agent or Lenders. Any amounts paid by the Administrative Agent or Lenders pursuant to this Section 11.03 shall be payable on demand by Obligors, shall accrue interest at the Default Rate if not paid on demand, and shall constitute “Obligations.”
SECTION 12
THE ADMINISTRATIVE AGENT
12.01 Appointment and Duties. Subject in all cases to clause (c) below:
(a) Appointment of the Administrative Agent. Each of the Lenders hereby irrevocably appoints Perceptive Credit Holdings III, LP (together with any successor the Administrative Agent pursuant to Section 12.09) as the Administrative Agent hereunder and authorizes the Administrative Agent to (i) execute and deliver the Loan Documents and accept delivery thereof on its behalf from Holdings or any of its Subsidiaries, (ii) take such action on its behalf and to exercise all rights, powers and remedies and perform the duties as are expressly delegated to the Administrative Agent under such Loan Documents and (iii) exercise such powers as are reasonably incidental thereto.
(b) Duties as Collateral and Disbursing Agent. Without limiting the generality of Section 12.01(a), the Administrative Agent shall have the sole and exclusive right and authority (to the exclusion of the Lenders), and is hereby authorized, to (i) act as the disbursing and collecting agent for the Lenders with respect to all payments and collections arising in connection with the Loan Documents (including in any proceeding described in Section 11.01(h) or any other bankruptcy, insolvency or similar proceeding), and each Person making any payment in connection with any Loan Document to any Secured Party is hereby authorized to make such
payment to the Administrative Agent, (ii) file and prove claims and file other documents necessary or desirable to allow the claims of the Secured Parties with respect to any Obligation in any proceeding described in Section 11.01(h) or any other bankruptcy, insolvency or similar proceeding (but not to vote, consent or otherwise act on behalf of such Secured Party), (iii) act as collateral agent for each Secured Party for purposes of the perfection of all Liens created by such agreements and all other purposes stated therein, (iv) manage, supervise and otherwise deal with the Collateral, (v) take such other action as is necessary or desirable to maintain the perfection and priority of the Liens created or purported to be created by the Loan Documents, (vi) except as may be otherwise specified in any Loan Document, exercise all remedies given to the Administrative Agent and the other Secured Parties with respect to the Collateral, whether under the Loan Documents, applicable Laws or otherwise and (vii) execute any amendment, consent or waiver under the Loan Documents on behalf of any Lender that has consented in writing to such amendment, consent or waiver; provided that the Administrative Agent hereby appoints, authorizes and directs each Lender to act as collateral sub-agent for the Administrative Agent and the Lenders for purposes of the perfection of all Liens with respect to the Collateral, including any deposit account maintained by any Obligor with, and cash and Permitted Cash Equivalent Investments held by, such Lender, and may further authorize and direct the Lenders to take further actions as collateral sub-agents for purposes of enforcing such Liens or otherwise to transfer the Collateral subject thereto to the Administrative Agent, and each Lender hereby agrees to take such further actions to the extent, and only to the extent, so authorized and directed.
(c) Limited Duties. The Lenders and the Obligors hereby each acknowledge and agree that the Administrative Agent (i) has undertaken its role hereunder purely as an accommodation to the parties hereto and the Transactions, (ii) is receiving no compensation for undertaking such role and (iii) subject only to the notice provisions set forth in Section 12.09, may resign from such role at any time for any reason or no reason whatsoever. Without limiting the foregoing, the parties hereto further acknowledge and agree that under the Loan Documents, the Administrative Agent (i) is acting solely on behalf of the Lenders (except to the limited extent provided in Section 12.11), with duties that are entirely administrative in nature and do not (and are not intended to) create any fiduciary obligations, notwithstanding the use of the defined term “the Administrative Agent”, the terms “agent”, “administrative agent” and “collateral agent” and similar terms in any Loan Document to refer to the Administrative Agent, which terms are used for title purposes only, (ii) is not assuming any obligation under any Loan Document other than as expressly set forth therein or any role as agent, fiduciary or trustee of or for any Lender or any other Secured Party and (iii) shall have no implied functions, responsibilities, duties, obligations or other liabilities under any Loan Document (fiduciary or otherwise), and each Lender hereby waives and agrees not to assert any claim against the Administrative Agent based on the roles, duties and legal relationships expressly disclaimed in this clause (c).
12.02 Binding Effect. Each Lender agrees that (i) any action taken by the Administrative Agent or the Majority Lenders (or, if expressly required hereby, a greater proportion of the Lenders) in accordance with the provisions of the Loan Documents, (ii) any action taken by the Administrative Agent in reliance upon the instructions of the Majority Lenders (or, where so required, such greater proportion) and (iii) the exercise by the Administrative Agent or the Majority Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Secured Parties.
12.03 Use of Discretion.
(a) No Action without Instructions. The Administrative Agent shall not be required to exercise any discretion or take, or to omit to take, any action, including with respect to enforcement or collection, except (subject to clause (b) below) any action it is required to take or omit to take (i) under any Loan Document or (ii) pursuant to instructions from the Majority Lenders (or, where expressly required by the terms of this Agreement, a greater proportion of the Lenders).
(b) Right Not to Follow Certain Instructions. Notwithstanding Section 12.03(a) or any other term or provision of this Section 12, the Administrative Agent shall not be required to take, or to omit to take, any action (i) unless, upon demand, the Administrative Agent receives an indemnification satisfactory to it from the Lenders (or, to the extent applicable and acceptable to the Administrative Agent, any other Secured Party) against all liabilities that, by reason of such action or omission, may be imposed on, incurred by or asserted against the Administrative Agent or any Related Parties thereof or (ii) that is, in the opinion of the Administrative Agent, in its sole and absolute discretion, contrary to any Loan Document, applicable Law or the best interests of the Administrative Agent or any of its Affiliates or Related Parties.
12.04 Delegation of Rights and Duties. The Administrative Agent may, upon any term or condition it specifies, delegate or exercise any of its rights, powers and remedies under, and delegate or perform any of its duties or any other action with respect to, any Loan Document by or through any trustee, co-agent, employee, attorney-in-fact and any other Person (including any Secured Party). Any such Person shall benefit from this Section 12 to the extent provided by the Administrative Agent.
12.05 Reliance and Liability.
(a) The Administrative Agent may, without incurring any liability hereunder, (i) consult with any of its Related Parties and, whether or not selected by it, any other advisors, accountants and other experts (including advisors to, and accountants and experts engaged by, any Obligor) and (ii) rely and act upon any document and information and any telephone message or conversation, in each case believed by it to be genuine and transmitted, signed or otherwise authenticated by the appropriate parties.
(b) Neither the Administrative Agent nor any of its Related Parties shall be liable for any action taken or omitted to be taken by any of them under or in connection with any Loan Document, and each Lender and Holdings and the Borrower hereby waives and shall not assert (and Holdings and the Borrower shall cause each other Obligor to waive and agree not to assert) any right, claim or cause of action based thereon, except to the extent of liabilities resulting primarily from the fraudulent conduct or behavior of the Administrative Agent or, as the case may be, such Related Party (each as determined in a final, non-appealable judgment or order by a court of competent jurisdiction) in connection with the duties expressly set forth herein. Without limiting the foregoing, the Administrative Agent:
(i) shall not be responsible or otherwise incur liability for any action or omission taken in reliance upon the instructions of the Majority Lenders or for the actions or omissions of any of their Related Parties selected with reasonable care (other than employees, officers and directors of the Administrative Agent, when acting on behalf of the Administrative Agent);
(ii) shall not be responsible to any Secured Party for the due execution, legality, validity, enforceability, effectiveness, genuineness, sufficiency or value of, or the attachment, perfection or priority of any Lien created or purported to be created under or in connection with, any Loan Document;
(iii) makes no warranty or representation, and shall not be responsible, to any Secured Party for any statement, document, information, representation or warranty made or furnished by or on behalf of any Related Party, in or in connection with any Loan Document or any transaction contemplated therein, whether or not transmitted by the Administrative Agent, including as to completeness, accuracy, scope or adequacy thereof, or for the scope, nature or results of any due diligence performed by the Administrative Agent in connection with the Loan Documents; and
(iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any provision of any Loan Document, whether any condition set forth in any Loan Document is satisfied or waived, as to the financial condition of any Obligor or as to the existence or continuation or possible occurrence or continuation of any Default or Event of Default and shall not be deemed to have notice or knowledge of such occurrence or continuation unless it has received a notice from the Borrower, any Lender describing such Default or Event of Default clearly labeled “notice of default” (in which case the Administrative Agent shall promptly give notice of such receipt to all Lenders);
and, for each of the items set forth in clauses (i) through (iv) above, each Lender and the Borrower hereby waives and agrees not to assert (and the Borrower shall cause each other Obligor to waive and agree not to assert) any right, claim or cause of action it might have against the Administrative Agent based thereon.
12.06 Administrative Agent Individually. The Administrative Agent and its Affiliates may make loans and other extensions of credit to, acquire stock and stock equivalents of, engage in any kind of business with, any Obligor or Affiliate thereof as though it were not acting as the Administrative Agent and may receive separate fees and other payments therefor. To the extent the Administrative Agent or any of its Affiliates makes any Loan or otherwise becomes a Lender hereunder, it shall have and may exercise the same rights and powers hereunder and shall be subject to the same obligations and liabilities as any other Lender and the terms “Lender”, “Majority Lender”, and any similar terms shall, except where otherwise expressly provided in any Loan Document, include, without limitation, the Administrative Agent or such Affiliate, as the case may be, in its individual capacity as Lender or as one of the Majority Lenders, respectively.
12.07 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, any Lender or any of their Related Parties or upon any document solely or in part because such document was transmitted by the Administrative Agent or any of its Related Parties, conducted its own independent investigation of the financial condition and affairs of each Obligor and has made and continues to make its own credit decisions in connection with entering into, and taking or not taking any action under, any Loan Document or with respect to any transaction contemplated in any Loan Document, in each case based on such documents and information as it shall deem appropriate.
12.08 Expenses; Indemnities.
(a) Each Lender agrees to reimburse the Administrative Agent and each of its Related Parties (to the extent not reimbursed by any Obligor) promptly upon demand for such Lender’s Proportionate Share of any costs and expenses (including fees, charges and disbursements of
financial, legal and other advisors and Other Taxes paid in the name of, or on behalf of, any Obligor) that may be incurred by the Administrative Agent or any of its Related Parties in connection with the preparation, syndication, execution, delivery, administration, modification, consent, waiver or enforcement (whether through negotiations, through any work-out, bankruptcy, restructuring or other legal or other proceeding or otherwise) of, or legal advice in respect of its rights or responsibilities under, any Loan Document.
(b) Each Lender further agrees to indemnify the Administrative Agent and each of its Related Parties (to the extent not reimbursed by any Obligor), from and against such Lender’s aggregate Proportionate Share of the liabilities (including Taxes, interests and penalties imposed for not properly withholding or backup withholding on payments made to on or for the account of any Lender) that may be imposed on, incurred by or asserted against the Administrative Agent or any of its Related Parties in any matter relating to or arising out of, in connection with or as a result of any Loan Document or any other act, event or transaction related, contemplated in or attendant to any such Loan Document, or, in each case, any action taken or omitted to be taken by the Administrative Agent or any of its Related Parties under or with respect to any of the foregoing; provided that no Lender shall be liable to the Administrative Agent or any of its Related Parties to the extent such liability has resulted primarily from the gross negligence or willful misconduct of the Administrative Agent or, as the case may be, such Related Party, as determined by a court of competent jurisdiction in a final non-appealable judgment or order.
12.09 Resignation of the Administrative Agent.
(a) At any time upon not less than ten (10) Business Days prior written notice, the Administrative Agent may resign as the “the Administrative Agent” hereunder, in whole or in part (in the sole and absolute discretion of the Administrative Agent), effective on the date set forth in such notice, which effective date shall not be less than ten (10) Business Days following delivery of such notice. If the Administrative Agent delivers any such notice, the Majority Lenders shall have the right to appoint a successor to the Administrative Agent reasonably satisfactory to Holdings; provided that if a successor to the Administrative Agent has not been appointed on or before the effectiveness of the resignation of the resigning Administrative Agent, then the resigning Administrative Agent may, on behalf of the Lenders, appoint any Person reasonably chosen by it as the successor to the Administrative Agent.
(b) Effective immediately upon its resignation, (i) the resigning Administrative Agent shall be discharged from its duties and obligations under the Loan Documents to the extent set forth in the applicable resignation notice, (ii) the Lenders shall assume and perform all of the duties of the Administrative Agent until a successor the Administrative Agent shall have accepted a valid appointment hereunder, (iii) the resigning Administrative Agent and its Related Parties shall no longer have the benefit of any provision of any Loan Document other than with respect to (x) any actions taken or omitted to be taken while such resigning Administrative Agent was, or because the Administrative Agent had been, validly acting as the Administrative Agent under the Loan Documents or (y) any continuing duties such resigning Administrative Agent continues to perform, and (iv) subject to its rights under Section 12.04, the resigning Administrative Agent shall take such action as may be reasonably necessary to assign to the successor the Administrative Agent its rights as the Administrative Agent under the Loan Documents. Effective immediately upon its acceptance of a valid appointment as the Administrative Agent, a successor the Administrative
Agent shall succeed to, and become vested with, all the rights, powers, privileges and duties of the resigning Administrative Agent under the Loan Documents.
12.10 Release of Collateral or Guarantors.
(a) Each Lender hereby consents to the release and hereby directs the Administrative Agent to release (or, in the case of Section 12.10(a)(ii)(B), release or subordinate) the following:
(i) any Subsidiary of Holdings from its guaranty of any Obligation of any Obligor if all of the Equity Interests in such Subsidiary owned by any Obligor or any of its Subsidiaries are disposed of in an Asset Sale permitted under the Loan Documents (including pursuant to a waiver or consent), to the extent that, after giving effect to such Asset Sale, such Subsidiary would not be required to guaranty any Obligations pursuant to Section 8.12(a); and
(ii) any Lien held by the Administrative Agent for the benefit of the Secured Parties against (A) any Collateral that is disposed of by an Obligor in an Asset Sale permitted by the Loan Documents (including pursuant to a valid waiver or consent), (B) any property subject to a Lien described in Section 9.02(c), and (C) all of the Collateral and all Obligors, upon (w) termination of the Commitments, (x) payment and satisfaction in full of all Loans and all other Obligations (other than Warrant Obligations and inchoate indemnification and expense reimbursement obligations for which no Claim has been made) that the Administrative Agent has been notified in writing are then due and payable, (y) deposit of cash collateral with respect to all contingent Obligations (other than Warrant Obligations and inchoate indemnification and expense reimbursement obligations for which no Claim has been made), in amounts and on terms and conditions and with parties satisfactory to the Administrative Agent and each Indemnified Party that is owed such Obligations, and (z) to the extent requested by the Administrative Agent, receipt by the Secured Parties of liability releases from the Obligors, each in form and substance acceptable to the Administrative Agent.
(b) So long as no Event of Default has occurred and is continuing, Holdings and the Borrower may from time to time request that the Administrative Agent and the Lenders consent to the release of the Liens created pursuant to the Security Documents on the Specified Intellectual Property in order to permit Holdings and the Borrower to enter into or become bound by an outbound license of such Specified Intellectual Property that is permitted hereunder (such consent not to be unreasonably conditioned, delayed or withheld); provided that, notwithstanding the foregoing, the Administrative Agent shall continue to have a Lien on Holdings’ and the Borrower’s rights as a licensor under such outbound license including any amounts received by or other proceeds payable to Holdings and the Borrower in respect thereof; provided further that promptly upon request therefor, Holdings and the Borrower shall furnish to the Administrative Agent such information, documents and agreements relating to such outbound license as the Administrative Agent may reasonably request.
Each Lender hereby directs the Administrative Agent, and the Administrative Agent hereby agrees, upon receipt of reasonable advance notice from Holdings and the Borrower, to execute and deliver or file such documents and to perform other actions reasonably necessary to release the guarantees and Liens when and as directed in this Section 12.10.
12.11 Additional Secured Parties. The benefit of the provisions of the Loan Documents directly relating to the Collateral or any Lien granted thereunder shall extend to and be available to any Secured Party that is not a Lender so long as, by accepting such benefits, such Secured Party
agrees, as among the Administrative Agent and all other Secured Parties, that such Secured Party is bound by (and, if requested by the Administrative Agent, shall confirm such agreement in a writing in form and substance acceptable to the Administrative Agent) this Section 12 and the decisions and actions of the Administrative Agent and the Majority Lenders (or, where expressly required by the terms of this Agreement, a greater proportion of the Lenders) to the same extent a Lender is bound; provided that, notwithstanding the foregoing, (i) such Secured Party shall be bound by Section 12.08 only to the extent of liabilities, costs and expenses with respect to or otherwise relating to the Collateral held for the benefit of such Secured Party, in which case the obligations of such Secured Party thereunder shall not be limited by any concept of Proportionate Share or similar concept, (ii) each of the Administrative Agent and each Lender shall be entitled to act at its sole discretion, without regard to the interest of such Secured Party, regardless of whether any Obligation to such Secured Party thereafter remains outstanding, is deprived of the benefit of the Collateral, becomes unsecured or is otherwise affected or put in jeopardy thereby, and without any duty or liability to such Secured Party or any such Obligation and (iii) such Secured Party shall not have any right to be notified of, consent to, direct, require or be heard with respect to, any action taken or omitted in respect of the Collateral or under any Loan Document.
SECTION 13
GUARANTEE
13.01 The Guarantee. Holdings and the Subsidiary Guarantors hereby jointly and severally guarantee to the Administrative Agent and the Lenders, and their successors and assigns, the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans, all fees and other amounts and Obligations from time to time owing to the Administrative Agent and the Lenders by the Borrower and each other Obligor under this Agreement or under any other Loan Document, in each case strictly in accordance with the terms hereof and thereof (such obligations being herein collectively called the “Guaranteed Obligations”). Holdings and the Subsidiary Guarantors hereby further jointly and severally agree that if the Borrower or any other Obligor shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, Holdings and the Subsidiary Guarantors shall promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same shall be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.
13.02 Obligations Unconditional. The obligations of Holdings and the Subsidiary Guarantors under Section 13.01 are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of Holdings, the Borrower or any other Subsidiary Guarantor under this Agreement or any other agreement or instrument referred to herein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by all applicable Laws, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 13.02 that the obligations of Holdings and the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter
or impair the liability of Holdings and the Subsidiary Guarantors hereunder, which shall remain absolute and unconditional as described above:
(a) at any time or from time to time, without notice to Holdings and the Subsidiary Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of this Agreement or any other agreement or instrument referred to herein shall be done or omitted;
(c) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or any other agreement or instrument referred to herein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or
(d) any lien or security interest granted to, or in favor of, the Secured Parties as security for any of the Guaranteed Obligations shall fail to be perfected.
Holdings and the Subsidiary Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against the Borrower or any other Subsidiary Guarantor under this Agreement or any other agreement or instrument referred to herein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations.
13.03 Reinstatement. The obligations of Holdings and the Subsidiary Guarantors under this Section 13 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Borrower in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and Holdings and the Subsidiary Guarantors jointly and severally agree that they shall indemnify the Secured Parties on demand for all reasonable costs and expenses (including fees of counsel) incurred by such Persons in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.
13.04 Subrogation. Holdings and the Subsidiary Guarantors hereby jointly and severally agree that, until the payment and satisfaction in full of all Guaranteed Obligations and the expiration and termination of the Commitments, they shall not exercise any right or remedy arising by reason of any performance by them of their guarantee in Section 13.01, whether by subrogation or otherwise, against the Borrower or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations.
13.05 Remedies. Holdings and the Subsidiary Guarantors jointly and severally agree that, as between Holdings and the Subsidiary Guarantors, on one hand, and the Administrative Agent and the Lenders, on the other hand, the obligations of the Borrower under this Agreement and under the other Loan Documents may be declared to be forthwith due and payable as provided in Section
11 (and shall be deemed to have become automatically due and payable in the circumstances provided in Section 11) for purposes of Section 13.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Borrower and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Borrower) shall forthwith become due and payable by Holdings and the Subsidiary Guarantors for purposes of Section 13.01.
13.06 Instrument for the Payment of Money. Holdings and each Subsidiary Guarantor hereby acknowledges that the guarantee in this Section 13 constitutes an instrument for the payment of money, and consents and agrees that the Administrative Agent and the Lenders, at their sole option, in the event of a dispute by Holdings and such Subsidiary Guarantor in the payment of any moneys due hereunder, shall have the right to proceed by motion for summary judgment in lieu of complaint pursuant to N.Y. Civ. Prac. L&R § 3213.
13.07 Continuing Guarantee. The guarantee in this Section 13 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising.
13.08 General Limitation on Guarantee Obligations. In any action or proceeding involving any provincial, territorial or state corporate law, or any state or federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of Holdings or any Subsidiary Guarantor under Section 13.01 would otherwise be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under Section 13.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by Holdings or such Subsidiary Guarantor, the Administrative Agent, any Lender or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding.
SECTION 14
MISCELLANEOUS
14.01 No Waiver. No failure on the part of the Administrative Agent or the Lenders to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.
14.02 Notices. All notices, requests, instructions, directions and other communications provided for herein (including any modifications of, or waivers, requests or consents under, this Agreement) or in the other Loan Documents shall be given or made in writing (including by telecopy or email) delivered, if to Holdings, the Borrower, another Obligor, the Administrative Agent or any Lender, to its address specified on the signature pages hereto or its Guarantee Assumption Agreement, as the case may be, or at such other address as shall be designated by such party in a written notice to the other parties. Except as otherwise provided in this Agreement or therein, all such communications shall be deemed to have been duly given upon receipt of a legible copy thereof,
in each case given or addressed as aforesaid. All such communications provided for herein by telecopy shall be confirmed in writing promptly after the delivery of such communication (it being understood that non-receipt of written confirmation of such communication shall not invalidate such communication). Notwithstanding anything to the contrary in this Agreement or any other Loan Document, notices, documents, certificates and other deliverables to the Lenders by any Obligor may be made solely to the Administrative Agent and the Administrative Agent shall promptly deliver such notices, documents, certificates and other deliverables to the Lenders.
14.03 Expenses, Indemnification, Etc.
(a) Expenses. Each Obligor, jointly and severally, agrees to pay or reimburse (i) the Administrative Agent for all of its reasonable costs and expenses (including the reasonable fees and expenses of Morrison & Foerster LLP, counsel to the Administrative Agent, and printing, reproduction, document delivery, communication and travel costs) in connection with (x) the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents and the making of the Loans (exclusive of post-closing costs), and the Administrative Agent agrees to apply the Expense Deposit to such costs and expenses, (y) post-closing costs and (z) the negotiation or preparation of any modification, supplement or waiver of any of the terms of this Agreement or any of the other Loan Documents (whether or not consummated) and (ii) the Administrative Agent and the Lenders for all of their reasonable out-of-pocket costs and expenses (including the reasonable out-of-pocket fees and expenses of one legal counsel for the Administrative Agent and one legal counsel for all other Lenders in the aggregate) in connection with any enforcement or collection proceedings resulting from the occurrence and continuance of an Event of Default.
(b) Indemnification. Each Obligor, jointly and severally, hereby indemnifies the Administrative Agent, the Lenders and their respective Affiliates, directors, officers, employees, attorneys, agents, advisors and controlling parties (each, an “Indemnified Party”) from and against, and agrees to hold them harmless against, any and all Claims and Losses of any kind (including reasonable fees and disbursements of counsel), joint or several, that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or relating to any investigation, litigation or proceeding or the preparation of any defense with respect thereto arising out of or in connection with or relating to this Agreement or any of the other Loan Documents or the Transactions or any use made or proposed to be made with the proceeds of the Loans, whether or not such investigation, litigation or proceeding is brought by any Obligor, any of its Subsidiaries, any of its shareholders or creditors, an Indemnified Party or any other Person, or an Indemnified Party is otherwise a party thereto, and whether or not any of the conditions precedent set forth in Section 6 are satisfied or the other transactions contemplated by this Agreement are consummated, except to the extent such Claim or Loss (x) is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from an Indemnified Party’s gross negligence or willful misconduct, (y) results from a Claim brought by an Obligor against an Indemnified Party for breach of such Indemnified Party’s obligations hereunder or under any other Loan Document, if such Obligor has obtained a final and non-appealable judgment in its favor on such Claim as determined by a court of competent jurisdiction or (z) results from a Claim not involving an act or omission of an Obligor and that is brought by an Indemnified Party against another Indemnified Party (other than against the Administrative Agent in its capacity as such). No Obligor shall assert any Claim against any Indemnified Party, on any theory of liability, for
consequential, indirect, special or punitive damages arising out of or otherwise relating to this Agreement or any of the other Loan Documents or any of the Transactions or the actual or proposed use of the proceeds of the Loans. Holdings, its Subsidiaries and Affiliates and their respective directors, officers, employees, attorneys, agents, advisors and controlling parties are each sometimes referred to in this Agreement as an “Obligor Party.” No Lender shall assert any Claim against any Obligor Party, on any theory of liability, for consequential, indirect, special or punitive damages arising out of or otherwise relating to this Agreement or any of the other Loan Documents or any of the Transactions or the actual or proposed use of the proceeds of the Loans. This Section 14.03 shall not apply with respect to Taxes other than any Taxes that represent losses, claims or damages arising from any non-Tax Claim.
14.04 Amendments, Etc. Except as otherwise expressly provided in this Agreement, any provision of this Agreement and any other Loan Document may be modified or supplemented only by an instrument in writing signed by Holdings, the Borrower, the Administrative Agent and the Majority Lenders; provided that:
(a) any such modification or supplement that is disproportionately adverse to any Lender as compared to other Lenders or subjects any Lender to any additional obligation shall not be effective without the consent of such affected Lender;
(b) the consent of all of the Lenders directly affected thereby shall be required to:
(i) amend, modify, discharge, terminate or waive any of the terms of this Agreement or any other Loan Agreement if such amendment, modification, discharge, termination or waiver would increase the amount of the Loans or Commitment of such Lender, reduce the fees payable to such Lender hereunder, reduce interest rates or other amounts payable with respect to the Loans held by such Lender, extend any date fixed for payment of principal, interest or other amounts payable relating to the Loans held by such Lender or extend the repayment dates of the Loans held by such Lender;
(ii) amend, modify, discharge, terminate or waive any Security Document if the effect is to release a material part of the Collateral subject thereto other than pursuant to the terms hereof or thereof; or
(iii) amend this Section 14.04 or the definition of “Majority Lenders”; and
(c) if the Administrative Agent and Holdings shall have jointly identified an obvious error or any error or omission of a technical nature, in each case, in any provision of the Loan Documents, then the Administrative Agent and Holdings shall be permitted to amend such provision, and, in each case, such amendment shall become effective without any further action or consent of any other party to any Loan Document if the same is not objected to in writing by the Majority Lenders to the Administrative Agent within ten (10) Business Days following receipt of notice thereof.
14.05 Successors and Assigns.
(a) General. The provisions of this Agreement and the other Loan Documents shall be binding upon and shall inure to the benefit of the parties hereto or thereto and their respective successors and assigns permitted hereby or thereby, except that no Obligor may assign or otherwise
transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent. Any Lender may assign or otherwisetransfer any of its rights or obligations hereunder or under any of the other Loan Documents (i) to an assignee in accordance with the provisions of Section 14.05(b), (ii) by way of participation in accordance with the provisions of Section 14.05(e), or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 14.05(h). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 14.05(e) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lender. Any Lender may at any time assign to one or more Eligible Transferees (or, if an Event of Default has occurred and is continuing, to any Person) all or a portion of its rights and obligations under this Agreement (including all or a portion of the Loans at the time owing to it) and the other Loan Documents; provided that (i) no such assignment shall be made to any Obligor, any Affiliate of any Obligor, or any employees or directors of any Obligor at any time, and (ii) no such assignment shall be made without the prior written consent of the Administrative Agent. Subject to the recording thereof by the Lender pursuant to Section 14.05(d), from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of the Lender under this Agreement and the other Loan Documents, and correspondingly the assigning Lender shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) and the other Loan Documents but shall continue to be entitled to the benefits of Section 5 and Section 14.03. Any assignment or transfer by the Lender of rights or obligations under this Agreement that does not comply with this Section 14.05(b) shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 14.05(e).
(c) Amendments to Loan Documents. Each of the Administrative Agent, the Lenders, Holdings and its Subsidiaries agrees to enter into such amendments to the Loan Documents, and such additional Security Documents and other instruments and agreements, in each case in form and substance reasonably acceptable to the Administrative Agent, the Lenders, Holdings and its Subsidiaries, as shall reasonably be necessary to implement and give effect to any assignment made under this Section 14.05.
(d) Register. The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices in the United States a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement.
The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(e) Participations. Any Lender may at any time, without the consent of, or notice to, Holdings or the Borrower, sell participations to any Person (other than a natural person or any Obligor or any of its Subsidiaries or Affiliates) (each, a “Participant”) in all or a portion of the Lender’s rights and/or obligations under this Agreement (including all or a portion of the Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower shall continue to deal solely and directly with such Lender in connection therewith. Any agreement or instrument pursuant to which any Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; provided that such agreement or instrument may provide that such Lender shall not, without the consent of the Participant, agree to any amendment, modification or waiver that would (i) increase or extend the term of such Lender’s Commitment, (ii) extend the date fixed for the payment of principal of or interest on the Loans or any portion of any fee hereunder payable to the Participant, (iii) reduce the amount of any such payment of principal, or (iv) reduce the rate at which interest is payable thereon to a level below the rate at which the Participant is entitled to receive such interest. Subject to Section 14.05(f), the Borrower agrees that each Participant shall be entitled to the benefits of Section 5 (subject to the requirements and limitations therein including the requirements under Section 5.03(f) (it being understood that the documentation required under Section 5.03(f) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 14.05(b); provided that such Participant agrees to be subject to the provisions of Section 5.04 as if it were an assignee under Section 14.05(b) above. To the extent permitted by applicable Law, each Participant also shall be entitled to the benefits of Section 4.03(a) as though it were a Lender.
(f) Limitations on Rights of Participants. A Participant shall not be entitled to receive any greater payment under Sections 5.01 or 5.03 with respect to any participation than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a change in Law that occurs after the Participant acquired the applicable participation.
(g) Participant Register. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other Obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans, or its other Obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan, or other Obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement
notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(h) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under the Loan Documents to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
14.06 Survival. The obligations of the Obligors under Sections 5.01, 5.02, 5.03, 14.03, 14.05, 14.06, 14.09, 14.10, 14.11, 14.12, 14.13, 14.14 and the obligations of Holdings and the Subsidiary Guarantors under Section 13 (solely to the extent guaranteeing any of the obligations under the foregoing Sections) shall survive the repayment of the Obligations and the termination of the Commitment and, in the case of the Lenders’ assignment of any interest in the Commitment or the Loans hereunder, shall survive, in the case of any event or circumstance that occurred prior to the effective date of such assignment, the making of such assignment, notwithstanding that the Lenders may cease to be “Lenders” hereunder.
14.07 Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.
14.08 Counterparts; Electronic Signatures. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of an executed signature page of this Agreement by facsimile transmission or electronic transmission (in PDF format) shall be effective as delivery of a manually executed counterpart hereof. Any signature (including, without limitation, (x) any electronic symbol or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record and (y) any facsimile or .pdf signature) hereto or the other Loan Documents or to any other certificate, agreement or document related to any Loan Document or the Transactions, and any contract formation or record-keeping, in each case, through electronic means, shall have the same legal validity and enforceability as a manually executed signature or use of a paper-based record-keeping system to the fullest extent permitted by applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any similar state law based on the Uniform Electronic Transactions Act, and the parties hereto hereby waive any objection to the contrary.
14.09 Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed in accordance with, the law of the State of New York, without regard to principles of conflicts of laws that would result in the application of the laws of any other jurisdiction; provided that Section 5-1401 of the New York General Obligations Law shall apply.
14.10 Jurisdiction, Service of Process and Venue.
(a) Submission to Jurisdiction. Each Obligor agrees that any suit, action or proceeding with respect to this Agreement or any other Loan Document to which it is a party or any judgment entered by any court in respect thereof may be brought initially in the federal or state courts in New York, New York and irrevocably submits to the non-exclusive jurisdiction of each such court for the purpose of any such suit, action, proceeding or judgment. This Section 14.10(a) is for the benefit of the Administrative Agent and the Lenders only and, as a result, no Lender shall be prevented from taking proceedings in any other courts with jurisdiction. To the extent allowed by any applicable Law, the Lenders may take concurrent proceedings in any number of jurisdictions.
(b) Alternative Process. Nothing herein shall in any way be deemed to limit the ability of the Administrative Agent and the Lenders to serve any process or summons in any manner permitted by any applicable Law.
(c) Waiver of Venue, Etc. Each Obligor irrevocably waives to the fullest extent permitted by law any objection that it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document and hereby further irrevocably waives to the fullest extent permitted by law any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. A final judgment (in respect of which time for all appeals has elapsed) in any such suit, action or proceeding shall be conclusive and may be enforced in any court to the jurisdiction of which such Obligor is or may be subject, by suit upon judgment.
14.11 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
14.12 Waiver of Immunity. To the extent that any Obligor may be or become entitled to claim for itself or its property or revenues any immunity on the ground of sovereignty or the like from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment or execution of a judgment, and to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), such Obligor hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity with respect to its obligations under this Agreement and the other Loan Documents.
14.13 Entire Agreement. This Agreement and the other Loan Documents constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof, including any confidentiality (or similar) agreements. EACH OBLIGOR ACKNOWLEDGES, REPRESENTS AND WARRANTS THAT IN DECIDING TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR IN TAKING OR NOT TAKING ANY ACTION HEREUNDER OR THEREUNDER, IT HAS NOT RELIED, AND SHALL NOT RELY, ON ANY STATEMENT, REPRESENTATION, WARRANTY, COVENANT, AGREEMENT OR UNDERSTANDING, WHETHER WRITTEN OR ORAL, OF
OR WITH ADMINISTRATIVE AGENT OR THE LENDERS OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
14.14 Severability. If any provision hereof is found by a court to be invalid or unenforceable, to the fullest extent permitted by any applicable Law the parties agree that such invalidity or unenforceability shall not impair the validity or enforceability of any other provision hereof.
14.15 No Fiduciary Relationship. Holdings and the Borrower acknowledge that the Administrative Agent and the Lenders have no fiduciary relationship with, or fiduciary duty to, Holdings and the Borrower arising out of or in connection with this Agreement or the other Loan Documents, and the relationship between the Lenders and the Borrower is solely that of creditor and debtor. This Agreement and the other Loan Documents do not create a joint venture among the parties.
14.16 Confidentiality. The Administrative Agent and each Lender agree to keep confidential all non-public and other confidential information provided to them in writing by any Obligor pursuant to this Agreement in accordance with its customary procedures for handling its own confidential information; provided that nothing herein shall prevent the Administrative Agent or any Lender from disclosing any such information (i) to the Administrative Agent, any other Lender or, subject to an agreement to comply with the provisions of this Section 14.16, any Affiliate of a Lender or any Eligible Transferee or other assignee permitted under Section 14.05(b), (ii) subject to an agreement to comply with the provisions of this Section, to any actual or prospective direct or indirect counterparty to any Hedging Agreement (or any professional advisor to such counterparty), (iii) on a confidential basis to its employees, officers, directors, agents, attorneys, accountants, trustees and other professional advisors or those of any of its affiliates (collectively, its “Related Parties”); provided that the applicable Lender shall remain liable hereunder for any breach of this Section 14.16 by any of its Related Parties, (iv) upon the request or demand of any Governmental Authority or any Regulatory Authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (v) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any applicable Law, (vi) if requested or required to do so in connection with any litigation or similar proceeding, (vii) that has been publicly disclosed (other than as a result of a disclosure in violation of this Section 14.16), (viii) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender, (ix) in connection with the exercise of any remedy permitted hereunder or under any other Loan Document, (x) on a confidential basis to (A) any rating agency in connection with rating Holdings or any of its Subsidiaries or the Loans or (B) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers of other market identifiers with respect to the Loans or (xi) to any other party hereto; provided, further that, unless specifically prohibited by applicable law or court order, each Lender shall notify Holdings of any request by any Governmental Authority or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such Governmental Authority) for disclosure of any such non-public information prior to disclosure of such information.
14.17 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts that are treated as interest on such Loan under applicable Law (collectively, “charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) that may be contracted for, charged, taken, received or reserved by the Administrative Agent and the Lender holding such Loan in accordance with applicable Law, the rate of interest payable in respect of such Loan hereunder, together with all charges payable in respect thereof, shall be limited to the Maximum Rate. To the extent lawful, the interest and charges that would have been paid in respect of such Loan but were not paid as a result of the operation of this Section shall be cumulated and the interest and charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the amount collectible at the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate for each day to the date of repayment, shall have been received by such Lender. Any amount collected by such Lender that exceeds the maximum amount collectible at the Maximum Rate shall be applied to the reduction of the principal balance of such Loan so that at no time shall the interest and charges paid or payable in respect of such Loan exceed the maximum amount collectible at the Maximum Rate.
14.18 Early Prepayment Fee. The parties hereto acknowledge and agree that, to the extent the Early Prepayment Fee is applicable to any repayment or prepayment of principal of any Loan at any time, such Early Prepayment Fee is not intended to be a penalty assessed as a result of any such repayment or prepayment of the Loans, but rather is the product of a good faith, arm’s length commercial negotiation between Holdings and the Borrower and the Lenders relating to the mutually satisfactory compensation payable to the Lenders by Holdings and the Borrower in respect of the Loans made hereunder. In furtherance of the foregoing, to the fullest extent permitted by applicable Law, the Obligors hereby jointly and severally waive any rights or Claims any of them may have under any such applicable Law (whether or not in effect on the Closing Date) that would prohibit or restrict the payment of the Early Prepayment Fee under any of the circumstances provided herein or in any other Loan Document, including payment after acceleration of the Loans.
14.19 Judgment Currency.
(a) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder in Dollars into another currency, the parties hereto agree, to the fullest extent permitted by Law, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Administrative Agent could purchase Dollars with such other currency at the buying spot rate of exchange in the New York foreign exchange market on the Business Day immediately preceding that on which any such judgment, or any relevant part thereof, is given.
(b) The obligations of the Obligors in respect of any sum due to the Administrative Agent hereunder and under the other Loan Documents shall, notwithstanding any judgment in a currency other than Dollars, be discharged only to the extent that on the Business Day following receipt by the Administrative Agent of any sum adjudged to be so due in such other currency the Administrative Agent may, in accordance with normal banking procedures, purchase Dollars with such other currency. If the amount of Dollars so purchased is less than the sum originally due to the Administrative Agent in Dollars, Holdings and the Borrower agree, to the fullest extent that they may effectively do so, as a separate obligation and notwithstanding any such judgment, to
indemnify the Administrative Agent against such loss. If the amount of Dollars so purchased exceeds the sum originally due to the Administrative Agent in Dollars, the Administrative Agent shall remit such excess to Holdings and the Borrower.
14.20 USA PATRIOT Act. The Administrative Agent and the Lenders hereby notify Holdings and its Subsidiaries that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”) and the Beneficial Ownership Regulation, they are required to obtain, verify and record information that identifies Holdings and its Subsidiaries, which information includes the name and address of Holdings and its Subsidiaries and other information that will allow such Person to identify Holdings, the Borrower or such Subsidiary in accordance with the Patriot Act and the Beneficial Ownership Regulation.
14.21 Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of the applicable Resolution Authority.
14.22 Amendment and Restatement; No Novation. On the Effective Date, upon the effectiveness of this Agreement, the Original Credit Agreement shall be amended and restated in its entirety by this Agreement. This Agreement shall not extinguish the obligations for the payment of money outstanding under the Original Credit Agreement or discharge or release any Loan Document. Nothing herein contained shall be construed as a substitution, novation, accord or satisfaction of the obligations outstanding under the Original Credit Agreement or the other Loan Documents. Nothing in this Agreement shall be construed as a release or other discharge of the Borrower or any other Obligor from its obligations and liabilities under the Original Credit Agreement or the other Loan Documents. On the Effective Date, any and all references in any Loan Documents to the Original Credit Agreement shall be deemed to be amended to refer to this Agreement. The Borrower hereby ratifies and reaffirms all of its liabilities and obligations under the Loan Documents and agrees that all such liabilities and obligations are carried forward in this Agreement
and the other Loan Documents. The guaranties, liens, security interests, pledges, covenants and agreements set forth in the Loan Documents entered into in connection with the Original Credit Agreement are made and granted to secure and support the Obligations under this Agreement as if the same were made or granted on the Effective Date and the Loan Documents entered into in connection with the Original Credit Agreement shall continue in full force and effect. The Borrower agrees to cooperate and use commercially reasonably efforts to promptly take, or cause to be taken, all actions and to promptly do, or cause to be done, all things reasonably necessary, proper or advisable to fulfill its obligations hereunder.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written.
| | | | | | | | |
| BORROWER: |
| | |
| PEAR THERAPEUTICS (US), INC. |
| | |
| By | /s/ Ronan O’Brien |
| | Name: Ronan O’Brien |
| | Title: General Counsel & Chief Compliance Officer |
| | |
| | |
| Address for Notices: |
| | |
| 200 State Street, 13th Floor Boston, MA 02109 |
| Attn: General Counsel |
| Email: ronan.obrien@peartherapeutics.com |
| | |
| | |
| HOLDINGS: |
| | |
| PEAR THERAPEUTICS, INC. |
| | |
| By | /s/ Ronan O’Brien |
| | Name: Ronan O’Brien |
| | Title: Secretary |
| | |
| | |
| Address for Notices: |
| | |
| 200 State Street, 13th Floor Boston, MA 02109 |
| Attn: General Counsel |
| Email: ronan.obrien@peartherapeutics.com |
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY]
| | | | | | | | |
| ADMINISTRATIVE AGENT: |
| | |
| PERCEPTIVE CREDIT HOLDINGS III, LP |
| | |
| By: PERCEPTIVE CREDIT OPPORTUNITIES GP, LLC, its general partner |
| | |
| | |
| By | /s/ Sandeep Dixit |
| | Name: Sandeep Dixit |
| | Title: Chief Credit Officer |
| | |
| | |
| By | /s/ Sam Chawla |
| | Name: Sam Chawla |
| | Title: Portfolio Manager |
| | |
| | |
| Address for Notices: |
| Perceptive Credit Holdings III, LP c/o Perceptive Advisors LLC 51 Astor Place, 10th Floor New York, NY 10003 |
| Attn: Sandeep Dixit |
| Email: Sandeep@perceptivelife.com |
| PCOFReporting@perceptivelife.com |
| | | | | | | | |
| LENDERS: |
| | |
| PERCEPTIVE CREDIT HOLDINGS III, LP |
| | |
| By: PERCEPTIVE CREDIT OPPORTUNITIES GP, LLC, its general partner |
| | |
| | |
| By | /s/ Sandeep Dixit |
| | Name: Sandeep Dixit |
| | Title: Chief Credit Officer |
| | |
| | |
| By | /s/ Sam Chawla |
| | Name: Sam Chawla |
| | Title: Portfolio Manager |
| | |
| | |
| Address for Notices: |
| Perceptive Credit Holdings III, LP c/o Perceptive Advisors LLC 51 Astor Place, 10th Floor New York, NY 10003 |
| Attn: Sandeep Dixit |
| Email: Sandeep@perceptivelife.com |
| PCOFReporting@perceptivelife.com |
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY]
EXHIBIT A
TO CREDIT AGREEMENT AND GUARANTY
FORM OF NOTE
[DATE]
U.S. $ [30,000,000] [10,000,000] [10,000,000]
FOR VALUE RECEIVED, the undersigned, Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), hereby promises to pay to Perceptive Credit Holdings III, LP (the “Lender”), in immediately available funds, the aggregate principal sum set forth above, or, if less, the aggregate unpaid principal amount of the [Tranche 1] [Tranche 2] [Tranche 3] Loan made by the Lender pursuant to Section 2.01(a) of the Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”), on the date or dates specified in the Credit Agreement, together with interest on the principal amount of such Loans from time to time outstanding thereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement.
This Note is a Note issued pursuant to the terms of Section 2.03 of the Credit Agreement, and this Note and the holder hereof are entitled to all the benefits and security provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION; PROVIDED THAT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY.
The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder, other than notices provided for in the Loan Documents. The non-exercise by the holder hereof of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in such particular or any subsequent instance.
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE CREDIT AGREEMENT.
[THIS NOTE HAS BEEN ISSUED WITH “ORIGINAL ISSUE DISCOUNT” (WITHIN THE MEANING OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED). UPON WRITTEN REQUEST, THE BORROWER WILL PROMPTLY MAKE AVAILABLE TO ANY HOLDER OF THIS NOTE THE FOLLOWING INFORMATION: (1)
THE ISSUE PRICE AND ISSUE DATE OF THIS NOTE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE AND (3) THE YIELD TO MATURITY OF THIS NOTE. HOLDERS SHOULD CONTACT THE CHIEF FINANCIAL OFFICER OF THE BORROWER AT [ADDRESS OF THE BORROWER]].
[Signature Page Follows]
| | | | | | | | |
| PEAR THERAPEUTICS, INC. |
| | |
| | |
| By | |
| Name: | |
| Title: | |
EXHIBIT B
TO CREDIT AGREEMENT AND GUARANTY
FORM OF BORROWING NOTICE
Date: [__________]
To: Perceptive Credit Holdings III, LP, as Administrative Agent
c/o Perceptive Advisors LLC
51 Astor Place, 10th Floor
New York, NY 10003
Attn: Sandeep Dixit
Email: Sandeep@perceptivelife.com and PCOF@perceptivelife.com
Re: Borrowing under the Credit Agreement
Ladies and Gentlemen:
The undersigned, Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), refers to the Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”). Capitalized terms used herein and not otherwise defined herein are used herein as defined in the Credit Agreement.
The Borrower hereby gives you irrevocable notice, pursuant to Section 2.02 of the Credit Agreement, of the borrowing of the Loan specified herein:
1. The Borrowing Date is [__________].1
2. The amount of the proposed Borrowing is $[____].
3. The payment instructions with respect to the funds to be made available to the Borrower are as follows:
Bank name:
Bank Address:
Routing Number:
Account Number:
The Borrower hereby certifies that, both immediately before and after giving effect to
1 Pursuant to Section 2.02 of the Credit Agreement, this Borrowing Notice must be delivered to the Administrative Agent at least three (3), but not more than seven (7), Business Days prior to the Borrowing Date. If received by the Administrative Agent on a day that is not a Business Day or after 12:00 p.m. (New York City time) on a Business Day, this Borrowing Notice will be deemed to have been delivered on the next Business Day.
both the Borrowing and the application of proceeds thereof on the Borrowing Date, the following statements are true and correct:
a) both immediately before and after giving effect to the Borrowing, (x) all representations and warranties set forth in each Loan Document that are qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct as of the date hereof, (y) the representations and warranties set forth in each Loan Document that are not qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct in all material respects as of the date hereof, and (z) no Default has occurred and is continuing, or could reasonably be expected to result from the making of the Loans being advanced, or the consummation of any Transactions contemplated to occur, on the Borrowing Date; and
b) on and as of the Borrowing Date, there has occurred no Material Adverse Change since December 31, 2019.
[Signature Page Follows]
IN WITNESS WHEREOF, the Borrower has caused this Borrowing Notice to be duly executed and delivered as of the day and year first above written.
| | | | | | | | |
| BORROWER: |
| | |
| PEAR THERAPEUTICS, INC. |
| | |
| | |
| By | |
| Name: | |
| Title: | |
EXHIBIT C
TO CREDIT AGREEMENT AND GUARANTY
FORM OF GUARANTEE ASSUMPTION AGREEMENT
GUARANTEE ASSUMPTION AGREEMENT, dated as of [DATE] (this “Guarantee and Assumption Agreement”), by [NAME OF ADDITIONAL SUBSIDIARY GUARANTOR], a [state of organization] [corporation][limited liability company] (the “Additional Subsidiary Guarantor”), under that certain Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”). Capitalized terms used herein and not otherwise defined herein are used herein as defined in the Credit Agreement.
Pursuant to Section 8.12(a)(i) of the Credit Agreement, the Additional Subsidiary Guarantor hereby agrees to become a “Subsidiary Guarantor” for all purposes of the Credit Agreement, a “Grantor” for all purposes of the Security Agreement. Without limiting the foregoing, the Additional Subsidiary Guarantor hereby, jointly and severally with the other Subsidiary Guarantors, guarantees to the Lenders and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of all Guaranteed Obligations (as defined in Section 13.01 of the Credit Agreement) in the same manner and to the same extent as is provided in Section 13 of the Credit Agreement. In addition, as of the date hereof, the Additional Subsidiary Guarantor hereby makes the representations and warranties set forth in Section 7 of the Credit Agreement and in Section 4 of the Security Agreement, with respect to itself and its obligations under this Guarantee and Assumption Agreement and the other Loan Documents, as if each reference in such Sections to the Loan Documents included reference to this Guarantee and Assumption Agreement, such representations and warranties to be made as of the date hereof. [Attached as Exhibit A hereto are supplemental to the Schedules set forth in Section 7 to the Credit Agreement and Section 4 of the Security Agreement, updated to include the Additional Subsidiary Guarantor.]2
The Additional Subsidiary Guarantor hereby instructs its counsel to deliver the opinions referred to in Section 8.12(a)(iv) of the Credit Agreement to the Administrative Agent and the Lenders.
THIS GUARANTEE AND ASSUMPTION AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION; PROVIDED THAT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
2 [To be included if any Schedules set forth in Section 7 of the Credit Agreement or Section 4 of the Security Agreement need to be updated in connection with the making of representations and warranties with respect to the Additional Subsidiary Guarantor.]
LAW SHALL APPLY.
[Signature Page Follows]
IN WITNESS WHEREOF, the Additional Subsidiary Guarantor has caused this Guarantee Assumption Agreement to be duly executed and delivered as of the day and year first above written.
| | | | | | | | |
| [ADDITIONAL SUBSIDIARY GUARANTOR] |
| | |
| By | |
| Name: | |
| Title: | |
| | |
| Address for Notices: |
| [__________] |
| [__________] |
| Attn: | [__________] |
| Tel.: | [__________] |
| Fax: | [__________] |
| Email: | [__________] |
EXHIBIT A TO GUARANTEE ASSUMPTION AGREEMENT
[ATTACH UPDATED SCHEDULES, IF NEEDED]
EXHIBIT D-1
TO CREDIT AGREEMENT AND GUARANTY
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Not Partnerships for U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among Pear Therapeutics, Inc. (the “Borrower”), a Delaware corporation, certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”).
Pursuant to the provisions of Section 5.03(f) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a “ten percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. Person status on IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form). By executing this certificate, the undersigned agrees that (1) if the information provided in this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[Signature Page Follows]
| | | | | | | | |
[NAME OF LENDER] | |
| | |
By: | | |
| Name: | |
| Title: | |
| | |
Date: | [________ __], 20[ ] | |
EXHIBIT D-2
TO CREDIT AGREEMENT AND GUARANTY
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Partnerships for U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”).
Pursuant to the provisions of Section 5.03(f) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a “ten percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form). By executing this certificate, the undersigned agrees that (1) if the information provided in this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[Signature Page Follows]
| | | | | | | | |
[NAME OF PARTICIPANT] | |
| | |
By: | | |
| Name: | |
| Title: | |
| | |
Date: | [________ __], 20[ ] | |
EXHIBIT D-3
TO CREDIT AGREEMENT AND GUARANTY
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Partnerships for U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”).
Pursuant to the provisions of Section 5.03(f) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members is a “bank” extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a “ten percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with an IRS Form W-8IMY (or applicable successor form) accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form) or (ii) an IRS Form W-8IMY (or applicable successor form) accompanied by an IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form) from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided in this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[Signature Page Follows]
| | | | | | | | |
[NAME OF PARTICIPANT] | |
| | |
By: | | |
| Name: | |
| Title: | |
| | |
Date: | [________ __], 20[ ] | |
EXHIBIT D-4
TO CREDIT AGREEMENT AND GUARANTY
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Partnerships for U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”).
Pursuant to the provisions of Section 5.03(f) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a “bank” extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a “ten percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with an IRS Form W-8IMY (or applicable successor form) accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form) or (ii) an IRS Form W-8IMY (or applicable successor form) accompanied by an IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form) from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided in this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[Signature Page Follows]
| | | | | | | | |
[NAME OF LENDER] | |
| | |
By: | | |
| Name: | |
| Title: | |
| | |
Date: | [________ __], 20[ ] | |
EXHIBIT E
TO CREDIT AGREEMENT AND GUARANTY
FORM OF COMPLIANCE CERTIFICATE
[DATE]
This certificate is delivered pursuant to Section 8.01(d) of, and in connection with the consummation of the Transactions contemplated in, the Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”). Capitalized terms used herein and not otherwise defined herein are used herein as defined in the Credit Agreement.
The undersigned, a duly authorized Responsible Officer of the Borrower having the name and title set forth below under his or her signature, hereby certifies (in his or her capacity as an officer of the Borrower and not in his or her individual capacity), on behalf of the Borrower for the benefit of the Secured Parties, that such Responsible Officer of the Borrower is familiar with the Credit Agreement and that, in accordance with each of the following sections of the Credit Agreement, each of the following is true on the date hereof, both before and after giving effect to any Loan to be made on or before the date hereof:
In accordance with Section 8.01[(b)/(c)] of the Credit Agreement, attached hereto as Annex A are the financial statements for the [fiscal quarter/fiscal year] ended [__________] required to be delivered pursuant to Section 8.01[(b)/(c)] of the Credit Agreement. [Such financial statements fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as at the dates indicated therein and the results of operations of the Borrower and its Subsidiaries for the periods indicated therein and have been prepared in accordance with GAAP consistently applied, subject to changes resulting from normal, year-end audit adjustments and except for the absence of footnotes.]3
Attached hereto as Annex B are the calculations used to determine compliance with each financial covenant contained in Section 10 of the Credit Agreement, together with evidence based upon the Borrower’s bank account statements that the Borrower has met its minimum liquidity requirement set forth in Section 10.01 of the Credit Agreement.
No Default or Event of Default is continuing as of the date hereof[, except as provided for on Annex C attached hereto, with respect to each of which the Borrower proposes to take the actions set forth on Annex C].
[Pursuant to Section 8.02(j) of the Credit Agreement, attached hereto as Annex D is a list of all Intellectual Property created, developed or acquired by the Borrower or of its Subsidiaries
3 Insert bracketed language only for certifications pursuant to Section 8.01(b) of the Credit Agreement.
in the fiscal quarter ended [_________], 20[__].]4
[Signature Page Follows]
4 If applicable, insert bracketed language only for certifications pursuant to Sections 8.01(b) and 8.01(c) of the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has executed this certificate on the date first written above.
| | | | | | | | |
| PEAR THERAPEUTICS, INC. |
| | |
| | |
| By | |
| Name: | |
| Title: | |
EXHIBIT F
TO CREDIT AGREEMENT AND GUARANTY
FORM OF ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (this “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [______________] (the “Assignor”) and [______________] (the “Assignee”). Capitalized terms used herein and not otherwise defined herein are used herein as defined in the Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the Credit Agreement and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by the Assignor to the Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.
1. Assignor[s]: _________________________________________
_________________________________________
2. Assignee[s]: _________________________________________
_________________________________________
[Assignee is an Affiliate of [identify Lender]]
3. Borrower: Pear Therapeutics, Inc.
4. Administrative Agent: Perceptive Credit Holdings III, LP
5. Credit Agreement: Credit Agreement and Guaranty, dated as of June 30, 2020, among the Borrower, certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and the Administrative Agent.
6. Assigned Interest[s]:
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Assignor[s]5 | Assignee[s]6 | Type of Commitment/Loans Assigned | Aggregate Amount of Commitment/Loans for all Lenders | Amount of Commitment/Loans Assigned8 | Percentage Assigned of Commitment/ Loans7 |
| | [Tranche 1 Loan][Tranche 2 Loan][Tranche 3 Loan] | $ | $ | % |
| | [Tranche 1 Loan][Tranche 2 Loan][Tranche 3 Loan] | $ | $ | % |
| | [Tranche 1 Loan][Tranche 2 Loan][Tranche 3 Loan] | $ | $ | % |
[Signature Page Follows]
5 List each Assignor, as appropriate.
6 List each Assignee, as appropriate.
7 Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.
Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
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| | ASSIGNOR |
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| | [NAME OF ASSIGNOR] |
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| | ASSIGNEE |
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| | [NAME OF ASSIGNEE] |
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Consented to and Accepted: | | |
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PERCEPTIVE CREDIT HOLDINGS III, LP, as Administrative Agent | | |
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By: | PERCEPTIVE CREDIT OPPORTUNITIES GP, LLC, its general partner |
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ANNEX 1
STANDARD TERMS AND CONDITIONS
1. Representations and Warranties.
1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or other Person of any of their respective obligations under any Loan Document.
1.2 Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Transferee under the Credit Agreement, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 8.01(a), (b) and (c) thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest, and (vii) attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective
Date and to the Assignee for amounts which have accrued from and after the Effective Date. Notwithstanding the foregoing, the Administrative Agent shall make all payments of interest, fees or other amounts paid or payable in kind from and after the Effective Date to the Assignee.
3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by facsimile or in electronic (PDF) format shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption.
4. THIS ASSIGNMENT AND ASSUMPTION SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION; PROVIDED THAT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY.
EXHIBIT G
TO CREDIT AGREEMENT AND GUARANTY
FORM OF INFORMATION CERTIFICATE
(See attached.)
EXHIBIT H
TO CREDIT AGREEMENT AND GUARANTY
FORM OF INTERCOMPANY SUBORDINATION AGREEMENT
This INTERCOMPANY SUBORDINATION AGREEMENT, dated as of [_________], 20[__] (this “Subordination Agreement”), is entered into by and among Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), certain Subsidiaries of the Borrower that are parties hereto, and certain other Subsidiaries of the Borrower that may, from time to time in the future, become parties hereto by executing and delivering a joinder agreement in substantially the form of Exhibit A hereto (any such Subsidiary being herein, individually, a “Subsidiary Party” and collectively the “Subsidiary Parties”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, in its capacity as Administrative Agent for the Lenders under the Credit Agreement (as defined below) (in such capacity, together with its successors and assigns, the “Administrative Agent”).
Reference is made to that certain Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”) among the Borrower, certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the Lenders from time to time party thereto and the Administrative Agent. Capitalized terms used herein and not otherwise defined herein are used herein as defined in the Credit Agreement.
One or more of the Borrower and the Subsidiary Parties (individually, a “Pear Party” and collectively, the “Pear Parties”), in their capacities as lenders (each such entity, together with its successors, assigns and transferees in such capacity, individually, a “Junior Creditor”, and, collectively, “Junior Creditors”) has made, or may from time to time may make, loans or extend other financings to one or more of the Pear Parties that is an Obligor (each such Obligor, in its capacity as a borrower from any Junior Creditor (together with its successors, assigns and transferees) being herein, individually, a “Debtor Obligor”, and, collectively, “Debtor Obligors”) pursuant to Section 9.01(e) of the Credit Agreement. All such Indebtedness resulting from the making of any such loan or financing, together with all principal, interest, fees, premiums, costs, expenses, liabilities, obligations and other amounts of any type or nature at any time owing or arising in respect thereof, including but not limited to any such items or amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership or reorganization case by or against the Borrower, is herein collectively referred to as the “Junior Obligations”.
Each of the Junior Creditors and each of the Debtor Obligors, for the benefit of the Secured Parties and each of their permitted successors, transferees and assigns, hereby irrevocably and unconditionally agree as follows:
1. All payment obligations and other monetary obligations of any Debtor Obligor arising from time to time under or in connection with any Junior Obligations to any Junior Creditor are, and shall at all times be, subordinated in right of payment and performance to the prior Payment in Full (as defined below) of all Obligations owing under or in
connection with the Credit Agreement and the other Loan Documents, whether in respect of principal, interest, fees or other monetary obligations or liabilities of any type or nature, including costs and expenses of enforcement, if any (collectively, the “Senior Obligations”), notwithstanding the maturity date or amortization date of any Junior Obligations or any acceleration of the maturity date related thereto, any default by or insolvency of any Junior Creditor or any other Person, or otherwise.
2. The parties hereto agree that this Subordination Agreement is for the benefit of, and shall be enforceable by the Administrative Agent on behalf of the Secured Parties.
3. At all times from and after the date of this Subordination Agreement until Payment in Full of all Senior Obligations and the termination of all Senior Liens (as defined below), (i) no Debtor Obligor shall make, and no Junior Creditor shall accept, receive or collect from or on behalf of any Debtor Obligor, any direct or indirect payment or distribution of any kind or character whatsoever (whether in cash, securities, other property, by set-off, forgiveness of any Indebtedness of any Secured Party, or otherwise) on account of any of the Junior Obligations, and (ii) under no circumstance shall any payment of any of the Junior Obligations be accelerated, or any other remedy, enforcement action or other action be taken by any Junior Creditor against any Debtor Obligor or any property of any Debtor Obligor or of any other Person, in each case with respect to any of the Junior Obligations (including to assert, enforce or collect any of the Junior Obligations), in each case, except to the extent permitted by the Credit Agreement or with the prior written consent of the Administrative Agent, which consent may not be unreasonably withheld.
4. No Junior Creditor shall, directly or indirectly, independently or with any other Person, take any action that would be in violation of, or inconsistent with, or result in a breach of this Subordination Agreement or challenge or contest (i) the validity, perfection, priority or enforceability of this Subordination Agreement, any Senior Obligations or any Liens securing the Senior Obligations (“Senior Liens”), (ii) any of the rights of any Secured Party set forth in the Credit Agreement or any other Loan Document (including with respect to the Senior Liens), or (iii) the validity or enforceability of the Credit Agreement or any other Loan Document or any portion thereof.
5. In the event that, prior to Payment in Full of the Senior Obligations, any Junior Creditor shall receive any payment or distribution of any kind or character whatsoever (whether in cash, securities, other property, by set-off, forgiveness of any Indebtedness of any Secured Party, or otherwise) on or in respect of all or any portion of the Junior Obligations in violation of any of the provisions of this Subordination Agreement, then such payment or distribution shall be held in trust by such Junior Creditor for the benefit of, and promptly (and in any event within one (1) Business Day) paid over by such Junior Creditor to the Administrative Agent for application of such payment or distribution to repay the Obligations in accordance with the terms thereof, until Payment in Full of the Obligations as confirmed in writing by the Administrative Agent to the Borrower.
6. For purposes of this Subordination Agreement, “Payment in Full” means, with respect to the Obligations, that all such obligations and other amounts payable constituting Obligations have been indefeasibly paid in full in cash.
7. Neither any Junior Creditor nor any Debtor Obligor may assign or transfer any of its rights or obligations hereunder, except to another Obligor that becomes bound by the terms of this Subordination Agreement.
8. This Subordination Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with all of the terms and provisions of the Credit Agreement, as amended hereby, including Section 14 thereof. The provisions of this Subordination Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns.
9. This Subordination Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Subordination Agreement by signing any such counterpart.
10. This Subordination Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed in accordance with, the law of the State of New York, without regard to principles of conflicts of laws that would result in the application of the laws of any other jurisdiction; provided that Section 5-1401 of the New York General Obligations Law shall apply.
11. Any Subsidiary of the Borrower may, without the consent of any other party to Subordination Agreement, become an Pear Party under this Subordination Agreement by executing and delivering to the Administrative Agent a joinder agreement in substantially the form of Exhibit A hereto.
12. Except as modified in accordance with Section 11 to add any Subsidiary of the Borrower as an additional Pear Party to this Subordination Agreement, this Subordination Agreement may not be amended, waived or otherwise modified without the prior written consent of each of the parties hereto.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have caused this Subordination Agreement to be duly executed and delivered as of the date first above written.
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| PEAR THERAPEUTICS, INC. |
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| By: | |
| Name: | |
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| [SUBSIDIARY PARTY] |
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| Title: | |
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| PERCEPTIVE CREDIT HOLDINGS III, LP, as the Administrative Agent |
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| By Perceptive Credit Opportunities GP, LLC, its general partner |
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| By: | |
| Name: | |
| Title: | |
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| Name: | |
| Title: | |
Exhibit A
FORM OF INTERCOMPANY SUBORDINATION AGREEMENT JOINDER
This INTERCOMPANY SUBORDINATION AGREEMENT JOINDER, dated as of [DATE] by [NAME OF ADDITIONAL SUBSIDIARY], a [state of organization] [corporation][limited liability company] (the “Additional Pear Party”), under that certain Intercompany Subordination Agreement, dated as of [__________], 20[__] (as amended or otherwise modified from time to time, the “Subordination Agreement”), among Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), certain Subsidiaries of the Borrower from time to time party thereto and Perceptive Credit Holdings III, LP, a Delaware limited partnership, in its capacity as Administrative Agent for the Lenders under the Credit Agreement (in such capacity, together with its successors and assigns, the “Administrative Agent”). Capitalized terms used herein and not otherwise defined herein are used herein as defined in the Subordination Agreement.
Pursuant to Section 11 of the Subordination Agreement, the Additional Pear Party hereby agrees to become a “Pear Party” for all purposes of the Subordination Agreement.
IN WITNESS WHEREOF, the Additional Pear Party has caused this Subordination Agreement Joinder to be duly executed and delivered as of the day and year first above written.
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| [ADDITIONAL PEAR PARTY] |
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EXHIBIT I
TO CREDIT AGREEMENT AND GUARANTY
FORM OF SOLVENCY CERTIFICATE
[DATE]
This Solvency Certificate (this “Certificate”) is delivered pursuant to Section 6.01(j) of that certain Credit Agreement and Guaranty, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among Pear Therapeutics, Inc., a Delaware corporation (the “Borrower”), certain Subsidiaries of the Borrower that may be required to provide Guarantees from time to time thereunder, the lenders from time to time party thereto (the “Lenders”) and Perceptive Credit Holdings III, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”). Capitalized terms used herein and not otherwise defined herein are used herein as defined in the Credit Agreement.
The undersigned hereby certifies on behalf of the Borrower (in his or her capacity as an officer of the Borrower and not in his or her individual capacity) as of the date hereof as follows:
1. I am the chief [financial][accounting] Responsible Officer of the Borrower and am duly authorized to execute and deliver this Certificate on behalf of the Borrower. I have been employed in positions involving responsibility for the management of the financial affairs of the Borrower. I have, together with other officers of the Borrower, acted on behalf of the Borrower in connection with the transactions contemplated by the Credit Agreement and the other Loan Documents.
2. I have carefully reviewed the contents of this Certificate and have conferred with legal counsel for the Borrower for the purpose of discussing the meaning of its contents.
3. In connection with preparing for the transactions contemplated by the Credit Agreement and the other Loan Documents, I have reviewed audited consolidated financial statements of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2019, and the unaudited consolidated balance sheets of the Borrower and its Subsidiaries for each fiscal quarter ended after December 31, 2019 together with the related consolidated statement of operations, shareholder’s equity and cash flows for such fiscal quarter (the information set forth in this paragraph being the “Financial Statements”).
4. The Financial Statements fairly present in all material respects the consolidated financial condition of the Borrower and its Subsidiaries as of such dates and for such periods covered by the Financial Statements. The assumptions stated in the Financial Statements were prepared in good faith based on assumptions believed to be reasonable.
The undersigned has concluded, in good faith and to the best of his or her knowledge and belief, that as of the date hereof and after giving effect to all the transactions contemplated by the Credit Agreement and the other Loan Documents and the incurrence of any other Indebtedness contemplated thereunder, and after giving effect to all rights of indemnity, obligation and contribution, as follows:
(i) The Borrower and its Subsidiaries taken as a whole, are, and immediately after giving effect to the Borrowing being made on the date hereof and the use of proceeds thereof, will be, Solvent.
(ii) No transfer of property is being made by the Borrower or any of its Subsidiaries and no obligation is being incurred by the Borrower or any of its Subsidiaries in connection with the transactions contemplated by the Credit Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of the Borrower or any of its Subsidiaries.
The undersigned understands that the Administrative Agent and the Lenders are relying on the truth and accuracy of this Certificate and that the delivery of this Certificate is a material inducement for the Administrative Agent and the Lenders to enter into the Credit Agreement and consummate the transactions contemplated thereby, and the undersigned hereby consents to such reliance.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned has executed this certificate on the date first written above.
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| PEAR THERAPEUTICS, INC. |
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EXHIBIT J
TO CREDIT AGREEMENT AND GUARANTY
FORM OF WARRANT CERTIFICATE
(See attached.)
FORM OF WARRANT CERTIFICATE
THIS WARRANT CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE SECURITIES ACT AND IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE SECURITIES ACT AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND, IN EACH CASE, IF THE COMPANY REQUESTS, AN OPINION SATISFACTORY TO THE COMPANY TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL.
Warrant Shares Issuable: [ ]
Warrant Certificate No.: [ ]
Issue Date: [ ], 2020 (the “Issue Date”)
FOR VALUE RECEIVED, PEAR THERAPEUTICS, INC., a Delaware corporation (the “Company”), hereby certifies that PERCEPTIVE CREDIT HOLDINGS III, LP, a Delaware limited partnership (the “Initial Holder” and, together with its successors and permitted transferees and assigns, a “Holder”) is entitled to purchase, at the per share Exercise Price, up to [ ] ([ ]) fully paid and nonassessable shares of the Company’s Series C Preferred Stock all subject to the terms, conditions and adjustments set forth below in this Warrant Certificate. Capitalized terms used herein have the meanings ascribed thereto in Section 1 below.
This Warrant Certificate has been issued as a condition precedent to the making of the [Tranche 1 Loan] [Tranche 2 Loan] [Tranche 3 Loan] under and pursuant to of the Credit and Guaranty Agreement, dated as of June 30, 2020 (as amended or otherwise modified from time to time, the “Credit Agreement”), among the Company, as borrower, certain Subsidiaries of the Company from time to time party thereto, as guarantors, the lenders from time to time party thereto, and Perceptive Credit Holdings III, LP, as the administrative agent for the lenders.
Section 1. Definitions. Capitalized terms used in this Warrant Certificate but not otherwise defined herein will have the meanings ascribed thereto in the Credit Agreement as in effect on the Issue Date. The following terms when used herein have the following meanings:
“Advanced Development” means, with respect to a proposed Product, that such proposed Product is in either a pivotal clinical trial or later stage of development.
“Aggregate Exercise Price” means, with respect to any exercise of this Warrant Certificate for Warrant Shares pursuant to Section 3, an amount equal to the product of (i) the number of Warrant Shares in respect of which this Warrant Certificate is then being exercised pursuant to Section 3, multiplied by (ii) the Exercise Price.
“Assignment” has the meaning set forth in Section 7.
“Bloomberg” has the meaning set forth within the definition of “VWAP”.
“Cashless Exercise” has the meaning set forth in Section 3(b).
“Certificate of Incorporation” means the Fourth Amended and Restated Certificate of Incorporation of the Company, filed with the Secretary of State of Delaware on December 21, 2018, as amended to date and as further amended, amended or restated, or subsequently modified.
“Common Stock” means the Company’s common stock, par value $0.0001 per share, having ordinary voting rights, as provided in the Company’s Certificate of Incorporation.
“Company” has the meaning set forth in the preamble.
“Convertible Securities” means any Equity Interests that, directly or indirectly, are convertible into or exchangeable for Series C Preferred Stock or Common Stock.
“Credit Agreement” has the meaning set forth in the preamble. “Determination Date” has the meaning set forth in the definition of “VWAP”.
“Device” means any medical instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent or other similar or related item, including any component, part or accessory, that (i) is intended for use in connection with the diagnosis of disease, malady or other conditions or in the cure, mitigation, treatment or prevention of disease or malady, in man or other animals, or is intended to affect the structure or any function of the body of man or other animals, (ii) does not achieve its primary intended purpose or purposes through chemical action within or on the body of man or other animals and (iii) is not dependent upon being metabolized for the achievement of its primary intended purpose or purposes.
“Equity Interests” means, with respect to any Person (for purposes of this defined term, an “issuer”), all shares of, interests or participations in, or other equivalents in respect of such issuer’s capital stock, including all membership interests, partnership interests or equivalent, and all debt or other securities (including warrants, options and similar rights) directly or indirectly exchangeable, exercisable or otherwise convertible into, such issuer’s capital stock, whether now outstanding or issued after the Issue Date, and in each case, however classified or designated and whether voting or non-voting.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Excluded Securities” means any issuance or sale (whether an original issuance or a sale from treasury) by the Company after the Issue Date of: (i) equity securities upon the exercise of this Warrant Certificate; (ii) equity securities (as such number of shares is equitably adjusted for subsequent stock splits, stock combinations, stock dividends and recapitalizations) issued directly or upon the exercise of Options to directors, officers, employees, or consultants of the Company
in connection with their service as directors or officers of the Company, their employment by the Company or their retention as consultants by the Company, in each case authorized by the Board and issued pursuant to a stock incentive plan (including all such equity securities outstanding prior to the Issue Date); (iii) equity securities issued upon the conversion or exercise of Options (other than Options covered by clause (ii) above) or Convertible Securities issued prior to the Issue Date, provided that such securities are not amended after the date hereof to increase the number of shares of equity securities issuable thereunder or to lower the exercise or conversion price thereof; (iv) equity securities issued (a) to Persons in connection with a joint venture, strategic alliance or other commercial relationship with such Person (including Persons that are customers, suppliers and strategic partners of the Company) relating to Product Commercialization and Development Activities and not for the primary purpose of raising equity capital, or (b) in connection with a transaction in which the Company, directly or indirectly, acquires another business substantially in its entirely, in each case where such issuance and transaction has been unanimously approved by the Board; (v) equity securities offered and sold pursuant to a Public Offering; or (vi) equity securities issued to the lessor or vendor in any office lease or equipment lease or similar equipment financing transaction in which the Company obtains the use of such office space or equipment for its business.
“Exercise Certificate” has the meaning set forth in Section 3(a)(i).
“Exercise Documents” has the meaning set forth in Section 3(a)(i).
“Exercise Date” means, for any given exercise of this Warrant Certificate, whether in whole or in part, a Business Day on which the conditions to such exercise as set forth in Section 3 have been satisfied at or prior to 5:00 p.m., New York City time.
“Exercise Period” means the period from (and including) the Issue Date to (and including) 5:00 p.m., New York City time, on June 30, 2030.
“Exercise Price” means 7.1935 per Warrant Share, as adjusted from time to time as provided herein.
“Expiration Date” means June 30, 2030.
“Fair Market Value” means, if the Warrant Shares are traded on a Trading Market, (i) the VWAP of such Warrant Shares for such day or (ii) if there have been no sales of such Warrant Shares on any Trading Market on any such day, the average of the highest bid and lowest asked prices for such Warrant Shares on all applicable Trading Markets at the end of such day; provided that if at any time the Warrant Shares are not listed, quoted or otherwise available for trading on any Trading Market (so that no Trading Date shall have occurred), the “Fair Market Value” of such Warrant Shares shall be the fair market value per share of such Warrant Shares (including, if applicable, any Common Stock or other Equity Interests issuable upon conversion of the Warrant Shares) as reasonably determined in good faith by the Company’s Board, such determination to be subject to Section 10(a) or Section 10(b), as applicable.
“Holder” has the meaning set forth in the preamble.
“Independent Advisor” has the meaning set forth in Section 10(a). “Initial Holder” has the meaning set forth in the preamble.
“Investors’ Rights Agreement” means that certain Second Amended and Restated Investors’ Rights Agreement, dated December 21, 2018, among the Company, certain holders of the Company’s Common Shares and certain holders of the preferred shares, as amended, amended and restated or subsequently modified.
“Issue Date” means the date designated as such on the first page of this Warrant Certificate.
“Marketable Securities” means Equity Interests meeting each of the following requirements: (i) the issuer thereof is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, and is current in its filing of all required reports and other information under the Securities Act and the Exchange Act; (ii) such Equity Interests are traded on a Trading Market; and (iii) if delivered (or to be delivered) as payment or compensation to the Holder in connection with an automatic Cashless Exercise resulting from a Sale of the Company pursuant to Section 3(c), following the closing of the such Sale of the Company the Holder would not be restricted from publicly re-selling any or all of such Equity Interests delivered to it, except to the extent that any such restriction (x) arises solely under federal or state securities laws, rules or regulations, or (y) arising in connection with a customary market stand-off provision (or similar underwriters’ lock-up) and does not extend beyond six (6) months from the closing of such Sale of the Company to the extent such restrictions may be lifted at such time under the applicable federal or state securities laws, rules or regulations.
“Nasdaq” means The Nasdaq Stock Market, Inc.
“NYSE” means the New York Stock Exchange.
“Options” means any warrants, options or similar rights to subscribe for or purchase Equity Interests of the Company, including its Common Stock, Series C Preferred Stock or Convertible Securities.
“OTC Bulletin Board” means the National Association of Securities Dealers, Inc. OTC Bulletin Board.
“Person” means any individual, corporation, company, voluntary association, partnership, limited liability company, joint venture, trust, unincorporated organization or Governmental Authority or other entity of whatever nature.
“Product” means (i) those products and Devices set forth on Schedule 7.05(b) attached to the Credit Agreement, as amended, updated or otherwise modified from time to time pursuant to the terms thereof, and (ii) any other products or Devices developed, distributed, imported, exported, labeled, promoted, licensed, marketed, sold or otherwise commercialized by the Borrower or any of its Subsidiaries, but excluding any such products or Devices that, if in development or which may be developed, have not yet reached the stage of Advanced Development.
“Product Commercialization and Development Activities” means, with respect to any Product, any combination of (i) research, development, manufacturing, quality compliance, use, sale, licensing, importation, exportation, shipping, storage, handling, designing, labeling, marketing, promotion, supply, dispensing, distribution, testing, packaging, purchasing or other commercialization activity, (ii) receipt of payment or other remuneration in respect of any of the foregoing (including, without limitation, in respect of licensing, royalty or similar payments) or (iii) any similar or other activities the purpose of which is to commercially exploit such Product.
“Public Offering” means, with respect to any Person, any sale of Equity Interests of such Person pursuant to an offering that is underwritten on a firm commitment basis by a nationally recognized investment banking firm (or through the merger of such Person with a special purpose acquisition company) and, as a result of which, such Person becomes subject to the reporting requirements of Section 13 or Section 15 of the Exchange Act immediately following such offering.
“Qualified IPO” means an initial Public Offering by the Company of Equity Interests having ordinary voting rights that results in (i) such Equity Interests being listed on either the New York Stock Exchange or the NASDAQ National Market and (ii) the receipt by the Company of gross proceeds from such offering that equal or exceed $50,000,000.
“Registration Statement” means, with respect to any Public Offering by the Company of its Common Stock, a registration statement of the Company that covers such Common Stock, including any prospectus, amendments or supplements to such Registration Statement, including post-effective amendments and all exhibits and all materials incorporated by reference in such Registration Statement.
“Right of First Refusal and Co-Sale Agreement” means that certain Second Amended and Restated Right of First Refusal and Co-Sale Agreement, dated December 21, 2018, among the Company, certain holders of the Company’s Common Shares and certain holders of the preferred shares, as amended, amended and restated, or subsequently modified.
“Rule 144” means Rule 144 promulgated under the Securities Act.
“Sale of the Company” means an event or transaction or series of related events or transactions pursuant to which, directly or indirectly, either (x) any Person or group of Persons acting jointly or otherwise in concert (other than the Holder) acquires ownership, directly or indirectly, beneficially or of record, of Equity Interests of the Company having more than fifty percent (50%) of the aggregate ordinary voting power, determined on a fully-diluted, as-if-converted or exercised basis, whether such right is exercisable immediately or only after the passage of time, or (y) (i) all or substantially all of the assets or businesses of the Company and its Subsidiaries, taken as a whole, are transferred or sold, including by way of lease, transfer, conveyance or other disposition (including, without limitation, by way of irrevocable, exclusive license arrangements), and (ii) as a result of, and pursuant to the terms governing, such event, transaction or series of related events or transactions, all Obligations outstanding under the Credit Agreement are to be paid in full in cash, Marketable Securities or a combination thereof.
“SEC” means the Securities and Exchange Commission or any successor thereto.
“Securities Act” means the Securities Act of 1933, as amended.
“Series C Preferred Stock” means, as designated and defined in the Certificate of Incorporation, the Company’s Series C Preferred Stock having a par value $0.0001 per share.
“Stockholders’ Agreements” means the Investors’ Rights Agreement, Voting Agreement and Right of First Refusal and Co-Sale Agreement.
“Trading Market” means, with respect to the Warrant Shares, the principal US exchange or market on which such Warrant Shares are quoted or available for trading, including the Nasdaq, the NYSE, the OTC Bulletin Board or otherwise.
“Unrestricted Conditions” has the meaning set forth in Section 11(a)(ii).
“Voting Agreement” means that certain Second Amended and Restated Voting Agreement, dated December 21, 2018, among the Company, certain holders of the Company’s Common Shares and certain holders of the preferred shares, as amended, amended and restated, or subsequently modified.
“VWAP” means, with respect to any Warrant Shares, as of any day of determination (a “Determination Date”), the volume weighted average sale price for the period of ten (10) consecutive trading days immediately preceding such Determination Date on the Trading Market for such Warrant Shares as reported by, or based upon data reported by, Bloomberg Financial Markets or an equivalent, reliable reporting service reasonably acceptable to the Holder and the Company (collectively, “Bloomberg”) or, if the volume weighted average sale price has not been reported for such security by Bloomberg for such ten (10) day period, then the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security that are listed in the over the counter market by the Financial Industry Regulatory Authority, Inc. or on the OTC Bulletin Board (or any successor) or in the “pink sheets” (or any successor) by the OTC Markets Group, Inc.; provided that if VWAP cannot be calculated for such security on such date in the manner provided above (including because the applicable security is not listed or publicly traded), the VWAP shall be the Fair Market Value as mutually determined by the Board and the Holder; provided further that, in the event the Board and Holder are unable to so mutually agree, Fair Market Value shall be determined pursuant to Section 10(a).
“Warrant Certificate” means this Warrant Certificate and all subsequent warrant certificates issued upon division, combination or transfer of, or in substitution for, this Warrant Certificate.
“Warrant Register” has the meaning set forth in Section 6.
“Warrant Shares” means the shares of Series C Preferred Stock purchasable upon exercise of this Warrant Certificate in accordance with the terms of this Warrant Certificate and any capital stock into which such Series C Preferred Stock shall have been converted, exchanged or reclassified following the Issue Date.
“Warrant Shares Deemed Outstanding” means, at any given time, the sum of (i) the number of shares of Warrant Shares actually outstanding at such time, plus (ii) the number of shares of Warrant Shares issuable upon exercise of Options actually outstanding at such time, plus (iii) the number of shares of Warrant Shares issuable upon conversion or exchange of Convertible Securities actually outstanding at such time (treating as actually outstanding any Convertible Securities issuable upon exercise of Options actually outstanding at such time), in each case, regardless of whether the Options or Convertible Securities are actually exercisable at such time; provided that Warrant Shares Deemed Outstanding at any given time shall not include shares owned or held by or for the account of the Company or any or its wholly owned Subsidiaries.
Section 2. Term of Warrant Certificate. Subject to the terms and conditions hereof, from
time to time during the Exercise Period, the Holder of this Warrant Certificate may exercise this Warrant Certificate for all or any part of the Warrant Shares purchasable hereunder (subject to adjustment as provided herein).
Section 3. Exercise of Warrant Certificate.
(a) Exercise Procedure. This Warrant Certificate may be exercised from time to time on any Business Day during the Exercise Period, for all or any part of the unexercised Warrant Shares, upon:
(i) delivery to the Company at its then principle executive office of a duly completed and executed Exercise Certificate in the form attached hereto as Exhibit A (each, an “Exercise Certificate”), which certificate will specify the number of Warrant Shares to be purchased and the Aggregate Exercise Price, together with this Warrant Certificate (collectively with the Exercise Certificate, the “Exercise Documents”); and
(ii) substantially contemporaneously with the delivery of the Exercise Certificate, payment to the Company of the Aggregate Exercise Price in accordance with Section 3(b); provided that, notwithstanding anything to the contrary herein, in no event shall the Exercise Price be lower than the par value of a Warrant Share.
(b) Payment of the Aggregate Exercise Price. Payment of the Aggregate Exercise Price shall be made, at the option of the Holder as expressed in the Exercise Certificate, by any of the following methods:
(i) by wire transfer of immediately available funds to an account designated in writing by the Company, in the amount of such Aggregate Exercise Price;
(ii) by instructing the Company to withhold a number of Warrant Shares then issuable upon exercise of this Warrant Certificate with an aggregate Fair Market Value as of the Exercise Date equal to such Aggregate Exercise Price; or
(iii) any combination of the foregoing.
In the event of any withholding of Warrant Shares pursuant to Section 3(b)(ii) or (iii) (solely to the extent of such withholding, a “Cashless Exercise”) where the number of such shares whose value is equal to the Aggregate Exercise Price is not a whole number, the number of such shares withheld by the Company shall be rounded up to the nearest whole share and the Company shall make a cash payment to the Holder (by wire transfer of immediately available funds) in an amount calculated as provided pursuant to Section 3(e) below.
To the extent permitted by applicable Law, for purposes of Rule 144, it is acknowledged and agreed that (i) the Warrant Shares issuable upon any exercise of this Warrant Certificate in any Cashless Exercise transaction shall be deemed to have been acquired on the Issue Date, and (ii) the holding period for any Warrant Shares issuable upon the exercise of this Warrant Certificate in any Cashless Exercise transaction shall be deemed to have commenced on the Issue Date; provided that the Company makes no representation or warranty regarding the commencement of the holding period of any Warrant Share.
(c) Automatic Cashless Exercise. To the extent this Warrant Certificate has not been exercised in full by the Holder prior to the date of any of the following events or circumstances, any portion of this Warrant Certificate that remains unexercised on such date shall be deemed to have been exercised automatically pursuant to a Cashless Exercise, in whole (and not in part), on the Business Day immediately preceding the earlier of (i) the occurrence of the Expiration Date, (ii) the occurrence of a Qualified IPO and (iii) the consummation of a Sale of the Company in which the consideration to be received by the Company or is shareholders consists solely of cash, Marketable Securities or a combination thereof.
(d) Delivery of Stock Certificates. With respect to any exercise of this Warrant Certificate by the Holder, upon receipt by the Company of the Exercise Documents and delivery of the Aggregate Exercise Price, the Company shall, within three (3) Business Days, deliver in accordance with the terms hereof to or upon the order of the Holder that number of Warrant Shares for the portion of this Warrant Certificate so exercised on such date, together with cash in lieu of any fraction of a share, as provided in Section 3(e) below. If such Warrant Shares are issued in certificated form, the Company shall deliver a certificate or certificates, to the extent possible, representing the number of Warrant Shares as the Holder shall request in the Exercise Certificate. If such Warrant Shares are issued in uncertificated form, the Company shall deliver upon request a confirmation evidencing the registration of such shares. Except as otherwise provided herein, upon any exercise hereof this Warrant Certificate shall be deemed to have been exercised and such certificate or certificates of Warrant Shares shall be deemed to have been issued, and the Holder shall be deemed to have become a holder of record of such Warrant Shares for all purposes, as of the Exercise Date.
(e) Fractional Shares. The Company shall not be required to issue a fractional Warrant Share upon exercise of any Warrant Certificate. As to any fraction of a Warrant Share that the Holder would otherwise be entitled upon such exercise, the Company shall pay to such Holder an amount in cash (by wire transfer of immediately available funds) equal to the product of (i) such fraction multiplied by (ii) the Fair Market Value of one Warrant Share on the Exercise Date.
(f) Stockholders’ Agreements. The Company acknowledges and agrees that simultaneously with the execution and delivery of this Warrant Certificate the Holder has executed and delivered to the Company, in escrow, an Adoption Agreement (as defined in the Voting Agreement) as required to be delivered pursuant to Section 6.1 of the Voting Agreement upon the issuance of additional shares of Series C Preferred Stock. Upon the initial exercise of this Warrant Certificate, such Adoption Agreement shall automatically (and without need of any further or other approval, consent or other action by any Person) be released from escrow; provided that no release from escrow shall occur or be deemed to occur until and unless the initial exercise of this Warrant Certificate shall have occurred pursuant to Section 3 hereof. The Company and the Holder each confirms and agrees that upon (but at no time prior to) such automatic release of the Adoption Agreement as provided in this clause (f) the Holder shall become an Investor and Stockholder (each as defined in the Voting Agreement) as contemplated by such Section 6.1 of the Voting Agreement. The Company further confirms and agrees that upon such release of the Adoption Agreement from escrow all conditions to issuance of the Warrant Shares upon exercise hereof required pursuant to the Voting Agreement shall have been satisfied. In addition, in connection with any other exercise of this Warrant Certificate pursuant to Section 3 hereof (including the initial exercise), upon the request of either party hereto the parties shall promptly (but in any event within three (3) Business Days of the applicable Exercise Date) enter into the other Stockholders’ Agreements, pursuant to which the Holder will become a party thereto; provided that, any term or provision hereof to the contrary notwithstanding, without limiting the obligations of the parties set forth in Section 3(d), the execution and delivery of such other Stockholders’ Agreements by the Holder shall not be a condition precedent to any exercise of this Warrant Certificate or the delivery of Warrant Shares in connection therewith pursuant to Section 3(d).
(g) Delivery of New Warrant Certificate. Unless the purchase rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, at the time of delivery of the certificate or certificates representing the Warrant Shares being issued in accordance with Section 3(d) hereof, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unexpired and unexercised Warrant Shares called for by this Warrant. Such new Warrant shall in all other respects be identical to this Warrant.
(h) Valid Issuance of Warrant Certificate and Warrant Shares; Payment of Taxes. With respect to the exercise of this Warrant Certificate, the Company hereby represents, warrants, covenants and agrees as follows:
(i) This Warrant Certificate is, and any Warrant Certificate issued in substitution for or replacement of this Warrant Certificate shall be, upon issuance, duly authorized.
(ii) All Warrant Shares issuable upon the exercise of this Warrant Certificate (or any substitute or replacement Warrant Certificate) in accordance with its terms including payment of the Exercise Price, shall be, upon issuance, and the Company shall take all such actions as may be necessary or appropriate in order that such Warrant Shares are, validly issued, fully paid and non-assessable, issued without violation of any pre-emptive or similar rights of any shareholder of the Company and free and clear of all liens and charges.
(iii) The Company shall take all such actions as may be necessary to ensure that all such Warrant Shares are issued without violation by the Company of any applicable Law or any requirements of any U.S. or non-U.S. securities exchange upon which Warrant Shares may be listed at the time of such exercise.
(iv) The Company shall pay all expenses in connection with, and all governmental charges that may be imposed with respect to, the issuance or delivery of Warrant Shares issuable upon exercise of their Warrant Certificate.
(v) The Company is a corporation duly organized and validly existing under the Laws of the State of Delaware and has the capacity and corporate power and authority to enter into this Warrant Certificate.
(vi) The Company has taken or caused to be taken all action required to be taken by it, its Board, any of its shareholders or any other Person to authorize the execution, delivery and performance of this Warrant Certificate and the issuance of the Warrant Shares.
(vii) This Warrant Certificate has been duly executed and delivered by the Company.
(viii) The obligations of the Company under this Warrant Certificate are legal, valid and binding obligations, enforceable against the Company in accordance with the terms hereof.
(ix) The Company has complied with all obligations set forth in Section 3(i), below.
(i) Conditional Exercise. Notwithstanding any other provision hereof, if an exercise of all or any portion of this Warrant Certificate is to be made in connection with a Public Offering, a Sale of the Company or other possible liquidity transaction or event, such exercise may, at the election of the Holder, be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction or event.
(j) Reservation of Shares. The Company shall at all times during the Exercise Period reserve and keep available out of its authorized but unissued Series C Preferred Stock or (if applicable) other Equity Interests constituting Warrant Shares (including its Common Stock or other Equity Interests) or into which Series C Preferred Stock may be exercised for or converted into, solely for the purpose of issuance upon the exercise of this Warrant Certificate,
the maximum number of Warrant Shares or other Equity Interests issuable upon the exercise of this Warrant Certificate or the conversion or exchange of Warrant Shares issuable upon such exercise. The Company shall not increase the par value of any Warrant Shares receivable upon the exercise of this Warrant Certificate above the Exercise Price then in effect, and shall take all such actions within its power as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant Certificate.
(k) Rule 144 Compliance. At all times following the closing of a Public Offering, and with a view to making available to the Holder the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a holder to sell securities of the Company to the public without registration or pursuant to a Registration Statement, the Company shall:
(i) use reasonable commercial efforts to make and keep adequate public information available, as required by clause (c) of Rule 144;
(ii) use reasonable commercial efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(iii) furnish, or otherwise make available to the Holder so long as the Holder owns Warrant Shares, promptly upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and the Exchange Act.
(l) Ownership Cap. At all times following the occurrence of a Qualified IPO, the Company shall not knowingly effect the exercise of this Warrant Certificate, and the Initial Holder shall not have the right to exercise this Warrant Certificate to the extent that, after giving effect to such exercise, the Initial Holder (together with its Affiliates) would beneficially own in excess of 9.99% of the Equity Interests of the Company having ordinary voting rights outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of such voting Equity Interests beneficially owned by the Initial Holder and its Affiliates shall include the number of Warrant Shares issuable upon exercise of this Warrant Certificate with respect to which the determination of such aggregate number is being made, but shall exclude Warrant Shares that do not have ordinary voting rights or that would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant Certificate beneficially owned by the Initial Holder and its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other Equity Interests of the Company beneficially owned by the Initial Holder and its Affiliates (including, without limitation, any Convertible Securities) subject to a limitation on conversion or exercise analogous to the limitations contained herein. Except as set forth in the preceding sentence, for purposes of this Section 3(k), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged by the Holder that the Company is not representing to such Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and such Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3(l) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to the ownership cap, and the Company shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Warrant Certificate, in determining the number of outstanding Equity Interests of the Company having ordinary voting rights the Initial Holder of this Warrant Certificate may rely on the number of such outstanding Equity Interests as reflected in the most recent of (i) if available, the Company’s Form 10-K, Form 10-Q or other public filing with the SEC, as the case may be, (ii) a more recent public announcement by the Company, or (iii) any other notice by the Company or its transfer agent setting forth the number of such Equity Interests outstanding. In addition, upon the written request of the Initial Holder, the Company shall, within three (3) Business Days, confirm to the Initial Holder the number of its shares of Equity Interests having ordinary voting rights then outstanding.
(m) Market Stand-off Agreement. The Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the initial registration by the Company of shares of its Common Stock or any other equity securities under the Securities Act on a registration statement on Form S-1 or Form S-3, and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days, or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports, and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2241, or any successor provisions or amendments thereto), (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any Warrant Shares or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for such offering or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Section 3(m) shall only apply to a Qualified IPO, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, or the transfer of any shares to any trust for the direct or indirect benefit of the Holder or the immediate family of the Holder; provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein; and provided further that any such transfer shall not involve a disposition for value, and shall be applicable to the Holder only if all officers and directors are subject to the same restrictions and the Company uses commercially reasonable efforts to obtain a similar agreement from all stockholders individually owning more than one percent (1%) of the Company’s outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding preferred stock). The underwriters in connection with such registration are intended third-party beneficiaries of this Section 3(m) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. The Holder further agrees to execute such customary agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 3(m) or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all holders of the Company’s equity securities subject to such agreements, based on the number of shares subject to such agreements. Upon execution and delivery by the Holder of the other Stockholders’ Agreements referenced in Section 3(f) above, this Section 3(m) shall, automatically and without need of any further action by any Person, terminate and no longer be of any force and effect.
Section 4. Adjustment to Number of Warrant Shares, Exercise Price, etc. The number of Warrant Shares issuable upon exercise of this Warrant Certificate shall be subject to adjustment from time to time as provided in this Section 4.
(a) Adjustment to Number of Warrant Shares Upon Reorganizations, Reclassifications, etc. In the event of any changes in the number of Warrant Shares Deemed Outstanding by reason of redemptions, recapitalizations, reclassifications, combinations or exchanges of shares, splits or reverse splits, separations, reorganizations, liquidations, substitutions, replacements or the like, the number and class of Warrant Shares available upon exercise of this Warrant Certificate in the aggregate and the Exercise Price per share shall be correspondingly adjusted as may be necessary in order to give the Holder of this Warrant Certificate, upon exercise, the total number, class, and kind of shares as the Holder would have owned (or would have had the right to own upon exercise hereof) had this Warrant Certificate been exercised prior to any such event and had the Holder continued to hold such Warrant Shares until after the event requiring adjustment. The form of this Warrant Certificate need not be changed because of any adjustment in the number of Warrant Shares subject to this Warrant Certificate.
(b) Changes to Conversion Rate or Conversion Price of Series C Preferred Stock. Without limiting the foregoing, but without duplication of any adjustment to be made pursuant to Section 4(a) above or Section 4(c) below, in the event of any changes to the Series C Conversion Price pursuant to the terms of (and as defined in) the Certificate of Incorporation, then upon exercise of this Warrant Certificate each Warrant Share acquired as a result of such exercise, without additional cost to the Holder, shall be subject to the Series C Conversion Price last in effect for the Series C Preferred Stock, as if the Holder had owned the Warrant Shares of record as of the date of such change.
(c) Adjustment to Number of Warrant Shares Upon Certain Dividends, etc. If the Company declares or pays a dividend or distribution on the outstanding shares of its Series C Preferred Stock payable in cash, Equity Interests or other property (or prior to the exercise of this Warrant Certificate in full the holders of Series C Preferred Stock become entitled to receive any such dividend or distribution payable in respect of any Equity Interests into which the Series C Preferred Stock is convertible or exchangeable), then upon exercise of this Warrant Certificate, for each Warrant Share acquired, the Holder shall receive, without additional cost to the Holder, the total amount, number and kind of cash, Equity Interests or other property which the Holder would have received had the Holder owned the Warrant Shares of record as of the date such dividend or distribution occurred.
(d) Mandatory Conversion of Series C Preferred Stock. Without limiting the foregoing, but without duplication of any adjustment to be made pursuant to Section 4(a), Section (b) or Section 4(c) above, in the event that, pursuant to the provisions of the Certificate of Incorporation, all outstanding shares of Series C Preferred Stock are converted, automatically or by action of the holders thereof, into Common Stock (or other Equity Interests), then from and after the date on which all outstanding shares of Series C Preferred Stock have been so converted, this Warrant Certificate shall be exercisable for such number of shares of Common Stock (or other Equity Interests) into which the Warrant Shares would have been converted had the Holder held such Warrant Shares on the date of such conversion, and the Exercise Price shall equal the Exercise Price in effect as of immediately prior to such conversion divided by the number of shares of Common Stock (or other Equity Interests) into which one Warrant Share would have been converted, all subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant Certificate.
(e) No Adjustment for Excluded Securities. Notwithstanding the foregoing, no adjustments shall be made under this Section 4 as the result of the issuance or deemed issuance of Excluded Securities.
(f) Certificate as to Adjustment.
(i) As promptly as reasonably practicable following any change or adjustment of the type described above in this Section 4, but in any event not later than five (5) Business Days thereafter, the Company shall furnish to the Holder a certificate of a Responsible Officer setting forth in reasonable detail such change or adjustment and the facts upon which it is based and certifying the calculation thereof.
(ii) As promptly as reasonably practicable following the receipt by the Company of a written request by the Holder, but in any event not later than five (5) Business Days thereafter, the Company shall furnish to the Holder a certificate of a Responsible Officer certifying the number of Warrant Shares or the amount, if any, of other Equity Interests, securities or assets then issuable upon exercise of the Warrant Certificate.
(g) Notices. In the event that, at any time during the Exercise Period the Company shall take a record of the holders of its outstanding capital stock (or other Equity Interests at the time issuable upon exercise of this Warrant Certificate) for the purpose of:
(i) entitling or enabling such holders to receive any dividend or other distribution, 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;
(ii) (x) any capital reorganization of the Company, any reclassification of any outstanding securities, any consolidation or merger of the Company with or into another Person, any Public Offering of the Company’s Equity Interests, (y) a sale of all or substantially all of the Company’s assets to another Person or (z) any liquidation, bankruptcy, dissolution, winding-up or any similar event of the Company; or
(iii) the voluntary or involuntary dissolution, liquidation or winding-up of the Company (including by way of a bankruptcy or equivalent insolvency proceeding);
then, and in each such case, the Company shall send or cause to be sent to the Holder at least five (5) Business Days prior to the applicable record date or the applicable expected effective date, as the case may be, for the event, a written notice specifying, as the case may be, (A) the record date for such dividend, distribution or other right or action, and a description of such dividend, distribution or other right or action, or (B) the effective date on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up is proposed to take place, and the date, if any is to be fixed, as of which the books of the Company shall close or a record shall be taken with respect to which the holders of record of its capital stock (or such other Equity Interests at the time issuable upon exercise of the Warrant Certificate) shall be entitled to exchange their shares of capital stock (or such other Equity Interests), for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Warrant Certificate and the Warrant Shares.
(h) Election to Convert Warrant Certificate in Respect of an Issuance of Senior Equity Interests. In the event that at any time after the date hereof the Company issues Series D preferred stock or another class or series of its Equity Interests having rights, preferences, priorities or the like that are senior or otherwise prior to the Series C Preferred Stock (collectively, “Senior Equity Interests”), the Holder shall have the option, exercisable in its sole discretion by written notice to the Company, to convert this Warrant Certificate (and the related rights and interests hereunder), to the extent this Warrant Certificate is unexercised at the time the Holder exercises such option, into a warrant to purchase such Senior Equity Interests; provided that in furtherance of the foregoing the parties agree to amend or otherwise modify this Warrant Certificate in all ways necessary and appropriate to effect such conversion of this Warrant Certificate into a warrant to purchase such Senior Equity Interests, including as follows: (i) all references herein to Series C Preferred Stock shall be changed to refer to the description of the Senior Equity Interests provided in the Certificate of Incorporation (as amended or modified); (ii) the Exercise Price of the Warrant Shares shall be automatically adjusted to equal the original per share issue price of the Senior Equity Interests as provided in the applicable sale or subscription agreement related thereto (the “Senior Equity Sales Price”), subject to further adjustment from time to time in accordance with Section 4, as applicable; and (iii) after giving effect to the conversion of the Warrant Certificate contemplated by this clause (h), the number of Warrant Shares issuable upon exercise of this Warrant Certificate shall be automatically adjusted to the product of (x) the total number of shares of Series C Preferred Stock that, immediately prior to the conversion of the Warrant Certificate contemplated by this clause (h), remain issuable upon exercise in full of this Warrant Certificate, multiplied by (y) a fraction having a numerator equal to Exercise Price in effect at the time referenced in clause (x) above and a denominator equal to the Senior Equity Sales Price, subject to further adjustment from time to time in accordance with Section 4; provided further that the option granted to the Holder pursuant to this clause (h) shall only apply to the immediate next issuance of Senior Equity Interests, if any, issued after the date hereof, and not any issuance of Senior Equity Interests, if any, that follows such immediate next issuance.
Section 5. [Reserved].
Section 6. Warrant Register. The Company shall keep and properly maintain at its principal executive offices a register (the “Warrant Register”) for the registration of this Warrant Certificate and any transfers thereof. The Company may deem and treat the Person in whose name this Warrant Certificate is registered on such register as the Holder thereof for all purposes, and the Company shall not be affected by any notice to the contrary, except any assignment, division, combination or other transfer of this Warrant Certificate effected in accordance with the provisions of this Warrant Certificate.
Section 7. Transfer of Warrant Certificate. Subject to the transfer conditions referred to in the legend endorsed hereon and Section 11, this Warrant Certificate and all rights hereunder are transferable, in whole or in part, by the Holder without charge to the Holder, upon surrender of this Warrant Certificate to the Company at its then principal executive offices with a properly completed and duly executed instrument of assignment in the form attached hereto as Exhibit B (an “Assignment”). Upon such compliance, surrender and delivery, the Company shall execute and deliver a new Warrant Certificate or Warrant Certificates in the name of the assignee or assignees and in the denominations specified in such Assignment, and shall issue to the assignor a new Warrant Certificate evidencing the portion of this Warrant Certificate, if any, not so assigned, and this Warrant Certificate shall promptly be cancelled.
Section 8. The Holder Not Deemed a Shareholder; Limitations on Liability. Except as otherwise specifically provided herein (including in Section 4(c) above), (i) prior to the Exercise Date, the Holder shall not be entitled to receive dividends, nor shall anything contained in this Warrant Certificate be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company or any right to receive dividends or subscription rights, and (ii) prior to the registration of the Holder in the share register of the Company with respect to the Warrant Shares to which the Holder is then entitled to receive upon the due exercise of this Warrant Certificate, the Holder shall not be entitled to vote, nor shall anything contained in this Warrant Certificate be construed to confer upon the Holder, as such, any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise) or receive notice of meetings. In addition, nothing contained in this Warrant Certificate shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant Certificate or otherwise) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 8, the Company shall provide the Holder with copies of the same notices and other information given to all stockholders of the Company generally, contemporaneously with the giving thereof to such stockholders.
Section 9. Replacement on Loss; Division and Combination.
(a) Replacement of Warrant Certificate on Loss. Subject to any further requirements in relation to the cancellation of this Warrant Certificate pursuant to applicable Law, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant Certificate and upon delivery of an indemnity reasonably satisfactory to it (it being understood that a written indemnification agreement or affidavit of loss of the Holder shall be a sufficient indemnity) and, in case of mutilation, upon surrender of such Warrant Certificate for cancellation to the Company, the Company at its own expense shall execute and deliver to the Holder, in lieu hereof, a new Warrant Certificate of like tenor and exercisable for an equivalent number of Warrant Shares as this Warrant Certificate so lost, stolen, mutilated or destroyed; provided that, in the case of mutilation, no indemnity shall be required if this Warrant Certificate in identifiable form is surrendered to the Company for cancellation.
(b) Division and Combination of Warrant Certificate. Subject to compliance with the applicable provisions of this Warrant Certificate as to any transfer or other assignment which may be involved in such division or combination, this Warrant Certificate may be divided or, following any such division of this Warrant Certificate, subsequently combined with other Warrant Certificates, upon the surrender of this Warrant Certificate or Warrant Certificates to the Company at its then principal executive offices, together with a written notice specifying the names and denominations in which new Warrant Certificates are to be issued, signed by each applicable Holder or its agents or attorneys. Subject to compliance with the applicable provisions of this Warrant Certificate as to any transfer or assignment which may be involved in such division or combination, the Company shall at its own expense execute and deliver a new Warrant Certificate or Warrant Certificates in exchange for this Warrant Certificate or Warrant Certificates so surrendered in accordance with such notice. Such new Warrant Certificate or Warrant Certificates shall be of like tenor to the surrendered Warrant Certificate or Warrant Certificates and shall be exercisable in the aggregate for an equivalent number of Warrant Shares as this Warrant Certificate or Warrant Certificates so surrendered in accordance with such notice.
Section 10. Disputes; No Impairment, etc. The parties hereto agree as follows:
(a) Disputes. In the event of any dispute which arises between the Holder and the Company (including the Board of the Company) with respect to the calculation or determination of the adjusted Exercise Price, the number of Warrant Shares, other Equity Interests, Fair Market Value, cash or other property issuable upon exercise of this Warrant Certificate, the amount or type of consideration due to the Holder in connection with any event, transaction or other matter described in Section 4 above or any other matter involving this Warrant Certificate or the Warrant Shares that is not resolved by the parties after good faith discussions and efforts to reach resolution, upon the request of the Holder the disputed issue(s) shall be submitted to a firm of independent investment bankers or public accountants of recognized national standing, which (i) shall be chosen by the Company and be reasonably satisfactory to the Holder and (ii) shall be completely independent of the Company (an “Independent Advisor”), for determination, and such determination by the Independent Advisor shall be binding upon the Company and the Holder with respect to this Warrant Certificate, any Warrant Shares issued or issuable in connection herewith, the Exercise Price therefor, or any other matter in dispute, as the case may be, absent manifest error. Costs and expenses of the Independent Advisor shall be shared 50/50 by the Company and the Holder.
(b) Equitable Equivalent. In case any event shall occur as to which the provisions of Section 10(a) above are not strictly applicable but the failure to make any adjustment would not, in the reasonable, good faith opinion of the Holder, fairly protect the rights and benefits of the Holder represented by this Warrant Certificate in accordance with the essential intent and principles of Sections 4 and 10(a), then, in any such case, at the request of the Holder, the Company shall submit the matter and issues raised by the Holder to an Independent Advisor, which shall give its opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in Sections 4 and 10(a), to the extent necessary to preserve the rights and benefits represented by this Warrant Certificate. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holder and shall make the adjustments described therein, if any. Costs and expenses of the Independent Advisor shall be shared 50/50 by the Company and the Holder.
(c) No Avoidance. The Company shall not, by way of amendment of any of its Organic Documents or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance, performance or intended results of any of the terms or provisions of this Warrant Certificate, but will at all times in good faith assist in the carrying out of all such terms or provisions and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against dilution or other impairment as if the Holder was a shareholder of the Company entitled to the benefit of fiduciary duties afforded to shareholders under Delaware law.
Section 11. Compliance with the Securities Act.
(a) Agreement to Comply with the Securities Act, etc.
(i) Legend. The Holder, by acceptance of this Warrant Certificate, agrees to comply in all respects with the provisions of this Section 11 and the restrictive legend requirements set forth on the face of this Warrant Certificate and further agrees that it shall not offer, sell or otherwise dispose of this Warrant Certificate or any Warrant Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act. Subject to clause (ii) below, this Warrant Certificate and all Warrant Shares issued upon exercise of this Warrant Certificate (unless registered under the Securities Act) shall be stamped or imprinted with a legend in substantially the form as set forth on the face hereof.
(ii) Removal of Restrictive Legends. Neither this Warrant Certificate nor any certificates evidencing Warrant Shares issuable or deliverable under or in connection with this Warrant Certificate shall contain any legend restricting the transfer of such Warrant Certificate or Warrant Shares as applicable (including the legend required above in clause (i)) in any of the following circumstances: (A) following any sale of this Warrant Certificate or any Warrant Shares issued or delivered to the Holder under or in connection herewith pursuant to Rule 144 or (B) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC), including clause (b)(1) of Rule 144, or any applicable state or foreign securities laws; provided that, in the case of clause (B) above, if the Company requests, a customary opinion, in form and substance reasonably satisfactory to the Company to such effect, will be delivered to the Company by counsel to the Holder (collectively, the “Unrestricted Conditions”). This Warrant Certificate or Warrant Shares, as the case may be, shall be issued free of all legends if the Unrestricted Conditions are met at the time of issuance
(iii) Replacement Warrant Certificate. The Company agrees that at such time as the Unrestricted Conditions have been satisfied it shall promptly (but in any event within five (5) Business Days) following written request from the Holder issue a replacement Warrant Certificate or replacement Warrant Shares, as the case may be, free of all restrictive legends.
(iv) Sale of Unlegended Shares. The Holder agrees that the removal of the restrictive legend from this Warrant Certificate and any certificates representing securities as set forth in Section 11(a)(ii) above is predicated upon the Company’s reliance that the Holder will sell this Warrant Certificate or any such securities pursuant to either an effective Registration Statement or otherwise pursuant to the requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if such securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.
(b) Representations of the Holder. In connection with the issuance of this Warrant Certificate, the Holder represents, as of the Issue Date, to the Company by acceptance of this Warrant Certificate as follows:
(i) The Holder is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act. The Holder is acquiring this Warrant Certificate and the Warrant Shares to be issued upon exercise hereof for investment for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant Certificate or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act.
(ii) The Holder understands and acknowledges that this Warrant Certificate and the Warrant Shares to be issued upon exercise hereof are “restricted securities” under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that, under such Laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances. In addition, the Holder represents that it is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.
(iii) The Holder acknowledges that it can bear the economic and financial risk of its investment for an indefinite period and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in this Warrant Certificate and the Warrant Shares. The Holder has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant Certificate and the business, properties, prospects and financial condition of the Company.
Section 12. Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (i) when delivered by hand (with written confirmation of receipt); (ii) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (iii) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (iv) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 12).
| | | | | | | | |
If to the Company: | Pear Therapeutics, Inc. |
| | 200 State Street, 13th Floor |
| | Boston, MA 02109 |
| | Attention: Ronan O’Brien |
| | E-mail: ronan.obrien@peartherapeutics.com |
| | |
with a copy to: | Foley Hoag LLP |
| | 55 Seaport Boulevard |
| | Boston, MA 02210 |
| | Attention: David Broadwin, Esq. |
| | E-mail: DAB@foleyhoag.com |
| | |
If to the Holder: | Perceptive Credit Holdings III, LP |
| | c/o Perceptive Advisors LLC |
| | 51 Astor Place, 10th Floor |
| | New York, NY 10003 |
| | Attention: Sandeep Dixit |
| | E-mail: Sandeep@perceptivelife.com |
| | |
with a copy to: | Morrison & Foerster LLP |
| | 250 West 55th Street |
| | New York, NY 10019 |
| | Attention: Mark Wojciechowski, Esq. |
| | E-mail: mwojciechowski@mofo.com |
Section 13. Cumulative Remedies. Except to the extent expressly provided in Section 7 to the contrary, the rights and remedies provided in this Warrant Certificate are cumulative and are not exclusive of, and are in addition to and not in substitution for, any other rights or remedies available at Law, in equity or otherwise.
Section 14. Entire Agreement. This Warrant Certificate constitutes the sole and entire agreement of the parties to this Warrant Certificate with respect to the subject matter contained herein and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter.
Section 15. Successor and Assigns. This Warrant Certificate and the rights evidenced hereby shall be binding upon and shall inure to the benefit of the parties hereto and the successors of the Company and the successors and permitted assigns of the Holder. Such successor or permitted assign of the Holder shall be deemed to be the “Holder” for all purposes hereunder.
Section 16. No Third-Party Beneficiaries. Except to the extent expressly provided in Section 3(m) above, this Warrant Certificate is for the sole benefit of the Company and the Holder and their respective successors and, in the case of the Holder, permitted assigns, and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Warrant Certificate.
Section 17. Headings. The headings in this Warrant Certificate are for reference only and shall not affect the interpretation of this Warrant Certificate.
Section 18. Amendment and Modification; Waiver. Except as otherwise provided herein, this Warrant Certificate may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by the Company or the Holder of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Warrant Certificate shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
Section 19. Severability. If any term or provision of this Warrant Certificate is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Warrant Certificate or invalidate or render unenforceable such term or provision in any other jurisdiction.
Section 20. Governing Law. This Warrant Certificate shall be governed by and construed in accordance with the internal Laws of the State of New York without effect to any choice or conflict of Law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of New York.
Section 21. Submission to Jurisdiction. Any legal suit, action or proceeding arising out of or based on this Warrant Certificate or the transactions contemplated hereby may be instituted in the federal courts of the United States or the courts of the State of New York, in each case located in the city and county of New York. Each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified or registered mail to such party’s address set forth in Section 12 shall be effective service of process for any suit, action or other proceeding, and the parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding has been brought in an inconvenient forum.
Section 22. Counterparts. This Warrant Certificate may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Warrant Certificate delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Warrant Certificate.
Section 23. No Strict Construction. This Warrant Certificate shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has duly executed this Warrant Certificate on the Issue Date.
| | | | | | | | | | | |
| PEAR THERAPEUTICS, INC. |
| | |
| By | | |
| | Name: | |
| | Title: | |
| | | | | | | | |
Accepted and agreed, | |
| | |
PERCEPTIVE CREDIT HOLDINGS III, LP |
| | |
By: | PERCEPTIVE CREDIT OPPORTUNITIES GP, LLC, its general partner | |
| | |
By | | |
Name: Sandeep Dixit | |
Title: Chief Credit Officer | |
| | |
By | | |
Name: Sam Chawla | |
Title: Portfolio Manager | |
Exhibit A
to Warrant Certificate
FORM OF EXERCISE CERTIFICATE
(To be signed only upon exercise of Warrant Certificate)
To: Pear Therapeutics, Inc.
200 State Street, 13th Floor
Boston, MA 02109
Attention: [____]
Reference is made to that certain Warrant Certificate, having an issue date of [______] and bearing Warrant Certificate No. [___] (the “Warrant Certificate”), issued by Pear Therapeutics, Inc. (the “Company”) to [Name of Holder] (the “Holder”). Unless otherwise defined herein, capitalized terms used herein have the meanings ascribed thereto in the Warrant Certificate.
The undersigned, as holder of a right to purchase Warrant Shares (as defined in the Warrant Certificate) of the Company pursuant to the terms of the Warrant Certificate, a copy of which is attached to this Exercise Certificate, hereby irrevocably elects to exercise the purchase right represented by such Warrant Certificate for, and to purchase thereunder, [__________ (___________)] Warrant Shares of the Company and herewith makes payment with respect to this Exercise Certificate of [____________ Dollars ($___________)] therefor by the following method.
(Check all that apply):
☐ The undersigned hereby elects to make payment of the Aggregate Exercise Price of [_________Dollars ($_________)] for [(_________)] shares of Series C Preferred Stock using the method described in Section 3(b)(i).
☐ The undersigned hereby elects to make payment of the Aggregate Exercise Price of [_________Dollars ($_________)] for [(_________)] shares of Series C Preferred Stock using the method described in Section 3(b)(ii).
☐ The undersigned hereby elects to make payment of the Aggregate Exercise Price of [_________Dollars ($_________)] for [(_________)] shares of Series C Preferred Stock using the method described in Section 3(b)(iii).
DATED:___________________
| | | | | | | | |
| [NAME OF HOLDER] |
| | |
| By | |
| | Name: |
| | Title: |
Exhibit B
to Warrant Certificate
FORM OF ASSIGNMENT
[DATE OF ASSIGNMENT]
Reference is made to that certain Warrant Certificate, having an issue date of [ __________] and bearing Warrant Certificate No. [____] (the “Warrant Certificate”), issued by Pear Therapeutics, Inc. (the “Company”) to the undersigned (the “Holder”). Unless otherwise defined herein, capitalized terms used herein have the meanings ascribed thereto in the Warrant Certificate.
THE UNDERSIGNED, [NAME OF HOLDER], is the holder of the Warrant Certificate and is entitled to purchase up to [__________] Warrant Shares pursuant to the terms thereof. A copy of the Warrant Certificate is attached hereto.
FOR VALUE RECEIVED, the Holder hereby sells, assigns and transfers to [NAME OF ASSIGNEE] (the “Assignee”) the right to acquire [all Warrant Shares entitled to be purchased upon exercise of the Warrant Certificate] [___________ of the Warrant Shares entitled to be purchased upon exercise of the Warrant Certificate] (the “ Assignment”). In furtherance of the foregoing assignment, the Holder hereby irrevocably instructs the Company to (i) memorialize such assignment in the Warrant Register as required pursuant to Section 6 of the Warrant Certificate, and (ii) pursuant to Section 7 of the Warrant Certificate, execute and deliver to the Assignee [and the Holder][a new Warrant Certificate][new Warrant Certificates] reflecting the foregoing assignment ([each] a “Substitute Warrant Certificate”). The Assignee acknowledges and agrees that its Substitute Warrant Certificate and the Warrant Shares to be issued upon exercise thereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of its Substitute Warrant Certificate or any Warrant Shares to be issued upon exercise or conversion thereof except under circumstances which will not result in a violation of the Securities Act or any applicable state securities Laws. The Assignee represents and warrants for the benefit of the Company that the Assignee is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act.
To the extent required pursuant to Section 11(a) of the Warrant Certificate, the Assignee acknowledges and agrees that a restrictive legend shall be applied to the Assignee’s Substitute Warrant Certificate and the Warrant Shares issuable upon exercise of such certificate substantially consistent with the legend required pursuant to Section 11(a) of the Warrant Certificate.
The Assignee acknowledges and agrees that simultaneously with the execution and delivery of this Assignment, the Assignee has executed and delivered to the Company, in escrow, an Adoption Agreement to the Voting Agreement. Upon the initial exercise of the Substitute Warrant Certificate, such Adoption Agreement shall automatically (and without need of any further or other approval, consent or other action by any Person) be released from escrow.
The Assignee further confirms, acknowledges and agrees to its obligation to enter into and become bound by the other Stockholders’ Agreements upon any exercise by it of the Substitute Warrant Certificate.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto agree as set forth above as of the date first written above.
| | | | | | | | |
| [NAME OF HOLDER] |
| | |
| By | |
| Name: |
| Title: |
| | | | | | | | |
Accepted and agreed, | |
| | |
[NAME OF ASSIGNEE] | |
| | |
By | | |
| Name: | |
| Title: | |
| | |
PEAR THERAPEUTICS, INC. | |
| | |
By | | |
| Name: | |
| Title: | |