CERULEAN PHARMA INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS EQUITY (DEFICIT)
(In thousands,
except share data and par value)
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Redeemable
Convertible Preferred
Stock
$0.01 Par Value
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Common Stock
$0.0001 Par Value
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Additional
Paid-In
Capital
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Accumulated
Deficit
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Total
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Shares
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Amount
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Shares
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Amount
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BALANCE January 1, 2014
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85,207,356
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81,525
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785,531
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4,140
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(98,439
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)
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(94,299
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)
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Exercise of stock options
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41,566
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140
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140
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Stock-based compensation
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885
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885
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Issuance of common stock from initial public offering, net of underwriting fees and issuance
costs of $7,126
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9,569,715
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1
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59,861
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59,862
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Conversion of convertible preferred stock into common stock
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(85,207,356
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)
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(81,525
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)
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6,826,004
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1
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81,525
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81,526
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Reclassification of warrants in connection with initial public offering
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424
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424
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Conversion of convertible notes, net of issuance costs of $187
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2,902,233
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20,129
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20,129
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Net loss
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(23,342
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)
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(23,342
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)
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BALANCE December 31, 2014
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20,125,049
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2
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167,104
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(121,781
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)
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45,325
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Exercise of stock options
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370,230
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1,628
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1,628
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Stock-based compensation
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2,375
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2,375
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Issuance of common stock from public offering, net of underwriting fees and issuance costs of
$3,111
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6,716,000
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1
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37,184
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37,185
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Issuance of common stock from private placement
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135,501
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1,000
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1,000
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Issuance of warrants in connection with term loan facility
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824
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824
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Net loss
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|
|
|
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(39,594
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)
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(39,594
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)
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BALANCE December 31, 2015
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27,346,780
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3
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210,115
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(161,375
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)
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48,743
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Issuance of common stock from employee stock purchase plan
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37,712
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78
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78
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Issuance of common stock for services
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52,693
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54
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54
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Stock-based compensation
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2,755
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2,755
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Issuance of common stock from common stock purchase agreement, net of issuance costs of
$214
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1,500,000
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786
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786
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Net loss
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(39,305
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)
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(39,305
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)
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BALANCE December 31, 2016
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$
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$
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28,937,185
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$
|
3
|
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|
$
|
213,788
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|
|
$
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(200,680
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)
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|
$
|
13,111
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See notes to consolidated financial statements.
F-5
CERULEAN PHARMA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
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Years Ended December 31,
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2016
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2015
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2014
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Cash flows from operating activities:
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|
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Net loss
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$
|
(39,305
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)
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|
$
|
(39,594
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)
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|
$
|
(23,342
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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|
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|
|
|
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Stock-based compensation
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2,755
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2,375
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|
885
|
|
Noncash rent expense
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|
|
153
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|
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|
(41
|
)
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|
29
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Change in carrying value of preferred stock warrant liability
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|
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|
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(504
|
)
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Depreciation and amortization
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|
261
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|
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|
192
|
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|
126
|
|
(Gain) loss on disposal of property and equipment
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4
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|
(6
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)
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|
|
(28
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)
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Loss on extinguishment of debt
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|
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2,493
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Amortization of debt discount and deferred financing costs
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|
420
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|
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|
739
|
|
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|
215
|
|
Deferred revenue
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|
5,000
|
|
|
|
|
|
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Amortization of deferred revenue
|
|
|
(507
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, prepaid expenses and other current assets
|
|
|
(446
|
)
|
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|
342
|
|
|
|
(695
|
)
|
Accounts payable
|
|
|
(603
|
)
|
|
|
795
|
|
|
|
341
|
|
Accrued expenses
|
|
|
(1,268
|
)
|
|
|
3,283
|
|
|
|
1,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(33,536
|
)
|
|
|
(31,915
|
)
|
|
|
(19,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(535
|
)
|
|
|
(277
|
)
|
|
|
(225
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
23
|
|
|
|
40
|
|
Increase (decrease) in restricted cash
|
|
|
117
|
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(418
|
)
|
|
|
(484
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
918
|
|
|
|
2,628
|
|
|
|
140
|
|
Proceeds from public stock offering, net
|
|
|
|
|
|
|
37,185
|
|
|
|
59,862
|
|
Proceeds from loan payable
|
|
|
|
|
|
|
21,000
|
|
|
|
|
|
Proceeds from issuance of convertible promissory notes
|
|
|
|
|
|
|
|
|
|
|
8,500
|
|
Payments on loan payable
|
|
|
(7,922
|
)
|
|
|
(3,321
|
)
|
|
|
(3,348
|
)
|
Cash paid for debt issuance costs
|
|
|
|
|
|
|
(359
|
)
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(7,004
|
)
|
|
|
57,133
|
|
|
|
64,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(40,958
|
)
|
|
|
24,734
|
|
|
|
45,686
|
|
Cash and cash equivalents Beginning of year
|
|
|
75,908
|
|
|
|
51,174
|
|
|
|
5,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents End of year
|
|
$
|
34,950
|
|
|
$
|
75,908
|
|
|
$
|
51,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment in accounts payable
|
|
$
|
|
|
|
$
|
177
|
|
|
$
|
|
|
Conversion of redeemable convertible preferred stock into common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,526
|
|
Conversion of convertible notes and accrued interest into common stock, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,129
|
|
Reclassification of warrants to additional
paid-in
capital
|
|
$
|
|
|
|
$
|
|
|
|
$
|
424
|
|
Warrants issued with term loan facility
|
|
$
|
|
|
|
$
|
824
|
|
|
$
|
|
|
Supplemental cash flow information Interest paid
|
|
$
|
1,293
|
|
|
$
|
1,000
|
|
|
$
|
400
|
|
See notes to consolidated financial statements.
F-6
CERULEAN PHARMA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
NATURE OF BUSINESS AND OPERATIONS
|
Nature of Business
Cerulean
Pharma Inc. (the Company) was incorporated on November 28, 2005, as a Delaware corporation and is located in Waltham, Massachusetts. The Company was formed to develop novel, nanotechnology-based therapeutics in the areas of oncology
and other diseases. In 2013, the Company formed a wholly owned subsidiary, Cerulean Pharma Australia Pty Ltd as an Australian-based proprietary limited company to perform clinical activities in Australia.
The Companys operations have consisted primarily of raising capital, product research and development, and initial market development.
The Company has not generated any revenue related to its primary business purpose to date and is subject to a number of risks common to
other development stage life science companies, including dependence on key individuals, competition from other companies, the need for development of commercially viable products, and the need to obtain adequate additional financing to fund the
development of product candidates. The Company is also subject to a number of risks similar to other companies in the industry, including rapid technological change, regulatory approval of products, uncertainty of market acceptance of products,
competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability and dependence on key
individuals.
The Company has an accumulated deficit of $200.7 million at December 31, 2016. The Company has financed its
operations primarily through private placements of its preferred stock, proceeds from borrowings, an initial public offering completed in 2014 and a
follow-on
offering completed in 2015. In October 2016 the
Company entered into a collaboration with Novartis Institutes for BioMedical Research, Inc. (Novartis) to develop nanoparticle-drug conjugates combining the Companys proprietary Dynamic Tumor Targeting technology with
Novartis proprietary compounds. Under this collaboration the Company received important funding to support its research program. The Company has not completed development of any product candidate and has devoted substantially all of its
financial resources and efforts to research and development, including preclinical and clinical development. Accordingly, the Company will continue to depend on its ability to raise capital through equity and debt issuances and/or through strategic
partnerships. The Company expects to continue to incur significant expenses and increasing operating losses for at least several years.
As of December 31, 2016, the Company had cash and cash equivalents of $35.0 million. The Company has no other sources of significant
liquidity in place as of December 31, 2016. The Company expects that its existing cash and cash equivalents will fund its operations into the second half of 2017 based on the Companys 2017 operating plan. The Company has undertaken a
strategic review of potential financing alternatives such as the sale of the company, a merger, a business combination, a strategic investment into the company, or a sale, license or disposition of assets of the Company. If the Company is unable to
obtain additional funding on a timely basis, it may be required to curtail or terminate research and development activities under its collaboration agreement with Novartis, or to scale back, suspend or terminate its business operations.
As more fully discussed in Note 17 Subsequent Events, pursuant to managements plans, in March 2017 the Company entered into a series of
transactions including the payoff of its note payable to Hercules Capital for $12.4 million. The Company sold and assigned all of its right, title and interest in and to its clinical product candidates CRLX101 and CRLX301 for proceeds of
$1.5 million. The Company also agreed to sell and assign to Novartis all of its right, title and interest in and to the patent rights,
know-how
and third-party license agreements relating to its Dynamic
Tumor Targeting Platform technology for proceeds of $6.0 million, whereby the proceeds from this asset sale are to be received upon closing of the transaction. The Company also entered into a Stock Purchase Agreement with Daré
Biosciences, Inc., which if approved by the shareholders, will be consummated by an exchange of common stock shares and no cash consideration paid or received.
F-7
With exception of the payoff of the note payable and the sale of the clinical product candidates,
these transactions are subject to certain closing conditions. There can be no assurances that these transactions will be consummated prior to the exhaustion of the Companys cash and cash equivalent resources, if at all.
The foregoing matters give rise to substantial doubt about the Companys ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
2.
|
SIGNIFICANT ACCOUNTING POLICIES
|
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, the Companys management evaluates its estimates, including estimates related to clinical trial accruals,
stock-based compensation expense, and reported amounts of revenues and expenses during the reported period. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be
reasonable under the circumstances. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly
owned subsidiary. All intercompany accounts and transactions have been eliminated.
Segment Information
Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.
The Company views its operations and manages its business in one operating segment; however, the Company operates in two geographic regions: United States (Waltham, MA) and Australia (Sydney, NSW). There is no revenue generated or long-lived
assets located within the Australian location.
Cash and Cash Equivalents
Cash equivalents include all highly
liquid investments maturing within 90 days from the date of purchase and consist primarily of money market funds.
Concentrations
of Credit Risk
Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. Substantially all of the Companys cash and cash equivalents are
held at one financial institution that management believes to be of high-credit quality. Deposits with this financial institution may exceed the amount of insurance provided on such deposits; however these deposits may be redeemed upon demand and,
therefore, bear minimal risk.
Restricted Cash
At December 31, 2016 and 2015, the Company had restricted cash
of $230,000 and $347,000, respectively. The restricted cash balances were used to collateralize
stand-by
letters of credit issued by the Company as a security deposit for its current and former facility
leases. The balance at December 31, 2016, was with respect to the Companys current facility lease which is scheduled to expire in February 2021. The balance at December 31, 2015, includes the balance for the current facility
lease and the Companys former facility lease which was scheduled to expire in February 2016 but was terminated early on December 31, 2015. The restricted cash is included within other assets in the balance sheet.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated useful lives
using the straight-line method. Repairs and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment.
F-8
Depreciation is provided using the straight-line method over the following estimated useful
lives:
|
|
|
Laboratory equipment
|
|
5 years
|
Computer equipment
|
|
3 years
|
Office furniture and equipment
|
|
5 years
|
Leasehold improvements
|
|
Lesser of useful life or remaining lease term
|
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this
comparison indicates that there is impairment, the amount of impairment is calculated as the difference between the carrying value and fair value. For the years ended December 31, 2016 and 2015, the Company has not recorded an impairment charge
for its long-lived assets.
Revenue Recognition
Collaborative Research and Development and Multiple-Element Arrangements
The Company has generated revenue through a research collaboration agreement for the development and commercialization of product candidates
utilizing the Companys technologies. The agreement provides for multiple deliverables by the Company (for example, license rights, research and development services and manufacturing of clinical materials) in exchange for consideration to the
Company of a combination of non-refundable upfront fees, research and development funding, contingent payments based upon achievement of clinical development or other milestones and royalties in the form of designated percentages of product net
sales. The Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605-25,
Revenue Recognition: Multiple Element Arrangements
. Multiple-element
arrangements, such as license and development agreements, are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. When deliverables are separable, consideration
received is allocated to the separate units of accounting based on the relative selling price method and the appropriate revenue recognition principles are applied to each unit. When the Company determines that an arrangement should be accounted for
as a single unit of accounting, it must determine the period over which the performance obligations will be performed, and revenue will be recognized over the performance period.
Under the research collaboration agreement, the Company is entitled to receive payments contingent upon the achievement of certain
development, regulatory and sales milestones. Based on FASB ASC 605-28,
Revenue Recognition Milestone Method
, the Company evaluates contingent milestones at inception or modification of the agreement, and recognizes consideration that
is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is considered substantive in its entirety. Milestones are events which have the following
characteristics: (i) they can be achieved based in whole or in part on either the Companys performance or on the occurrence of a specific outcome resulting from the Companys performance, (ii) there was substantive uncertainty at the date
the agreement was entered into that the event would be achieved and, (iii) they would result in additional payments due to the Company. A milestone is considered substantive if the following criteria are met: (i) the consideration is commensurate
with either (1) the entitys performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entitys performance to achieve the milestone, (ii) the
consideration relates solely to past performance and, (iii) the consideration is reasonable relative to all of the other deliverables and payment terms, including other potential milestone consideration, within the arrangement.
The Company has evaluated each milestone in the research collaboration agreement under ASC 605-28. The Company has determined that each of the
development and regulatory milestones are substantive, as they satisfy all of the criteria of ASC 605-28. As determined at the inception of the arrangement, each milestone is subject to substantive uncertainty, as each is dependent on the successful
outcome of significant scientific research and
F-9
clinical development to advance the product candidates and the clinical and/or regulatory success of the product candidates. Under the agreement the Company is entitled to receive up to $41.5
million in milestone payments for each defined program based upon achievement of specified preclinical, developmental, clinical and regulatory milestones. The Company is primarily responsible for the research and pre-clinical development of
nanoparticle drug conjugates comprised of the Companys proprietary polymer covalently linked to selected active pharmaceutical ingredients that are nominated by the Companys partner for such development. In addition, the Company is
required to assist with certain aspects of regulatory filings for marketing approval. As a result, the achievement of each development and regulatory milestone is based on a specific outcome achieved as a result of the Companys performance.
These milestone payments are non-refundable and relate solely to past performance. Furthermore, the Company considers the milestone payment amounts to be reasonable in relation to the total arrangement consideration.
The Company may receive up to an additional $185.0 million in milestone payments based upon achievement of specified sales milestones. Unlike
the development and regulatory milestones, the commercial milestones would be achieved solely as a result of the collaboration partners performance. Because the commercial milestones are achieved after the completion of the Companys
development activities under the collaboration agreement, the Company has no required obligations for deliverables under the collaboration with respect to any commercial products and therefore the Company has no future performance obligations
related to the commercial milestones. These commercial milestones will not be treated as substantive based on the guidance in ASC 605-28-25-2, which requires substantive milestones to be based upon the Companys performance. The Company will
account for any commercial milestone payment in the same manner as royalties, with revenue recognized upon achievement of the milestone, assuming all other revenue recognition criteria are met.
As more fully discussed in Note 17 Subsequent Events, pursuant to managements plans, in March 2017 the Company agreed to sell and assign
to Novartis all of its right, title and interest in and to the patent rights, know-how and third-party license agreements relating to its Dynamic Tumor Targeting Platform technology for proceeds of $6.0 million, whereby the proceeds from this
asset sale are to be received upon closing of the transaction. The consummation of this sale, will result in the termination of the collaboration. If the Companys stockholders do not approve the Novartis transaction and it is unable to obtain
additional funding on a timely basis, it may be required to curtail or terminate research and development activities under its collaboration agreement with Novartis.
Deferred Revenue
Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated
balance sheets. Amounts not expected to be recognized within one year following the balance sheet date are classified as
non-current
deferred revenue.
Research and Development Costs
Research and development expenses consist of expenses incurred in performing research
and development activities, including compensation and benefits for full-time research and development employees, an allocation of facilities expenses, overhead expenses, manufacturing process-development and
scale-up
activities, clinical trial and related clinical manufacturing expenses, fees paid to clinical research organizations, or CROs, and investigative sites, payments to universities under the
Companys license agreements and other outside expenses. In the early phases of development, the Companys research and development costs are often devoted to expanding its product platform and are not necessarily allocable to a specific
target. Research and development costs are expensed as incurred. Nonrefundable advanced payments, if any, for goods and services used in research and development are recognized as an expense as the related goods are delivered or services are
performed.
Stock-Based Compensation
The Company accounts for stock-based awards at fair value, which is measured
using the Black-Scholes option-pricing model. The fair value measurement date for employee awards is generally the date of grant. The fair value measurement date for nonemployee awards is generally the date the
F-10
performance of services is completed. Stock-based compensation costs are recognized as an expense over the requisite service period, which is generally the vesting period, on a straight-line
basis for all time-vested awards. The Company issued performance based grants where the vesting of the grant is tied to certain milestone performance and in these cases, the compensation is recognized as expense when the probability of the milestone
is met.
Stock-based awards to nonemployees are remeasured at each reporting date and recognized as services are rendered, generally on a
straight-line basis. The Company believes that the fair value of these awards is more reliably measurable than the fair value of the services rendered. Stock-based compensation is classified in the accompanying consolidated statements of operations
in the department where the related services are provided.
Net Loss per Share Attributable to Common
Stockholders
Basic net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period.
During periods where the Company might earn net income, the Company would allocate participating securities a proportional share of net income determined by dividing total weighted average participating securities by the sum of the total weighted
average common shares and participating securities (the
two-class
method). Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income.
During periods where the Company incurred net loss, the Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company. The Company computes diluted loss per common share after
giving consideration to the dilutive effect of stock options and warrants that are outstanding during the period, except where such nonparticipating securities would be antidilutive.
Income Taxes
Deferred income taxes are provided for the temporary differences arising between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and for operating loss carryforwards and credits. Deferred tax assets and liabilities are recorded using tax rates expected to be in effect in the
year in which the differences are expected to reverse. A valuation allowance is provided for any net deferred tax assets for which management believes it is more likely than not that the net deferred tax assets will not be realized.
The Company provides liabilities for potential payment of tax to various tax authorities related to uncertain tax positions. The tax benefits
recorded are based on a determination of whether and how much of a tax benefit taken by the Company in its filings or positions is more likely than not to be realized following resolution of any uncertainty related to the tax benefit,
assuming the matter in question will be raised by the tax authorities. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense. At December 31, 2016 and 2015, the Company
had approximately $0.7 million and $0.6 million, respectively, of total unrecognized tax benefits, which would affect income tax expense if recognized, before consideration of its valuation allowance. During fiscal year 2016, the Company
did not make any payment of interest and penalties on unrecognized tax benefits. In addition, there was nothing accrued for in the consolidated balance sheets for the payment of interest and penalties at December 31, 2016.
Guarantees and Indemnification
As permitted under Delaware law, the Company indemnifies its officers and directors
employees for certain events or occurrences while the officer or director is, or was serving at the Companys request in such a capacity. The term of the indemnification is for the officers or directors lifetime. During the
year ended December 31, 2016, the Company did not experience any losses related to these indemnification obligations. The Company does not expect significant claims related to these indemnification obligations, and consequently, has concluded
the fair value of these obligations is not material. Accordingly, as of December 31, 2016 no amounts have been accrued related to such indemnification provisions.
Recent Accounting Pronouncements
In November 2016, the Financial Accounting Standards Board (the FASB)
issued Accounting Standards Update
2016-18,
Statement of Cash Flows Restricted Cash (Topic 230). This new standard requires companies to include amounts generally described as
restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling
beginning-of-period
and
end-of-period
F-11
total amounts shown on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, and required retrospective
application. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued Accounting Standards Update
2016-15,
Statement of Cash Flows
(Topic 230) (ASU
2016-15).
ASU
2016-15
provides guidance to clarify how cash payments for debt prepayment or debt extinguishment costs are to be
classified in the statement of cash flows. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the
effect this standard will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued
Accounting Standards Update
2016-09,
Compensation Stock Compensation (Topic 718) (ASU
2016-09).
ASU
2016-09
is intended to simplify various aspects of how share-based payments are accounted for and presented in financial statements. The standard is effective prospectively for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2016, with early adoption permitted. For amendments that are to be applied on a modified retrospective basis, a cumulative-effect adjustment will be calculated on the first day of the
fiscal year of adoption, which will be recorded in retained earnings. The Company has early adopted ASU
2016-09
for its quarter ended December 31, 2016. As a result of the Companys adoption of
ASU
2016-09,
it will track option deductions in its net operating loss deferred tax asset on a modified retrospective basis, and has included the option deductions in the December 31, 2016 deferred tax
assets. In addition, the Companys policy has been to estimate forfeitures as of the grant date. The Company will continue to maintain its policy to estimate forfeiture as of the grant date in the future. The gross deferred tax asset and
valuation allowance as of December 31, 2016, increased $163,000 as a result of the cumulative effect of adoption of ASU
2016-09.
The adoption of ASU
2016-09
did not
have a material impact on the Companys financial statements for the year ended and as of December 31, 2016.
In February 2016,
the FASB issued Accounting Standards Update
2016-02,
Leases (Topic 842) (ASU
2016-02),
which provides new accounting guidance on leases. ASU
2016-02
requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in ASU
2016-02
are effective for fiscal
years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU
2016-02
requires a modified retrospective approach for all
leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and
related disclosures.
In August 2014, the FASB issued Accounting Standards Update
2014-15,
Presentation of Financial Statements Going Concern (Subtopic
205-40):
Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern (ASU
2014-15).
ASU
2014-15
requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt
about the entitys ability to continue as a going concern and provide related disclosures. ASU 2014-15 is effective for annual and interim reporting periods beginning January 1, 2017 and is not expected to have a material impact on the
Companys consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update
2014-09
(ASC 606), Revenue from Contracts with Customers (ASU
2015-09),
which affects any entity that either enters into contracts with customers to transfer
goods and services or enters into contracts for the transfer of nonfinancial assets. In August 2015, the FASB issued Accounting Standards Update
2015-14,
Revenue from Contracts with Customers which
defers the effective date of ASU
2014-09
for all entities by one year. ASU
2014-09,
which has been codified with the Accounting Standards Codification as Topic 606, is
now effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. ASC 606 outlines a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In
F-12
addition, ASC 606 provides guidance on accounting for certain revenue-related costs including, but not limited to, when to capitalize costs associated with obtaining and fulfilling a contract.
ASC 606 provides companies with two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of
initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). Since ASU
2014-09
was issued, several additional Accounting Standards Updates have been issued and incorporated within ASC 606 to clarify various elements of the guidance. The Company plans to adopt this guidance on
January 1, 2018. The Company has not yet determined whether it will utilize the full retrospective or the modified retrospective adoption method and continues to evaluate the impact that adoption will have on its consolidated financial
statements.
3.
|
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
The following table summarizes
the computation of basic and diluted net loss per share attributable to common stockholders of the Company (in thousands, except share data and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net loss attributable to common stockholders basic and diluted
|
|
$
|
(39,305
|
)
|
|
$
|
(39,594
|
)
|
|
$
|
(23,342
|
)
|
Weighted-average number of common shares basic and diluted
|
|
|
27,710,403
|
|
|
|
25,431,332
|
|
|
|
14,548,516
|
|
Net loss per share attributable to common stockholders basic and diluted
|
|
$
|
(1.42
|
)
|
|
$
|
(1.56
|
)
|
|
$
|
(1.60
|
)
|
The Company has reported a net loss for all periods presented, therefore diluted net loss per common share is
the same as basic net loss per common share.
The following potentially dilutive securities outstanding have been excluded from the
computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact due to the losses reported (in common stock equivalent shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Options to purchase common stock
|
|
|
4,020,288
|
|
|
|
3,454,926
|
|
|
|
2,126,176
|
|
Warrants to purchase common stock
|
|
|
365,564
|
|
|
|
300,564
|
|
|
|
128,663
|
|
4.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Laboratory equipment
|
|
$
|
1,548
|
|
|
$
|
1,314
|
|
Computer equipment
|
|
|
371
|
|
|
|
350
|
|
Office furniture and equipment
|
|
|
66
|
|
|
|
25
|
|
Leasehold improvements
|
|
|
75
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,060
|
|
|
|
1,722
|
|
Less accumulated depreciation and amortization
|
|
|
(1,392
|
)
|
|
|
(1,146
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
668
|
|
|
$
|
576
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended December 31, 2016, 2015, and 2014, was
$261,000, $192,000, and $126,000, respectively.
F-13
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accrued clinical trial costs
|
|
$
|
2,648
|
|
|
$
|
2,631
|
|
Accrued contract manufacturing expenses
|
|
|
226
|
|
|
|
945
|
|
Accrued compensation and benefits
|
|
|
1,080
|
|
|
|
1,864
|
|
Accrued interest
|
|
|
82
|
|
|
|
136
|
|
Other accrued expenses
|
|
|
575
|
|
|
|
883
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
4,611
|
|
|
$
|
6,459
|
|
|
|
|
|
|
|
|
|
|
On January 8, 2015 (the Closing Date), the Company
entered into a term loan facility of up to $26.0 million (the Term Loan) with Hercules Technology Growth Capital, Inc. (Hercules). The proceeds were used to repay the Companys existing term loan facility with
Lighthouse Capital Partners VI, L.P. (Lighthouse Capital) and for general corporate and working capital purposes. At December 31, 2016, the Company had $13.1 million in principal outstanding under the Term Loan.
The Term Loan is governed by a loan and security agreement, dated January 8, 2015, between the Company and Hercules (the Hercules
Loan Agreement). The Hercules Loan Agreement provided for up to three separate borrowings, the first of which was funded in the amount of $15.0 million on the Closing Date. On November 24, 2015, the Company drew a second tranche in
the amount of $6.0 million. The Company elected not to commence a randomized Phase 2 clinical study of CRLX101 in combination with chemoradiotherapy on or prior to December 15, 2015, which was a condition of obtaining an additional tranche
in an amount of up to $5.0 million. As a result, the Company is no longer eligible to borrow this amount under the Term Loan.
The
Term Loan will mature on July 1, 2018. Each advance under the Term Loan accrues interest at a floating per annum rate equal to the greater of (i) 7.30% or (ii) the sum of 7.30% plus the prime rate minus 5.75%. The Term Loan provided for
interest-only payments on a monthly basis until December 31, 2015. Thereafter, payments are payable monthly in equal installments of principal and interest to fully amortize the outstanding principal over the remaining term of the loan, subject
to recalculation upon a change in the prime rate. The Company may prepay the Term Loan in whole or in part upon seven business days prior written notice to Hercules. Any such prepayment of the Term Loan is subject to a prepayment charge of
1.0%. Amounts outstanding during an event of default are payable upon Hercules demand and shall accrue interest at an additional rate of 5.0% per annum of the past due amount outstanding. The minimum future principal payments are as follows
(in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
|
|
2017
|
|
$
|
8,533
|
|
2018
|
|
|
4,544
|
|
Unamortized discount relating to warrants and deferred financing costs
|
|
|
(256
|
)
|
|
|
|
|
|
Total
|
|
|
12,821
|
|
Less current portion
|
|
|
(8,382
|
)
|
|
|
|
|
|
Long-term portion
|
|
$
|
4,439
|
|
|
|
|
|
|
At the end of the loan term (whether at maturity, by prepayment in full or otherwise), the Company shall pay a
final end of term charge to Hercules in the amount of 6.7% of the aggregate original principal amount advanced by Hercules. The amount of the end of term charge is being accrued over the loan term as interest expense. As of December 31, 2016,
the Company has accrued $1.1 million related to the end of term charge, which has been classified as other long-term liabilities.
F-14
In connection with the Hercules Loan Agreement, the Company issued to Hercules a warrant to
purchase shares of the common stock of the Company at an exercise price of $6.05 per share. The warrant is exercisable for 171,901 shares of common stock. The warrant is exercisable until January 8, 2020. The Company estimated the fair value of
the warrant for shares exercisable on the issue date in January 2015 to be $824,000. The value of the warrant was recorded as a discount to the loan. The fair value of the warrant was estimated on the date of issue for the exercisable shares at that
date using the Black-Scholes option-pricing model. The following table shows the Black-Scholes assumptions used to value the warrant:
|
|
|
|
|
|
|
January 8, 2015
|
|
Contractual life
|
|
|
5 years
|
|
Volatility rate
|
|
|
61
|
%
|
Risk-free interest rate
|
|
|
1.5
|
%
|
Expected dividends
|
|
|
|
|
At December 31, 2016, the Companys balance of unamortized deferred financing costs and unamortized
debt discount were $0.1 million and $0.2 million, respectively. These costs are being amortized to interest expense using the effective interest method over the term of the loan.
In connection with the Hercules Loan Agreement, the Company entered into a stock purchase agreement with Hercules, whereby Hercules purchased
135,501 shares of common stock from the Company at a price per share of $7.38, which was equal to the closing price of the common stock on the NASDAQ Global Market on January 7, 2015, for an aggregate purchase price of approximately
$1.0 million.
In December 2011, the Company entered into a loan and security agreement with Lighthouse Capital to borrow up to
$10.0 million in one or more advances by December 31, 2012. In both March 2012 and August 2012, the Company borrowed $5.0 million under the loan and security agreement, for a total of $10.0 million. This amount was being
repaid over 36 months beginning on December 1, 2012, at an interest rate of 8.25%. In addition, the Company was required to make an additional payment in the amount of $600,000 at the end of the loan term. The amount was accrued over
the loan term as interest expense. The amount accrued as of December 31, 2014 was $574,000, and it was included in accrued expense in the Companys consolidated balance sheet. In January 2015, the Company repaid in full the amount
outstanding under the Lighthouse Capital agreement, or $3.6 million, with the proceeds from the Hercules Loan Agreement.
In
connection with the loan and security agreement with Lighthouse Capital, the Company issued Lighthouse Capital a warrant to purchase a maximum of 66,436 shares of the Companys Series D Preferred Stock, at an exercise price of $12.04
per share and with an expiration date 10 years from the date of issue (December 2021). The Company determined the fair value of the warrant at the end of each reporting period using the Black-Scholes option pricing model until the warrant
converted to a warrant to purchase 66,436 shares of common stock upon the completion of the IPO. The value of the warrant was recorded as a discount to the loan and was being amortized as interest expense using the effective interest method over the
36-month
repayment term. The unamortized discount relating to the warrants, or $0.2 million, was expensed as interest expense upon repayment of the loan in January 2015.
Common Stock
In 2015, the Company
issued 6,716,000 shares of common stock in connection with an underwritten public offering and during 2014 the Company issued 19,297,952 shares of common stock in connection with its IPO, the conversion of preferred stock and convertible notes into
common stock, and the partial exercise of the underwriters overallotment option in the IPO.
Common Stock Purchase
Agreement
On October 14, 2016, the Company entered into a common stock purchase agreement (the Purchase Agreement) with Aspire Capital Fund, LLC (Aspire Capital), which provides
that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is
F-15
committed to purchase up to an aggregate of $20.0 million of shares of the Companys common stock over a term of 24 months from the execution of the Purchase Agreement. Immediately
following the execution of the Purchase Agreement, the Company made an initial sale to Aspire Capital under the Purchase Agreement of 800,000 shares of common stock at a price of $1.25 per share, for gross proceeds of $1.0 million, and
concurrently entered into a registration rights agreement with Aspire Capital registering the shares of the Companys common stock that have been and may be issued to Aspire Capital under the Purchase Agreement. In consideration for entering
into the Purchase Agreement, the Company issued to Aspire Capital 700,000 shares of the Companys common stock as a commitment fee. The net proceeds of the Aspire Capital transaction, after offering expenses, to the Company were approximately
$786,000. At December 31, 2016, up to $19.0 million of the Companys common stock that may be sold at the prevailing share price at the time of sale subject to conditions specified in the Purchase Agreement remains available.
Reserved Shares of Common Stock
The Company has reserved the following number of shares of common stock at
December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Warrants to purchase common stock
|
|
|
365,564
|
|
|
|
300,564
|
|
Common stock options
|
|
|
4,020,288
|
|
|
|
3,995,876
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,385,852
|
|
|
|
4,296,440
|
|
|
|
|
|
|
|
|
|
|
2007 Stock Incentive Plan
The Companys
2007 Incentive Stock Plan, or the 2007 Plan, provides for the grant of qualified incentive stock options and nonqualified stock options or other awards to the Companys employees, officers, directors, advisors, and outside consultants to
purchase up to an aggregate of 1,275,211 shares of the Companys common stock, as amended in January 2014. The stock options generally vest over a four-year period and expire 10 years from the date of grant. Certain options provide for
accelerated vesting if there is a change in control, as defined in the 2007 Plan. Effective with the IPO, no additional grants will be issued from the 2007 Plan and all shares available for grant under the 2007 Plan were transferred to the 2014
Plan. Accordingly, at December 31, 2016 and 2015, there were no shares available for future grant under the 2007 Plan.
Prior to the
IPO, in determining the exercise prices for options granted, the Companys board of directors considered the fair value of the common stock as of the measurement date. The fair value of the common stock was determined by the board of directors
at each award grant date based upon a variety of factors, including the results obtained from a common stock valuation, the Companys financial position and historical financial performance, the status of technological developments within the
Companys products, the composition and ability of the current research and management team, an evaluation or benchmark of the Companys competition, the current business climate in the marketplace, the illiquid nature of the common stock,
arms-length
sales of the Companys capital stock (including redeemable convertible preferred stock), the effect of the rights and preferences of the preferred shareholders, and the prospects of a
liquidity event, among others.
2014 Stock Incentive Plan
In March 2014, the Companys board of directors
adopted and its stockholders approved the 2014 Stock Incentive Plan, or the 2014 Plan, which became effective upon the closing of the IPO. The 2014 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock
appreciation rights, restricted stock, restricted stock units and other stock-based awards. The 2014 Plan provides an annual increase in the number of shares available for grant on the first day of each calendar year beginning with the fiscal year
ended December 31, 2015 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2024, equal to the lesser of (i) 1,000,000 shares of common stock, (ii) 4% of the number of outstanding shares of common
stock on such date and (iii) an amount determined by the Companys board of directors. As of December 31, 2016, there were 924,400 shares available for future grant under the 2014 Plan.
F-16
A summary of stock option activity for employee and nonemployee awards under the 2007 Plan and
the 2014 Plan during the year ended December 31, 2016 is presented below (Aggregate Intrinsic Value in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2016
|
|
|
3,454,926
|
|
|
$
|
5.39
|
|
|
|
8.9
|
|
|
$
|
|
|
Granted
|
|
|
1,597,570
|
|
|
|
1.86
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,032,208
|
)
|
|
|
4.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
4,020,288
|
|
|
$
|
4.31
|
|
|
|
8.4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2016
|
|
|
1,634,944
|
|
|
$
|
5.41
|
|
|
|
7.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest at December 31, 2016
|
|
|
3,900,976
|
|
|
$
|
4.33
|
|
|
|
8.4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options exercised in the years ended December 31, 2016, 2015, and 2014
was $0, $0, and $161,000, respectively.
The weighted-average per share grant date fair value of options granted during 2016, 2015, and
2014 was $1.07, $3.22, and $3.33, respectively.
The Company has recorded stock-based compensation expense of $2.7 million,
$2.4 million, and $885,000 during the years ended December 31, 2016, 2015, and 2014, respectively, which is based on the number of awards ultimately expected to vest. As of December 31, 2016, there was $4.1 million of
unrecognized compensation cost related to unvested stock-based compensation arrangements granted under the 2007 Plan and the 2014 Plan. The compensation is expected to be recognized over a weighted-average period of 2.02 years at
December 31, 2016.
Stock-based compensation expense recorded as research and development and general and administrative expenses is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Research and development
|
|
$
|
1,098
|
|
|
$
|
795
|
|
|
$
|
317
|
|
General and administrative
|
|
|
1,657
|
|
|
|
1,580
|
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,755
|
|
|
$
|
2,375
|
|
|
$
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing
model based on the assumptions noted in the table below. Expected volatility for the Companys common stock was determined based on an average of the historical volatility of a peer-group of similar public companies. The Company has limited
option exercise information, as such, the expected term of the options granted was calculated using the simplified method that represents the average of the contractual term of the option and the weighted-average vesting period of the option. The
assumed dividend yield is based upon the Companys expectation of not paying dividends in the foreseeable future. The risk-free rate for periods within the contractual life of the option is based upon the U.S. Treasury yield curve in effect at
the time of grant.
F-17
The assumptions used in the Black-Scholes option-pricing model for stock options granted to
employees during the years ended December 31, 2016, 2015, and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Expected life
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
1.20%-2.32%
|
|
|
|
1.45%-2.02%
|
|
|
|
1.71%-2.00%
|
|
Expected volatility
|
|
|
61%-68%
|
|
|
|
51%-63%
|
|
|
|
54%-60%
|
|
Expected dividend rate
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
The Company recorded stock-based compensation expense related to nonemployee awards of $77,000, $173,000, and
$56,000 for the years ended December 31, 2016, 2015, and 2014, respectively. The compensation expense related to the nonemployee awards is included in the total stock-based compensation each year and is subject to
re-measurement
until the options vest. The Black-Scholes assumptions used to estimate the fair value of these awards for the years ended December 31, 2016, 2015, and 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Expected life
|
|
|
10 years
|
|
|
|
10 years
|
|
|
|
8 years
|
|
Risk-free interest rate
|
|
|
1.56%-2.43%
|
|
|
|
2.10%-2.25%
|
|
|
|
1.86%-2.53%
|
|
Expected volatility
|
|
|
60%-61%
|
|
|
|
60%-61%
|
|
|
|
56%-62%
|
|
Expected dividend rate
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
During the year ended December 31, 2016, the Company granted nonemployee stock options to consultants for
the purchase of 140,000 shares of the Companys common stock. The weighted-average exercise price and the weighted-average fair value of nonemployee stock options granted for the year ended December 31, 2016, was $1.08 per share and $0.46
per share, respectively. The fair value of the grants is being expensed over the vesting period of the options on a straight-line basis as the services are being provided. On September 4, 2015, nonemployee stock options to purchase 90,000
shares of the Companys common stock were converted to employee stock options upon the appointment of the Companys Chief Medical Officer who had been serving as a consultant to the Company until his appointment. The exercise price and the
fair value of these stock options is $4.71 per share and $2.71 per share, respectively. The Company did not grant any nonemployee stock option grants in 2014.
In 2012, the Company granted options to purchase 60,934 common shares to an officer of the Company, now the Companys Chief Executive
Officer, that will vest upon the achievement of business milestones as defined within the stock option agreement. These awards have not vested as of December 31, 2016. Compensation expense for the awards will be recorded if and when the awards
are determined to be probable.
2014 Employee Stock Purchase Plan
In March 2014, the Companys board of
directors adopted and its stockholders approved the 2014 Employee Stock Purchase Plan (the 2014 ESPP), which became effective upon the closing of the IPO. The 2014 ESPP will be administered by the Companys board of directors or by
a committee appointed by the Companys board of directors. The 2014 ESPP initially provides participating employees with the opportunity to purchase up to an aggregate 500,000 of shares of the Companys common stock. The number of shares
of the Companys common stock reserved for issuance under the 2014 ESPP will automatically increase on the first day of each fiscal year, commencing on January 1, 2015 and ending January 1, 2024, in an amount equal to the least of
(i) 600,000 shares of the Companys common stock, (ii) 1% of the total number of shares of the Companys common stock outstanding on the first day of the applicable year, or (iii) an amount determined by the Companys
board of directors. There are two
six-month
offerings per year. The first offering period under the 2014 ESPP began on July 1, 2015. The compensation expense related to the 2014 ESPP is included in the
total stock-based compensation. The stock-based compensation expense related to the ESPP for the year ended December 31, 2016 and 2015, was $24,000 and $27,000, respectively. There was no stock-based compensation related to the 2014 ESPP
recorded for the year ended December 31, 2014.
F-18
9.
|
FAIR VALUE MEASUREMENTS
|
The Companys financial instruments consist of cash
equivalents, accounts payable, accrued expenses, debt obligations, and preferred stock warrants. The carrying amount of accounts payable and accrued expenses are considered a reasonable estimate of their fair value, due to the short-term maturity of
these instruments. The carrying amount of debt is also considered to be a reasonable estimate of the fair value based on the short-term nature of the debt and that the debt bears interest at the prevailing market rate for instruments with similar
characteristics. If recorded at fair value, Level 2 measurements, as defined below, would have been used to estimate the fair value. Included in cash and cash equivalents as of December 31, 2016 and 2015, are money market fund investments
of $35.0 million and $75.3 million, respectively, which are reported at fair value.
Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation
techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs.
The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and
the last unobservable, that may be used to measure fair value, which are the following:
Level
1
Quoted prices (unadjusted) in active markets that are accessible at the
market date for identical unrestricted assets or liabilities.
Level
2
Inputs other than
Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level
3
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
A summary of the financial assets and liabilities that are measured on a
recurring basis at fair value as of December 31, 2016 and 2015, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Carrying
Value
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
34,950
|
|
|
$
|
|
|
|
$
|
34,950
|
|
|
$
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
75,325
|
|
|
$
|
|
|
|
$
|
75,325
|
|
|
$
|
|
|
The Companys money market funds have been valued on the basis of valuations provided by third-party
pricing services, as derived from such services pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar
characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to
determine the valuation for a security. The Company is ultimately responsible for the consolidated financial statements and underlying estimates. Accordingly, the Company assesses the reasonableness of the valuations provided by the third-party
pricing services by reviewing actual trade data, broker/dealer quotes and other similar data, which are obtained from quoted market prices or other sources.
F-19
For the years ended December 31, 2016 and 2015, there have been no transfers between levels.
Significant components of the Companys deferred taxes at
December 31, 2016, and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Net operating loss carryforwards
|
|
$
|
42,211
|
|
|
$
|
35,797
|
|
Research and development credit carryforwards
|
|
|
2,486
|
|
|
|
2,066
|
|
Capitalized costs
|
|
|
4,453
|
|
|
|
3,977
|
|
Capitalized research and development costs
|
|
|
24,923
|
|
|
|
17,715
|
|
Other
|
|
|
1,878
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
75,951
|
|
|
|
60,458
|
|
Valuation allowance
|
|
|
(75,951
|
)
|
|
|
(60,458
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company has provided a valuation allowance for the full amount of deferred tax assets as the realization
of the deferred tax assets is not determined to be
more-likely-than-not.
The valuation allowance increased in 2016 and 2015 by approximately $15.5 million and $15.6 million, respectively, due to the
increases in the deferred tax assets by the same amounts. The increases are mainly attributable to operating losses generated in the period.
A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes as reflected in the financial
statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Federal income tax expense at statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income tax, net of federal benefit
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
Permanent differences
|
|
|
(0.6
|
%)
|
|
|
(0.5
|
%)
|
Research and development credit
|
|
|
1.1
|
%
|
|
|
0.9
|
%
|
Stock compensation
|
|
|
(0.5
|
%)
|
|
|
(0.7
|
%)
|
Other
|
|
|
0.2
|
%
|
|
|
0.4
|
%
|
Change in valuation allowance
|
|
|
(39.2
|
%)
|
|
|
(39.1
|
%)
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, the Company has approximately $109.7 million of federal and $90.2 million
of state net operating loss carryforwards that expire at various dates through 2036. At December 31, 2016, the Company has approximately $1.7 million of federal and $1.1 million of state research and development credit carryforwards
that expire at various dates through 2036 for federal credits and 2031 for state credits.
At December 31, 2015, the Company has
approximately $93.7 million of federal and $74.1 million of state net operating loss carryforwards that expire at various dates through 2035. At December 31, 2015, the Company has approximately $1.4 million of federal and
$0.9 million of state research and development credit carryforwards that expire at various dates through 2035 for federal credits and 2030 for state credits.
The Company has early adopted the provisions of ASU
2016-09,
Compensation Stock
Compensation (Topic 718 Improvements to Employee Share-Based Payment Accounting), for its quarter ended December 31, 2016. ASU
2016-09
requires companies to include the benefit of an option deduction in
its net operating loss carryforward deferred tax asset. Prior to its adoption of ASU
2016-09,
the Companys excess tax benefits associated with option deductions were maintained in the Companys APIC
pool of windfall tax benefits, which
F-20
was tracked off balance sheet and not included in its deferred tax assets. As a result of the Companys adoption of ASU
2016-09,
it will track option
deductions in its net operating loss deferred tax asset on a modified retrospective basis, and has included the option deductions in the December 31, 2016 deferred tax assets. The gross deferred tax asset and valuation allowance as of
December 31, 2016 increased $163,000 as a result of the cumulative effect of adoption of ASU
2016-09.
The Company has not recast its December 31, 2015 and December 31, 2014 deferred tax assets
or its rate reconciliation, and therefore the option deductions in 2015 and 2014 are not included in the net operating loss deferred tax asset as originally reported. Since the Company has historically maintained a full valuation allowance on its
net worldwide deferred tax asset, there is no net impact to retained earnings from the adoption of ASU
2016-09.
Realization of the future tax benefits is dependent on many factors, including the Companys ability to generate taxable income within
the net operating loss carryforward period. The future realization of the net operating loss carryforwards may also be limited by the change of ownership rules of the Internal Revenue Service under Section 382 and 383 of the Internal Revenue
Code. If substantial changes in ownership should occur, there could be annual limitations on the amount of carryforwards that can be realized in future periods. The amount of the annual limitation is determined based on the value of the Company
immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed numerous financings since its inception which may have resulted in a change in control as defined by
Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future.
The Company files income tax
returns in the United States, the Commonwealth of Massachusetts, and Australia. The tax years 2008 through 2016 remain open to examination by these taxing jurisdictions, as carryforwards attributes generated in past years may be adjusted in a future
period. The Company is currently not under examination by the Internal Revenue Service or any other jurisdictions for any tax years. At December 31, 2016 and 2015, the Company had approximately $0.7 million and $0.6 million,
respectively, of total unrecognized tax benefits, which would affect income tax expense if recognized, before consideration of the Companys valuation allowance. During fiscal year 2016, the Company did not make any payment of interest and
penalties on unrecognized tax benefits. In addition, there was nothing accrued for in the consolidated balance sheets for the payment of interest and penalties at December 31, 2016.
Facility Lease
On July 9, 2015, the Company
entered into a noncancelable operating lease with a third party for office, laboratory and vivarium space that is scheduled to expire in February 2021, subject to a three-year renewal option. The lease agreement includes base rent escalation over
the lease term which will be amortized on a straight-line basis over the lease term with the resulting deferred liability recorded in other current and long-term liabilities. The resulting deferred liability recorded in other current and long-term
liabilities as of December 31, 2016 was $153,000. The lease requires the Company to share in prorated expenses and property taxes based upon actual amounts incurred; those amounts are not fixed for future periods and, therefore, not included in
the future minimum obligations listed below. Rent expense under this lease was $728,000 for the year ended December 31, 2016.
The
Company amended the lease, effective March 29, 2017, to remove 1,753 square feet from the lease, which space was previously used for vivarium and vivarium support purposes. The Companys base rent and share in expenses and property taxes
have been reduced based on the revised
pro-rata
allocation of the premises.
F-21
Future minimum lease payments under the
non-cancelable
operating lease are as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
Operating
Leases
|
|
2017
|
|
$
|
690
|
|
2018
|
|
|
738
|
|
2019
|
|
|
786
|
|
2020
|
|
|
830
|
|
2021
|
|
|
140
|
|
|
|
|
|
|
Total
|
|
$
|
3,184
|
|
|
|
|
|
|
Potential Payments upon Termination or Change in Control
On
March 19, 2017, the Company entered into retention agreements with certain executive officers. These retention agreements supersede the provisions of such executive officers employment agreements and retention letters with the Company
providing for post-separation benefits, and provide for certain lump sum payments ranging from 6 to 18 months of salary, plus health and dental insurance coverage, while also providing the covered executives with a cash bonus upon completion of a
change in control. Under the terms of the retention agreements, the Company may be required to pay up to approximately $1.8 million.
Calando License
The Company has a product
license agreement and a platform license agreement with Calando Pharmaceuticals, Inc. (Calando). Under the product license agreement, the Company may be required to pay Calando up to $32.8 million upon the achievement of specified
regulatory and commercial milestones and pay tiered royalty payment ranging from
low-to
mid-single
digits on commercial sales.
Under the platform license agreement, the Company paid Calando a $250,000 clinical development milestone which was recorded in December 2014
upon initiation of the Phase 1/2a clinical trial for CRLX301. The Company may be required to make additional milestone payments to Calando of up to $17.8 million, in the aggregate, upon the achievement of specified regulatory and
commercial milestones and pay royalty payments ranging from
low-to
mid-single
digits on commercial sales.
In March 2014, Calando entered Chapter 7 bankruptcy in the District of Delaware and, as a result, the intellectual property rights the Company
has obtained from Calando are subject to potential risks that may arise in connection with bankruptcy. For instance, while the Companys ability to develop and/or commercialize its current product candidates and its ability to utilize its
platform are not dependent on the rights that it licenses from Calando, its license agreements with Calando could be rejected in connection with Calandos bankruptcy, in which case, the Company could, subject to elections and other rights and
defenses that may be available to it, lose certain rights granted to it under such licenses. On March 3, 2015, Calandos bankruptcy trustee submitted an application with the bankruptcy court seeking authority to retain a broker to sell
Calandos rights in certain assets including its rights in the license agreements with the Company, the Company has reserved its rights with respect to any such sale. The trustees last deadline was February 7, 2017. To our knowledge,
no sale of such rights was ever consummated.
SUNY License
The Company is party to a license agreement with The
Research Foundation of State University of New York (SUNY) for certain intellectual property. The agreement as amended requires the Company to pay nonrefundable annual license maintenance fees each year until the date of first commercial
sale of a licensed product pursuant to the license agreement, as amended. The annual license fee is not material in any individual year. In the event of future partner collaborations or product sales incorporating technology covered by this license
agreement, the Company may be required to pay milestone payments and/or product royalties. In connection with this agreement, the Company recorded research and development expense of $30,000, $30,000, and $25,000 for the years ended
December 31, 2016, 2015, and 2014, respectively.
F-22
Massachusetts Institute of Technology License
The Company delivered a
notice of termination which became effective on November 1, 2015, with respect to the Companys license agreement with the Massachusetts Institute of Technology (MIT). The agreement as amended required the Company to pay MIT
nonrefundable annual license maintenance fees that increased each year beginning in 2015. In connection with this agreement, the Company recorded research and development expense for annual maintenance fees of $50,000 for the year ended
December 31, 2015, and $10,000 in the year ended December 31, 2014.
The Company has a 401(k) retirement and profit-sharing plan (the
401(k) Plan) covering all qualified employees. The 401(k) Plan allows each participant to contribute a portion of their base wages up to an amount not to exceed an annual statutory maximum. Effective January 1, 2010, the
Company adopted a Safe Harbor Plan that provides a Company match up to 4% of salary. The Company contributed a match of $292,000, $264,000, and $163,000 to the 401(k) Plan for the years ended December 31, 2016, 2015, and 2014,
respectively.
14.
|
RELATED PARTY TRANSACTIONS
|
In April 2013, the Company entered into a laboratory,
equipment sharing, services and license agreement with an entity affiliated with one of the Companys directors. Fees recorded offsetting research and development expenses under this agreement and paid in the year ended December 31, 2014,
were $39,000. On April 1, 2014, the Company sold used equipment to this entity and recorded proceeds from the sale of $30,000. The agreement was terminated on April 1, 2014.
In October 2016, the Company entered into a research collaboration agreement
with Novartis pursuant to which the Company granted to Novartis certain exclusive, world-wide licenses to the Companys intellectual property relating to its platform technology and
know-how.
Under the
collaboration, the Company and Novartis agreed to collaborate, over an initial research term of two years, with respect to the
pre-clinical
development of nanoparticle drug conjugates comprised of the
Companys proprietary polymer covalently linked to Novartis-selected active pharmaceutical ingredients for up to five targets to be agreed upon by the Company and Novartis. Novartis may extend the initial research term by up to two additional
one-year
periods. In October 2016, the Company received a $5.0 million upfront payment under the collaboration which it will recognize on a straight-line basis over the initial term of the collaboration. The
Company will also receive funding from Novartis for up to five full-time employees of the Company to be engaged in activities under the collaboration during the research term. For the year ended December 31, 2016, the Company recognized revenue
of $507,000 in connection with the upfront fee and $259,000 in connection with the funding for activities performed under the collaboration during the research term.
In 2013, the Company entered into material transfer agreements with two separate biopharmaceutical companies to conduct feasibility studies
using the Companys proprietary technology. The Company recognized revenue of $80,000 for the year ended December 31, 2014, in connection with these material transfer agreements. The Company had no revenue for the years ended
December 31, 2016 and 2015 related to these agreements.
F-23
16.
|
QUARTERLY FINANCIAL DATA (unaudited)
|
The following table summarizes the unaudited
quarterly financial data for the last two fiscal years:
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
First Quarter
|
|
|
Second
Quarter
|
|
|
Third Quarter
|
|
|
Fourth
Quarter
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
9,770
|
|
|
|
7,522
|
|
|
|
7,089
|
|
|
|
3,184
|
|
General and administrative
|
|
|
3,118
|
|
|
|
2,773
|
|
|
|
2,374
|
|
|
|
2,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
12,888
|
|
|
|
10,295
|
|
|
|
9,463
|
|
|
|
5,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
16
|
|
|
|
25
|
|
|
|
25
|
|
|
|
20
|
|
Interest expense
|
|
|
(670
|
)
|
|
|
(589
|
)
|
|
|
(521
|
)
|
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) net
|
|
|
(654
|
)
|
|
|
(564
|
)
|
|
|
(496
|
)
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(13,542
|
)
|
|
$
|
(10,859
|
)
|
|
$
|
(9,959
|
)
|
|
$
|
(4,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.49
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
27,362,643
|
|
|
|
27,363,965
|
|
|
|
27,383,376
|
|
|
|
28,724,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
First Quarter
|
|
|
Second
Quarter
|
|
|
Third Quarter
|
|
|
Fourth
Quarter
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,021
|
|
|
|
6,678
|
|
|
|
7,092
|
|
|
|
7,157
|
|
General and administrative
|
|
|
2,681
|
|
|
|
2,717
|
|
|
|
2,954
|
|
|
|
2,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,702
|
|
|
|
9,395
|
|
|
|
10,046
|
|
|
|
10,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
2
|
|
Interest expense
|
|
|
(721
|
)
|
|
|
(513
|
)
|
|
|
(509
|
)
|
|
|
(689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) net
|
|
|
(718
|
)
|
|
|
(512
|
)
|
|
|
(505
|
)
|
|
|
(687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(8,420
|
)
|
|
$
|
(9,907
|
)
|
|
$
|
(10,551
|
)
|
|
$
|
(10,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.41
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
20,350,557
|
|
|
|
26,690,673
|
|
|
|
27,307,103
|
|
|
|
27,346,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2017, the Company announced that its board of directors
initiated a review of strategic alternatives that could result in changes to the Companys business strategy and future operations. As part of this
F-24
process, the board determined to review alternatives with the goal of maximizing stockholder value, including a potential sale of the Company, a reverse merger, a business combination or a sale,
license or other disposition of company assets.
The Company entered into a payoff letter dated as of March 17, 2017 with Hercules
pursuant to which the Company agreed to pay off and thereby terminate the Hercules Loan Agreement. Pursuant to the payoff letter, the Company paid, on March 20, 2017, a total of $12.4 million to Hercules, representing the principal,
accrued and unpaid interest, fees, costs and expenses outstanding under the Hercules Loan Agreement in repayment of its outstanding obligations under the Hercules Loan Agreement. This payoff amount included a final end of term charge to Hercules in
the amount of $1.4 million, representing 6.7% of the aggregate original principal amount advanced by Hercules. As of December 31, 2016, the Company has accrued $1.1 million of the end of term charge. Upon the payment of the
$12.4 million pursuant to the payoff letter, all outstanding indebtedness and obligations owed to Hercules under the Loan Agreement were deemed paid in full, and the Loan Agreement was terminated.
On March 19, 2017, the Company entered into an asset purchase agreement (the Novartis Asset Purchase Agreement) with
Novartis. Under the Novartis Asset Purchase Agreement the Company agreed to sell and assign to Novartis all of the Companys right, title and interest in and to the patent rights,
know-how
and third-party
license agreements relating to the Companys proprietary Dynamic Tumor Targeting Platform (the Platform). At the closing of the Novartis transaction, Novartis will be obligated to pay a purchase price of $6.0 million.
Consummation of the Novartis transaction is subject to certain closing conditions, including, among other things, approval by the Companys stockholders.
On March 19, 2017, the Company also entered into an asset purchase agreement (the BlueLink Asset Purchase Agreement) with BlueLink
Pharmaceuticals, Inc. (BlueLink). Under the BlueLink Asset Purchase Agreement the Company sold and assigned to BlueLink all of the Companys right, title and interest in and to its clinical product candidates CRLX101 and CRLX301
(the Products). The Company also transferred and assigned to BlueLink the accompanying intellectual property rights and
know-how
to the Products. On March 21, 2017, BlueLink paid the purchase
price of $1.5 million. Also in connection with the BlueLink Asset Purchase Agreement, the Company and BlueLink entered into a license agreement in favor of BlueLink, pursuant to which the Company agreed to grant to BlueLink an exclusive,
worldwide, perpetual, sublicensable right and license, under the Platform, to research, develop and commercialize the Products. Pursuant to the Novartis Asset Purchase Agreement between the Company and Novartis, Novartis will assume the BlueLink
License upon the closing of the Novartis transaction.
On March 19, 2017, the Company also entered into a stock purchase agreement
(the Stock Purchase Agreement) with Daré Bioscience, Inc. (Daré), and the holders of capital stock and securities convertible into capital stock of Daré named therein (Selling Stockholders),
pursuant to which, among other things, the Selling Stockholders agreed to sell to the Company, and the Company agreed to purchase from the Selling Stockholders, all of the outstanding shares of capital stock, including those issuable upon conversion
of convertible securities, of Daré (the Daré Transaction). Immediately following the closing of the Daré Transaction, the Selling Stockholders are expected to own between approximately 51% and 70% (depending on the
net cash positions of the Company and Daré at closing) of the outstanding equity securities of Cerulean Pharma Inc. Consummation of the Daré Transaction is subject to certain closing conditions, including, among other things, approval
by the Companys stockholders. The exchange ratio, and therefore fair value of exchange consideration, are indeterminable at this time, and as such the full disclosures required under Accounting Standards Codification 805, Business
Combinations, are impracticable. The Stock Purchase Agreement contains certain termination rights for both the Company and Daré, and further provides that, upon termination of the Stock Purchase Agreement under specified circumstances, the
Company may be required to pay Daré a termination fee of $0.3 million, or Daré may be required to pay the Company a termination fee of $0.45 million. There can be no assurances that the Daré Transaction will be
consummated.
On March 20, 2017, the Company announced a restructuring including the elimination of approximately 58% of its
workforce, to a total of eight full-time equivalent employees, under a plan expected to be completed during the second quarter of 2017.
F-25
CERULEAN PHARMA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands except share data and par value)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,028
|
|
|
$
|
34,950
|
|
Property and equipment held for sale
|
|
|
386
|
|
|
|
|
|
Accounts receivable
|
|
|
1,139
|
|
|
|
823
|
|
Prepaid retention payments
|
|
|
1,069
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
987
|
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
15,609
|
|
|
|
36,790
|
|
Property and equipment, net
|
|
|
114
|
|
|
|
668
|
|
Other assets
|
|
|
230
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,953
|
|
|
$
|
37,688
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of loan payable
|
|
$
|
|
|
|
$
|
8,382
|
|
Accounts payable
|
|
|
644
|
|
|
|
1,446
|
|
Accrued expenses
|
|
|
3,538
|
|
|
|
4,611
|
|
Current portion deferred revenue
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,682
|
|
|
|
16,939
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Loan payable, net of current portion
|
|
|
|
|
|
|
4,439
|
|
Deferred revenue
|
|
|
1,368
|
|
|
|
1,993
|
|
Other long-term liabilities
|
|
|
162
|
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
1,530
|
|
|
|
7,638
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock $0.01 par value; 5,000,000 shares authorized, no shares issued or
outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 120,000,000 shares authorized, 29,021,455 and 28,937,185 shares
issued and outstanding at March 31, 2017 and December 31, 2016, respectively
|
|
|
3
|
|
|
|
3
|
|
Additional
paid-in
capital
|
|
|
214,757
|
|
|
|
213,788
|
|
Accumulated deficit
|
|
|
(207,019
|
)
|
|
|
(200,680
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,741
|
|
|
|
13,111
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,953
|
|
|
$
|
37,688
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
F-26
CERULEAN PHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands except per share and share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
1,192
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,651
|
|
|
|
9,770
|
|
General and administrative
|
|
|
3,587
|
|
|
|
3,118
|
|
Gain on asset sale
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,738
|
|
|
|
12,888
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
33
|
|
|
|
16
|
|
Interest expense
|
|
|
(797
|
)
|
|
|
(663
|
)
|
Other expense
|
|
|
(29
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(793
|
)
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(6,339
|
)
|
|
$
|
(13,542
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.22
|
)
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
29,019,582
|
|
|
|
27,362,643
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
F-27
CERULEAN PHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,339
|
)
|
|
$
|
(13,542
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
906
|
|
|
|
741
|
|
Noncash rent expense
|
|
|
10
|
|
|
|
124
|
|
Depreciation and amortization
|
|
|
66
|
|
|
|
61
|
|
Amortization of debt discount and deferred financing costs
|
|
|
610
|
|
|
|
127
|
|
Loss on disposal of property and equipment
|
|
|
|
|
|
|
4
|
|
Impairment of property and equipment
|
|
|
102
|
|
|
|
|
|
Deferred revenue
|
|
|
(625
|
)
|
|
|
|
|
Gain on asset sale
|
|
|
(1,500
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(316
|
)
|
|
|
(18
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,039
|
)
|
|
|
(174
|
)
|
Accounts payable
|
|
|
(802
|
)
|
|
|
141
|
|
Accrued expenses
|
|
|
(1,073
|
)
|
|
|
(724
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(10,000
|
)
|
|
|
(13,260
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(359
|
)
|
Decrease in restricted cash
|
|
|
|
|
|
|
117
|
|
Proceeds from the sale of assets
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,500
|
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
62
|
|
|
|
41
|
|
Payments on loan payable
|
|
|
(13,077
|
)
|
|
|
(1,932
|
)
|
Payment of end of term charge on loan payable
|
|
|
(1,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(14,422
|
)
|
|
|
(1,891
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease increase in cash and cash equivalents
|
|
|
(22,922
|
)
|
|
|
(15,393
|
)
|
Cash and cash equivalents Beginning of period
|
|
|
34,950
|
|
|
|
75,908
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents End of period
|
|
$
|
12,028
|
|
|
$
|
60,515
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information Interest paid
|
|
$
|
269
|
|
|
$
|
372
|
|
|
|
|
|
|
|
|
|
|
See notes to the unaudited condensed consolidated financial statements.
F-28
CERULEAN PHARMA INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
NATURE OF BUSINESS AND OPERATIONS
|
Nature of Business
Cerulean Pharma Inc.
(the Company) was incorporated on November 28, 2005, as a Delaware corporation and is located in Waltham, Massachusetts. The Company was formed to develop novel, nanotechnology-based therapeutics in the areas of oncology and other
diseases. In 2013, the Company formed a wholly owned subsidiary, Cerulean Pharma Australia Pty Ltd as an Australian-based proprietary limited company to perform clinical activities in Australia.
The Companys operations have consisted primarily of raising capital, product research and development, and initial market development.
The Company has not generated any revenue related to its primary business purpose to date and is subject to a number of risks common to
other development stage life science companies, including dependence on key individuals, competition from other companies, the need for development of commercially viable products, and the need to obtain adequate additional financing to fund the
development of product candidates. The Company is also subject to a number of risks similar to other companies in the industry, including rapid technological change, regulatory approval of products, uncertainty of market acceptance of products,
competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability and dependence on key
individuals.
On February 1, 2017, the Company announced that its board of directors had initiated a review of strategic alternatives
that could result in changes to the Companys business strategy and future operations. As part of this process, the board determined to review alternatives with the goal of maximizing stockholder value, including a potential sale of the
Company, a reverse merger, a business combination or a sale, license or other disposition of company assets.
On March 17, 2017, the
Company entered into a payoff letter with Hercules Technology Growth Capital, Inc. (Hercules) pursuant to which the Company agreed to pay off and thereby terminate its loan with Hercules. Pursuant to the payoff letter, the Company paid,
on March 20, 2017, a total of $12.4 million to Hercules, representing the principal, accrued and unpaid interest, fees, costs and expenses outstanding in repayment of its outstanding obligations under the loan agreement (see Note 6
Loan Agreements).
On March 19, 2017, the Company entered into an asset purchase agreement (the Novartis Asset Purchase
Agreement) with Novartis. Under the Novartis Asset Purchase Agreement the Company agreed to sell and assign to Novartis all of the Companys right, title and interest in and to the patent rights,
know-how
and third-party license agreements relating to the Companys proprietary Dynamic Tumor Targeting Platform (the Platform). At the closing of the Novartis transaction, Novartis will be
obligated to pay a purchase price of $6.0 million. Consummation of the Novartis transaction is subject to the Company obtaining, pursuant to Delaware law, the approval of the holders of at least a majority of its common stock for the sale of
substantially all of its assets in the Novartis transaction. Each partys obligation to consummate the Novartis transaction is also subject to other customary closing conditions.
On March 19, 2017, the Company also entered into an asset purchase agreement (the BlueLink Asset Purchase Agreement) with BlueLink
Pharmaceuticals, Inc. (BlueLink). Under the BlueLink Asset Purchase Agreement the Company sold and assigned to BlueLink all of the Companys right, title and interest in and to its clinical product candidates CRLX101 and CRLX301
(the Products). The Company also transferred and assigned to BlueLink the accompanying intellectual property rights and
know-how
to the Products. On March 21, 2017, BlueLink paid the purchase
price of $1.5 million. Also in connection with the BlueLink Asset Purchase
F-29
Agreement, the Company and BlueLink entered into a license agreement in favor of BlueLink, pursuant to which the Company agreed to grant to BlueLink an exclusive, worldwide, perpetual,
sublicensable right and license, under the Platform, to research, develop and commercialize the Products. Pursuant to the Novartis Asset Purchase Agreement between the Company and Novartis, Novartis will assume the BlueLink License upon the closing
of the Novartis transaction.
On March 19, 2017, the Company also entered into a stock purchase agreement (the Stock Purchase
Agreement) with Daré Bioscience, Inc. (Daré), and the holders of capital stock and securities convertible into capital stock of Daré named therein (Selling Stockholders), pursuant to which, among
other things, the Selling Stockholders agreed to sell to the Company, and the Company agreed to purchase from the Selling Stockholders, all of the outstanding shares of capital stock, including those issuable upon conversion of convertible
securities, of Daré (the Daré Transaction). Immediately following the closing of the Daré Transaction, the Selling Stockholders are expected to own between approximately 51% and 70% (depending on the respective net
cash (as defined in the Stock Purchase Agreement) of the Company and Daré five business days prior to the closing) of the outstanding equity securities of Cerulean Pharma Inc. on a fully-diluted basis immediately following consummation of the
Daré Transaction. Consummation of the Daré Transaction is subject to certain closing conditions, including, among other things, approval by the Companys stockholders. The exchange ratio, and therefore fair value of exchange
consideration, are indeterminable at this time, and as such the full disclosures required under Accounting Standards Codification 805, Business Combinations, are impracticable. The Stock Purchase Agreement contains certain termination rights for
both the Company and Daré, and further provides that, upon termination of the Stock Purchase Agreement under specified circumstances, the Company may be required to pay Daré a termination fee of $0.3 million, or Daré may be
required to pay the Company a termination fee of $0.45 million. There can be no assurances that the Daré Transaction will be consummated.
With exception of the payoff letter with Hercules and the sale of the clinical product candidates, these transactions are subject to certain
closing conditions. There can be no assurances that these transactions will be consummated prior to the exhaustion of the Companys cash and cash equivalent resources, if at all.
The Company has an accumulated deficit of $207.0 million at March 31, 2017. The Company has financed its operations primarily
through private placements of its preferred stock, proceeds from borrowings, an initial public offering completed in 2014 and a
follow-on
offering completed in 2015. As of March 31, 2017, the Company had
cash and cash equivalents of $12.0 million. With the sale of its two clinical product candidates, the proposed sale of its Platform, and the reduction of staff to eight full-time employees, the Company has effectively ceased prior clinical
research and is focused on maintaining its assets until they are either sold or its corporate business strategy with Daré, as described above, is executed, it completes any other strategic transaction, it determines to continue to operate the
Platform or it otherwise decides to liquidate its assets or dissolve. The Company has no other sources of significant liquidity in place as of March 31, 2017.
The foregoing matters give rise to substantial doubt about the Companys ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
2.
|
SIGNIFICANT ACCOUNTING POLICIES
|
There have been no material changes to the significant
accounting policies previously disclosed in the 2016
10-K.
Recent Accounting Pronouncements
In November 2016, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update
2016-18,
Statement of Cash Flows - Restricted Cash (Topic 230).
This new standard requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling
beginning-of-period
and
end-of-period
total amounts shown on the statement of cash flows.
This guidance is effective for annual and interim reporting
F-30
periods beginning after December 15, 2017, and required retrospective application. The Company is currently evaluating the effect this standard will have on its consolidated financial
statements and related disclosures.
In February 2016, the FASB issued Accounting Standards Update
2016-02,
Leases (Topic 842) (ASU
2016-02),
which provides new accounting guidance on leases. ASU
2016-02
requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in ASU
2016-02
are effective for fiscal years beginning after December 15, 2018
and interim periods within those fiscal years. Early application is permitted for all entities. ASU
2016-02
requires a modified retrospective approach for all leases existing at, or entered into after, the
date of initial application, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In August 2014, the FASB issued Accounting Standards Update
2014-15,
Presentation of Financial
Statements Going Concern (Subtopic
205-40):
Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern (ASU
2014-15).
ASU
2014-15
requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial
doubt about the entitys ability to continue as a going concern and provide related disclosures. ASU
2014-15
is effective for annual periods ending after December 15, 2016, and interim periods within
annual periods beginning after December 15, 2016. The Company has performed its own assessment of the entitys ability to continue as a going concern for at least one year from the issuance date and provided increased disclosure around this
matter as reflected in Note 1 Nature of Business and Operations.
3.
|
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
The Company computes diluted
loss per common share after giving effect to the dilutive effect of stock options, warrants and shares of unvested restricted stock that are outstanding during the period, except where the inclusion of such securities would be antidilutive.
The Company has reported a net loss for all periods presented and, therefore, diluted net loss per common share is the same as basic net loss
per common share.
The following potentially dilutive securities that were outstanding prior to the use of the treasury stock method have
been excluded from the computation of diluted weighted-average shares outstanding, because the inclusion of such securities would have an antidilutive impact due to the losses reported (in common stock equivalent shares):
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Options to purchase common stock
|
|
|
5,441,105
|
|
|
|
3,991,586
|
|
Warrants to purchase common stock
|
|
|
365,564
|
|
|
|
300,564
|
|
4.
|
PROPERTY AND EQUIPMENT AVAILABLE FOR SALE
|
On March 19, 2017, the Company entered
into the Novartis Asset Purchase Agreement under which the Company agreed to sell and assign all of its right, title and interest in and to the patent rights,
know-how
and third-party license agreements
relating to the Platform. In anticipation of the sale of such assets under the Novartis Asset Purchase Agreement, substantially all of the Companys lab research activities have terminated. As a result, the Company determined to dispose of all
of its lab equipment and initiated a program in March 2017 to locate a buyer and offer such equipment for sale at a current market price. The Company reclassified $386,000 of such equipment as available for sale on the balance sheet. The Company
recorded an impairment charge in March 2017 of $102,000 based on the quoted market price from the sale of the assets, completed in early April 2017, which is included in operating expenses.
F-31
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
2017
|
|
|
As of December 31,
2016
|
|
Accrued clinical trial costs
|
|
$
|
3,083
|
|
|
$
|
2,648
|
|
Accrued contract manufacturing expenses
|
|
|
9
|
|
|
|
226
|
|
Accrued compensation and benefits
|
|
|
146
|
|
|
|
1,080
|
|
Accrued interest
|
|
|
|
|
|
|
82
|
|
Other accrued expenses
|
|
|
300
|
|
|
|
575
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
3,538
|
|
|
$
|
4,611
|
|
|
|
|
|
|
|
|
|
|
On January 8, 2015, the Company entered into a loan and security
agreement with Hercules to borrow up to $26.0 million (the Hercules Loan Agreement). The proceeds were used to repay the Companys then-existing term loan facility and for general corporate and working capital purposes. On
March 17, 2017, the Company entered into a payoff letter with Hercules pursuant to which the Company agreed to pay off and thereby terminate the Hercules Loan Agreement. Pursuant to the payoff letter, the Company paid, on March 20, 2017, a
total of $12.4 million to Hercules, representing the principal, accrued and unpaid interest, fees, costs and expenses outstanding under the Hercules Loan Agreement in repayment of its outstanding obligations under the Hercules Loan Agreement.
This payoff amount included a final end of term charge to Hercules in the amount of $1.4 million, representing 6.7% of the aggregate original principal amount advanced by Hercules. Upon the payment of $12.4 million pursuant to the payoff
letter, all outstanding indebtedness and obligations owed to Hercules under the Loan Agreement were deemed paid in full, and the Loan Agreement was terminated. At December 31, 2016, the Company had $12.8 million outstanding under the
Hercules Loan Agreement and had accrued $1.1 million of the end of term charge.
In connection with the Hercules Loan Agreement, the
Company issued to Hercules a warrant to purchase shares of the common stock of the Company at an exercise price of $6.05 per share. The warrant is exercisable for 171,901 shares of common stock. The warrant is exercisable until January 8, 2020.
The Company estimated the fair value of the warrant for shares exercisable on the issue date in January 2015 to be $824,000. The value of the warrant was recorded as a discount to the loan and was being amortized to interest expense using the
effective interest method over the term of the loan. The unamortized discount relating to the warrants, or $0.2 million, was expensed as interest expense upon repayment of the loan.
7.
|
STOCK-BASED COMPENSATION
|
In March 2014, the Companys board of directors adopted
and its stockholders approved the 2014 Stock Incentive Plan (the 2014 Plan) and the 2014 Employee Stock Purchase Plan (the ESPP), which became effective in April 2014.
F-32
Stock Options
The 2014 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock,
restricted stock units and other stock-based awards. A summary of stock option activity for employee, director and nonemployee awards under all stock option plans during the three months ended March 31, 2017 is presented below (Aggregate
Intrinsic Value in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2017
|
|
|
4,020,288
|
|
|
$
|
4.31
|
|
|
|
8.4
|
|
|
$
|
|
|
Granted
|
|
|
1,479,450
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(58,633
|
)
|
|
$
|
4.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2017
|
|
|
5,441,105
|
|
|
$
|
3.36
|
|
|
|
8.6
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2017
|
|
|
1,913,734
|
|
|
$
|
5.03
|
|
|
|
7.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest at March 31, 2017
|
|
|
4,956,695
|
|
|
$
|
3.56
|
|
|
|
8.5
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average per share grant date fair value of options granted during the three months ended
March 31, 2017 and 2016 was $0.61 and $1.70, respectively.
The fair value of each option award is estimated on the date of grant
using the Black-Scholes option-pricing model based on the assumptions noted in the table below. Expected volatility for the Companys common stock was determined based on an average of the historical volatility of a peer-group of similar public
companies. The Company has limited option exercise information, and as such, the expected term of the options granted was calculated using the simplified method that represents the average of the contractual term of the option and the
weighted-average vesting period of the option. The assumed dividend yield is based upon the Companys expectation of not paying dividends in the foreseeable future. The risk-free rate for periods within the contractual life of the option is
based upon the U.S. Treasury yield curve in effect at the time of grant.
The Company has recorded stock-based compensation expense
related to the issuance of stock option awards to employees of $877,000 and $691,000 for the three months ended March 31, 2017 and 2016, respectively. The assumptions used in the Black-Scholes option-pricing model for stock options granted to
employees and to directors in respect of board services during the three ended March 31, 2017 and 2016 are as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
|
2016
|
Expected life
|
|
|
4.6 years
|
|
|
5.9-6.1 years
|
Risk-free interest rate
|
|
|
1.8
|
%
|
|
1.3%-1.9%
|
Expected volatility
|
|
|
67
|
%
|
|
61%
|
Expected dividend rate
|
|
|
|
%
|
|
%
|
The Company recorded stock-based compensation expense related to nonemployee awards of $29,000 and $38,000 for
the three months ended March 31, 2017 and 2016, respectively. The compensation expense related to nonemployee awards is included in the total stock-based compensation each year and is subject to
re-measurement
until the options vest. The fair value of the grants is being expensed over the vesting period of
F-33
the options on a straight-line basis as the services are being provided. The Black-Scholes assumptions used to estimate fair value for the three months ended March 31, 2017 and 2016 were as
follows:
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
Expected life
|
|
4.6-9.8 years
|
|
6.9-9.7 years
|
Risk-free interest rate
|
|
1.8%-2.4%
|
|
1.7%-2.0%
|
Expected volatility
|
|
67%-117%
|
|
60%-61%
|
Expected dividend rate
|
|
%
|
|
%
|
During the three months ended March 31, 2017 the Company granted nonemployee stock options to purchase
151,000 and of the Companys common stock. The weighted-average exercise price and the weighted-average grant date fair value of nonemployee stock options granted for the three months ended March 31, 2017 was $0.82 per share and $0.75 per
share, respectively. The Company did not grant any nonemployee stock options during the three months ended March 31, 2016.
During
the three months ended March 31, 2017, the Company extended the exercise period for all continuing employees stock options to two years beyond their termination date. These option modifications were accounted for in the quarter ended March 31,
2017, which resulted in an approximate $267,000 increase of stock-based compensation expense recognized for the quarter ended March 31, 2017.
Employee
Stock Purchase Plan
The ESPP permits eligible employees to enroll in a
six-month
offering
period whereby participants may purchase shares of the Companys common stock, through payroll deductions, at a price equal to 85% of the closing price of the common stock on the first day of the offering period or the last day of the offering
period, whichever is lower. Purchase dates under the ESPP occur on or about June 30 and December 31 of each year. The board of directors determined not to initiate a new offering period beginning January 1, 2017. The stock-based
compensation expense related to the ESPP was $0 and $12,000 for the three months ended March 31, 2017 and 2016, respectively.
8.
|
FAIR VALUE MEASUREMENTS
|
The Companys financial instruments consist of cash
equivalents, accounts payable, accrued expenses, and debt obligations. The carrying amount of accounts payable and accrued expenses are considered a reasonable estimate of their fair value, due to the short-term maturity of these instruments. The
carrying amount of debt is also considered to be a reasonable estimate of its fair value based on the short term nature of the debt and because the debt bears interest at the prevailing market rate for instruments with similar characteristics.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of
observable inputs and minimize the use of unobservable inputs.
The accounting standard describes a fair value hierarchy based on three
levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
Level 1 Quoted prices (unadjusted) in active markets that are accessible at the market date for identical unrestricted assets or
liabilities.
F-34
Level 2 Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
A summary of the financial assets and liabilities that are measured
on a recurring basis at fair value as of March 31, 2017 and December 31, 2016, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Carrying
Value
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
12,022
|
|
|
$
|
|
|
|
$
|
12,022
|
|
|
$
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
34,950
|
|
|
$
|
|
|
|
$
|
34,950
|
|
|
$
|
|
|
The Company believes that its debt obligations bear interest at rates which approximate prevailing market
rates for instruments with similar characteristics and, accordingly, the carrying values for these instruments approximate fair value. The Companys debt obligations are Level 2 measurements in the fair value hierarchy.
The Companys money market funds have been valued on the basis of valuations provided by third-party pricing services, as derived from
such services pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves
or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a
security. The Company is ultimately responsible for the consolidated financial statements and underlying estimates. Accordingly, the Company assesses the reasonableness of the valuations provided by the third-party pricing services by reviewing
actual trade data, broker/dealer quotes and other similar data, which are obtained from quoted market prices or other sources.
No
transfers between levels occurred during the periods presented.
In October 2016, the Company entered into a research collaboration agreement
with Novartis pursuant to which the Company granted to Novartis certain exclusive, world-wide licenses to the Companys intellectual property relating to its platform technology and
know-how.
Under the
collaboration, the Company and Novartis agreed to collaborate, over an initial research term of two years, with respect to the
pre-clinical
development of nanoparticle drug conjugates comprised of the
Companys proprietary polymer covalently linked to Novartis-selected active pharmaceutical ingredients for up to five targets to be agreed upon by the Company and Novartis. Novartis may extend the initial research term by up to two additional
one-year
periods. In October 2016, the Company received a $5.0 million upfront payment under the collaboration which it recognizes on a straight-line basis over the initial term of the collaboration. The
Company also receives funding from Novartis for up to five full-time employees of the Company engaged in activities under the collaboration during the research term. For the three months ended March 31, 2017, the Company recognized revenue of
$625,000 in connection with the upfront fee and $567,000 in connection with the funding for activities performed under the collaboration during the research term.
F-35
On March 19, 2017, the Company entered into retention agreements
with certain key employees. These retention agreements supersede the provisions of such employees employment agreements and retention letters with the Company. The retention agreements provide for certain lump sum payments ranging from three
to 18 months of salary, plus health and dental insurance coverage, while also providing the covered employees with a cash payment upon completion of a change in control. The Company paid $1.1 million in retention payments under the terms of the
retention agreements on March 31, 2017, which is included in prepaid expense at March 31, 2017. Under the terms of the retention agreements, the retention payments are earned upon continued employment with the Company for the retention period
of three or six months as specified in the retention agreements unless earlier released by the Company. In addition, under the terms of the retention agreements, the Company may be required to pay up to an additional $1.6 million of change in
control and severance payments.
On March 20, 2017, the Company announced a restructuring including the termination of approximately
58% of its workforce, from 19 full-time equivalent employees to a total of eight full-time equivalent employees, under a plan expected to be completed during the second quarter of 2017.
F-36
DARÉ BIOSCIENCE, INC.
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Audited Financial Statements for the Years Ended December 31, 2016 and 2015
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-38
|
|
Balance Sheets as of December 31, 2016 and 2015
|
|
|
F-39
|
|
Statements of Operations for the year ended December
31, 2016 and for the period from May 28, 2015 (inception) through December 31, 2015
|
|
|
F-40
|
|
Statements of Changes in Stockholders Deficit for the year ended December 31,
2016 and for the period from May 28, 2015 (inception) through December 31, 2015
|
|
|
F-41
|
|
Statements of Cash Flows for the year ended December
31, 2016 and for the period from May 28, 2015 (inception) through December 31, 2015
|
|
|
F-42
|
|
Notes to Financial Statements
|
|
|
F-43
|
|
Unaudited Financial Statements for the Three Months Ended March 31, 2017 and 2016
F-37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
DARÉ
BIOSCIENCE, INC.
We have audited the accompanying balance sheets of Daré Bioscience, Inc. (the Company) as of December 31, 2016 and
2015, and the related statements of operations, statements of changes in stockholders deficit, and cash flows for the year ended December 31, 2016 and for the period from May 28, 2015 (inception) through December 31, 2015. The Companys
management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Daré Bioscience, Inc. as of December 31, 2016 and 2015, and the results of its operations and cash flows for the year ended December 31, 2016 and for the period from May 28, 2015
(inception) through December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
The accompanying
financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses from operations, and is dependent on additional financing to
fund operations. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are described in Note 1 to the financial statements. The financial
statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
|
/s/ Mayer Hoffman McCann P.C.
|
|
San Diego, California
March 31,
2017
|
10616 Scripps Summit Court San Diego, CA 92131
Main: 858.795.2000 Fax: 858.795.2001 www.mhmcpa.com
F-38
Daré Bioscience, Inc.
Balance Sheets
December 31, 2016 and 2015
|
|
|
|
|
|
|
|
|
Assets
|
|
2016
|
|
|
2015
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
44,614
|
|
|
$
|
219,413
|
|
Prepaid expenses
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
44,614
|
|
|
|
469,413
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
44,614
|
|
|
$
|
469,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders deficit
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
12,678
|
|
|
$
|
13,401
|
|
Convertible promissory notes
|
|
|
697,500
|
|
|
|
500,000
|
|
Interest payable
|
|
|
45,057
|
|
|
|
2,959
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
755,235
|
|
|
|
516,360
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
755,235
|
|
|
|
516,360
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit (Note 3)
|
|
|
|
|
|
|
|
|
Common stock: $.001 par value, 10,000,000 shares authorized, 9,100,000 and 8,200,000 shares issued
and outstanding at December 31, 2016 and 2015, respectively
|
|
|
9,100
|
|
|
|
8,200
|
|
Additional
paid-in
capital
|
|
|
8,114
|
|
|
|
1
|
|
Accumulated deficit
|
|
|
(727,835
|
)
|
|
|
(55,148
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(710,621
|
)
|
|
|
(46,947
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
44,614
|
|
|
$
|
469,413
|
|
|
|
|
|
|
|
|
|
|
See notes to Financial Statements.
F-39
Daré Bioscience, Inc.
Statements of Operations
Year Ended December 31, 2016 and Period from May 28, 2015 (inception) through December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and Administrative expenses
|
|
$
|
272,687
|
|
|
$
|
55,148
|
|
License expenses
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
672,687
|
|
|
|
55,148
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(672,687
|
)
|
|
|
(55,148
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(672,687
|
)
|
|
$
|
(55,148
|
)
|
|
|
|
|
|
|
|
|
|
See notes to Financial Statements.
F-40
Daré Bioscience, Inc.
Statements of Changes in Stockholders Deficit
Year ended December 31, 2016 and the period from May 28, 2015 (inception) through December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Additional
paid-in
capital
|
|
|
Accumulated
deficit
|
|
|
Total
stockholders
equity (deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
Balance at May 28, 2015
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock purchases
|
|
|
8,000,000
|
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
Stock compensation expense
|
|
|
200,000
|
|
|
|
200
|
|
|
|
1
|
|
|
|
|
|
|
|
201
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,148
|
)
|
|
|
(55,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
8,200,000
|
|
|
$
|
8,200
|
|
|
$
|
1
|
|
|
$
|
(55,148
|
)
|
|
$
|
(46,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
900,000
|
|
|
|
900
|
|
|
|
8,113
|
|
|
|
|
|
|
|
9,013
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(672,687
|
)
|
|
|
(672,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
9,100,000
|
|
|
$
|
9,100
|
|
|
$
|
8,114
|
|
|
$
|
(727,835
|
)
|
|
$
|
(710,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Financial Statements
F-41
Daré Bioscience, Inc.
Statements of Cash Flows
Year Ended December 31, 2016 and Period from May 28, 2015 (inception) through December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(672,687
|
)
|
|
$
|
(55,148
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
9,013
|
|
|
|
201
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
250,000
|
|
|
|
(250,000
|
)
|
Accounts payable
|
|
|
(723
|
)
|
|
|
13,401
|
|
Interest payable
|
|
|
42,098
|
|
|
|
2,959
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(372,299
|
)
|
|
|
(288,587
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible promissory notes
|
|
|
197,500
|
|
|
|
500,000
|
|
Proceeds from issuance of stock
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
197,500
|
|
|
|
508,000
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(174,799
|
)
|
|
|
219,413
|
|
|
|
|
Cash, beginning of period
|
|
|
219,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
44,614
|
|
|
$
|
219,413
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
F-42
Daré Bioscience, Inc.
Notes to Financial Statements
Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of business:
Daré Bioscience, Inc. (the Company), a Delaware corporation headquartered in San Diego, California, was formed on
May 28, 2015. The Company is a clinical-stage pharmaceutical company committed to the development and commercialization of innovative products in womens reproductive health. The Company seeks product candidates that expand options,
improve outcomes and are easy for women to use. The Companys first product candidate is
Ovaprene
®
, a
non-hormonal contraceptive
intravaginal ring intended to provide protection over multiple weeks of use, requiring no intervention at the time of intercourse.
Since inception in
2015, the Company has devoted significant resources to license and prepare for the development of Ovaprene. The Company anticipates that the majority of operating expenses will be related to the development of Ovaprene and to expand its portfolio of
product candidates. Substantially all of the Companys resources are currently dedicated to advancing the clinical development of Ovaprene. The Company will require additional capital to advance Ovaprene and to acquire or license the rights to
other potential product candidates.
A summary of the Companys significant accounting policies follows:
Basis of presentation:
The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America, which contemplate continuation of the Company as a going concern. The Company reported a net loss of $672,687 and $55,148 for the year ended December 31, 2016 and the period from May 28, 2015 (inception) through
December 31, 2015, respectively. As a result of the Companys history of losses and financial condition, there is substantial doubt about the Companys ability to continue as a going concern. Management believes that cash provided by
additional financing from new and existing shareholders will be required to enable the Company to achieve its objectives over the next twelve months. The accompanying financial statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Use of estimates:
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include the fair value of stock-based compensation. Actual results could differ from those estimates and could materially affect the reported amounts of assets, liabilities and future operating results.
Cash:
The Company considers cash and all highly liquid debt instruments with an original maturity of three months or less to be cash. The
Company maintains its cash accounts primarily in one financial institution. Accounts at this bank are insured by the Federal Deposit Insurance Corporation. The Companys accounts at this institution do not exceed federally insured limits at
December 31, 2016.
Stock-based compensation:
The Company records compensation expense for all stock-based awards granted based on the
fair value of the award at the time of grant. The Company uses the Black-Scholes Pricing Model to determine the fair value of each of the awards which considers factors such as expected term, volatility, risk free interest rate and dividend yield.
Due to the limited history of the Company, the simplified method was utilized in order to determine the expected term of the awards. Additionally, the Company considered comparable companies in the industry which have available share price history
to calculate the volatility. The Company compared US Treasury Bills in determining the risk-free interest rate appropriate given the expected term. Finally, the Company has not established nor do they plan to establish a dividend policy or declare
any dividends in the foreseeable future and thus no dividend yield was determined necessary in the calculation of fair value.
F-43
Daré Bioscience, Inc.
Notes to Financial Statements
Income taxes:
The Company accounts for income taxes using the asset and liability method in
accordance with Accounting Standards Codification (ASC) 740, Income taxes. Under this method deferred income taxes are provided to reflect the tax consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
The Company follows the
two-step
approach to
recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many
factors when evaluating and estimating the Companys tax positions and tax benefits, which may require periodic adjustments. At December 31, 2016, the Company did not record any liabilities for uncertain tax positions.
As the company has significant operating losses, the company does not expect to pay any income taxes for 2016 and as such no income tax provision has been
made. Management evaluated the Companys tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements. The tax years 2015 to 2016 remain open to examination by federal and
state taxing authorities.
Fair Value of Financial Instruments:
Certain assets and liabilities are carried at fair value in accordance with
ASC 820, Fair Value Measurement. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy is based on three levels
of inputs which are used to measure fair value, of which the first two levels are considered observable and the last is considered unobservable:
|
|
|
Level 1Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar
assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
|
|
|
|
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow
methodologies and similar techniques.
|
The Companys instruments that are carried at fair value are cash equivalents, accounts payable
and accrued interest. The carrying values of accounts payable and accrued interest approximate their fair value due to the short-term nature of these assets and liabilities.
Recent accounting pronouncements:
On May 28,
2014, the FASB issued ASU
2014-09,
Revenue From Contracts With Customers
, which impacts the way in which some entities recognize revenue for certain types of transactions. The new standard will become
effective beginning in 2019 for private companies. The Company is currently assessing the potential impact of this accounting standard and the effect it might have on its revenue recognition policy upon adoption.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842)
, which sets out the principles for the
recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and
F-44
Daré Bioscience, Inc.
Notes to Financial Statements
lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a
right-of-use
asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will
be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and
operating leases. The new standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the potential impact of this accounting standard and the effect it might have
on the financial statements.
Note 2. Convertible Promissory Notes
On December 4, 2015, the Company issued convertible promissory notes to certain investors, whereby the Company agreed to sell and the accredited investors
agreed to purchase the convertible promissory notes in the aggregate principal amount of $500,000, the Initial Closing. The note purchase agreement provided for one or more additional closings through April 2, 2016 of sales of convertible
promissory notes but limited total convertible promissory notes to $1.0 million in the aggregate. The notes mature on December 4, 2017, bear an annual interest rate of 8%, are secured by all the assets of the Company and convert upon the
occurrence of a Qualified Equity Financing, defined as a transaction upon which the Company issues and sells shares of its Preferred Stock for aggregate gross proceeds of at least $10 million or at the option of the holder upon the occurrence
of a
Non-Qualified
Equity Financing, defined as a transaction upon which the Company issues and sells shares of its Preferred Stock for aggregate gross proceeds of less than $10 million. The outstanding
principal and unpaid and accrued interest convert at a conversion price based on the price paid for a share of preferred stock in the financing arrangement. The holders of the convertible promissory notes in the Initial Closing are entitled to
convert the value of their notes plus unpaid and accrued interest into the Qualified and
Non-Qualified
Equity Financings at a 25% discount to the price paid by investors in the Qualified and
Non-Qualified
Equity Financings. In November of 2016, the Company amended the December 2015 note purchase agreement to allow for the issuance of additional notes. Following approval by existing noteholders of the
amendment, the Company issued additional convertible promissory notes in the amount of $197,500, the Second Closing. The holders of the Second Closing of convertible promissory notes are entitled to convert the value of their notes plus unpaid and
accrued interest into the Qualified and
Non-Qualified
Equity Financings at a 40% discount to the price paid by investors in the Qualified and
Non-Qualified
Equity
Financings. Further, any holder of convertible promissory notes issued in the Initial Closing electing to purchase notes in the Second Closing in an amount greater than or equal to 50% of the value of notes purchased in the Initial Closing is
entitled to a 40% conversion discount on all convertible notes held. In accordance with ASC
470-20,
Debt Debt with Conversion and Other Options
, the Company will be required to recognize the
value of the beneficial conversion feature into earnings upon the resolution of the contingency. As of December 31, 2016 and 2015, the outstanding principal balance of these secured convertible notes was $697,500 and $500,000, respectively, and
the accrued and unpaid interest was $45,057 and $2,959, respectively.
Note 3. Stockholders Equity
Under the terms of the Companys Certificate of Incorporation the company is authorized to issue one class of stock designated as common stock. The total
number of common stock authorized is 10,000,000 shares with a par value of $0.001.
F-45
Daré Bioscience, Inc.
Notes to Financial Statements
Note 4. Stock-based Compensation
In December 1, 2015, the Company adopted the 2015 Employee, Director and Consultant Equity Incentive Plan, or 2015 Plan, under which the Company may grant
incentive stock options,
non-qualified
stock options, stock grants and stock-based awards to individuals who are then employees, officers,
non-employee
directors or
consultants of the Company. A total of 1,500,000 shares of common stock were initially reserved for issuance under the 2015 Plan, plus returning shares that may become available from time to time. Returning shares are shares
that are subject to outstanding awards granted under the 2015 Plan that expire or terminate prior to exercise or settlement, are forfeited because of the failure to vest, or are repurchased. As of December 31, 2016, 350,000 options remain
available for future grant under the 2015 Plan.
Stock Options
Options granted under the 2015 Plan have terms of ten years from the date of grant unless earlier terminated and generally vest over a three-year period. The
exercise price of all options granted and for the year ended December 31, 2016 and during the period from May 28, 2015 through December 31, 2015 was equal to the market value of the Companys common stock on the date of grant. A
summary of stock option activity and related information for the period from May 28, 2015 through December 31, 2015 and year ended December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Option
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at May 28, 2015
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
50,000
|
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
50,000
|
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
50,000
|
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
16,666
|
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2016
|
|
|
50,000
|
|
|
$
|
0.001
|
|
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable at December 31, 2016 had a weighted average contractual life of 8.9 years. The
intrinsic value of the vested and expected to vest at December 31, 2016 was $450. As of December 31, 2016, $26 represents unamortized stock-based compensation expense which will be amortized over the weighted average period of 2 years.
Restricted Stock
In December 2015, the Company
issued restricted stock agreements totaling 200,000 shares of common stock, $0.001 par value per share. The restricted stock vested immediately and all shares are subject to repurchase at the option of the Company upon termination of the affiliation
between the Company and the holder or a proposed transfer by the holder. The fair value of the restricted stock was determined to be $0.001 per share and was recorded as an expense within operating expenses as of the grant date.
In November 2016, the Company issued restricted stock agreements totaling 900,000 shares of common stock, $0.001 par value per share. The restricted stock
vested immediately and are subject to repurchase at the option of the Company upon termination of the affiliation between the Company and the holder or a proposed transfer by the holder. The fair value of the restricted stock was determined to be
$0.01 per share and was recorded as an expense within operating expenses as of the grant date.
F-46
Daré Bioscience, Inc.
Notes to Financial Statements
Note 5. Income Taxes
The Company will file a federal income tax return and certain state and local income tax returns. At December 31, 2016, the Company had available a
federal net operating loss carry-forward of approximately $700,000 for income tax purposes, which will expire in fiscal year 2037. The Company evaluates whether a valuation allowance related to deferred tax assets is required each reporting period.
A valuation allowance is established if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized. The Company follows ASC 740, Income Taxes,
where tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be
realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in tax returns that do not meet these recognition and measurement standards. At December 31, 2016, the Company recorded a full valuation allowance of $105,000
relating to the net operating loss.
Note 6. Commitments and Contingencies
Operating leases:
The Company entered into an Affiliate Member Services Agreement on December 19, 2016 which provides facilities space as well as
other services. The term of the agreement commences on January 1, 2017 and continues until either party provides 30 days notice of termination. The Company did not incur any rent expenses for the year ended December 31, 2016 or the period
from May 28, 2015 through December 31, 2015.
Other legal contingencies:
From time to time, the Company may be involved in various claims
arising in the normal course of business. Management is not aware of any material claims, disputes or unsettled matters that would have a material adverse effect on the Companys results of operations, liquidity or financial position that the
Company has not adequately provided for in the accompanying financial statements.
Note 7. Subsequent Events
The Company has evaluated subsequent events through March 31, 2017, the date on which the financial statements were available to be issued.
On February 17, 2017, Daré issued convertible promissory notes in the aggregate principal amount of $100,000.
On March 19, 2017 the Company agreed to final terms of an exclusive worldwide license for the Ovaprene technology with
ADVA-Tec,
Inc. The agreement provides that the license agreement will become effective upon securing an investment of $1.25 million in net cash privately or via the closing of the public transaction with
Cerulean described below.
On March 20, 2017, the Company and Cerulean Pharma Inc. (NASDAQ:CERU) announced that the two companies, together with the
shareholders of the Company, have entered into a definitive stock purchase agreement under which the shareholders of the Company will become the majority owners of Cerulean. Upon closing, the Company will assume the excess cash remaining after
Cerulean winds down its business which includes terminating existing agreements, contracts and leases, paying severance and bonuses due to executives and employees, and selling off the technology assets related to its business for cash. While the
level of cash remaining cannot be predicted with certainty, the terms of the stock purchase agreement provide higher ownership interests to Cerulean shareholders if Cerulean has more cash at the closing. The stock purchase transaction and the sale
of Cerulean assets must both be approved by Cerulean shareholders.
Immediately prior to the Daré Transaction, Daré will amend its charter to
increase the authorized shares of common stock to permit the conversion of convertible promissory notes, together with accrued interest and
F-47
Daré Bioscience, Inc.
Notes to Financial Statements
conversion premiums related to such convertible notes, into shares of Darés common stock. All outstanding convertible promissory notes, together with accrued interest and conversion
premiums related to such convertible notes, will be converted into shares of Daré common stock. Following the amendment of the charter and conversion of the convertible promissory notes, Daré will have 15,314,368 shares of
Daré common stock outstanding (as further described below) and 15,364,368 shares of Daré common stock authorized.
F-48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
DARÉ
BIOSCIENCE, INC.
We have reviewed the accompanying interim financial statements of Daré Bioscience, Inc., which comprise the balance sheet as
of March 31, 2017 and the related statements of operations and cash flows for the three-month periods ended March 31, 2017 and 2016, and the related notes to the financial statements. A review includes primarily applying analytical procedures to
managements financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we
do not express such an opinion.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these interim financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to
fraud or error.
Accountants Responsibility
Our responsibility is to conduct the review engagement in accordance with standards of the Public Company Accounting Oversight Board (United States) and
Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are
aware of any material modifications that should be made to the interim financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures
provide a reasonable basis for our conclusion.
Accountants Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements in order for them to
be in accordance with accounting principles generally accepted in the United States of America.
/s/ Mayer Hoffman McCann P.C
San Diego, California
May 26, 2017
F-49
Daré Bioscience, Inc.
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
(unaudited)
|
|
|
December 31, 2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
94,018
|
|
|
$
|
44,614
|
|
Prepaid expenses
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
96,818
|
|
|
|
44,614
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
96,818
|
|
|
$
|
44,614
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders deficit
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
192,838
|
|
|
$
|
12,678
|
|
Convertible promissory notes
|
|
|
797,500
|
|
|
|
697,500
|
|
Interest payable
|
|
|
60,462
|
|
|
|
45,057
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,050,800
|
|
|
|
755,235
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,050,800
|
|
|
|
755,235
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit (Note 3)
|
|
|
|
|
|
|
|
|
Common stock: $.001 par value, 10,000,000 shares authorized, 9,100,000 shares issued and
outstanding at March 31, 2017 and December 31, 2016, respectively
|
|
|
9,100
|
|
|
|
9,100
|
|
Additional paid-in capital
|
|
|
8,117
|
|
|
|
8,114
|
|
Accumulated deficit
|
|
|
(971,199
|
)
|
|
|
(727,835
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(953,982
|
)
|
|
|
(710,621
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
96,818
|
|
|
$
|
44,614
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
F-50
Daré Bioscience, Inc.
Statements of Operations
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and Administrative expenses
|
|
$
|
243,364
|
|
|
$
|
109,155
|
|
License expenses
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
243,364
|
|
|
|
359,155
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(243,364
|
)
|
|
|
(359,155
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(243,364
|
)
|
|
$
|
(359,155
|
)
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
F-51
Daré Bioscience, Inc.
Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(243,364
|
)
|
|
$
|
(359,155
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
3
|
|
|
|
3
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(2,800
|
)
|
|
|
250,000
|
|
Accounts payable
|
|
|
180,160
|
|
|
|
16,008
|
|
Interest payable
|
|
|
15,405
|
|
|
|
1,916
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(50,596
|
)
|
|
|
(91,228
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible promissory notes
|
|
|
100,000
|
|
|
|
|
|
Proceeds from issuance of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
49,404
|
|
|
|
(91,228
|
)
|
|
|
|
Cash, beginning of period
|
|
|
44,614
|
|
|
|
219,413
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
94,018
|
|
|
$
|
128,185
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
F-52
Daré Bioscience, Inc.
Notes to Financial Statements
Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of business:
Daré Bioscience, Inc. (the Company), a Delaware corporation headquartered in San Diego, California, was formed on
May 28, 2015. The Company is a healthcare company committed to the development and commercialization of innovative products in womens reproductive health. The Company seeks product candidates that expand options, improve outcomes and are
easy for women to use. The Companys first product candidate is Ovaprene
®
, a non-hormonal contraceptive intravaginal ring intended to provide protection over multiple weeks of use,
requiring no intervention at the time of intercourse.
Since inception in 2015, the Company has devoted significant resources to license and prepare for
the development of Ovaprene. The Company anticipates that the majority of operating expenses will be related to the development of Ovaprene and to expand its portfolio of product candidates. Substantially all of the Companys resources are
currently dedicated to advancing the clinical development of Ovaprene. The Company will require additional capital to advance Ovaprene and to acquire or license the rights to other potential product candidates.
The Company has signed an agreement for a license from ADVA-Tec, Inc. (the ADVA-Tec Agreement) for the exclusive right to develop and
commercialize Ovaprene
®
for human contraceptive use worldwide that becomes effective once the initial funding called for by the ADVA-Tec Agreement is secured. The license will become effective
after the Company has secured initial funding of at least $1.25 million which the Company anticipates will be satisfied by the consummation of its proposed transaction with Cerulean, assuming Cerulean has at least $1.25 million in cash at the time
of closing of the transaction with Cerulean described below. ADVA-Tec and its affiliates own issued patents or patent applications covering Ovaprene
®
, and control proprietary trade secrets
covering the manufacture of Ovaprene
®
. As of the date of these financial statements, this patent portfolio includes 12 issued patents worldwide, along with 8 patent applications, all of which
in accordance with the terms of the ADVA-Tec Agreement would be exclusively licensed to the Company. The Company also has a right of first negotiation to license these patents and patent applications for purposes of additional indications for
Ovaprene
®
. Under the ADVA-Tec Agreement, ADVA-Tec will conduct certain research and development work as necessary to allow the Company to seek a Premarket Approval (PMA) from the
United States Food and Drug Administration (FDA), and will supply the Company with its requirements of Ovaprene
®
for clinical and commercial use on commercially reasonable terms.
Under the ADVA-Tec Agreement, the Company is required to make payments of up to $14.6 million in the aggregate to ADVA-Tec based on achievement of
specified development and regulatory milestones, including completion of a successful postcoital test (PCT) clinical trial; approval by the FDA to commence the Phase 3 pivotal human clinical trial; successful completion of the Phase 3 pivotal human
clinical trial; the FDAs acceptance of the filing of a PMA for Ovaprene
®
; the FDAs approval of the PMA for Ovaprene
®
;
Conformité Européene (CE) Marking of Ovaprene
®
in at least three designated European countries; obtaining regulatory approval in at least three designated European
countries; and obtaining regulatory approval in Japan. In addition, after the commercial launch of Ovaprene
®
, the Company is also required to make royalty payments to ADVA-Tec based on
aggregate annual net sales of Ovaprene
®
in specified regions, which percentage royalty rate will vary between 1% and 10% and will increase based on various net sales thresholds. Finally, the
Company is also required to make up to $20 million in the aggregate in commercial milestone payments to ADVA-Tec upon reaching certain worldwide net sales milestones.
The Company is obligated to use commercially reasonable efforts to develop and commercialize
Ovaprene
®
, and must meet certain minimum spending amounts per year, such amounts totaling $5 million in the aggregate over the first three years, and $2.5 million per year thereafter, until a
final PMA is filed, or until the first commercial sale of Ovaprene
®
, whichever occurs first.
F-53
Daré Bioscience, Inc.
Notes to Financial Statements
The ADVA-Tec license continues on a country-by-country basis until the later of the life of the licensed
patents or the Companys last commercial sale of Ovaprene
®
, and the ADVA-Tec Agreement includes customary termination rights for both parties, and provides the Company the right to
terminate with or without cause in whole or on a country-by-country basis upon 60 days prior written notice. In addition, ADVA-Tec may terminate the ADVA-Tec Agreement if the Company fails to do any of the following: (i) satisfy the annual spending
obligation described above, (ii) use commercially reasonable efforts to complete all necessary pre-clinical and clinical studies required to support and submit a PMA, (iii) conduct clinical trials as set forth in the development plan that is agreed
by the Company and ADVA-Tec, and as may be modified by a joint research committee, where such failure is not caused by events outside of the Companys reasonable control, or (iv) enroll a patient in the first non-significant risk medical device
study or clinical trial as allowed by an institutional review board within six months of the production and release of Ovaprene
®
, where non-enrollment is not caused by events outside of
Dares reasonable control. In addition, ADVA-Tec may terminate the ADVA-Tec Agreement if the Company develops or commercializes any non-hormonal ring-based vaginal contraceptive device which is deemed competitive to Ovaprene
®
or, in certain limited circumstances, if the Company fails to commercialize Ovaprene
®
in certain designated countries within three years
of the first commercial sale of Ovaprene
®
. Finally, if the Company is unable to secure the initial funding required by the ADVA-Tec Agreement by September 15, 2017, the ADVA-Tec Agreement
automatically terminates and no license becomes effective. Other than its rights under the ADVA-Tec Agreement, the Company does not have any patents or any other material intellectual property assets or licenses.
On March 20, 2017, the Company and Cerulean (NASDAQ: CERU) announced that the two companies, together with the shareholders of the Company, have entered
into a definitive stock purchase agreement under which the shareholders of the Company will become the majority owners of Cerulean. Upon closing, the Company will assume the excess cash remaining after Cerulean winds down its business which includes
terminating existing agreements, contracts and leases, paying severance and bonuses due to executives and employees, and selling off the technology assets related to its business for cash. While the level of cash remaining cannot be predicted with
certainty, the terms of the stock purchase agreement provide higher ownership interests to Cerulean shareholders if Cerulean has more cash at the closing, but never in excess of 49%. The stock purchase transaction and the sale of Cerulean technology
assets must both be approved by Cerulean shareholders. The stock purchase agreement contains certain termination rights for both parties, and further provides that upon termination under specified circumstances, the Company may be required to pay
Cerulean a termination fee of $450,000, or Cerulean may be required to pay the Company a termination fee of $300,000.
A summary of the Companys
significant accounting policies follows:
Basis of presentation:
The accompanying financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company reported a net loss of $243,364 and $359,155 for the three months ended March 31, 2017 and
March 31, 2016, respectively. As a result of the Companys history of losses and financial condition, there is substantial doubt about the Companys ability to continue as a going concern. Management believes that cash provided by
additional financing from new and existing shareholders will be required to enable the Company to achieve its objectives over the next twelve months. The accompanying financial statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Use of estimates:
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include the fair value of stock-based compensation. Actual results could differ from those estimates and could materially affect the reported amounts of assets, liabilities and future operating results.
F-54
Daré Bioscience, Inc.
Notes to Financial Statements
Cash:
The Company considers cash and all highly liquid debt instruments with an original
maturity of three months or less to be cash. The Company maintains its cash accounts primarily in one financial institution. Accounts at this bank are insured by the Federal Deposit Insurance Corporation. The Companys accounts at this
institution do not exceed federally insured limits at March 31, 2017.
Stock-based compensation:
The Company records compensation
expense for all stock-based awards granted based on the fair value of the award at the time of grant. The Company uses the Black-Scholes Pricing Model to determine the fair value of each of the awards which considers factors such as expected term,
volatility, risk free interest rate and dividend yield. Due to the limited history of the Company, the simplified method was utilized in order to determine the expected term of the awards. Additionally, the Company considered comparable companies in
the industry which have available share price history to calculate the volatility. The Company compared US Treasury Bills in determining the risk-free interest rate appropriate given the expected term. Finally, the Company has not established nor do
they plan to establish a dividend policy or declare any dividends in the foreseeable future and thus no dividend yield was determined necessary in the calculation of fair value.
Income taxes:
The Company accounts for income taxes using the asset and liability method in accordance with Accounting Standards Codification
(ASC) 740, Income taxes. Under this method deferred income taxes are provided to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on
enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized.
The Company follows the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Companys tax positions and tax benefits,
which may require periodic adjustments. At March 31, 2017, the Company did not record any liabilities for uncertain tax positions.
As the company
has significant operating losses, the company does not expect to pay any income taxes for 2017 and as such no income tax provision has been made. Management evaluated the Companys tax positions and concluded that the Company had taken no
uncertain tax positions that require adjustment to the financial statements. The tax years 2015 to 2016 remain open to examination by federal and state taxing authorities.
Fair Value of Financial Instruments:
Certain assets and liabilities are carried at fair value in accordance with ASC 820, Fair Value
Measurement. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy is based on three levels of inputs which are
used to measure fair value, of which the first two levels are considered observable and the last is considered unobservable:
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Level 1Quoted prices in active markets for identical assets or liabilities.
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Level 2Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets
or liabilities, or other inputs that are observable or can be corroborated by observable market data.
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F-55
Daré Bioscience, Inc.
Notes to Financial Statements
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Level 3Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow
methodologies and similar techniques.
|
The Companys instruments that are carried at fair value are cash equivalents, accounts payable
and accrued interest. The carrying values of accounts payable and accrued interest approximate their fair value due to the short-term nature of these assets and liabilities.
Recent accounting pronouncements:
On May 28,
2014, the FASB issued ASU 2014-09,
Revenue From Contracts With Customers
, which impacts the way in which some entities recognize revenue for certain types of transactions. The new standard will become effective beginning in 2019 for private
companies. The Company is currently assessing the potential impact of this accounting standard and the effect it might have on its revenue recognition policy upon adoption.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which sets out the principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease
is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to
record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating
leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The new standard is effective for fiscal
years beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the potential impact of this accounting standard and the effect it might have on the financial statements.
Note 2. Convertible Promissory Notes
On December 4, 2015, the Company issued convertible promissory notes to certain investors, whereby the Company agreed to sell and the accredited investors
agreed to purchase the convertible promissory notes in the aggregate principal amount of $500,000, the Initial Closing. The note purchase agreement provided for one or more additional closings through April 2, 2016 of sales of convertible
promissory notes but limited total convertible promissory notes to $1.0 million in the aggregate. The notes mature on December 4, 2017, bear an annual interest rate of 8%, are secured by all the assets of the Company and convert upon the
occurrence of a Qualified Equity Financing, defined as a transaction upon which the Company issues and sells shares of its Preferred Stock for aggregate gross proceeds of at least $10 million or at the option of the holder upon the occurrence of a
Non-Qualified Equity Financing, defined as a transaction upon which the Company issues and sells shares of its Preferred Stock for aggregate gross proceeds of less than $10 million. The outstanding principal and unpaid and accrued interest convert
at a conversion price based on the price paid for a share of preferred stock in the financing arrangement. The holders of the convertible promissory notes in the Initial Closing are entitled to convert the value of their notes plus unpaid and
accrued interest into the Qualified and Non-Qualified Equity Financings at a 25% discount to the price paid by investors in the Qualified and Non-Qualified Equity Financings. In November of 2016, the Company amended the December 2015 note purchase
agreement to allow for the issuance of additional notes. Following approval by existing note holders of the amendment, the Company issued additional convertible promissory notes in the amount of $197,500 in November of 2016, and $100,000 in February
of 2017, the Second and Third Closings, respectively. The holders of the Second and Third Closings of convertible promissory notes are entitled to convert the value of their notes plus unpaid and accrued interest into
F-56
Daré Bioscience, Inc.
Notes to Financial Statements
the Qualified and Non-Qualified Equity Financings at a 40% discount to the price paid by investors in the Qualified and Non-Qualified Equity Financings. Further, any holder of convertible
promissory notes issued in the Initial Closing electing to purchase notes in the Second Closing in an amount greater than or equal to 50% of the value of notes purchased in the Initial Closing is entitled to a 40% conversion discount on all
convertible notes held. In accordance with ASC 470-20,
Debt Debt with Conversion and Other Options
, the Company will be required to recognize the value of the beneficial conversion feature into earnings upon the resolution of the
contingency. As of March 31, 2017 and December 31, 2016, the outstanding principal balance of these secured convertible notes was $797,500 and $697,500, respectively, and the accrued and unpaid interest was $60,462 and $45,057,
respectively.
Note 3. Stockholders Equity
Under the terms of the Companys Certificate of Incorporation the company is authorized to issue one class of stock designated as common stock. The total
number of common stock authorized is 10,000,000 shares with a par value of $0.001.
Note 4. Stock-based Compensation
In December 1, 2015, the Company adopted the 2015 Employee, Director and Consultant Equity Incentive Plan, or 2015 Plan, under which the Company may grant
incentive stock options, non-qualified stock options, stock grants and stock-based awards to individuals who are then employees, officers, non-employee directors or consultants of the Company. A total of 1,500,000 shares of common stock were
initially reserved for issuance under the 2015 Plan, plus returning shares that may become available from time to time. Returning shares are shares that are subject to outstanding awards granted under the 2015 Plan that
expire or terminate prior to exercise or settlement, are forfeited because of the failure to vest, or are repurchased. As of March 31, 2017, 350,000 options remain available for future grant under the 2015 Plan.
Stock Options
Options granted under the 2015 Plan have
terms of ten years from the date of grant unless earlier terminated and generally vest over a three-year period. The exercise price of all options granted for the year ended December 31, 2016 was equal to the market value of the Companys
common stock on the date of grant. A summary of stock option activity and related information for the year ended December 31, 2016 and the quarter ended March 31, 2017 is as follows:
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Number of Option
Shares
|
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Weighted
Average Exercise
Price
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Outstanding at December 31, 2016
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50,000
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$
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0.001
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Granted
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Outstanding at March 31, 2017 (unaudited)
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50,000
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0.001
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Exercisable at March 31, 2017
(unaudited)
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16,666
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0.001
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Vested and expected to vest at March 31, 2017 (unaudited)
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50,000
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$
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0.001
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Options outstanding and exercisable at March 31, 2017 had a weighted average contractual life of 8.7 years. The intrinsic
value of the vested and expected to vest at March 31, 2017 was $450. As of March 31, 2017, $23 represents unamortized stock-based compensation expense which will be amortized over the weighted average period of 2 years.
F-57
Daré Bioscience, Inc.
Notes to Financial Statements
Restricted Stock
In December 2015, the Company issued restricted stock agreements totaling 200,000 shares of common stock, $0.001 par value per share. The restricted stock
vested immediately and all shares are subject to repurchase at the option of the Company upon termination of the affiliation between the Company and the holder or a proposed transfer by the holder. The fair value of the restricted stock was
determined to be $0.001 per share and was recorded as an expense within operating expenses as of the grant date.
In November 2016, the Company issued
restricted stock agreements totaling 900,000 shares of common stock, $0.001 par value per share. The restricted stock vested immediately and are subject to repurchase at the option of the Company upon termination of the affiliation between the
Company and the holder or a proposed transfer by the holder. The fair value of the restricted stock was determined to be $0.01 per share and was recorded as an expense within operating expenses as of the grant date.
The Company did not issue any restricted stock agreement during the quarter ended March 31, 2017.
Note 5. Income Taxes
The Company
will file a federal income tax return and certain state and local income tax returns. At March 31, 2017, the Company had available a federal net operating loss carry-forward of approximately $1,040,000 for income tax purposes, which will expire
starting in fiscal year 2036. The Company evaluates whether a valuation allowance related to deferred tax assets is required each reporting period. A valuation allowance is established if, based on the weight of available evidence, it is more likely
than not that some portion or all of the deferred income tax asset will not be realized. The Company follows ASC 740, Income Taxes, where tax benefits are recognized only for tax positions that are more likely than not to be sustained
upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in tax returns that
do not meet these recognition and measurement standards. At March 31, 2017, the Company recorded a full valuation allowance of $156,000 relating to the net operating loss.
Note 6. Commitments and Contingencies
Operating leases:
The Company entered into an Affiliate Member Services Agreement on December 19, 2016 which provides facilities space as well as
other services. The term of the agreement commenced on January 1, 2017 and continues until either party provides 30 days notice of termination. The Company incurred rent expenses of $1,600 for the three months ended March 31, 2017
and did not incur any rent expenses for the year ended December 31, 2016.
Other legal contingencies:
From time to time, the Company may be
involved in various claims arising in the normal course of business. Management is not aware of any material claims, disputes or unsettled matters that would have a material adverse effect on the Companys results of operations, liquidity or
financial position that the Company has not adequately provided for in the accompanying financial statements.
Note
7. Subsequent Events
On April 18, 2017, the Company entered into a Consulting Agreement with Hallmark Capital Partners, LLC
(Hallmark) pursuant to which Hallmark agreed to provide consulting services relating to debt and/or private equity capital funding to the Company in exchange for the issuance of a warrant exercisable for 175,000 shares of the
Companys common stock. The warrant has an exercise price of $0.01 per share and vests over a period of thirteen months.
F-58
Daré Bioscience, Inc.
Notes to Financial Statements
Between April 1, 2017 and June 6, 2017 the Company issued additional convertible promissory notes in the
aggregate principal amount of $55,000 pursuant to a new note purchase agreement. One note in the principal amount of $20,000 was issued on May 31, 2017 and two notes in the aggregate principal amount of $35,000 were issued during the first week
of June. The new note purchase agreement provides for one or more additional closings through the earlier to occur of September 28, 2017 and the date on which Ceruleans stockholders approve the transaction, and limits the aggregate principal
amount of the convertible promissory notes issued thereunder to $2.0 million. The convertible promissory notes issued pursuant to the May 31, 2017 note purchase agreement bear an annual interest rate of 8% and will automatically convert immediately
prior to closing of the transaction into the number of shares of the Companys common stock equal to 120% of the original principal amount of each such note divided by $0.38. The interest on such notes will not convert into shares of the
Companys common stock. In addition, the holders of such notes issued pursuant to the new note purchase agreement are entitled to convert the value of their notes plus unpaid and accrued interest plus an additional 20% of the principal amount
of their notes into the Qualified and Non-Qualified Equity Financings (with such terms having the same meaning as in the December 2015 note purchase agreement) at the price paid by investors in the Qualified and Non-Qualified Equity Financings. Each
purchaser of notes pursuant to the new note purchase agreement also executed and delivered a counterpart signature page to the Companys Stock Purchase Agreement with Cerulean.
F-59
Annex A
ASSET PURCHASE AGREEMENT
Asset Purchase Agreement (
Agreement
), dated March 17, 2017 (the
Execution Date
), between Novartis
Institutes for BioMedical Research, Inc. (
Novartis
) and Cerulean Pharma Inc. (
Cerulean
). Novartis and Cerulean are each separately referred to as a
Party
and are collectively referred to as
the
Parties
.
BACKGROUND
Whereas
, Cerulean is a biopharmaceutical company, which has developed a proprietary Dynamic Tumor Targeting platform technology
to enable the research and development of nanoparticle-drug conjugate therapeutics that improve the therapeutic index of drugs;
Whereas
, Cerulean owns or controls certain intellectual property rights relating to that platform and has a skilled staff knowledgeable
in the practice and development of the platform technology; and
Whereas
, Novartis wishes to purchase, and Cerulean wishes to sell,
those intellectual property rights under the terms and conditions set forth herein; and
Whereas
, Novartis wishes to offer
employment to, or otherwise engage certain members of Ceruleans staff under the terms and conditions set forth herein.
In
consideration of the respective representations, warranties, covenants, and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS;
INTERPRETATION
Section 1.1
|
Definitions; Interpretation.
|
Affiliate
means, with respect to a
specified Party, any Person that directly or indirectly controls, is controlled by, or is under common control with that Party. For the purpose of this definition, control or controlled means direct or indirect ownership of
50% or more of the shares of stock entitled to vote for the election of directors in the case of a corporation, status as a general partner in any partnership, ownership of 50% or more of the entitys equity interest in the case of any other
type of legal entity, or any other arrangement whereby the Person controls or has the right to control the board of directors or equivalent governing body of a corporation or other entity or the ability to otherwise cause the direction of the
management or policies of the corporation or other entity. The Parties acknowledge that, in the case of entities organized under the Applicable Laws of certain countries where the maximum percentage ownership permitted by Applicable Law for a
foreign investor is less than 50%, that lower percentage will be substituted in the preceding sentence if the foreign investor has the power to direct the management and policies of that entity.
Agreement
has the meaning set forth in the preamble, and will include, for the avoidance of doubt, all Exhibits attached
hereto.
Applicable Law
means any applicable national, supranational, federal, state, local, or foreign law, statute,
ordinance, principle of common law, or any rule, regulation, standard, judgment, order, writ, injunction, decree, arbitration award, agency requirement, license, or permit of any Governmental Authority.
A-1
Assigned Assets
has the meaning set forth in Section 2.1.
Assigned Know How
means all Know How owned by or licensed to Cerulean, anywhere in the world, as of the Closing, to the
extent such Know How relates to the Cerulean Platform, as well as any Know How included in the Cerulean Sole Collaboration Intellectual Property or the the Joint Collaboration Intellectual Property, as each is defined in the RCA (as defined below).
Assigned Patent Rights
means all Patent Rights owned by (in whole or in part) or licensed to Cerulean, anywhere in the
world, as of the Closing, to the extent such Patent Rights claim any portion of the Cerulean Platform, as well as any Patent Rights included in the Cerulean Sole Collaboration Intellectual Property or the Joint Collaboration Intellectual Property,
as each is defined in the RCA. The Assigned Patent Rights include the Patent Rights set forth on
Exhibit
A
.
Cerulean Indemnitee
has the meaning set forth in Section 7.2.
Cerulean Personnel
means those individuals identified on
Exhibit
B
.
Cerulean Platform
means the Cerulean Dynamic Tumor Targeting platform technology, as generally described on
Exhibit
C
.
Claims
means all Third Party demands, claims, actions, proceedings, and liability
(whether criminal or civil, in contract, tort, or otherwise) for losses, damages, reasonable legal costs, and other reasonable expenses, of any nature whatsoever.
Closing
has the meaning set forth in Section 2.2.
Commercialize
means any and all activities directed to manufacturing, marketing, promoting, distributing, importing,
exporting, using, offering to sell or selling a therapeutic, diagnostic, palliative, and/or prophylactic product, as well as activities directed to obtaining pricing approvals and medical affairs activities, as applicable.
Control
or
Controlled
means, with respect to any Intellectual Property Right, the possession by a Party
(whether by ownership, license, or otherwise) of the ability (without taking into account any rights granted by one Party to the other Party under the terms of this Agreement) to grant access to, or a license or sublicense of, such rights or
property, without violating the terms of any agreement or other arrangement with any Third Party.
CRLX101
means the
clinical candidate Controlled by Cerulean referred to as CRLX101, the chemical structure of which is set forth on
Exhibit
D
-1.
CRLX301
means the clinical candidate Controlled by Cerulean referred to as CRLX301, the chemical structure of which is set
forth on
Exhibit
D
-2.
CROs
means the counterparties to the CRO Agreements.
CRO Agreements
means all of the agreements that Cerulean has with Third Parties conducting research, Development, or
manufacturing activities with the Cerulean Platform, except to the extent such agreements relate solely to the manufacture or Development of CRLX101 and CRLX301. The CRO Agreements include but are not limited to the agreements set forth on
Exhibit
E
.
Develop
or
Development
means drug development activities, including
test method development and stability testing, assay development and audit development, toxicology, formulation, quality assurance/quality control development, statistical analysis,
pre-clinical
studies,
clinical studies, packaging development, regulatory affairs, and the preparation, filing, and prosecution of regulatory applications, interactions with regulatory authorities, as well as related medical affairs, as well as manufacturing, process
development, production and distribution of clinical supply materials.
A-2
Development Candidate License
has the meaning set forth in Section 3.1.
Development Candidate Licensee
has the meaning set forth in Section 3.1.
Encumbrance
means any claim, charge, equitable interest, hypothecation, lien, mortgage, pledge, option, license,
assignment, power of sale, retention of title, right of
pre-emption,
right of first refusal, or security interest of any kind.
Government Authority
means any domestic or foreign entity exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government, including any governmental authority, agency, department, board, commission, court, tribunal, judicial body or instrumentality of any union of nations, federation, nation, state, municipality,
county, locality, or other political subdivision thereof.
Indemnification Claim Notice
has the meaning set forth in
Section 7.3.2.
Indemnified Party
has the meaning set forth in Section 7.3.2.
Indemnifying Party
has the meaning set forth in Section 7.3.2.
Intellectual Property Rights
means Patent Rights and Know How.
Know How
means any information, inventions, trade secrets or technology, whether or not proprietary or patentable and
whether stored or transmitted in oral, documentary, electronic, or other form. Know How will include
non-patented
inventions, ideas, concepts, formulas, methods, procedures, designs, compositions, plans,
documents, data, discoveries, developments, techniques, protocols, specifications, works of authorship, biological materials, and any information relating to research and development plans, experiments, results, compounds, services and service
protocols, clinical and preclinical data, clinical trial results, and manufacturing information and plans.
Material Adverse
Change
means a change of a Partys business, operations, finances, or assets occurring after the Execution Date that would reasonably prevent such Party from consummating the transactions contemplated by this Agreement or that would
otherwise thwart the purpose of this Agreement. For the avoidance of doubt, events that may disrupt or reduce a Partys business, operations, finances or assets, but that do not prevent such Party from performing its obligations as set forth in
this Agreement, will not constitute Material Adverse Changes.
Novartis Indemnitee
has the meaning set forth in
Section 7.1.
Party
and
Parties
has the meaning set forth in the preamble.
Patent Rights
means patents and all substitutions, divisions, continuations,
continuations-in-part,
reissues, reexaminations, and extensions thereof and supplemental protection certificates relating thereto, and all counterparts thereof or substantial equivalents in any country
(collectively,
Patents
), and any applications or provisional applications for any of the foregoing (
Patent Applications
) and including the right to claim all benefits and priority rights to any Patent
Applications under any applicable convention.
Person
means any corporation, limited or general partnership, limited
liability company, joint venture, trust, unincorporated association, governmental body, authority, bureau or agency, any other entity or body, or an individual.
Practice
means, with respect to Patent Rights, to make, use, sell, offer for sale, or import (or have made, have used, have
sold, have offered for sale, or have imported), and, with respect to Know How, to use, practice and disclose (or have used, practiced and disclosed) or enforce said Patent Rights or
Know-How
against Third
Parties.
A-3
Pre-Closing
Period
means the period
commencing on the Execution Date and ending at the Closing.
Proprietary Information
means all Know How or other
information, including proprietary information and materials (whether or not patentable) regarding a Partys or its Affiliates technology, products, services, business information, or objectives, that is treated as confidential by the
disclosing Party or its Affiliates in the regular course of its business or is otherwise designated as confidential by the disclosing Party or its Affiliates, whether existing before or after the Execution Date, that is provided or supplied to the
other Party or its Affiliates in connection with this Agreement. For the avoidance of doubt,
(a)
prior to the Closing, all Assigned Know How and all information relating or concerning the other Assigned Assets will be the Proprietary
Information of Cerulean;
(b)
except as otherwise set forth herein, following the Closing, all Assigned Know How and all information relating or concerning the other Assigned Assets will be the Proprietary Information of Novartis; and
(c)
the terms of this Agreement will be deemed to be the Proprietary Information of both Parties.
Purchase
Price
has the meaning set forth in Section 2.3.
RCA
means the Research Collaboration Agreement, dated
October 18, 2016, by and between Novartis and Cerulean.
Senior Officers
means the Chief Executive Officer of
Cerulean and the President, Novartis Institutes of Biomedical Research.
Third Party
means any Person other than
Cerulean or Novartis and their respective Affiliates.
Third Party License Agreements
means any Agreements between
Cerulean and a Third Party, pursuant to which any Patent Rights or Know How relating to the Cerulean Platform are licensed to Cerulean, including the agreements set forth on
Exhibit
F.
Third Party Licensors
means the counterparties to the Third Party License Agreements.
Section 1.2
|
Rules of Interpretation.
|
In this Agreement, unless otherwise specified:
(a)
includes and including will mean including without limitation, and or will mean
and/or;
(b)
a reference to an Article of this Agreement includes all Sections in such Article, and a
reference to a Section of this Agreement includes all subsections of that Section;
(c)
herein,
hereby, hereunder, hereof and other equivalent words refer to this Agreement as an entirety and not solely to the particular portion of this Agreement in which any such word is used;
(d)
a Party includes its permitted assignees and/or the respective successors in title to substantially the
whole of its undertaking;
(e)
a statute or statutory instrument or any of their provisions is to be construed as a
reference to that statute or statutory instrument or provision as the same may be amended or
re-enacted
from time to time after the Execution Date;
(f)
words denoting the singular will include the plural and vice versa and words denoting any gender will include all
genders;
(g)
except where otherwise indicated, references to a license will include
sublicense and references to a licensee will include sublicensee, unless the context otherwise provides;
(h)
the Exhibits form part of the operative provision of this Agreement and references to this Agreement will, unless
the context otherwise requires, include references to the Exhibits;
(i)
the headings in this Agreement are for
convenience only and will not be considered in the interpretation of this Agreement; and
A-4
(j)
the terms and conditions of this Agreement are the result of
negotiations between the Parties and this Agreement will not be construed in favor of or against any Party by reason of the extent to which either Party participated in the preparation of this Agreement.
ARTICLE II
STRUCTURE OF
TRANSACTION; ASSIGNMENT OF ASSIGNED ASSETS
Section 2.1
|
Structure of Transaction.
|
At the Closing,
(a)
Cerulean will validly and
effectively grant, sell, convey, assign, transfer, and deliver to Novartis, upon and subject to the terms and conditions of this Agreement, all of Ceruleans right, title, and interest in and to
(i)
the Assigned Patent Rights;
(ii)
the Assigned Know How;
(iii)
the Third Party License Agreements; and
(iv)
the CRO Agreements (collectively, the
Assigned Assets
), in all cases, free and clear of any Encumbrances, except
for the Development Candidates License as described in Section 3.1 and as disclosed in the Disclosure Schedule; and
(b)
Novartis shall purchase the Assigned Assets from Cerulean, upon and subject to the terms and conditions of this
Agreement and in reliance on the representations, warranties, and covenants of Cerulean, in exchange for the Purchase Price.
The closing (the
Closing
) of the sale and purchase of the
Assigned Assets shall take place at Novartis facilities in Cambridge, Massachusetts, commencing at 10:00 A.M., local time, on or about June 30, 2017 or at such other place, date and time as shall be mutually satisfactory to the Parties
hereto. At the Closing, Cerulean will deliver
(a)
such instruments and documents as Novartis may reasonably request as necessary to assign, transfer, and convey all of Ceruleans interest in and to Assigned Assets (in such
form as may be agreed upon by counsel to Cerulean and Novartis);
(b)
evidence of the consents under the the Third Party License Agreements and the CRO Agreements listed on Schedule 2.2 to Cerulean to assign such contracts to Novartis (in such
form as may be agreed upon by counsel to Cerulean and Novartis);
(c)
copies of instructions to relevant patent counsel authorizing such counsel to transfer all responsibility for Patent Application prosecution and Patent maintenance to
Novartis or its designee;
(d)
copies of instructions to the CROs and the Third Party Licensors informing them of the assignment of the CRO Agreements and Third Party License Agreements, and directing the CROs to transfer relevant
Assigned Know How to Novartis or its designee;
(e)
confirmation, signed by an officer of Cerulean, that the representations and warranties of Cerulean set forth in this Agreement continue to be true and accurate in all material respects
as of the Closing;
(f)
such other documents and instruments as Novartis may reasonably request to support the activities described in clauses (a), (b), (c), and (d). Prior to the Closing, Cerulean will not enter into any agreement or
understanding with any Third Party that could conflict with its obligations under this Agreement.
Section 2.3
|
Consideration; Assumption.
|
In consideration for the Assigned Assets,
(a)
Novartis will pay to Cerulean USD$6,000,000 (the
Purchase Price
)
via
wire transfer, which will be initiated at the Closing;
(b)
Cerulean shall assign, and Novartis shall assume, the Development
Candidate License; and
(c)
Cerulean shall pay any amounts due to California Institute of Technology arising from the assignment of that Third Party License Agreement to Novartis.
Section 2.4
|
Pending Obligations.
|
Prior to the Closing,
(a)
Cerulean shall have paid and discharged
(i)
all Patent Application prosecution and Patent maintenance fees and expenses
associated with the Assigned Patent Rights through the Closing;
(ii)
all obligations arising under the CRO Agreements and the Third Party License Agreements through the Closing; and
(iii)
Cerulean will use its best efforts to
promptly obtain all necessary corporate consents and any necessary Third Party consents in
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a manner that will permit the Parties to conduct the Closing on the anticipated Closing Date set forth in Section 2.2; and
(b)
Novartis shall have paid all amounts outstanding under the RCA for accrued and unpaid obligations through the Closing, it being
understood that certain activities at Cerulean may be wound down following the Execution Date if certain members of the Cerulean Personnel are hired by Novartis or otherwise cease employment at Cerulean.
Section 2.5
|
Transfer of Know How
.
|
At or before the Closing, Cerulean, without additional
consideration, shall disclose and transfer to Novartis or its designated Affiliate all Assigned Know How in existence as of the Closing, including any relevant documents, records, data, SOPs, laboratory notebooks, and databases, in a manner
sufficient to enable Novartis to Practice the Cerulean Platform. To the extent that any such Assigned Know How is in the possession of a CRO or other Third Party, Cerulean will direct such CRO or other Third Party to transfer such Assigned Know How
to Novartis not later than 60 days after the Closing or upon such schedule as may be agreed upon by Novartis and the Third Party.
ARTICLE III
DEVELOPMENT
CANDIDATE LICENSE; CRO AGREEMENTS; EMPLOYEES;
RESEARCH COLLABORATION AGREEMENT
Section 3.1
|
Development Candidate License.
|
Novartis acknowledges that the Assigned Patent Rights
and Assigned Know How are transferred to Novartis subject to a license agreement between Cerulean and a Third Party (the
Development Candidate Licensee
), in the form attached at
Exhibit
G,
pursuant to which Cerulean
has granted a license and certain ancillary rights to a Third Party to research, Develop, and Commercialize CRLX101 and CRLX301 (the
Development Candidates License
). Novartis exclusive right to Practice the Assigned Assets
shall be subject to the Development Candidates License, and Novartis acknowledges that the Development Candidates License will be exclusive, including as to Cerulean and Novartis, to the Third Party solely with respect to the research, Development,
and Commercialization of CRLX101 and CRLX301.
Section 3.2
|
CRO Agreements; Transition.
|
To the extent that continued access to and enjoyment of the
CRO Agreements after the Closing is necessary for Cerulean to research, Develop, or Commercialize CRLX101 and/or CRLX301,
(a)
the Parties will use commercially reasonable efforts to negotiate with the CROs to enter into separate agreements
between the CRO and Cerulean for such ongoing activities, and
(b)
until such agreements are in effect, but in any event for a period of not more than six months, Novartis will permit Cerulean to continue to conduct such research,
Development, or Commercialization activities with respect to CRLX101 and/or CRLX301 under the existing CRO Agreements;
provided
however
, that
(i)
Cerulean will be solely responsible for the costs and expenses of all such
activities; and
(ii)
any such activities shall be Ceruleans sole risk, and Cerulean releases and waives any claim against Novartis or its Affiliates arising from the actions or omissions of the CROs.
(a)
To the extent that any agreement that Cerulean has with any of
its employees or consultants could prohibit or restrict Novartis or its Affiliates from hiring or engaging such individuals as employees or consultants of Novartis or its Affiliates (
e.g.
, pursuant to confidentiality or
non-competition
provisions in employment agreements between Cerulean and its employees), then, effective as of the Execution Date, Cerulean hereby irrevocably waives and releases such restrictions and obligations to
the extent that Novartis or its Affiliates elect to employ or engage such individuals (it being acknowledged that this Section 3.3(a) does not grant a license to
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Novartis or its Affiliates to Practice the Assigned Patent Rights or Assigned Know How), but Cerulean employees hired by Novartis prior to Closing shall be permitted to continue to work under the
RCA until Closing.
(b)
During the
Pre-Closing
Period, Novartis shall deliver employment
offer letters for certain of the Cerulean Personnel selected by Novartis.
Section 3.4
|
Research Collaboration Agreement Superseded.
|
The RCA is hereby superseded by this
Agreement, effective as of the Closing;
provided
however
that nothing herein shall relieve either party of rights or obligations accrued thereunder before the Execution Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1
|
Representations and Warranties by Each Party.
|
Each Party represents and warrants to the
other as of the Execution Date and as of the Closing that:
(a)
it is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of formation;
(b)
it has full corporate power and
authority to execute, deliver, and perform this Agreement, and has taken all corporate action required by law and its organizational documents to authorize the execution and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement;
(c)
this Agreement constitutes a valid and binding agreement enforceable against it
in accordance with its terms;
(d)
all consents, approvals and authorizations from all Governmental Authorities and
other Third Parties required to be obtained by such Party in connection with this Agreement have been obtained or will be obtained prior to the Closing;
(e)
the execution and delivery of this Agreement and all other instruments and documents required to be executed
pursuant to this Agreement, and the consummation of the transactions contemplated hereby do not and shall not
(i)
conflict with or result in a breach of any provision of its organizational documents;
(ii)
result in a breach
of any agreement to which it is a party; or
(iii)
violate any Applicable Law; and
(f)
all negotiations
relative to this Agreement have been carried on by the Parties directly without the intervention of any Person who may be entitled to any brokerage or finders fee or other commission in respect of this Agreement or the consummation of the
transactions contemplated hereby.
Section 4.2
|
Representations and Warranties by Cerulean.
|
Except as expressly provided on the
Disclosure Schedule, Cerulean represents and warrants to Novartis as of the Execution Date and as of the Closing that:
(a)
Exhibit
A
sets forth a complete and accurate list of all Patent Rights owned or Controlled by Cerulean
that claim or disclose the Cerulean Platform, including the owners of such Patent Rights;
(b)
except as indicated
on
Exhibit
A
, Cerulean is the sole and exclusive owner, or exclusive licensee of all of the Assigned Assets, free from Encumbrances, and is listed in the records of the appropriate Government Authority as the sole and exclusive owner
of record or exclusive licensee for each registration, grant, and application included in the Assigned Patent Rights;
(c)
other than with respect to Patent Rights and Know How that are licensed to Cerulean pursuant to the Third Party
License Agreements, Cerulean has obtained, or has the right to obtain, from all individuals who participated in any respect in the invention or authorship of any Assigned Patent Rights or Assigned Know How effective assignments of all ownership
rights of such individuals in such Assigned Patent Rights
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or Assigned Know How, either pursuant to written agreement or by operation of law (
provided,
however
, that with respect to any such rights that Cerulean has the right to obtain, it
will have obtained such rights by or before the Closing) and Cerulean has not received any claim of ownership inconsistent with this Section 4.2(c);
(d)
all of Ceruleans employees, officers, and consultants have executed agreements or have existing obligations
under Applicable Laws obligating the individual to maintain as confidential Ceruleans confidential or proprietary information as well as confidential information of other parties (including Novartis and its Affiliates) which such individual
may receive, to the extent required to support Ceruleans obligations under this Agreement;
(e)
Cerulean has
the right to use and disclose and to enable Novartis to use and disclose the Assigned
Know-How;
(f)
to the knowledge of Cerulean,
(i)
the issued patents in the Assigned Patent Rights are valid and
enforceable without any Third Party Claims, challenges, oppositions, nullity actions, interferences, inter-partes reexaminations, inter-partes reviews, post-grant reviews, derivation proceedings, or other proceedings pending or threatened, and
(ii)
Cerulean has filed and prosecuted patent applications within the Assigned Patent Rights in good faith and complied with all duties of disclosure with respect thereto;
(g)
to Ceruleans knowledge, Cerulean and its agents have not committed any act, or omitted to commit any act, that
may cause the Assigned Patent Rights to expire prematurely or be declared invalid or unenforceable;
(h)
all
application, registration, maintenance and renewal fees in respect of the Assigned Patent Rights due and payable before the Closing have been paid and all necessary documents and certificates have been filed with the relevant agencies for the
purpose of maintaining the Assigned Patent Rights;
(i)
other than the Development Candidates License in the form
attached as
Exhibit
G
, Cerulean has not granted to any Third Party, including any academic organization or agency, any rights to Practice the Assigned Patent Rights, Assigned Know How, or Third Party License Agreements;
(j)
to Ceruleans knowledge, the Practice of the Cerulean Platform does not infringe the Patent Rights or
misappropriate the
Know-How
of any Third Party, nor has Cerulean received any written notice alleging such infringement or misappropriation;
(k)
Cerulean has not initiated or been involved in any proceedings or Claims in which it alleges that any Third Party is
or was infringing or misappropriating the Assigned Patent Rights or Assigned Know How, nor have any such proceedings been threatened by Cerulean, nor does Cerulean know of any valid basis for any such proceedings;
(l)
to Ceruleans knowledge after reasonable inquiry, no officer or employee of Cerulean is subject to any
agreement with any other Third Party which requires such officer or employee to assign any interest in any Assigned Assets to any Third Party;
(m)
Exhibit
C
contains a true and complete list of the CRO Agreements, and
Exhibit
D
contains a true and complete list of the Third Party License Agreements, correct and complete copies of which have been delivered to Novartis under separate cover;
(n)
the CRO Agreements and Third Party License Agreements are
(i)
valid, to the knowledge of Cerulean; and
(ii)
enforceable against Cerulean and, to the knowledge of Cerulean, against each other party thereto in accordance with their terms, except as enforceability may be effected by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles;
(o)
other than the CRO Agreements set forth on
Exhibit
C
and the Third Party License Agreements set forth
on
Exhibit
D
, there are no other agreements that Cerulean has with any Third Party that are reasonably necessary for Novartis to Practice the Cerulean Platform following the Closing;
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(p)
other than the Third Party License Agreements set forth on
Exhibit
D
,
there are no other agreements that Cerulean has with any Third Party pursuant to which any Patent Rights claiming the Cerulean Platform or Know How relating to the Cerulean Platform is licensed to Cerulean;
(q)
(i)
to Ceruleans knowledge, the Development Candidate Licensee, the CROs, and the Third Party Licensors
are in compliance with the provisions of the Development Candidate License, CRO Agreements, and Third Party License Agreements, respectively, and to Ceruleans knowledge, CROs are not in default in the performance, observance or fulfillment of
any material obligation, covenant, or condition contained therein; and
(ii)
Cerulean is in compliance with the provisions of the Third Party License Agreements and CRO Agreements and Cerulean is not in default in the performance,
observance or fulfillment of any material obligation, covenant, or condition contained therein;
(r)
to
Ceruleans knowledge, no event has occurred which (with or without the giving of notice or lapse of time, or both) would constitute a default under the Development Candidate License, CRO Agreements, or the Third Party License Agreements or give
rise to the ability of the Development Candidate Licensees, CROs, or the Third Party Licensors to terminate such agreements;
(s)
Cerulean has taken commercially reasonable precautions to preserve the confidentiality of the Assigned
Know-How;
(t)
Cerulean has not entered into a government funding relationship
that would result in rights to the Cerulean Platform residing in the US Government, National Institutes of Health, National Institute for Drug Abuse or other agency, the licenses granted hereunder are not subject to overriding obligations to the US
Government as set forth in Public Law 96 517 (35 USC §§200 to 204), as amended, or any similar obligations under the laws of any other country; and
(u)
Cerulean has not granted any Third Party rights that would otherwise interfere or be inconsistent with
Novartis rights hereunder, and there are no agreements or arrangements to which Cerulean or any of its Affiliates is a party relating to the Assigned Assets that would limit the rights granted to Novartis under this Agreement or that restrict
or will result in a restriction on Novartis ability to Practice the Cerulean Platform;
(v)
Cerulean has not
received any notice, written or oral, that a Third Party alleges that such Third Party has an inventorship or ownership interest in the Assigned Patent Rights or suggesting that the inventorship or ownership of the Assigned Patent Rights is
incorrect; and
(w)
notwithstanding anything to the contrary contained in this Agreement, the representations and
warranties of Cerulean contained in this Agreement and all materials prepared by Cerulean and provided by Cerulean to Novartis do not contain any untrue statement of a material fact.
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, CERULEAN MAKES
NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE ASSIGNED ASSETS, THE CERULEAN PLATFORM OR PROPRIETARY INFORMATION, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF
ANY INTELLECTUAL PROPERTY RIGHTS, PATENTED OR UNPATENTED, OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. None of Cerulean or any of its Affiliates, stockholders, directors, officers, employees, agents, representatives or
advisors, or any other person, will have or be subject to any liability or indemnification or other obligation of any kind or nature to Novartis or any of its Affiliates, stockholders, directors, officers, employees, agents, representatives or
advisors, or any other person, resulting from the delivery, dissemination or any other distribution to Novartis or any of its Affiliates, stockholders, directors, officers, employees, agents, representatives or advisors, or any other person, or the
use by Novartis or any of its Affiliates, stockholders, directors, officers, employees, agents, representatives or advisors, or any other person, of any information provided or made available to any of them by Cerulean or any of its Affiliates,
stockholders, directors, officers, employees, agents, representatives or advisors,
A-9
or any other person, including any information, documents, estimates, projections, forecasts or other forward-looking information, business plans or other material provided or made available to
Novartis or any of its Affiliates, stockholders, directors, officers, employees, agents, representatives or advisors, or any other person, in data rooms, confidential information memoranda, management presentations or otherwise in
anticipation or contemplation of the transactions contemplated by this Agreement, and (subject to the express representations and warranties of Cerulean set forth in this Agreement) none of Novartis, its Affiliates, stockholders, directors,
officers, employees, agents, representatives or advisors, or any other person, has relied on any such information (including the accuracy or completeness thereof).
ARTICLE V
CONDITIONS TO
CLOSING
Section 5.1
|
Conditions Precedent to Novartis Obligations.
|
All obligations of Novartis under
this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent, any of which may be waived by Novartis in its sole and absolute discretion:
(a)
all representations and warranties of the Cerulean being true, complete, and correct at the Closing;
(b)
Cerulean shall have performed and complied in all material respects with all agreements and conditions required by
this Agreement to be performed or complied with prior to or at the Closing (including obtaining all necessary corporate and Third Party consents, and delivering an instrument, signed by an officer of Cerulean, confirming that true and correct copies
of the Third Party License Agreements and CRO Agreements have been delivered to Novartis);
(c)
Cerulean shall have
furnished Novartis with the certificates, instruments, and documents described in Section 2.2.
Section 5.2
|
Conditions Precedent to Ceruleans Obligations.
|
All obligations of Cerulean under
this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent, any of which may be waived by Cerulean in its sole and absolute discretion:
(a)
all representations and warranties of the Novartis being true, complete, and correct in all material respects at the
Closing;
(b)
Novartis shall have performed and complied in all material respects with all agreements and conditions
required by this Agreement to be performed or complied with prior to or at the Closing;
(c)
Novartis shall have
delivered employment offer letters to the Cerulean Personnel (it being understood that the engagement of such individuals will not be a requirement to Closing if,
e.g.
, such individuals do not accept Novartis offer of employment or
engagement); and
(d)
Cerulean shall have been furnished with a certificate or certificates, dated as of the
Closing, signed by an officer of NIBR, certifying, in such detail as Cerulean may reasonably request, to the fulfillment of the conditions in clauses (a) and (b).
ARTICLE VI
CONFIDENTIALITY; PUBLICATIONS; PUBLICITY
Section 6.1
|
Obligation of Confidentiality.
|
6.1.1
Generally.
Each Partys
Proprietary Information will be maintained in confidence and otherwise safeguarded by the recipient Party. The recipient Party may only use the Proprietary Information for the purposes of this Agreement and pursuant to the rights granted to the
recipient Party under this Agreement. Subject to the
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other provisions of this Article VI, each Party will hold as confidential such Proprietary Information of the other Party or its Affiliates in the same manner and with the same protection as such
recipient Party maintains its own confidential information, but in no event will such Party use less than reasonable care. Subject to the other provisions of this Article VI, a recipient Party may only disclose Proprietary Information of the other
Party to employees, agents, contractors, consultants, and advisers of the Party and its Affiliates and sublicensees and to Third Parties to the extent reasonably necessary for the purposes of, and for those matters undertaken pursuant to, this
Agreement, if and only if such Persons are bound to maintain the confidentiality of the Proprietary Information in a manner consistent with the confidentiality provisions of this Agreement.
6.1.2
Exceptions.
The obligations under this Section 6.1 will not apply to any Proprietary Information to the extent the
recipient Party can demonstrate by competent evidence that such Proprietary Information:
(a)
is (at the time of
disclosure) or becomes (after the time of disclosure) known to the public or part of the public domain through no breach of this Agreement by the recipient Party or its Affiliates;
(b)
was known to, or was otherwise in the possession of, the recipient Party or its Affiliates prior to the time of
disclosure by the disclosing Party or any of its Affiliates;
(c)
is disclosed to the recipient Party or an
Affiliate on a
non-confidential
basis by a Third Party who is, to the receiving Partys knowledge, entitled to disclose it without breaching any confidentiality obligation to the disclosing Party or any
of its Affiliates; or
(d)
is independently developed by or on behalf of the recipient Party or its Affiliates, as
evidenced by its written records, without reference to the Proprietary Information disclosed by the disclosing Party or its Affiliates under this Agreement.
Specific aspects or details of Proprietary Information will not be deemed to be within the public domain or in the possession of the recipient Party merely
because the Proprietary Information is embraced by more general information in the public domain or in the possession of the recipient Party. Further, any combination of Proprietary Information will not be considered in the public domain or in the
possession of the recipient Party merely because individual elements of such Proprietary Information are in the public domain or in the possession of the recipient Party unless the combination and its principles are in the public domain or in the
possession of the recipient Party.
6.1.3
Authorized
Disclosures.
In addition to disclosures allowed under
Section 6.1.1 and 6.1.2, either Party may disclose Proprietary Information belonging to the other Party or its Affiliates to the extent such disclosure is necessary to comply with applicable court orders or governmental regulations.
6.1.4
Required
Disclosures.
Subject to and without limiting Section 6.2.3 below, if the recipient Party is required
to disclose Proprietary Information of the disclosing Party by law or in connection with bona fide legal process, such disclosure will not be a breach of this Agreement;
provided
that the recipient Party
(a)
informs the disclosing Party as soon as reasonably practicable of the required disclosure;
(b)
limits the disclosure to the required purpose; and
(c)
at the disclosing Partys request and expense, assists in an attempt to object to or limit the required
disclosure.
6.2.1
Trademarks.
Neither Party will use the name, symbol,
trademark, trade name or logo of the other Party or its Affiliates in any press release, publication or other form of public disclosure without the prior written consent of the other Party in each, except for those disclosures for which consent has
already been obtained.
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6.2.2
Press
Releases.
The Parties acknowledge and agree that Cerulean will
issue a press release upon execution of this Agreement. Cerulean has provided a draft of such press release to Novartis prior to the Execution Date for Novartis prompt review and approval. Such press release will
(a)
be solely
issued by Cerulean (
i.e.
, will not be a joint press release),
(b)
not include Novartis name in the title of the release, or
(c)
will not include quotes from Novartis personnel.
6.2.3
Duties
of
Disclosure.
Notwithstanding the foregoing, each Party may make any disclosures required of it to
comply with any duty of disclosure it may have pursuant to law or governmental regulation or pursuant to the rules of any recognized stock exchange. If a disclosure is required by law, governmental regulation, or the rules of any recognized stock
exchange, the Parties will coordinate with each other with respect to the timing, form and content of such required disclosure. If reasonably requested by the other Party, the Party subject to such obligation will use reasonable efforts to obtain an
order protecting, to the maximum extent possible, the confidentiality of any provisions of this Agreement requested by the other Party to be redacted therefrom. If the Parties are unable to agree on the form or content of any required disclosure,
such disclosure will be limited to the minimum required as determined by the disclosing Party in consultation with its legal counsel. Without limiting the foregoing, each Party will consult with the other Party on the provisions of this Agreement,
together with exhibits or other attachments attached hereto, to be redacted in any filings made by Cerulean or Novartis with the U.S. Securities and Exchange Commission (or other regulatory body) or as otherwise required by law.
ARTICLE VII
INDEMNIFICATION; REMEDIES
Section 7.1
|
Indemnification by Cerulean.
|
Cerulean will indemnify, defend, and hold Novartis, its
Affiliates, and their respective officers, directors and employees (
Novartis Indemnitees
) harmless from and against any Claims against them to the extent arising or resulting from:
(a)
the gross negligence or willful
misconduct of Cerulean or any of its Affiliates;
(b)
Ceruleans, its Affiliates, and their agents and Development Candidates Licensees payment obligations under the CRO Agreements and/or the Third Party License
Agreements prior to the Closing and solely for additional obligations pursuant to Ceruleans access to the CROs as set forth in Section 3.2;
(c)
any costs or expenses owed to Third Parties (including but not limited to Governmental
Authorities) relating to the prosecution and maintenance of the Assigned Patent Rights, to the extent such costs and expenses arose or were incurred prior to the Closing;
(d)
the research, Development, and/or Commercialization of CRLX101
and/or CRLX301 (including any Third Party Claims arising from such activities), to the extent not paid by the Development Candidates Licensees; and
(e)
the breach of any of the covenants, warranties or representations made by Cerulean to
Novartis under this Agreement;
provided,
however
, that Cerulean will not be obliged to so indemnify, defend, and hold harmless the Novartis Indemnitees for any Claims for which Novartis has an obligation to indemnify Cerulean
Indemnitees pursuant to Section 7.2 or to the extent that such Claims arise from the breach, negligence or willful misconduct of Novartis or the Novartis Indemnitee.
Section 7.2
|
Indemnification by Novartis.
|
Novartis will indemnify, defend and hold Cerulean, its
Affiliates, and their respective officers, directors and employees (
Cerulean Indemnitees
) harmless from and against any Claims against them to the extent arising or resulting from
(a)
Novartis, or any of its
Affiliates, sublicensees or contractors actions or omissions in connection with research, Development, or Commercialization of a therapeutic, palliative, prophylactic, or diagnostic product through the use of the Cerulean Platform;
(b)
the gross negligence or willful misconduct of Novartis or any of its Affiliates;
(c)
any costs or expenses owed to Third Parties (including but not limited to Governmental Authorities) relating to the prosecution and
maintenance of the Assigned Patent Rights, to the extent such costs and expenses arise or are incurred after the Closing; or
(d)
the breach of any of the covenants, warranties, or representations made by Novartis to Cerulean under this
Agreement;
provided,
however
, that
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Novartis will not be obliged to so indemnify, defend, and hold harmless the Cerulean Indemnitees for any Claims for which Cerulean has an obligation to indemnify Novartis Indemnitees pursuant to
Section 7.1 or to the extent that such Claims arise from the breach, negligence or willful misconduct of Cerulean or the Cerulean Indemnitee.
Section 7.3
|
Indemnification Procedure.
|
7.3.1
Coordination.
For the avoidance of
doubt, all indemnification claims in respect of a Novartis Indemnitee or Cerulean Indemnitee will be made solely by Novartis or Cerulean, respectively.
7.3.2
Notification.
A Party seeking indemnification hereunder (
Indemnified Party
) will notify the other Party
(
Indemnifying Party
) in writing reasonably promptly after the assertion against the Indemnified Party of any Claim or fact in respect of which the Indemnified Party intends to base a claim for indemnification hereunder
(
Indemnification Claim Notice
), but the failure or delay to so notify the Indemnifying Party will not relieve the Indemnifying Party of any obligation or liability that it may have to the Indemnified Party, except to the extent
that the Indemnifying Party demonstrates that its ability to defend or resolve such Claim is adversely affected thereby. The Indemnification Claim Notice will contain a description of the claim and the nature and amount of the Claim (to the extent
that the nature and amount of such Claim is known at such time). Upon the request of the Indemnifying Party, the Indemnified Party will furnish promptly to the Indemnifying Party copies of all correspondence, communications and official documents
(including court documents) received or sent in respect of such Claim.
7.3.3
Right
to
Assume
Defense.
The Indemnifying Party will have the right, upon written notice given to the Indemnified Party within 30 days after receipt of the Indemnification Claim Notice to assume the defense and handling of such Claim, at the Indemnifying Partys sole
expense, in which case the provisions of Section 7.3.4 will govern. The assumption of the defense of a Claim by the Indemnifying Party will not be construed as acknowledgement that the Indemnifying Party is liable to indemnify any indemnitee in
respect of the Claim, nor will it constitute a waiver by the Indemnifying Party of any defenses it may assert against any Indemnified Partys claim for indemnification. In the event that it is ultimately decided that the Indemnifying Party is
not obligated to indemnify or hold an Indemnitee harmless from and against the Claim, the Indemnified Party will reimburse the Indemnifying Party for any and all costs and expenses (including attorneys fees and costs of suit) and any losses
incurred by the Indemnifying Party in its defense of the Claim. If the Indemnifying Party does not give written notice to the Indemnified Party, within 30 days after receipt of the Indemnification Claim Notice, of the Indemnifying Partys
election to assume the defense and handling of such Claim, the provisions of Section 7.3.5 will govern.
7.3.4
Assumption
of
Defense.
Upon assumption of the defense of a Claim by the Indemnifying Party:
(a)
the Indemnifying Party will have the right to and will assume sole control and responsibility for dealing with the
Claim;
(b)
the Indemnifying Party may, at its own cost, appoint as counsel in connection with conducting the
defense and handling of such Claim any law firm or counsel reasonably selected by the Indemnifying Party;
(c)
the
Indemnifying Party will keep the Indemnified Party informed of the status of such Claim; and
(d)
the Indemnifying
Party will have the right to settle the Claim on any terms the Indemnifying Party chooses;
provided,
however
, that it will not, without the prior written consent of the Indemnified Party (not to be unreasonably withheld, conditioned or
delayed), agree to a settlement of any Claim which
(i)
could impair a Partys ability, right or obligation to perform its obligations under this Agreement or for Novartis to Practice the Assigned Patent Rights;
(ii)
could lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder; or
(iii)
admits any wrongdoing or
responsibility for the Claim on behalf of the Indemnified Party;
provided,
however
, that for the avoidance of doubt, settlements involving only the payment of money by the Indemnifying Party will not constitute settlements that invoke
clauses (i) through (iii).
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The Indemnified Party will cooperate with the Indemnifying Party and will be entitled to participate in, but not
control, the defense of such Claim with its own counsel and at its own expense. In particular, the Indemnified Party will furnish such records, information and testimony, provide witnesses and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation will include access during normal business hours by the Indemnifying Party to, and reasonable retention by the Indemnified Party of, records and
information that are reasonably relevant to such Claim, and making the Indemnified Party, the Indemnitees and its and their employees and agents available on a mutually convenient basis to provide additional information and explanation of any
records or information provided.
7.3.5
No
Assumption
of
Defense.
If the Indemnifying Party does not
give written notice to the Indemnified Party as set forth in Section 7.3.3 or fails to conduct the defense and handling of any Claim in good faith after having assumed such, the Indemnified Party may, at the Indemnifying Partys expense,
select counsel reasonably acceptable to the Indemnifying Party in connection with conducting the defense and handling of such Claim and defend or handle such Claim in such manner as it may deem appropriate. In such event, the Indemnified Party will
keep the Indemnifying Party timely apprised of the status of such Claim and will not settle such Claim without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld or delayed. If the Indemnified Party
defends or handles such Claim, the Indemnifying Party will cooperate with the Indemnified Party, at the Indemnified Partys request but at no expense to the Indemnified Party, and will be entitled to participate in the defense and handling of
such Claim with its own counsel and at its own expense.
Section 7.4
|
Mitigation of Loss.
|
Each Indemnified Party will take and will procure that its
Affiliates take all such reasonable steps and action as are necessary or as the Indemnifying Party may reasonably require in order to mitigate any Claims (or potential losses or damages) under this Article VII. Nothing in this Agreement will or
will be deemed to relieve any Party of any common law or other duty to mitigate any losses incurred by it.
Section 7.5
|
Special, Indirect and Other Losses.
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NEITHER PARTY NOR ANY OF ITS AFFILIATES SHALL BE
LIABLE IN CONTRACT, TORT, NEGLIGENCE BREACH OF STATUTORY DUTY OR OTHERWISE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OR FOR ANY ECONOMIC LOSS OR LOSS OF PROFITS SUFFERED BY THE OTHER PARTY, EXCEPT TO THE EXTENT ANY
SUCH DAMAGES (A) ARE REQUIRED TO BE PAID TO A THIRD PARTY AS PART OF A CLAIM FOR WHICH A PARTY PROVIDES INDEMNIFICATION UNDER THIS ARTICLE VII; (B) ARISE FROM A PARTYS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT; OR (C) RELATE TO THE
MISAPPROPRIATION OF A PARTYS INTELLECTUAL PROPERTY RIGHTS OR THE DISCLOSURE OF A PARTYS CONFIDENTIAL INFORMATION IN VIOLATION OF ARTICLE VI.
Section 7.6
|
No Exclusion.
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Neither Party excludes any liability for death or personal injury caused
by its negligence or that of its employees, agents or
sub-contractors.
Section 7.7
|
Survival of Representations and Warranties and Covenants.
|
The parties, intending to
contractually shorten the applicable statute of limitations, agree that:
(a)
the representations and warranties of
Cerulean and Novartis set forth in this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby and shall continue until the date that is 24 months following the Closing Date, at which time they shall expire;
and
(b)
except for the provisions of Sections 3.1, 3.2, 3.3, Article VI and Article VII, none of the covenants or
other agreements contained in this Agreement shall survive the Closing (and each such covenant or other
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agreement shall expire at the Closing) other than those which by their terms contemplate performance after the Closing, and each such surviving covenant and agreement shall survive the Closing
until the expiration of the term of the undertaking set forth in such agreement and covenant, at which time it will expire.
No individual claim or series of related claims for indemnification shall
be valid and assertable unless it is (or they are) for an amount in excess of $50,000. The aggregate amount of damages for which any party is obligated to provide indemnification under this Agreement shall not exceed $600,000.
ARTICLE VIII
TERMINATION
Section 8.1
|
Termination for Failure to Obtain Necessary Consents.
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Novartis will have the right, in
its sole discretion, to terminate this Agreement prior to the Closing by written notice to Cerulean if Cerulean has not obtained all Third Party consents and approvals necessary to conduct the Closing (including corporate and shareholder consent as
well as consent of the relevant Third Party Licensors and CROs, to the extent that such consents are necessary under the relevant Agreements) by September 30, 2017.
Section 8.2
|
Termination for Material Adverse Change.
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Each Party shall have the right, in its sole
discretion, to terminate this Agreement prior to the Closing by written notice to the other Party if the other Party has undergone a Material Adverse Change.
Section 8.3
|
Termination for Breach.
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If either Novartis or Cerulean is in material breach of any
material obligation hereunder (a
Breaching Party
), the
non-breaching
Party may give written notice to the breaching Party specifying the claimed particulars of such breach, and in the event
such material breach is not cured within 60 days after such notice, the
non-breaching
Party will have the right thereafter to terminate this Agreement immediately by giving written notice to the Breaching
Party to such effect;
provided,
however
, that if such breach is capable of being cured but cannot be cured within such 60 day period and the Breaching Party initiates actions to cure such breach within such period and thereafter
diligently pursues such actions, the Breaching Party will have such additional period, not to exceed an additional 60 days, as is reasonable in the circumstances to cure such breach.
Section 8.4
|
Survival of Provisions.
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The provisions of Section 3.3 and Article VI, Article VII,
this Article VII, and Article IX will survive any termination of this Agreement.
ARTICLE IX
GENERAL PROVISIONS
Neither Party may assign its rights and obligations under this Agreement
without the other Partys prior written consent, except that
(a)
Novartis may assign its rights and
obligations under this Agreement or any part hereof to one or more of its Affiliates; and
(b)
either Party may
assign this Agreement in its entirety to a successor to all or substantially all of its business or assets to which this Agreement relates;
A-15
Any permitted assignee will assume all obligations of its assignor under this Agreement. Any attempted assignment
in contravention of the foregoing will be void. Subject to the terms of this Agreement, this Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. It is understood and agreed
that the transfer of the Assigned Patent Rights, Assigned Know How, and Third Party License Agreements is made subject to the Development Candidates License.
Section 9.2
|
Extension to Affiliates.
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Novartis will have the right to extend the rights, immunities
and obligations granted in this Agreement to one or more of its Affiliates. All applicable terms and provisions of this Agreement will apply to any such Affiliate to which this Agreement has been extended to the same extent as such terms and
provisions apply to Novartis. Novartis will remain liable for any acts or omissions of its Affiliates.
Section 9.3
|
Severability.
|
Should one or more of the provisions of this Agreement become void or
unenforceable as a matter of law, then this Agreement will be construed as if such provision were not contained herein and the remainder of this Agreement will be in full force and effect, and the Parties will use their commercially reasonable
efforts to substitute for the invalid or unenforceable provision a valid and enforceable provision which conforms as nearly as possible with the original intent of the Parties.
Section 9.4
|
Governing Law and Jurisdiction.
|
This Agreement will be governed by and construed under
the laws of the Commonwealth of Massachusetts, without giving effect to the conflicts of laws provision thereof. For the avoidance of doubt, the United Nations Convention on Contracts for the International Sale of Goods (1980) will not apply to
the interpretation of this Agreement.
Section 9.5
|
Waivers and Amendments.
|
The failure of any Party to assert a right hereunder or to
insist upon compliance with any term or condition of this Agreement will not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other Party. No waiver will be effective unless it has
been given in writing and signed by the Party giving such waiver. No provision of this Agreement may be amended or modified other than by a written document signed by authorized representatives of each Party.
Section 9.6
|
Relationship of the Parties; Fair Market Value.
|
Nothing contained in this Agreement
will be deemed to constitute a partnership, joint venture, or legal entity of any type between Cerulean and Novartis, or to constitute one as the agent of the other. Moreover, each Party will not construe this Agreement, or any of the transactions
contemplated hereby, as a partnership for any tax purposes. Each Party will act solely as an independent contractor, and nothing in this Agreement will be construed to give any Party the power or authority to act for, bind, or commit the other. The
Parties acknowledge that, as of the Execution Date, the payments contemplated by this Agreement were negotiated on an
arms-length
basis and constitute a fair market valuation of the Assigned Assets were
determined through an
arms-length
negotiation.
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when: delivered by hand (with written confirmation of receipt), or when
A-16
received by the addressee, if sent by an internationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses set forth below (or to such other
addresses and fax numbers as a Party may designate by notice):
If to Cerulean:
Cerulean Pharma Inc.
35
Gatehouse Drive
Waltham, MA 02451 USA
Attn: Chief Executive Officer
With a copy to: General Counsel
If to Novartis:
Novartis
Institutes for BioMedical Research, Inc.
250 Massachusetts Avenue
Cambridge, MA 02139 USA
Attn
: General Counsel
Section 9.8
|
Further Assurances.
|
Novartis and Cerulean will execute, acknowledge and deliver any and
all such other documents and take any such other action as may be reasonably necessary to carry out the intent and purposes of this Agreement.
Section 9.9
|
Compliance with Law.
|
Each Party will perform its obligations under this Agreement in
accordance with all Applicable Laws. No Party will, or will be required to, undertake any activity under or in connection with this Agreement which violates, or which it believes, in good faith, may violate, any Applicable Law.
Section 9.10
|
No Third Party Beneficiary Rights.
|
The provisions of this Agreement are for the sole
benefit of the Parties and their successors and permitted assigns, and they will not be construed as conferring any rights to any Third Party (including any third party beneficiary rights).
Except as otherwise expressly provided in this Agreement, each Party will pay
the fees and expenses of its respective lawyers and other experts and all other expenses and costs incurred by such Party incidental to the negotiation, preparation, execution and delivery of this Agreement.
Section 9.12
|
Entire Agreement.
|
This Agreement, together with its Exhibits, sets forth the entire
agreement and understanding of the Parties as to the subject matter hereof and supersedes all proposals, oral or written, and all other prior communications between the Parties with respect to such subject matter, and for the avoidance of doubt,
effective as of the Closing supersedes the RCA. In the event of any conflict between a substantive provision of this Agreement and any Exhibit hereto, the substantive provisions of this Agreement will prevail.
Section 9.13
|
Counterparts.
|
This Agreement may be executed in two or more counterparts, each of which
will be deemed an original, but all of which together will constitute one and the same instrument.
A-17
Section 9.14
|
Cumulative Remedies.
|
No remedy referred to in this Agreement is intended to be
exclusive, but each will be cumulative and in addition to any other remedy referred to in this Agreement or otherwise available under Applicable Law.
A-18
Signature Page
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase Agreement to be executed by their respective duly authorized
representatives as of the Execution Date.
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N
OVARTIS
I
NSTITUTES
FOR
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C
ERULEAN
P
HARMA
I
NC
.
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B
IO
M
EDICAL
R
ESEARCH
, I
NC
.
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/s/ Christian Klee
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/s/ Christopher D. T. Guiffre
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Signature
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Signature
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Christian Klee
|
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Christopher D. T. Guiffre
|
Printed Name
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Printed Name
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Chief Operating Officer and Chief Financial Officer
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President & Chief Executive Officer
|
Title
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Title
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A-19
Exhibit G Development Candidates License
LICENSE AGREEMENT
This license agreement
(the
Agreement
) is made and is effective [ ] (the
Effective Date
) between COMPANY (
Licensee
) and
Cerulean Pharma Inc. (
Licensor
). Licensee and Licensor are each referred to as a Party and collectively referred to as the Parties.
BACKGROUND
Whereas
, Licensor is a biopharmaceutical company, which has developed proprietary nanoparticle-drug conjugate therapeutics including
CRLX101 and CRLX301 as more fully described on
Exhibit
A
;
Whereas
, pursuant to that certain Asset Purchase
Agreement, by and between Licensee and Licensor, of even date herewith (the
APA
), Licensor is selling and transferring certain intellectual property rights relating to CRLX101 and CRLX301; and
Whereas
, Licensee wishes to obtain a license under, and Licensor wishes grant a license under, certain Intellectual Property Rights to
research, Develop and Commercialize CRLX101 and CRLX301 under the terms and conditions set forth herein.
In consideration of the
respective representations, warranties, covenants, and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
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1.1
|
Affiliate
means, with respect to a specified Party, any Person that directly or indirectly controls, is controlled by, or is under common control with that Party. For the purpose of this definition,
control or controlled means direct or indirect ownership of 50% or more of the shares of stock entitled to vote for the election of directors in the case of a corporation, status as a general partner in any partnership,
ownership of 50% or more of the entitys equity interest in the case of any other type of legal entity, or any other arrangement whereby the Person controls or has the right to control the board of directors or equivalent governing body of a
corporation or other entity or the ability to otherwise cause the direction of the management or policies of the corporation or other entity. The Parties acknowledge that, in the case of entities organized under the Applicable Laws of certain
countries where the maximum percentage ownership permitted by Applicable Law for a foreign investor is less than 50%, that lower percentage will be substituted in the preceding sentence if the foreign investor has the power to direct the management
and policies of that entity.
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1.2
|
Applicable Law
means any applicable national, supranational, federal, state, local, or foreign law, statute, ordinance, principle of common law, or any rule, regulation, standard, judgment, order,
writ, injunction, decree, arbitration award, agency requirement, license, or permit of any Governmental Authority.
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1.3
|
Commercialization
or
Commercialize
means any and all activities directed to manufacturing, marketing, promoting, distributing, importing, exporting, using, offering to sell or
selling a therapeutic, diagnostic, palliative, and/or prophylactic product, as well as activities directed to obtaining pricing approvals, reimbursement and medical affairs activities, as applicable.
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1.4
|
Control
or
Controlled
means, with respect to any Intellectual Property
Right, the possession by a Party (whether by ownership, license, or otherwise) of the ability (without
|
A-20
|
taking into account any rights granted by one Party to the other Party under the terms of this Agreement) to grant access to, or a license or sublicense of, such rights or property, without
violating the terms of any agreement or other arrangement with any Third Party.
|
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1.5
|
Confidential Information
means any confidential or proprietary information furnished by one Party to the other Party in connection with this Agreement, provided that such information is specifically
designated as confidential. Confidential Information includes
non-public
information disclosed by Licensor to Licensee relating to patent application prosecution files for the Licensed Patent Rights.
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1.6
|
CRLX101
means the clinical candidate Controlled by Licensor referred to as CRLX101, the chemical structure of which is set forth on
Exhibit
A
.
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1.7
|
CRLX301
means the clinical candidate Controlled by Licensor referred to as CRLX301, the chemical structure of which is set forth on
Exhibit
A
.
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1.8
|
Develop
or
Development
means drug development activities, including test method development and stability testing, assay development and audit development, toxicology, formulation,
quality assurance/quality control development, statistical analysis,
pre-clinical
studies, clinical studies, packaging development, regulatory affairs, and the preparation, filing, and prosecution of
regulatory applications, interactions with regulatory authorities, as well as related medical affairs, as well as manufacturing, process development, production and distribution of clinical supply materials.
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1.9
|
Discontinuation Notice
has the meaning set forth in Section 3.2.2.
|
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1.10
|
Fiel
d of Use
means all fields.
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1.11
|
Indemnitee
has the meaning set forth in Section 6.3.
|
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1.12
|
Intellectual Property Rights
means Patent Rights and Know How.
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1.13
|
Know How
means any information, inventions, trade secrets or technology, whether or not proprietary or patentable and whether stored or transmitted in oral, documentary, electronic, or other form.
Know How will include
non-patented
inventions, ideas, concepts, formulas, methods, procedures, designs, compositions, plans, documents, data, discoveries, developments, techniques, protocols, specifications,
works of authorship, biological materials, and any information relating to research and development plans, experiments, results, compounds, services and service protocols, clinical and preclinical data, clinical trial results, and manufacturing
information and plans.
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1.14
|
Licensed Know How
means Know How owned or Controlled by Licensor, as such Know How exists as of the Effective Date or is otherwise delivered to Licensee after the Effective Date pursuant to the terms
of the APA (other than Know How assigned by Licensor to Licensee pursuant to the APA and excluding, for the avoidance of doubt, Know How Controlled by any other Person acquiring Licensor or Intellectual Property Rights Controlled by Licensor after
the Effective Date or to which this Agreement is assigned after the Effective Date), to the extent such Know How is necessary to research, Develop or Commercialize the Licensed Products.
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1.15
|
Licensed Patent Rights
means (a) Patent Rights Controlled by Licensor as of the Effective
Date (other than Patent Rights assigned by Licensor to Licensee pursuant to the APA and excluding, for the avoidance of doubt, Patent Rights Controlled by any other Person acquiring Licensor or Intellectual Property Rights Controlled by Licensor
after the Effective Date or to which this Agreement is assigned after the Effective Date), (b) Patent Rights arising therefrom (but, as to
continuations-in-part,
solely
to the extent supported by the specifications of such Patent Rights), reissues,
re-examinations,
extensions, supplementary protection certificates
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A-21
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and similar progeny of any such Patent Rights, and (c) counterparts of any of the foregoing anywhere in the world.
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1.16
|
Licensed Product
means any product containing CRLX101 or CRLX301.
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1.17
|
Patent Rights
means patents and patent applications, including any substitutions, divisionals, continuations,
continuations-in-part,
reissues,
re-examinations,
extensions, supplementary protection certificates and similar progeny of
patents and patent applications, and counterparts of any of the foregoing anywhere in the world existing as of the date of this Agreement and during the term of this Agreement.
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1.18
|
Person
means any corporation, limited or general partnership, limited liability company, joint venture, trust, unincorporated association, governmental body, authority, bureau or agency, any other
entity or body, or an individual.
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1.19
|
Platform Technology
means the Licensed Patent Rights, the Sublicensed Patent Rights, the Licensed Know How and the Sublicensed Know How.
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1.20
|
Practice
means, with respect to Patent Rights, to make, use, sell, offer for sale, or import (or have made, have used, have sold, have offered for sale, or have imported), and, with respect to Know
How, to use, practice and disclose (or have used, practiced and disclosed) or assert said Patent Rights or Know How against Third Parties as such relates to the Licensed Products.
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1.21
|
Retained Third Party License Agreements
means the license agreements set forth on
Exhibit
B
.
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1.22
|
Review and Comment Patent Rights
has the meaning set forth in Section 3.2.1.
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1.23
|
Sublicensed Know How
means the Know How Controlled by Licensor under the Retained Third Party License Agreements.
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1.24
|
Sublicensed Patent Rights
means the Patent Rights Controlled by Licensor under the Retained Third Party License Agreements.
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1.25
|
Territory
means worldwide.
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1.26
|
Third Party
means any Person other than Licensor or Licensee and their respective Affiliates.
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1.27
|
Third Party Infringement
has the meaning set forth in Section 3.1.1.
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2.
|
License; Responsibilities.
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2.1.1
|
Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee an exclusive, perpetual, sublicensable right and license, under the Platform Technology, to research, Develop and Commercialize
Licensed Products in the Field of Use in the Territory.
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2.1.2
|
The license grant pursuant to this Section 2.1 is fully paid and royalty-free, except for any obligations
under the Retained Third Party License Agreements arising from Licensees (or its Affiliates or sublicensees) research, Development, and Commercialization of Licensed Products, all of which will be borne by Licensee and its sublicensees,
and Licensee and its sublicensees will reimburse Licensor or its assignee of the Retained Third Party License Agreements for any payments made by Licensor or its assignee pursuant to the Retained Third Party License Agreements on behalf of Licensee
and its sublicensees based on their Practice of Platform Technology. Licensee will provide sufficient notice and information to Licensor with respect to Licensees activities under this license to permit Licensor or its assignee to comply with
all of its
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A-22
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obligations with respect to Licensed Products under the Retained Third Party License Agreements, including but not limited to payment and reporting obligations with respect to Licensed Products
under such Retained Third Party License Agreements arising from Licensees research, Development, and Commercialization of CRLX101 and/or CRLX301.
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2.2
|
No Additional Rights
. Nothing in this Agreement shall be construed to confer any rights upon Licensee by implication, estoppel, or otherwise as to any technology or Intellectual Property Rights of Licensor or any
other entity other than the Platform Technology, solely to the extent such rights are granted under Section 2.1, regardless of whether such technology or Patent Rights shall be dominant or subordinate to any Platform Technology.
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2.3
|
Retained Third Party License Agreement Terms; Maintenance.
The sublicenses granted hereunder to Licensee under the Retained Third Party License Agreements are subject to all applicable terms of the Retained Third
Party License Agreements. Licensor shall not amend, modify or waive any rights under any of the Retained Third Party License Agreements in a manner that would negatively impact the Sublicensed Patent Rights. In addition, Licensor shall use
reasonable efforts to maintain each Retained Third Party License Agreement in effect (including making any payments thereunder, subject to Licensees satisfaction of its reimbursement obligations to Licensor under Section 2.1.2), to notify
and satisfy any consent or notification requirements to effect the sublicenses granted pursuant to this Agreement under each such Retained Third Party License Agreement and to promptly notify Licensee of any notification of breach or termination by
the licensor under any of the Retained Third Party License Agreements. If Licensor assigns this Agreement to an assignee pursuant to Section 8.3, Licensee shall use commercially reasonable efforts to negotiate with such assignee to amend the
Retained Third Party License Agreements so that (i) Licensee can enter into separate agreements with respect to the research, Development and Commercialization of the Products and (ii) the Retained Third Party License Agreements are no
longer necessary to allow Licensee to research, Develop and Commercialize the Products.
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3.
|
Intellectual Property Protection and Related Matters
|
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3.1.1
|
Each Party will promptly notify the other Party (or their assignees or sublicensees) of any infringement by a Third Party of any of the Licensed Patent Rights of which it becomes aware, including any patent
certification filed in the United States under 21 USC §355(b)(2) or 21 USC §355(j)(2) or similar provisions in other jurisdictions, and of any request for declaratory judgment, opposition, nullity action, interference, inter-partes
reexamination, inter-partes review, post-grant review, derivation proceeding, or similar action alleging the invalidity, unenforceability or
non-infringement
of any of such Licensed Patent Rights (collectively
Third Party Infringement
).
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3.1.2
|
Licensee will have the sole right to bring and control any legal action in connection with Third Party Infringement of the Licensed Patent Rights, as such relates primarily to the research, Development, and
Commercialization of Licensed Products, at its own expense as it reasonably determines appropriate, and Licensor or its assignee shall have the right, at its own expense, to be represented in any such action by counsel of its own choice.
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3.1.3
|
Licensor or its assignee will have the sole right to bring and control any other (
i.e.
, not set forth in Section 3.1.2) legal action in connection with Third Party infringement of the Licensed Patent Rights,
at its own expense as it reasonably determines appropriate, and Licensee shall have the right, at its own expense, to be represented in any such action by counsel of its own choice.
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3.1.4
|
At the request of a Party the other Party shall provide assistance in connection therewith, including by executing reasonably appropriate documents and, cooperating reasonably in discovery and joining as a party to the
action if required.
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3.1.5
|
In connection with any such proceeding, neither Party nor, in the case of Licensor, Licensors assignee, shall enter into any settlement admitting the invalidity of, or otherwise impairing either Partys
rights in, the Licensed Patent Rights without the prior written consent of the other Party, which will not be unreasonably withheld, conditioned or delayed.
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3.1.6
|
Any recoveries resulting from such an action relating to a claim of Third Party Infringement shall be retained by the Person bringing the action.
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3.1.7
|
The rights granted to Licensee under this Section 3.1 are subject to all applicable terms of the Retained Third Party License Agreements with respect to any Sublicensed Patent Rights.
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3.2
|
Maintenance of Patents.
|
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3.2.1
|
Licensor or its assignee will have sole responsibility for (and will bear the cost of) preparing, filing, prosecuting, and maintaining any Licensed Patent Rights, in its sole discretion, with the exception that, subject
to the provision(s) below, Licensor or its assignee will use commercially reasonable efforts to continue to maintain any of the Licensed Patent Rights that relate to Licensed Products. Licensor or its assignee will provide Licensee with a reasonable
opportunity to review and comment on substantive filings with respect to the Licensed Patent Rights set forth on
Exhibit
D
(the
Review and Comment Patent Rights
), and shall use reasonable efforts to keep Licensee
reasonably informed in a timely manner of progress with regard to the preparation, filing, prosecution and maintenance of the Review and Comment Patent Rights. Licensor shall consider in good faith the requests and suggestions of Licensee with
respect to strategies for filing and prosecuting Review and Comment Patent Rights.
|
|
3.2.2
|
If Licensor or its assignee elects to discontinue its financial support for the prosecution of a pending Licensed Patent Right or the maintenance of an issued Licensed Patent Right in one or more (or all) jurisdictions,
that relate to Licensed Products, Licensor or its assignee will give prompt and timely notice (not less than 30 days) of that election (a
Discontinuation Notice
) to Licensee in sufficient time to permit the Licensee to assume the
prosecution and maintenance of such patent applications or patents in such jurisdiction, and Licensee may, at its election, assume full financial responsibility for those costs and expenses in such jurisdictions.
|
|
3.2.3
|
If Licensee assumes full financial responsibility for those costs and expenses in those jurisdictions, Licensor or its assignee will promptly (not more than 10 days) assign its rights to the relevant Licensed Patent
Right to Licensee in those jurisdictions (for the avoidance of doubt, on a
jurisdiction-by-jurisdiction
basis, only where Licensor or its assignee has elected to cease
its support), including the right to Practice such Licensed Patent Rights in such jurisdiction;
|
|
3.2.4
|
If Licensee does not assume responsibility for the continued prosecution and/or maintenance within 30 days after the Discontinuation Notice, Licensor will have no further responsibility with respect to the prosecution
or maintenance of the relevant Patent Rights.
|
|
3.2.5
|
The rights granted to Licensee under this Section 3.2 are subject to all applicable terms of the Retained Third Party License Agreements.
|
|
3.3
|
Patent Term Extension
. Subject to the applicable terms of the Retained Third Party License Agreements,
Licensee shall have the right but not the obligation, to the extent allowed by
|
A-24
|
Applicable Law, after it has submitted for regulatory approval of Licensed Products, to seek, in Licensors name if so required, patent term extensions, supplemental protection certificates
and the like available under Applicable Law, including 35 U.S.C. 156 and applicable foreign counterparts, of the Licensed Patent Rights in such country in relation to Licensed Products.
|
|
4.1
|
Confidential Information
. All Confidential Information disclosed by a Party to the other Party during the term of this Agreement shall not be used by the receiving Party except in connection with the activities
contemplated by this Agreement, shall be maintained in confidence by the receiving Party (except to the extent reasonably necessary for regulatory approval of Licensed Products, for the filing, prosecution and maintenance of Patent Rights or to
develop and Commercialize Licensed Products in accordance with this Agreement), and shall not otherwise be disclosed by the receiving Party to any other Person, firm, or agency, governmental or private (except consultants, advisors and Affiliates in
accordance with Section 4.2), without the prior written consent of the disclosing Party, except to the extent that the Confidential Information:
|
|
4.1.1
|
was known or used by the receiving Party prior to its date of disclosure to the receiving Party;
|
|
4.1.2
|
either before or after the date of the disclosure to the receiving Party is lawfully disclosed to the receiving Party by sources other than the disclosing Party rightfully in possession of the Confidential Information;
|
|
4.1.3
|
either before or after the date of the disclosure to the receiving Party becomes published or generally known to the public through no fault or omission on the part of the receiving Party;
|
|
4.1.4
|
is independently developed by or for the receiving Party without reference to or reliance upon the Confidential Information; or
|
|
4.1.5
|
is required to be disclosed by the receiving Party to comply with Applicable Laws or regulations, to defend or prosecute litigation or to comply with legal process, provided that the receiving Party provides prior
written notice of such disclosure to the disclosing Party and only discloses Confidential Information of the other Party to the extent necessary for such legal compliance or litigation purpose.
|
|
4.2
|
Employee, Consultant and Advisor Obligations
. Licensee and Licensor each agrees that it and its Affiliates shall provide Confidential Information received from the other Party only to the receiving Partys
respective employees, consultants and advisors, and to the employees, consultants and advisors of the receiving Partys Affiliates, who have a need to know such Confidential Information to assist the receiving Party in fulfilling its
obligations under this Agreement; provided that Licensee and Licensor shall each remain responsible for any failure by its and its Affiliates respective employees, consultants and advisors to treat such Confidential Information as required
under Section 4.1.
|
|
4.3
|
Survival
. All obligations of confidentiality imposed under this Section 4 shall survive the termination or expiration of this Agreement and shall expire five (5) years following such termination or
expiration.
|
|
5.
|
Representations and Warranties
|
|
5.1
|
Representations of Authority
. Each Party represents and warrants to the other that as of the Effective Date it has full right, power and authority to enter into this Agreement and to perform its respective
obligations under this Agreement.
|
|
5.2
|
Consents
. Each Party represents and warrants that as of the Effective Date all necessary consents,
approvals and authorizations of all government authorities and other Persons
|
A-25
|
required to be obtained by such Party in connection with execution, delivery and performance of this Agreement have been obtained.
|
|
5.3
|
No Conflict
. Each Party represents and warrants that, as of the Effective Date, the execution and delivery of this Agreement (a) do not conflict with or violate any requirement of Applicable Laws or
regulations and (b) do not conflict with, violate or breach or constitute a default of, or require any consent under, any contractual obligations of such Party, except such consents as have been obtained as of the Effective Date.
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5.4
|
Employee, Consultant and Advisor Obligations
. Each Party represents and warrants that, as of the Effective Date, each of its and its Affiliates employees, consultants and advisors has executed an agreement
or has an existing obligation under law obligating such employee, consultant or advisor to maintain the confidentiality of Confidential Information to the extent required under Section 4.
|
|
5.5
|
No Warranties
. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, THE PARTIES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED.
|
|
6.1
|
By Licensee
. Licensee agrees to defend Licensor, its Affiliates and their respective directors, officers, employees, agents, successors and assigns at Licensees cost and expense, and shall indemnify and
hold harmless Licensor and its Affiliates and their respective directors, officers, employees and agents from and against any liabilities, losses, costs, damages, fees or expenses arising out of any Third Party claim arising from (a) any breach
by Licensee of any of its representations, warranties or obligations pursuant to this Agreement, or (b) the research, Development, and/or Commercialization of a Licensed Product by Licensee, its Affiliates, or their sublicensees, including
satisfaction of all obligations (including but not limited to payment) under the Retained Third Party License Agreements arising from the research, Development, and/or Commercialization of a Licensed Product or the practice of the rights granted
under the Retained Third Party License Agreements.
|
|
6.2
|
Procedures
. A person entitled to indemnification under this Section 6 (an
Indemnitee
) shall give prompt written notification to Licensee of any claim, suit, action or demand for which
indemnification is sough under this Agreement. Within thirty (30) days after delivery of such notification, Licensee may, upon written notice thereof to the Indemnitee, assume control of the defense of such claim, suit, action or demand with
counsel reasonably satisfactory to the Indemnitee. If Licensee does not assume control of such defense, the Indemnitee shall control such defense. The Party not controlling such defense may participate therein at its own expense; provided that, if
that the Indemnitee shall have the right to retain its own counsel, at the expense of Licensee, if representation of such Indemnitee by the counsel retained by Licensee would be inappropriate because of actual or potential differences in the
interests of such Indemnitee and any other party represented by such counsel. The Indemnitee shall not agree to any settlement of such action, suit, proceeding or claim without the prior written consent of Licensee, which shall not be unreasonably
withheld, delayed or conditioned.
|
|
7.1
|
Term
. This Agreement shall become effective as of the Effective Date, may be terminated as set forth in this Section 7, and otherwise remains in effect in perpetuity.
|
|
7.2
|
Termination
. Licensee may terminate this Agreement upon sixty (60) days notice to Licensor for any or no reason. Upon any material breach of this Agreement by Licensee, Licensor may terminate this
Agreement by providing sixty (60) days written notice to Licensee, specifying the material breach. The termination shall become effective at the end of the sixty (60) day period unless Licensee cures such breach during such sixty
(60) day period.
|
A-26
|
7.3
|
Survival
. The following provisions shall survive the expiration or termination of this Agreement: Sections 4, 6, 7, and 8.
|
|
8.
|
Miscellaneous Provisions
|
|
8.1
|
Governing Law
. This Agreement will be governed by and construed under the laws of the State of Delaware, without giving effect to the conflicts of laws provision thereof. For the avoidance of doubt, the United
Nations Convention on Contracts for the International Sale of Goods (1980) will not apply to the interpretation of this Agreement.
|
|
8.2
|
Notice
. Any notices required or permitted by this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be sent by hand, recognized national overnight courier, confirmed facsimile
transmission, confirmed electronic mail, or registered or certified mail, postage prepaid, return receipt requested, to the following address or facsimile number of the parties:
|
If to Licensor:
Cerulean
Pharma Inc.
35 Gatehouse Drive
Waltham, MA 02451 USA
Attn:
Chief Executive Officer
With a copy to: General Counsel
If to Licensee:
[ ]
All
notices under this Agreement shall be deemed effective upon receipt. A party may change its contact information immediately upon written notice to the other party in the manner provided in this Section.
|
8.3
|
Assignment
. This Agreement may be assigned by Licensor in connection with the sale or transfer of all or substantially all of the Platform Technology without the prior written consent of Licensee, provided that
Licensor requires the acquirer to assume all of the terms of this Agreement and provides notice of such assignment and assumption to Licensee. Either Party may assign this Agreement in connection with the sale or transfer of all or substantially all
of the business and assets of such Party. Either Party may assign its rights and obligations under this Agreement in whole or in part to an Affiliate of such Party.
|
|
8.4
|
Entire Agreement
. This Agreement constitutes the entire agreement between the parties with respect to its subject matter and supersedes all prior agreements or understandings between the parties relating to its
subject matter.
|
|
8.5
|
Amendment and Waiver
. This Agreement may be amended, supplemented, or otherwise modified only by means of a written instrument signed by both parties. Any waiver of any right or failure to act in a specific
instance shall related only to such instance and shall not be construed as an agreement to waive any right or fail to act in any other instance, whether or not similar.
|
|
8.6
|
Severability
. Should one or more of the provisions of this Agreement become void or unenforceable as a matter of law, then this Agreement will be construed as if such provision were not contained herein and the
remainder of this Agreement will be in full force and effect, and the Parties will use their commercially reasonable efforts to substitute for the invalid or unenforceable provision a valid and enforceable provision which conforms as nearly as
possible with the original intent of the Parties.
|
|
8.7
|
LIMITATION OF LIABILITY
. OTHER THAN IN CONNECTION WITH A BREACH OF CONFIDENTIALITY, THIRD PARTY CLAIMS, OR
AN INDEMNIFICATION
|
A-27
|
OBLIGATION UNDER SECTION 6, NEITHER PARTY HERETO WILL BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF
ITS RIGHTS HEREUNDER, OR FOR LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES.
|
|
8.8
|
Counterparts
. This Agreement may be executed in counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, and all of which counterparts, taken together, shall
constitute one and the same instrument.
|
A-28
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth
above.
|
|
|
|
|
[L
ICENSEE
]
|
|
|
|
C
ERULEAN
P
HARMA
I
NC
.
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|
|
|
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|
|
|
Signature
|
|
|
|
Signature
|
|
|
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|
|
|
|
Christopher D. T. Guiffre
|
Printed Name
|
|
|
|
Printed Name
|
|
|
|
|
|
|
|
President & Chief Executive Officer
|
Title
|
|
|
|
Title
|
A-29
EXECUTION COPY
Annex B
STOCK PURCHASE AGREEMENT
by and among
CERULEAN
PHARMA INC.,
DARÉ BIOSCIENCE, INC.
THE STOCKHOLDERS OF DARÉ BIOSCIENCE, INC.
and
SOLELY IN SUCH
PERSONS CAPACITY AS STOCKHOLDER REPRESENTATIVE,
SABRINA MARTUCCI JOHNSON
Dated as of March 19, 2017
TABLE OF CONTENTS
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Page
|
|
ARTICLE I
|
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STOCK PURCHASE
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|
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B-1
|
|
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1.1
|
|
Stock Purchase
|
|
|
B-1
|
|
1.2
|
|
Purchase Price; Certain Definitions
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|
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B-1
|
|
1.3
|
|
Net Cash Determination
|
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B-4
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1.4
|
|
Private Company Stock Plans and Private Company Warrants
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B-4
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|
1.5
|
|
Allocation Schedules
|
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B-5
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1.6
|
|
The Closing
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B-6
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1.7
|
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Actions at the Closing
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B-6
|
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1.8
|
|
Withholding Rights
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B-6
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1.9
|
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Tax Treatment
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|
B-6
|
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1.10
|
|
Stockholder Representative
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B-7
|
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ARTICLE II
|
|
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
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|
|
B-8
|
|
|
|
|
2.1
|
|
Organization, Standing
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|
|
B-8
|
|
2.2
|
|
Authority, Power; No Conflict; Required Filings and Consents
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B-8
|
|
2.3
|
|
Ownership of Private Company Common Stock
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B-9
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2.4
|
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Litigation
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B-10
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2.5
|
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Brokers
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B-10
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2.6
|
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Purchase for Own Account; Sophistication
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B-10
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2.7
|
|
Access to Information
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|
B-10
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2.8
|
|
Restricted Securities; Legends
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|
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B-10
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2.9
|
|
Accredited Investor
|
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|
B-11
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|
2.10
|
|
No Other Public Company Representations or Warranties;
Non-Reliance
|
|
|
B-11
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|
2.11
|
|
Non-Reliance
on Public Company Estimates, Projections,
Forecasts, Forward-Looking Statements and Business Plans
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|
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B-11
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ARTICLE III
|
|
REPRESENTATIONS AND WARRANTIES OF PUBLIC COMPANY
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B-12
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3.1
|
|
Organization, Standing and Power
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B-12
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3.2
|
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Capitalization
|
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|
B-14
|
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3.3
|
|
Subsidiaries
|
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B-15
|
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3.4
|
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Authority; No Conflict; Required Filings and Consents
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B-16
|
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3.5
|
|
SEC Filings; Financial Statements; Information Provided
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B-17
|
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3.6
|
|
No Undisclosed Liabilities
|
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|
B-18
|
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3.7
|
|
Absence of Certain Changes or Events
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B-18
|
|
3.8
|
|
Taxes
|
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B-18
|
|
3.9
|
|
Real Property
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B-19
|
|
3.10
|
|
Intellectual Property
|
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B-20
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3.11
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Contracts
|
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B-21
|
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3.12
|
|
Litigation
|
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B-21
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3.13
|
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Environmental Matters
|
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B-21
|
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3.14
|
|
Employee Benefit Plans
|
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B-22
|
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3.15
|
|
Compliance With Laws
|
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B-23
|
|
3.16
|
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Permits and Regulatory Matters
|
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B-23
|
|
3.17
|
|
Labor Matters
|
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B-24
|
|
3.18
|
|
Opinion of Financial Advisor
|
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|
B-24
|
|
3.19
|
|
Section 203 of the DGCL
|
|
|
B-24
|
|
3.20
|
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Brokers
|
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B-24
|
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3.21
|
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Independent Investigation
|
|
|
B-25
|
|
3.22
|
|
No Other Private Company Representations or Warranties;
Non-Reliance
|
|
|
B-25
|
|
3.23
|
|
Non-Reliance
on Company Estimates, Projections, Forecasts,
Forward-Looking Statements and Business Plans
|
|
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B-25
|
|
B-i
|
|
|
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|
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Page
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ARTICLE IV
|
|
REPRESENTATIONS AND WARRANTIES OF PRIVATE COMPANY
|
|
|
B-26
|
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4.1
|
|
Organization, Standing and Power
|
|
|
B-26
|
|
4.2
|
|
Capitalization
|
|
|
B-28
|
|
4.3
|
|
Subsidiaries
|
|
|
B-29
|
|
4.4
|
|
Authority; No Conflict; Required Filings and Consents
|
|
|
B-30
|
|
4.5
|
|
Financial Statements; Information Provided
|
|
|
B-30
|
|
4.6
|
|
No Undisclosed Liabilities
|
|
|
B-31
|
|
4.7
|
|
Absence of Certain Changes or Events
|
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|
B-31
|
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4.8
|
|
Taxes
|
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|
B-31
|
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4.9
|
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Real Property
|
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B-32
|
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4.10
|
|
Intellectual Property
|
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B-32
|
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4.11
|
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Contracts
|
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B-33
|
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4.12
|
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Litigation
|
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B-33
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4.13
|
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Environmental Matters
|
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|
B-34
|
|
4.14
|
|
Employee Benefit Plans
|
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|
B-34
|
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4.15
|
|
Compliance With Laws
|
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|
B-35
|
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4.16
|
|
Permits and Regulatory Matters
|
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|
B-35
|
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4.17
|
|
Labor Matters
|
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|
B-36
|
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4.18
|
|
No Fairness Opinion
|
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|
B-36
|
|
4.19
|
|
Ownership of Public Company Common Stock
|
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|
B-36
|
|
4.20
|
|
Brokers
|
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|
B-36
|
|
4.21
|
|
Certain Business Relationships With Affiliates
|
|
|
B-36
|
|
4.22
|
|
Controls and Procedures, Certifications and Other Matters
|
|
|
B-37
|
|
4.23
|
|
Independent Investigation
|
|
|
B-37
|
|
4.24
|
|
No Other Public Company Representations or Warranties;
Non-Reliance
|
|
|
B-37
|
|
4.25
|
|
Non-Reliance
on Public Company Estimates, Projections,
Forecasts, Forward-Looking Statements and Business Plans
|
|
|
B-38
|
|
|
|
|
ARTICLE V
|
|
CONDUCT OF BUSINESS
|
|
|
B-38
|
|
|
|
|
5.1
|
|
Covenants of Public Company
|
|
|
B-38
|
|
5.2
|
|
Covenants of Private Company
|
|
|
B-40
|
|
|
|
|
ARTICLE VI
|
|
ADDITIONAL AGREEMENTS
|
|
|
B-42
|
|
|
|
|
6.1
|
|
No Solicitation
|
|
|
B-42
|
|
6.2
|
|
Proxy Statement
|
|
|
B-45
|
|
6.3
|
|
Stockholder Approval
|
|
|
B-46
|
|
6.4
|
|
NASDAQ Listing
|
|
|
B-46
|
|
6.5
|
|
Confidentiality; Access to Information
|
|
|
B-47
|
|
6.6
|
|
Legal Conditions to the Transaction
|
|
|
B-47
|
|
6.7
|
|
Public Disclosure
|
|
|
B-48
|
|
6.8
|
|
Affiliate Legends
|
|
|
B-48
|
|
6.9
|
|
Indemnification
|
|
|
B-48
|
|
6.10
|
|
Notification of Certain Matters
|
|
|
B-50
|
|
6.11
|
|
Employee Benefits Matters
|
|
|
B-50
|
|
6.12
|
|
Corporate Identity
|
|
|
B-50
|
|
6.13
|
|
Succession
|
|
|
B-50
|
|
6.14
|
|
Board of Directors of Public Company
|
|
|
B-50
|
|
6.15
|
|
FIRPTA Tax Certificates
|
|
|
B-50
|
|
6.16
|
|
State Takeover Laws
|
|
|
B-50
|
|
6.17
|
|
Section 368(a) Reorganization
|
|
|
B-51
|
|
6.18
|
|
Security Holder Litigation
|
|
|
B-51
|
|
6.19
|
|
Private Company Convertible Notes; Permitted Private Company Equity Issuances
|
|
|
B-51
|
|
6.20
|
|
Audited Financial Statements for Private Company
|
|
|
B-51
|
|
6.21
|
|
Section 280G
|
|
|
B-51
|
|
B-ii
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE VII
|
|
CONDITIONS TO TRANSACTION
|
|
|
B-52
|
|
|
|
|
7.1
|
|
Conditions to Each Partys Obligation to Effect the Transaction
|
|
|
B-52
|
|
7.2
|
|
Additional Conditions to Obligations of Private Company and the Stockholders to Effect the
Transaction
|
|
|
B-52
|
|
7.3
|
|
Additional Conditions to Obligations of Public Company to Effect the Transaction
|
|
|
B-53
|
|
7.4
|
|
Frustration of Conditions
|
|
|
B-53
|
|
|
|
|
ARTICLE VIII
|
|
TERMINATION AND AMENDMENT
|
|
|
B-53
|
|
|
|
|
8.1
|
|
Termination
|
|
|
B-53
|
|
8.2
|
|
Effect of Termination
|
|
|
B-55
|
|
8.3
|
|
Fees and Expenses
|
|
|
B-55
|
|
8.4
|
|
Amendment
|
|
|
B-56
|
|
8.5
|
|
Extension; Waiver
|
|
|
B-56
|
|
8.6
|
|
Procedure for Termination, Amendment, Extension or Waiver
|
|
|
B-57
|
|
|
|
|
ARTICLE IX
|
|
MISCELLANEOUS
|
|
|
B-57
|
|
|
|
|
9.1
|
|
Nonsurvival of Representations, Warranties and Agreements
|
|
|
B-57
|
|
9.2
|
|
Notices
|
|
|
B-57
|
|
9.3
|
|
Entire Agreement
|
|
|
B-58
|
|
9.4
|
|
No Third Party Beneficiaries
|
|
|
B-58
|
|
9.5
|
|
Assignment
|
|
|
B-58
|
|
9.6
|
|
Severability
|
|
|
B-58
|
|
9.7
|
|
Counterparts and Signature
|
|
|
B-59
|
|
9.8
|
|
Interpretation
|
|
|
B-59
|
|
9.9
|
|
Governing Law
|
|
|
B-59
|
|
9.10
|
|
Remedies
|
|
|
B-59
|
|
9.11
|
|
Submission to Jurisdiction
|
|
|
B-60
|
|
9.12
|
|
Disclosure Schedule
|
|
|
B-60
|
|
|
|
|
Exhibit A
|
|
Form of Support Agreement
|
|
|
|
|
Schedule 1
|
|
Preliminary Closing Date Allocation Schedule
|
|
|
|
|
Schedule 2
|
|
Example Public Company Net Cash Calculation
|
|
|
|
|
Schedule 3
|
|
Example Private Company Net Cash Calculation
|
|
|
|
|
TABLE OF DEFINED TERMS
|
|
|
Terms
|
|
Cross Reference
in Agreement
|
Acquisition Proposal
|
|
Section 6.1(f)(i)
|
Adjusted Warrant
|
|
Section 1.4(e)
|
Affiliate
|
|
Section 3.2(c)
|
Agreement
|
|
Preamble
|
Alternative Acquisition Agreement
|
|
Section 6.1(b)(ii)
|
Audited Financial Statements
|
|
Section 6.20
|
Bankruptcy and Equity Exception
|
|
Section 2.2(a)
|
Business Day
|
|
Section 1.6
|
Capitalization Date
|
|
Section 3.2(a)
|
Closing
|
|
Section 1.6
|
Closing Date
|
|
Section 1.6
|
Closing Date Allocation Schedule
|
|
Section 1.2(b)(i)
|
B-iii
|
|
|
Terms
|
|
Cross Reference
in Agreement
|
Closing Fully Diluted Shares
|
|
Section 1.2(b)(ii)
|
Code
|
|
Preamble
|
Confidentiality Agreement
|
|
Section 6.5(a)
|
Current D&O Insurance
|
|
Section 6.9(c)
|
Determination Date
|
|
Section 1.2(b)(iii)
|
DGCL
|
|
Section 3.2(d)
|
Dissenting Shares
|
|
Section 2.4(a)
|
Closing
|
|
Section 1.2
|
Dispute
|
|
Section 1.3(a)
|
Dispute Notice
|
|
Section 1.3(a)
|
Employee Benefit Plan
|
|
Section 3.14(i)(i)
|
Environmental Law
|
|
Section 3.13(a)
|
ERISA
|
|
Section 3.14(i)(ii)
|
Exchange Act
|
|
Section 3.4(c)
|
Exchange Ratio
|
|
Section 1.2(b)(iv)
|
FDA
|
|
Section 3.16(a)
|
Financial Statements
|
|
Section 4.5(a)
|
Fully Diluted Private Company Shares
|
|
Section 1.2(b)(v)
|
Fully Diluted Public Company Shares
|
|
Section 1.2(b)(vi)
|
Fully Diluted Transaction Shares
|
|
Section 1.2(b)(vii)
|
GAAP
|
|
Section 3.1
|
Governmental Entity
|
|
Section 3.4(c)
|
Hazardous Substance
|
|
Section 3.13(a)
|
Indemnified Persons
|
|
Section 6.9(a)
|
Intellectual Property
|
|
Section 3.10(a)
|
IRS
|
|
Section 3.14(b)
|
Lien
|
|
Section 1.2(b)(viii)
|
Maximum Premium
|
|
Section 6.9(c)
|
NASDAQ
|
|
Section 3.5(c)
|
NASDAQ Listing Application
|
|
Section 3.4(c)
|
NASDAQ Proposal
|
|
Section 6.4
|
Net Cash
|
|
Section 1.2(b)(ix)
|
Net Cash Calculation
|
|
Section 1.3(a)
|
Ordinary Course of Business
|
|
Section 3.6
|
Outside Date
|
|
Section 8.1(b)
|
Permits
|
|
Section 3.16(a)
|
Permitted Lien
|
|
Section 1.2(b)(x)
|
Person
|
|
Section 2.6
|
Preliminary Closing Date Allocation Schedule
|
|
Section 1.2(b)(xi)
|
Pre-Closing
Period
|
|
Section 5.1
|
Private Company
|
|
Preamble
|
Private Company Authorizations
|
|
Section 4.16(a)
|
Private Company Balance Sheet
|
|
Section 4.5(a)
|
Private Company Balance Sheet Date
|
|
Section 4.5(a)
|
Private Company Board
|
|
Section 4.18
|
Private Company Board Recommendation Change
|
|
Section 6.1(b)(i)
|
Private Company Common Stock
|
|
Section 1.2(b)(xii)
|
Private Company Convertible Notes
|
|
Preamble
|
Private Company Disclosure Schedule
|
|
Article IV
|
Private Company Employee Plans
|
|
Section 4.14(i)(i)
|
B-iv
|
|
|
Terms
|
|
Cross Reference
in Agreement
|
Private Company ERISA Affiliate
|
|
Section 4.14(i)(ii)
|
Private Company Intellectual Property
|
|
Section 4.10(b)
|
Private Company Leased Properties
|
|
Section 4.9(b)
|
Private Company Leases
|
|
Section 4.9(b)
|
Private Company Material Adverse Effect
|
|
Section 4.1
|
Private Company Material Contract
|
|
Section 4.11(a)
|
Private Company Net Cash
|
|
Section 1.2(b)(xiii)
|
Private Company Stock Options
|
|
Section 1.4(a)
|
Private Company Stock Plans
|
|
Section 1.4(a)
|
Private Company Termination Fee
|
|
Section 8.3(b)
|
Private Company Valuation
|
|
Section 1.2(b)(xiv)
|
Private Company Warrant
|
|
Section 1.4(e)
|
Proxy Statement
|
|
Section 3.5(c)
|
Public Company
|
|
Preamble
|
Public Company Authorizations
|
|
Section 3.16(a)
|
Public Company Balance Sheet
|
|
Section 3.5(b)
|
Public Company Board
|
|
Section 3.18
|
Public Company Board Recommendation Change
|
|
Section 6.1(b)(i)
|
Public Company Common Stock
|
|
Section 1.2(b)(xv)
|
Public Company Disclosure Schedule
|
|
Article III
|
Public Company Employee
|
|
Section 6.11(b)
|
Public Company Employee Plans
|
|
Section 3.14(i)(iii)
|
Public Company ERISA Affiliate
|
|
Section 3.14(i)(iv)
|
Public Company Intellectual Property
|
|
Section 3.10(b)
|
Public Company Leased Properties
|
|
Section 3.9(b)
|
Public Company Leases
|
|
Section 3.9(b)
|
Public Company Material Adverse Effect
|
|
Section 3.1
|
Public Company Material Contract
|
|
Section 3.11(a)
|
Public Company Meeting
|
|
Section 3.5(c)
|
Public Company Net Cash
|
|
Section 1.2(b)(xvi)
|
Public Company Preferred Stock
|
|
Section 3.2(a)
|
Public Company SEC Reports
|
|
Section 3.5(a)
|
Public Company Support Agreement
|
|
Preamble
|
Public Company Stockholder Approval
|
|
Section 3.5(c)
|
Public Company Stock Options
|
|
Section 3.2(b)
|
Public Company Stock Plans
|
|
Section 3.2(b)
|
Public Company Termination Fee
|
|
Section 8.3(c)
|
Public Company Valuation
|
|
Section 1.2(b)(xvii)
|
Public Company Voting Proposal
|
|
Section 3.5(c)
|
Qualified Person
|
|
Section 6.1(f)(ii)
|
Recommendation Change Notice
|
|
Section 6.1(b)
|
Reporting Tail Endorsement
|
|
Section 6.9(c)
|
Representatives
|
|
Section 6.1(a)
|
Response Date
|
|
Section 1.3(a)
|
Rule 145 Affiliates
|
|
Section 6.8
|
Sarbanes-Oxley Act
|
|
Section 3.5(d)
|
SEC
|
|
Section 3.4(c)
|
Securities Act
|
|
Section 3.2(c)
|
Specified Time
|
|
Section 6.1(f)(iii)
|
Stockholders
|
|
Preamble
|
B-v
|
|
|
Terms
|
|
Cross Reference
in Agreement
|
Stockholder Representative
|
|
Preamble
|
Subsidiary
|
|
Section 3.3(a)
|
Superior Proposal
|
|
Section 6.1(f)(iv)
|
Tax Returns
|
|
Section 3.8(i)(i)
|
Taxes
|
|
Section 3.8(i)(ii))
|
Transaction
|
|
Preamble
|
Waltham Lease
|
|
Section 1.2(b)(ix)
|
B-vi
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this
Agreement
), dated as of March 19, 2017, is entered into by and among Cerulean
Pharma Inc., a Delaware corporation (
Public Company
), Daré Bioscience, Inc., a Delaware corporation (
Private Company
), the equityholders of Private Company identified on the signature pages hereto
(together with any subsequent equityholders who become parties hereto as Stockholders pursuant to Section 6.19(b) below, the
Stockholders
) and, solely for the purposes of being bound by Article I, Article VIII and
Article IX hereof and solely in such persons capacity as the Stockholder Representative, Sabrina Martucci Johnson (the
Stockholder Representative
).
WHEREAS, the Stockholders own all of the issued and outstanding shares of Private Company Common Stock and all of the issued and outstanding
convertible promissory notes of Private Company (the
Private Company Convertible Notes
), which promissory notes shall be converted into shares of Private Company Common Stock on or prior to the Closing Date;
WHEREAS, the parties desire to enter into this Agreement pursuant to which each Stockholder agrees to sell to Public Company and Public
Company agrees to purchase from each Stockholder all of the shares of Private Company Common Stock owned by such Stockholder (the
Transaction
), on the terms and subject to the conditions contained herein; and
WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition and inducement to Private Companys and the
Stockholders willingness to enter into this Agreement, the stockholders of Public Company listed in Section A of the Public Company Disclosure Schedule have entered into a support agreement, dated as of the date of this Agreement, in the form
attached hereto as
Exhibit A
(the
Support Agreement
), pursuant to which such stockholders have, among other things, agreed to vote all of their shares of capital stock in favor of the Transaction and against any competing
proposals; and
WHEREAS, for United States federal income tax purposes, it is intended that the Transaction shall qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
Code
);
NOW,
THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, Public Company, Private Company and the Stockholders agree as follows:
ARTICLE I
STOCK
PURCHASE
1.1
Stock Purchase
. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing
Public Company shall purchase from each Stockholder, and each Stockholder shall, severally and not jointly, sell, convey, assign, transfer and deliver to Public Company, all of the Private Company Common Stock owned by such Stockholder, as set forth
opposite such Stockholders name on the Closing Date Allocation Schedule, free and clear of all Liens. Each Stockholder hereby waives any rights of
pre-emption
or other restrictions on transfer of the
Private Company Common Stock whether conferred by Private Companys certificate of incorporation or bylaws or otherwise, in respect of the transfers contemplated by this Agreement.
1.2
Purchase Price; Certain Definitions
.
(a) In full consideration for the purchase and sale of shares of Private Company Common Stock pursuant hereto, Public Company shall pay to
each Stockholder, a number of shares of Public Company Common Stock, rounded down to the nearest whole share, equal to the product of (a) the number of shares of Private Company Common Stock held by such Stockholder multiplied by (b) the
Exchange Ratio.
B-1
(b) For purposes of this Agreement, the following terms shall have the following meanings:
(i)
Closing Date Allocation Schedule
means a schedule, prepared by Private Company in the format of the Preliminary Closing
Date Allocation Schedule, dated as of the Closing Date and in form and substance reasonably acceptable to Public Company, setting forth, for each Stockholder: (A) such Stockholders name and address; (B) the number of shares of
Private Company Common Stock held as of the Closing Date by such Stockholder; (C) the number of shares of Public Company Common Stock payable in respect of such Stockholders Private Company Common Stock pursuant to Section 1.2(a); (D) the
outstanding principal balance and accrued interest as of immediately prior to its conversion into shares of Private Company Common Stock under each Private Company Convertible Note held by such Stockholder; (E) the number of shares of Private
Company Common Stock into which each Private Company Convertible Note held by such Stockholder has been converted; and (F) such information that is required under Treasury Regulation
Section 1.6045-1
for any share of Private Company Common Stock that is a covered security as defined in Treasury Regulation Section
1.6045-1(a)(15).
(ii)
Closing Fully Diluted Shares
means the sum of (A) the Fully Diluted Public Company Shares plus (B) the
Fully Diluted Transaction Shares.
(iii)
Determination Date
means the Business Day that is five (5) Business Days
prior to the Closing Date.
(iv)
Exchange Ratio
means the quotient of (A) the Fully Diluted Transaction Shares
divided by (b) the Fully Diluted Private Company Shares.
(v)
Fully Diluted Private Company Shares
means, as of
immediately prior to the Closing, the sum of (A) the number of issued and outstanding shares of Private Company Common Stock (including the shares of Private Company Common Stock issuable upon conversion of the Private Company Convertible
Notes) plus (B) the number of shares of Private Company Common Stock subject to outstanding Private Company Stock Options plus (C) the number of shares of Private Company Common Stock subject to outstanding Private Company Warrants,
calculated in accordance with the treasury method of accounting for options and warrants based on an implied share price using the Private Company Valuation.
(vi)
Fully Diluted Public Company Shares
means, as of immediately prior to the Closing, the sum of (A) the number of
issued and outstanding shares of Public Company Common Stock plus (B) 1,273,000.
(vii)
Fully Diluted Transaction
Shares
means a number of shares of Public Company Common Stock equal to the quotient of (A) the product of (1) the Private Company Valuation multiplied by (2) the number of Fully Diluted Public Company Shares divided by
(B) the Public Company Valuation;
provided
that (1) the number of Fully Diluted Transaction Shares shall not be (x) greater than 70% of the Closing Fully Diluted Shares or (y) less than 51% of the Closing Fully Diluted
Shares, (2) subject to the foregoing clause (1), if Public Company Net Cash is less than $2,400,000 but greater than or equal to $2,000,000, Fully Diluted Transaction Shares will instead equal the number of shares of Public Company Common Stock
that results in the percentage of Closing Fully Diluted Shares comprised of Fully Diluted Transaction Shares being 3% greater than such percentage would have been if the Fully Diluted Transaction Shares were otherwise calculated in accordance with
this definition (such that, for example, if Public Company Net Cash is $2,200,000 and the number of Fully Diluted Transaction Shares otherwise calculated in accordance with this definition would represent 65% of Closing Fully Diluted Shares, the
number of Fully Diluted Shares shall instead be calculated such that Fully Diluted Transaction Shares comprise 68% of Closing Fully Diluted Shares), and (3) if Public Company Net Cash is less than $2,000,000, then Fully Diluted Transaction
Shares shall equal 70% of Closing Fully Diluted Shares.
(viii)
Lien
means any mortgage, security interest, pledge,
lien, charge or encumbrance.
B-2
(ix)
Net Cash
means, with respect to Private Company or Public Company (as
determined on a consolidated basis for such party and its Subsidiaries in accordance with GAAP), (A) the total current assets of such party and its Subsidiaries as of the close of business on the Determination Date, minus (B) the total current
liabilities of such party and its Subsidiaries as of the close of business on the Determination Date other than, in the case of the Private Company, the outstanding principal amount and accrued interest on the Private Company Convertible Notes,
minus (without duplication) (C) in the case of Public Company, after taking into account any agreed early termination, sublease arrangement or other mitigating factors (and assuming that any amounts payable pursuant to any such arrangement will
be paid), the lesser of (1) the maximum remaining liability as of the Determination Date of Public Company for rental payments under its lease for its facility in Waltham, Massachusetts (the
Waltham Lease
) or (2) the
remaining liability as of the Determination Date of Public Company for rental payments under the Waltham Lease for occupancy periods through August 31, 2017, minus (without duplication) (D) the cash cost of any unpaid change of control
payments or severance, termination or similar payments that are or become due to any current or former employee, director or independent contractor of such party, or any other third party, solely as a result of the Closing, pursuant to any contract
or agreement entered into prior to the Closing by such party or any of its Subsidiaries, minus (without duplication) (E) the cash cost of any accrued and unpaid retention payments or other bonuses due to any current or former employee, director
or independent contractor of such party, solely as a result of the Closing, pursuant to any contract or agreement entered into prior to the Closing by such party or any of its Subsidiaries.
(x)
Permitted Lien
means (A) mechanics, carriers, workmens, warehousemens, repairmens
or other statutory liens arising in the Ordinary Course of Business which are not delinquent, (B) liens for Taxes, assessments and other governmental charges and levies that are not due and payable or that are being contested in good faith by
appropriate proceedings and for which adequate reserves have been made on the Public Company Balance Sheet or Private Company Balance Sheet, as applicable, to the extent required by GAAP, (C) when used in this Article III, liens arising from
actions of Private Company (including in connection with any financing), (D) liens, defects or irregularities in title, easements,
rights-of-way,
covenants,
restrictions, and other, similar matters of record that are shown on title to real property in public records that do not, individually or in the aggregate, impair the use of such property for its current and anticipated purpose, (E) liens on
goods in transit incurred pursuant to documentary letters of credit, in each case arising in the Ordinary Course of Business, (F) liens relating to capitalized lease financings or purchase money financings that have been entered into in the
Ordinary Course of Business, (G) liens arising under applicable securities laws and (H) any lien or encumbrance arising out of any license to Public Company Intellectual Property granted in the Ordinary Course of Business.
(xi)
Preliminary Closing Date Allocation Schedule
means the schedule attached hereto as
Schedule 1
and dated as of
the date hereof, setting forth, for each Stockholder: (A) such Stockholders name and address; (B) the number of shares of Private Company Common Stock expected to be held as of the Closing Date by such Stockholder; (C) the
outstanding principal balance and accrued interest as of March 31, 2017 under each Private Company Convertible Note held by such Stockholder; (D) the number of shares of Private Company Common Stock into which each Private Company
Convertible Note held by such Stockholder would convert if converted as of the date hereof; and (E) such information that is required under Treasury Regulation
Section 1.6045-1
for any share of
Private Company Common Stock that is a covered security as defined in Treasury Regulation Section
1.6045-1(a)(15).
(xii)
Private Company Common Stock
means the common stock, $0.001 par value per share, of Private Company.
(xiii)
Private Company Net Cash
means (A) the Net Cash of the Private Company as finally determined pursuant to
Section 1.3(a) rounded down to the nearest $100,000, less (b) any fees and expenses borne by Private Company pursuant to Section 1.3(b).
(xiv)
Private Company Valuation
means an amount equal to the sum of (A) $15,000,000 plus (B) the excess, if any, of
(1) the Private Company Net Cash over (2) $1,000,000.
B-3
(xv)
Public Company Common Stock
means the common stock, $0.0001 par value
per share, of Public Company.
(xvi)
Public Company Net Cash
means (A) the Net Cash of the Public Company as
finally determined pursuant to Section 1.3(a), rounded down to the nearest $100,000, less (B) any fees and expense borne by Public Company pursuant to Section 1.3(b).
(xvii)
Public Company Valuation
means an amount equal to the sum of (A) $7,000,000 plus (B) the Public Company Net
Cash.
1.3
Net Cash Determination
.
(a) No later than four (4) Business Days prior to the Closing, each of Public Company and Private Company shall deliver to the other such
party a statement setting forth its calculation of such partys Net Cash (each, a
Net Cash Calculation
) together with reasonable supporting document for such Net Cash Calculation. The presentation, policies and methodologies
used in each Net Cash Calculation shall be consistent with the presentation, policies and methodologies used in preparing (i) in the case of Public Company, the statement attached as
Schedule 2
setting forth a calculation of what Public
Companys Net Cash would have been if January 31, 2017 had been the Determination Date, and (ii) in the case of Private Company, the statement attached as
Schedule 3
setting forth a calculation of what Private Companys
Net Cash would have been if January 31, 2017 had been the Determination Date. Within two Business Days after each of Public Company and Private Company delivers its Net Cash Calculation to the other such party (the
Response
Date
), the receiving party shall have the right to dispute any part of such Net Cash Statement by delivering a written notice (a
Dispute Notice
) to that effect to the delivery party. Any Dispute Notice shall identify in
reasonable detail the nature of any proposed revisions to the Net Cash Calculation and will be accompanied by reasonably detailed materials supporting the basis for such proposed revisions. If either party delivers a Dispute Notice on or prior to
the Response Date as provided above (the
Dispute
), then the parties shall attempt to resolve the underlying dispute in good faith as promptly as possible. If Public Company and Private Company agree on the amount of any of the
deviations from a Net Cash Calculation, the Public Company Net Cash and/or Private Company Net Cash they agree upon shall be final and binding on all parties to this Agreement. If the parties, notwithstanding such good faith efforts, fail to fully
resolve a Dispute within two Business Days after a party receives a Dispute Notice, then any remaining items in dispute shall be submitted to Ernst & Young (the
Neutral Accountant
) for final determination as promptly as
possible. All determinations and calculations by the Neutral Accountant pursuant to this Section 1.3(a) shall (w) consider only those items that are set forth in a Dispute Notice and remain in dispute, (x) with respect to each item that
remains in dispute, be for a value that is equal to a value for such items submitted to the Neutral Accountant by Public Company or by Private Company, or that it between the two values so submitted, (y) be in writing and (z) be delivered
to Public Company and Private Company as promptly as possible. Absent fraud or manifest error, the calculation of Public Company Net Cash and/or Private Company Net Cash as finally determined by the Neutral Accountant shall be deemed for purposes of
this Agreement to be Public Company Net Cash and/or Private Company Net Cash and shall be final and binding on all parties to this Agreement. In determining the Public Company Net Cash and/or Private Company Net Cash, the Neutral Accountant shall
act as an expert and not as arbitrator. A judgment on the determination made by the Neutral Accountant pursuant to this Section 1.3(a) may be entered in and enforced by any court having jurisdiction thereover.
(b) The fees and expenses of the Neutral Accountant in connection with the resolution of disputes pursuant to Section 1.3(a) shall be
borne by Public Company, on the one hand, and Private Company, on the other hand, in proportion to the amounts by which the proposals of Public Company, on the one hand, and Private Company, on the other hand, differed from the Neutral
Accountants final determination.
1.4
Private Company Stock Plans and Private Company Warrants
.
(a) At the Closing, each outstanding option to purchase Private Company Common Stock (each, a
Private Company Stock Option
and collectively, the
Private Company Stock Options
), whether vested or
B-4
unvested, and all stock option plans or other stock or equity-related plans of Private Company (the
Private
Company Stock Plans
) themselves, insofar as they relate to
outstanding Private Company Stock Options, shall be assumed by Public Company and shall become an option to acquire, on the same terms and conditions as were applicable under such Private Company Stock Option immediately prior to the Closing, such
number of shares of Public Company Common Stock as is equal to the number of shares of Private Company Common Stock subject to the unexercised portion of such Private Company Stock Option immediately prior to the Closing multiplied by the Exchange
Ratio (rounded down to the nearest whole share number), at an exercise price per share equal to the exercise price per share of such Private Company Stock Option immediately prior to the Closing divided by the Exchange Ratio (rounded up to the
nearest whole cent);
provided
that the assumption of each Private Company Stock Option pursuant to this Section 1.4(a) shall comply with all requirements of Sections 424 and 409A of the Code and the Treasury regulations issued thereunder, as
applicable. Such Private Company Stock Options shall continue in effect on the same terms and conditions to which they are currently subject (subject to the adjustments required by this Section 1.4 after giving effect to the Transaction).
Private Company shall, prior to the Closing, take all actions necessary or desirable in connection with the treatment of Private Company Stock Options contemplated by this Section 1.4(a), including obtaining the consent from each holder of any
Private Company Stock Options (unless such consent is not required under the terms of the applicable agreement, instrument or plan).
(b)
As soon as practicable after the Closing, Public Company shall deliver to the participants in Private Company Stock Plans appropriate notice setting forth such participants rights pursuant to Private Company Stock Options, as provided in this
Section 1.4.
(c) Public Company shall take all corporate action necessary to reserve for issuance a sufficient number of shares of
Public Company Common Stock for delivery upon exercise of Private Company Stock Options assumed in accordance with this Section 1.4. As promptly as practicable after the Closing, Public Company shall file a registration statement on Form
S-8
(or any successor form) or another appropriate form with respect to the shares of Public Company Common Stock subject to such options and shall use commercially reasonable efforts to maintain the effectiveness
of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding.
(d) At the Closing, by virtue of the Transaction, each warrant to purchase shares of Private Company Common Stock (each, a
Private
Company Warrant
) outstanding immediately prior to the Closing shall be automatically assumed by Public Company and shall become a warrant to acquire, on the same terms and conditions as were applicable under such Private Company Warrant,
such number of shares of Public Company Common Stock as is equal to the number of shares of Private Company Common Stock subject to the unexercised portion of such Private Company Warrant immediately prior to the Closing multiplied by the Exchange
Ratio (rounded down to the nearest whole share number), at an exercise price per share equal to the exercise price per share of such Private Company Warrant immediately prior to the Closing divided by the Exchange Ratio (rounded up to the nearest
whole cent) (each, as so adjusted, an
Adjusted Warrant
). Private Company shall, prior to the Closing, take all actions necessary or desirable in connection with the treatment of Private Company Stock Warrants contemplated by this
Section 1.4(e). Public Company shall take all corporate actions necessary to reserve for issuance of shares of Public Company Common Stock that will be subject to the Adjusted Warrants.
1.5
Allocation Schedules
.
(a) The Preliminary Closing Date Allocation Schedule sets forth a good faith estimate as of the date of this Agreement of the consideration
deliverable to the Stockholders pursuant to this Agreement. Private Company shall deliver to Public Company, at least two (2) Business Days prior to the Closing, the Closing Date Allocation Schedule. Public Company shall be entitled to rely
conclusively on the Closing Date Allocation Schedule, and, as between the Stockholders, on the one hand, and Public Company, on the other hand, any amounts delivered by the Public Company to any Stockholder (or delivered by Public Company to the
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Stockholder Representative) in accordance with the Closing Date Allocation Schedule shall be deemed for all purposes to have been delivered to the applicable Stockholder in full satisfaction of
the obligations of Public Company under this
Article I
.
(b) The Stockholder Representative shall deliver the shares of Public
Company Common Stock payable in respect of Private Company Common Stock to the applicable Stockholders in accordance with the Closing Date Allocation Schedule.
1.6
The Closing
. Subject to the satisfaction or waiver (to the extent permitted by law) of the conditions set forth in Article VII, the
closing of the Transaction (the
Closing
) will take place on a date to be specified by Public Company and Private Company, which shall not be later than the second Business Day following the day on which the last to be satisfied or
waived of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions) shall be satisfied or waived in accordance with
this Agreement, at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, unless another date, place or time is agreed to in writing by Public Company and Private Company. For the purposes of this
Agreement, the term
Business Day
shall mean any day other than a Saturday, Sunday or other day on which commercial banking institutions in Boston, Massachusetts are authorized or permitted by law to be closed, and the term
Closing Date
shall mean the date on which the Closing actually occurs.
1.7
Actions at the Closing
. At the
Closing
(a) Private Company and the Stockholders shall deliver to Public Company the various certificates, instruments and documents
referred to in Section 7.3;
(b) Public Company shall deliver to the Stockholder Representative the various certificates, instruments
and documents referred to in Section 7.2;
(c) Public Company shall deliver to the Stockholder Representative, for distribution to
the Stockholders in accordance with the Closing Date Allocation Schedule, certificates representing the number of shares of Public Company Common Stock payable in respect of shares of Private Company Common Stock pursuant to Section 1.2(a); and
(d) each Stockholder shall deliver or procure to be delivered to Public Company stock certificates representing all of the shares of Private
Company Common Stock owned by such Stockholder, duly endorsed in blank for transfer or accompanied by duly executed stock powers assigning the Shares in blank, and any other documents necessary to transfer to Public Company good and valid title to
such shares free and clear of all Liens.
1.8
Withholding Rights
. Each of Public Company and Private Company shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this Agreement, including any consideration payable pursuant to the Transaction, to any holder of shares of Private Company Common Stock or any other recipient of payments
hereunder any amounts it is required to deduct and withhold with respect to the making of such payment under the Code or any other applicable state, local or foreign Tax law. To the extent that amounts are so withheld and timely remitted by Public
Company or Private Company, as the case may be, to the applicable Governmental Entity, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder or other recipient in respect of which such deduction and
withholding was made.
1.9
Tax Treatment
. Public Company, Private Company, the Stockholders and the Stockholder Representative
agree and acknowledge that the Transaction is intended to constitute a reorganization described in Section 368(a) of the Code.
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1.10
Stockholder Representative
.
(a) By their execution of this Agreement and the transfer and delivery of their certificates representing share of Private Company Common
Stock, and/or their acceptance of any consideration pursuant to this Agreement, the Stockholders hereby irrevocably (subject only to Section 1.10(d)) appoint the Stockholder Representative as the representative,
attorney-in-fact
and agent of the Stockholders in connection with the Transaction and in any litigation or arbitration involving this Agreement. In connection therewith, the Stockholder Representative is
authorized to do or refrain from doing all further acts and things and to execute all such documents as the Stockholder Representative shall deem necessary or appropriate, and shall have the power and authority to:
(i) act for some or all of the Stockholders with regard to all matters pertaining to this Agreement;
(ii) act for the Stockholders to transact matters of litigation with regard to all matters pertaining to this Agreement;
(iii) execute and deliver all amendments, waivers, ancillary agreements, certificates and documents that the Stockholder Representative deems
necessary or appropriate in connection with the consummation of the Transaction;
(iv) receive funds or other consideration, including
shares of Public Company Common Stock, make payments of funds or other consideration, and give receipts for funds, securities or other consideration;
(v) do or refrain from doing, on behalf of the Stockholders, any further act or deed that the Stockholder Representative deems necessary or
appropriate in the Stockholder Representatives discretion relating to the subject matter of this Agreement in each case as fully and completely as the Stockholders could do if personally present;
(vi) give and receive all notices required to be given or received by the Stockholders under this Agreement; and
(vii) receive service of process in connection with any claims under this Agreement.
(b) All decisions and actions of the Stockholder Representative on behalf of the Stockholders shall be deemed to be facts ascertainable
outside of this Agreement and shall be binding upon all Stockholders, and no Stockholder shall have the right to object, dissent, protest or otherwise contest the same.
(c) The Stockholder Representative shall act for the Stockholders on all of the matters set forth in this Agreement in the manner the
Stockholder Representative believes to be in the best interest of the Stockholders. The Stockholder Representative is authorized to act on behalf of the Stockholders notwithstanding any dispute or disagreement among the Stockholders. In taking any
action as Stockholder Representative, the Stockholder Representative may rely conclusively, without any further inquiry or investigation, upon any certification or confirmation, oral or written, given by any person whom the Stockholder
Representative reasonably believes to be authorized thereunto. The Stockholder Representative may, in all questions arising hereunder, rely on the advice of counsel, and the Stockholder Representative shall not be liable to any Stockholder for
anything done, omitted or suffered in good faith by the Stockholder Representative based on such advice. The Stockholder Representative undertakes to perform such duties and only such duties as are specifically set forth in this Agreement and no
implied covenants or obligations shall be read into this Agreement against the Stockholder Representative. The Stockholder Representative shall not have any liability to any of the Stockholders for any act done or omitted hereunder as Stockholder
Representative while acting in good faith. The Stockholder Representative shall be indemnified, severally and not jointly, by the Stockholders from and against any loss, liability or expense incurred in good faith on the part of the Stockholder
Representative and arising out of or in connection with the acceptance or administration of the Stockholder Representatives duties hereunder.
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(d) In the event the Stockholder Representative becomes unable to perform the Stockholder
Representatives responsibilities hereunder or resigns from such position, the Stockholders (acting by a written instrument signed by Stockholders who held, as of immediately prior to the Closing, a majority (by voting power) of the then
outstanding shares of Private Company Common Stock) shall select another representative to fill the vacancy of the Stockholder Representative, and such substituted representative shall be deemed to be the Stockholder Representative for all purposes
of this Agreement. The Stockholder Representative may be removed only upon delivery of written notice to Public Company signed by Stockholders who, as of immediately prior to the Closing, held a majority (by voting power) of the then outstanding
shares of Private Company Common Stock;
provided
that no such removal shall be effective until such time as a successor Stockholder Representative shall have been validly appointed hereunder. The Stockholder Representative shall provide
Public Company prompt written notice of any replacement of the Stockholder Representative, including the identity and address of the new Stockholder Representative.
(e) For all purposes of this Agreement:
(i) Public Company and Private Company shall be entitled to rely conclusively on the instructions and decisions of the Stockholder
Representative as to the settlement of any disputes or claims under this Agreement, or any other actions required or permitted to be taken by the Stockholder Representative hereunder, and no party hereunder or any Stockholder shall have any cause of
action against Public Company for any action taken by Public Company in reliance upon the instructions or decisions of the Stockholder Representative;
(ii) the provisions of this Section 1.10 are independent and severable, are irrevocable (subject only to Section 1.10(d)) and
coupled with an interest and shall be enforceable notwithstanding any rights or remedies that any Stockholder may have in connection with the Transaction; and
(iii) the provisions of this Section 1.10 shall be binding upon the executors, heirs, legal representatives, personal representatives,
successor trustees and successors of each Stockholder, and any references in this Agreement to a Stockholder shall mean and include the successors to the rights of each applicable Stockholder hereunder, whether pursuant to testamentary disposition,
the laws of descent and distribution or otherwise.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each Stockholder, severally and not jointly, represents and warrants to Public Company that the statements contained in this
Article II
are true and correct.
2.1
Organization, Standing
. If such Stockholder is an entity, (a) such Stockholder is a corporation or
other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and (b) the Stockholder is not in default under or in violation of any provision of its organizational documents. The
Stockholder has all requisite power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it.
2.2
Authority, Power; No Conflict; Required Filings and Consents
.
(a) Such Stockholder has all requisite power and authority and capacity (in the case of individuals) to execute and deliver this Agreement and
the other documents contemplated hereby to be executed or delivered by such Stockholder and to perform such Stockholders obligations hereunder and thereunder. The execution and delivery by such Stockholder of this Agreement and the other
documents contemplated hereby to be executed or delivered by such Stockholder and the performance by such Stockholder of this Agreement and the consummation by such Stockholder of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate and other action on the part of such Stockholder. This Agreement
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and all other documents contemplated hereby to be executed or delivered by such Stockholder have been or will be as of the Closing Date duly and validly executed and delivered by such Stockholder
and, assuming the due authorization, execution and delivery by Public Company, Private Company, the other Stockholders, the Stockholder Representative and any other party thereto, constitutes or will constitute a valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting
creditors rights and to general equity principles (the
Bankruptcy and Equity Exception
).
(b) The execution and
delivery of this Agreement and the other documents contemplated hereby to be executed or delivered by such Stockholder do not, and the consummation by such Stockholder of the Transaction shall not, (i) conflict with, or result in any violation
or breach of, any provision of the certificate of incorporation or bylaws (or similar organizational documents) of such Stockholder (to the extent such Stockholder is an entity), (ii) conflict with, or result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit) under, or require a consent or waiver under, constitute a change
in control under, require the payment of a penalty under or result in the imposition of any Lien (other than a Permitted Lien) on assets under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract or other agreement, instrument or obligation to which such Stockholder is a party or by which any property or asset owned or leased by such Stockholder may be bound, or (iii) conflict with or violate any permit, concession, franchise,
license, judgment, injunction, order, decree, statute, law, ordinance, rule or regulation applicable to such Stockholder or any of the properties or assets owned or leased by such Stockholder, except in the case of clauses (ii) and (iii) of
this Section 2.2(b), for any such conflicts, violations, breaches, defaults, terminations, cancellations, accelerations or losses that, individually or in the aggregate, are not reasonably likely to prohibit or materially delay the ability of the
Stockholder to consummate the transactions contemplated by this Agreement or any other document contemplated hereby to be executed or delivered by such Stockholder or to perform its obligations hereunder or thereunder. Section 2.2(b) of the Private
Company Disclosure Schedule lists all consents, waivers and approvals (if any) under any of the Stockholders agreements, licenses or leases required to be obtained in connection with the consummation of the transactions contemplated by this
Agreement, which, if individually or in the aggregate were not obtained, would reasonably be expected to prohibit or materially delay the ability of such Stockholder to consummate the transactions contemplated by this Agreement or any other document
contemplated hereby to be executed or delivered by such Stockholder or to perform such Stockholders obligations hereunder or thereunder.
(c) No consent, approval, license, permit, order or authorization of, or registration, declaration, notice or filing with, any Governmental
Entity is required by or with respect to such Stockholder in connection with the execution and delivery by such Stockholder of this Agreement or any other document contemplated hereby to be executed or delivered by such Stockholder or the
consummation by such Stockholder of the transactions contemplated by this Agreement or any other document contemplated hereby to be executed or delivered by such Stockholder, except for such consents, authorizations, orders, filings, approvals and
registrations that, individually or in the aggregate, if not obtained or made, would reasonably be expected to prohibit or materially delay the ability of the Stockholder to consummate the transactions contemplated by this Agreement or any other
document contemplated hereby to be executed or delivered by such Stockholder or to perform its obligations hereunder or thereunder.
2.3
Ownership of Private Company Common Stock
. Such Stockholder holds legally, beneficially and of record (a) all of the shares of Private Company Common Stock and (b) all of the right, title and interest in and to the Private Company
Convertible Notes, in each case set forth on
Section 4.2(b)
of the Private Company Disclosure Schedule as owned by such Stockholder, free and clear of any Liens. Except as set forth in
Section 4.2(e)
of the Private Company Disclosure
Schedule, such Stockholder is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting or transfer of any shares of Private Company Common Stock. Upon consummation of the Transaction and conversion of
the Private Company Convertible
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Notes immediately prior thereto, Public Company will acquire from such Stockholder good and marketable title to all shares of Private Company Common Stock set forth on
Section 4.2(b)
of
the Private Company Disclosure Schedule as owned by such Stockholder, free and clear of all Liens.
2.4
Litigation
. There is no
action, suit, proceeding, claim, arbitration or investigation before any Governmental Entity or before any arbitrator that is pending or has been threatened in writing against such Stockholder that questions the validity of this Agreement or any
other document contemplated hereby to be executed or delivered by such Stockholder or any action taken or to be taken by such Stockholder in connection herewith or therewith or that would reasonably be expected to prohibit or materially delay such
Stockholders ability to consummate the transactions contemplated by this Agreement or any other document contemplated hereby to be executed or delivered by such Stockholder. The Stockholder does not have any claim of any kind against Private
Company other than for payment of any Private Company Convertible Notes held by such Stockholder as the same comes due.
2.5
Brokers
. Such Stockholder has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement or any other document contemplated hereby to be executed or
delivered by such Stockholder.
2.6
Purchase for Own Account; Sophistication
. Such Stockholder acknowledges and agrees that shares
of Public Company Common Stock to be acquired by the Stockholder pursuant to this Agreement will be acquired for investment for such Stockholders own account, not as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that such Stockholder has no present intention of selling, granting any participation in, or otherwise distributing the same. Such Stockholder acknowledges and agrees that such Stockholder does not presently have any contract,
undertaking, agreement or arrangement with any individual, corporation, partnership, limited liability company, joint venture, association, trust, Governmental Entity, unincorporated organization or other entity (each, a
Person
)
to sell, transfer or grant participations to such Person or to any other Person, with respect to any of the shares of Public Company Common Stock to be received by it pursuant to this Agreement. Such Stockholder represents and warrants that such
Stockholder has such knowledge and experience in financial and business matters that such Stockholder is capable of evaluating the merits and risks of owning the shares of Public Company Common Stock to be received by such Stockholder pursuant to
this Agreement. Such Stockholder has the ability to bear the economic risk of the investment in shares of Public Company Common Stock, including complete loss of such investment.
2.7
Access to Information
. Such Stockholder acknowledges that (a) such Stockholder has been afforded (i) access to
information about each of Private Company and Public Company, respectively, and their respective financial conditions, results of operations, businesses, properties and prospects sufficient to enable such Stockholder to evaluate such
Stockholders investment in Public Company Common Stock; and (ii) the opportunity to obtain such additional information that either Public Company or Private Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment in Public Company Common Stock and any such additional information has been provided to such Stockholders reasonable satisfaction, and (b) such Stockholder
has sought such professional advice as it has considered necessary to make an informed decision with respect to such Stockholders acquisition of shares of Public Company Common Stock. Except to the extent expressly provided for in this
Agreement, such Stockholder hereby agrees that neither Public Company nor any of its Affiliates will have or be subject to any liability or indemnification obligation to such Stockholder or to any other Person resulting from the issuance of shares
of Public Company Common Stock in connection with the Transaction.
2.8
Restricted Securities; Legends
.
(a) The Stockholder understands that the shares of Public Company Common Stock to be received by such Stockholder in connection with the
Transaction have not been, and will not be, registered under the Securities Act of 1933, as amended (the
Securities Act
), by reason of a specific exemption from the
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registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Stockholders representations and
warranties as expressed herein. Such Stockholder understands that such shares of Public Company Common Stock will be restricted securities under applicable securities laws and that, pursuant to these laws, such Stockholder must hold such
shares indefinitely unless they are registered with the Securities and Exchange Commission (the
SEC
) and qualified by state authorities, or an exemption from such registration and qualification requirements is available.
(b) Such Stockholder understands that the shares of Public Company Common Stock to be received by such Stockholder in connection with the
Transaction may be notated with one or more of the following legends:
(i) THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(ii) Any legend required by applicable securities laws to the extent such laws are applicable to the Shares represented by the certificate,
instrument, or book entry so legended.
2.9
Accredited Investor
. Such Stockholder is an accredited investor (as defined
in Regulation D promulgated under the Securities Act).
2.10
No Other Public Company Representations or Warranties;
Non-Reliance
. Such Stockholder hereby acknowledges and agrees that, except for the representations and warranties set forth in Article III (in each case as qualified and limited by Public Company Disclosure
Schedule), (a) none of Public Company, or any Subsidiary of Public Company, or any of its or their respective Affiliates, stockholders or Representatives, or any other Person, has made or is making any express or implied representation or warranty
with respect to Public Company or any Subsidiary of Public Company or their respective business or operations, including with respect to any information provided or made available to Private Company or any of its Affiliates, stockholders or
Representatives, or any other Person, or, except as otherwise expressly set forth in this Agreement, had or has any duty or obligation to provide any information to Private Company or any of its Affiliates, stockholders or Representatives, or any
other Person, in connection with this Agreement, the transactions contemplated hereby or otherwise, and (b) to the fullest extent permitted by law, none of Public Company, any Subsidiary of Public Company, or any of its or their respective
Affiliates, stockholders or Representatives, or any other Person, will have or be subject to any liability or indemnification or other obligation of any kind or nature to Private Company or any of its Affiliates, stockholders or Representatives, or
any other Person, resulting from the delivery, dissemination or any other distribution to Private Company or any of its Affiliates, stockholders or Representatives, or any other Person, or the use by Private Company or any of its Affiliates,
stockholders or Representatives, or any other Person, of any such information provided or made available to any of them by Public Company, any Subsidiary of Public Company, or any of its or their respective Affiliates, stockholders or
Representatives, or any other Person, including any information, documents, estimates, projections, forecasts or other forward-looking information, business plans or other material provided or made available to Private Company or any of its
Affiliates, stockholders, or Representatives, or any other Person, in data rooms, confidential information memoranda, management presentations or otherwise in anticipation or contemplation of the Transaction or any other transaction
contemplated by this Agreement, and (subject to the express representations and warranties of Public Company set forth in Article III (in each case as qualified and limited by Public Company Disclosure Schedule)) none of Private Company or any of
its Affiliates, stockholders or Representatives, or any other Person, has relied on any such information (including the accuracy or completeness thereof).
2.11
Non-Reliance
on Public Company Estimates, Projections, Forecasts, Forward-Looking Statements
and Business Plans
. In connection with the due diligence investigation of Public Company by Private Company and
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its Affiliates, stockholders and Representatives, Private Company and its Affiliates, stockholders and Representatives have received and may continue to receive after the date hereof (including
pursuant to Section 6.5(b)) from Public Company and its Affiliates, stockholders and Representatives certain estimates, projections, forecasts and other forward-looking information, as well as certain business plan information, regarding Public
Company and its Affiliates and their respective businesses and operations. Such Stockholder hereby acknowledges that there are uncertainties inherent in attempting to make such estimates, projections, forecasts and other forward-looking statements,
as well as in such business plans, with which such Stockholder is familiar, that such Stockholder is taking full responsibility for making such Stockholders own evaluation of the adequacy and accuracy of all estimates, projections, forecasts
and other forward-looking information, as well as such business plans, so furnished to it (including the reasonableness of the assumptions underlying such estimates, projections, forecasts, forward-looking information or business plans), and that
such Stockholder will have no claim against Public Company or any Subsidiary of Public Company, or any of their respective Affiliates, stockholders or Representatives, or any other Person, with respect thereto. Accordingly, such Stockholder hereby
acknowledges and agrees that none of Public Company, or any Subsidiary of Public Company, nor any of their respective Affiliates, stockholders or Representatives, nor any other Person, has made or is making any express or implied representation or
warranty with respect to such estimates, projections, forecasts, forward-looking statements or business plans (including the reasonableness of the assumptions underlying such estimates, projections, forecasts, forward-looking statements or business
plans). Any estimates, projections, forecasts and other forward-looking information provided to Private Company and its Affiliates, stockholders and Representatives by Public Company and its Affiliates, stockholders and Representatives are not and
shall not be deemed to be or included in any representations or warranties of Public Company. Such Stockholder expressly disclaims that it is relying upon or has relied upon any representations or warranties or other statements or omissions that may
have been made by Public Company or any Person with respect to Public Company other than the representations and warranties set forth in this Agreement. Such Stockholder expressly disclaims any obligation or duty by Public Company to make any
disclosures of fact not required to be disclosed pursuant to the specific representations and warranties set forth in this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PUBLIC COMPANY
Public Company represents and warrants to Private Company that the statements contained in this Article III are true and correct, except
(a) as disclosed in the Public Company SEC Reports filed or furnished prior to the date of this Agreement or (b) as set forth herein or in the disclosure schedule delivered by Public Company to Private Company on the date of this Agreement
(the
Public Company Disclosure Schedule
). For purposes hereof, the phrase to the knowledge of Public Company and similar expressions mean the actual knowledge as of the date hereof (without any duty to inquire or
investigate) of the individuals identified in Section 3.0 of the Public Company Disclosure Schedule.
3.1
Organization, Standing
and Power
. Public Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has all requisite corporate power and authority to own, lease and operate its properties and assets (either
owned or leased) and to carry on its business as now being conducted, and is duly qualified to do business and, where applicable as a legal concept, is in good standing as a foreign corporation in each jurisdiction in which the character of the
properties it owns, operates or leases or the nature of its activities makes such qualification legally required, except for such failures to be so organized, qualified or in good standing, individually or in the aggregate, that are not reasonably
likely to have a Public Company Material Adverse Effect. For purposes of this Agreement, the term
Public Company Material Adverse Effect
means any effect that is materially adverse to the business, financial condition or results
of operations of Public Company and its Subsidiaries, taken as a whole;
provided
,
however
, that no effect (by itself or when aggregated or taken together with any and all other effects) directly or indirectly resulting from, arising
out of, attributable to, or related to any of the following shall be deemed to be or constitute a Public Company Material
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Adverse Effect, and no effect (by itself or when aggregated or taken together with any and all other such effects) directly or indirectly resulting from, arising out of, attributable to, or
related to any of the following shall be taken into account when determining whether a Public Company Material Adverse Effect has occurred or may, would or could occur: (i) general economic conditions (or changes in such conditions)
in the United States or any other country or region in the world, or conditions in the global economy generally; (ii) conditions (or changes in such conditions) in the securities markets, credit markets, currency markets or other financial
markets in the United States or any other country or region in the world, including (A) changes in interest rates in the United States or any other country or region in the world and changes in exchange rates for the currencies of any countries
and (B) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or
over-the-counter
market operating in the United States or any other country or region in the world; (iii) conditions (or changes in such conditions) in the industries in which Public Company and its Subsidiaries conduct business; (iv) political conditions
(or changes in such conditions) in the United States or any other country or region in the world or acts of war, sabotage or terrorism (including any escalation or general worsening of any such acts of war, sabotage or terrorism) in the United
States or any other country or region in the world; (v) earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, weather conditions and other force majeure events in the United States or any other
country or region in the world; (vi) the announcement of this Agreement or the pendency or consummation of the transactions contemplated hereby, including (A) the identity of Private Company, (B) the loss or departure of officers or
other employees of Public Company or any of its Subsidiaries directly or indirectly resulting from, arising out of, attributable to, or related to the transactions contemplated by this Agreement, (C) the termination or potential termination of
(or the failure or potential failure to renew or enter into) any contracts with customers, suppliers, distributors or other business partners, whether as a direct or indirect result of the loss or departure of officers or employees of Public Company
or any of its Subsidiaries or otherwise, directly or indirectly resulting from, arising out of, attributable to, or related to the transactions contemplated by this Agreement, (D) any other negative development (or potential negative
development) in the relationships of Public Company or any of its Subsidiaries with any of its customers, suppliers, distributors or other business partners, whether as a direct or indirect result of the loss or departure of officers or employees of
Public Company or any of its Subsidiaries or otherwise, directly or indirectly resulting from, arising out of, attributable to, or related to the transactions contemplated by this Agreement, and (E) any decline or other degradation in the
customer bookings of Public Company or any of its Subsidiaries directly or indirectly resulting from, arising out of, attributable to, or related to the transactions contemplated by this Agreement; (vii) any actions taken or failure to take
action, in each case, which Private Company has approved, consented to or requested; or compliance with the terms of, or the taking of any action required or contemplated by, this Agreement; or the failure to take any action prohibited by this
Agreement; (viii) changes in law or other legal or regulatory conditions (including rules, regulations and administrative policies of the FDA or any other similar Governmental Entity), or the interpretation thereof, or changes in United States
generally accepted accounting principles (
GAAP
) or other accounting standards (or the interpretation thereof), or that result from any action taken for the purpose of complying with any of the foregoing; (ix) any product
candidate of Public Company or any of its Subsidiaries, including any change, event, circumstance or development relating to the use or sale of any such product candidate, the suspension, rejection, refusal of, request to refile or any delay in
obtaining or making any regulatory application or filing relating to any such product candidate, any other negative actions, requests, recommendations or decisions of the FDA or any other Governmental Entity relating to any such product candidate,
any other regulatory development affecting any such product candidate, or the failure to conduct successful clinical trials on a timely basis for any such product candidate; (x) any product or product candidate of any Person (other than Public
Company and its Subsidiaries), including the entry into the market of any product competitive with any product or product candidate of Public Company or any of its Subsidiaries; (xi) any clinical trials or studies undertaken by any Person, and
any negative publicity or unfavorable media attention resulting therefrom; (xii) any fees or expenses incurred in connection with the transactions contemplated by this Agreement; (xiii) changes in Public Companys stock price or the
trading volume of Public Companys stock, or any failure by Public Company to meet any public estimates or expectations of Public Companys revenue, earnings or other financial performance or results of operations for any period, or any
failure by Public Company or any of its Subsidiaries to meet any internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations (but
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not, in each case, the underlying cause of such changes or failures, unless such changes or failures would otherwise be excepted from this definition); or (xiv) any legal proceedings made or
brought by any of the current or former stockholders of Public Company (on their own behalf or on behalf of Public Company) against Public Company arising out of the Transaction or in connection with any other transactions contemplated by this
Agreement (but not the effect of any such proceeding that would cause the condition set forth in Section 7.1(b) to not be satisfied); except to the extent such effects directly or indirectly resulting from, arising out of, attributable to or related
to the matters described in the foregoing clauses (i) through (v) and (viii) disproportionately adversely affect in a material respect Public Company and its Subsidiaries, taken as a whole, as compared to other companies that conduct
business in the countries and regions in the world and in the industries in which Public Company and its Subsidiaries conduct business (in which case, such adverse effects (if any) shall be taken into account when determining whether a Public
Company Material Adverse Effect has occurred or may, would or could occur solely to the extent they are disproportionate in a material respect).
3.2
Capitalization
.
(a)
The authorized capital stock of Public Company as of the date of this Agreement consists of 120,000,000 shares of Public Company Common Stock and 5,000,000 shares of preferred stock, par value $0.01 per share (the
Public Company
Preferred Stock
). Public Company Common Stock and Public Company Preferred Stock are entitled to the rights and privileges set forth in Public Companys certificate of incorporation. As of the close of business on March 17, 2017
(the
Capitalization Date
), (i) 29,021,455
shares of Public Company Common Stock were issued and outstanding and (ii) no shares of Public Company Preferred Stock were issued or outstanding.
(b) Public Company has made available to Private Company a complete and accurate list, as of the Capitalization Date, of all stock
incentive or equity-related plans of Public Company (collectively, the
Public Company Stock Plans
), indicating for each Public Company Stock Plan, as of such date, (i) the number of shares of Public Company Common Stock
issued under such Public Company Stock Plan, (ii) the number of shares of Public Company Common Stock subject to outstanding options under such Public Company Stock Plan, (iii) the number of shares of Public Company Common Stock reserved
for future issuance under such Public Company Stock Plan, (iv) the number of shares of Public Company Common Stock vested under such Public Company Stock Plan, (v) the number of shares of Public Company Common Stock unvested under such
Public Company Stock Plan, and (vi) the average exercise price of the outstanding options under such Public Company Stock Plan. Public Company has made available to Private Company complete and accurate copies of all (A) Public Company
Stock Plans, (B) forms of stock option agreements evidencing any options to purchase shares of Public Company Common Stock granted pursuant to any Public Company Stock Plan (
Public Company Stock Options
) and (C) forms of
agreements evidencing any other equity or equity-linked award or compensation arrangement.
(c) Except (i) as set forth in this
Section 3.2 and (ii) as reserved for future grants under Public Company Stock Plans as of the date of this Agreement, (A) there are no equity securities of any class of Public Company, or any security exchangeable into or exercisable
for such equity securities, issued, reserved for issuance or outstanding and (B) there are no options, warrants, equity securities, calls, rights or agreements to which Public Company or any of its Subsidiaries is a party or by which Public
Company or any of its Subsidiaries is bound obligating Public Company or any of its Subsidiaries to issue, exchange, transfer, deliver or sell, or cause to be issued, exchanged, transferred, delivered or sold, additional shares of capital stock or
other equity interests of Public Company or any security or rights convertible into or exchangeable or exercisable for any such shares or other equity interests, or obligating Public Company or any of its Subsidiaries to grant, extend, accelerate
the vesting of, otherwise modify or amend or enter into any such option, warrant, equity security, call, right or agreement. Public Company does not have any outstanding stock appreciation rights, phantom stock, performance based rights or similar
rights or obligations. Neither Public Company nor, to Public Companys Knowledge, any of its Affiliates is a party to or is bound by any agreement with respect to the voting (including proxies) or sale or transfer of any shares of capital
stock or other equity interests of Public Company.
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Except as contemplated by this Agreement or described in this Section 3.2, and except to the extent arising pursuant to applicable state takeover or similar laws, there are no registration
rights, and there is no rights agreement, poison pill anti-takeover plan or other similar agreement to which Public Company or any of its Subsidiaries is a party or by which it or they are bound with respect to any equity security of any
class of Public Company. For purposes of this Agreement,
Affiliate
when used with respect to any Person, means any other Person who is an affiliate of that first Person within the meaning of Rule 405 promulgated under
the Securities Act of 1933, as amended (the
Securities Act
), except as otherwise set forth in Section 4.19.
(d)
All outstanding shares of Public Company Common Stock are, and all shares of Public Company Common Stock subject to issuance as specified in Section 3.2(b) above, upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any
similar right under any provision of the General Corporation Law of the State of Delaware (the
DGCL
), Public Companys certificate of incorporation or bylaws or any agreement to which Public Company is a party or is otherwise
bound.
(e) There are no obligations, contingent or otherwise, of Public Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of Public Company Common Stock or the capital stock of Public Company or any of its Subsidiaries.
3.3
Subsidiaries
.
(a) Section 3.3 of Public Company Disclosure Schedule sets forth, as of the date of this Agreement, for each
Subsidiary of Public Company: (i) its name; (ii) the number and type of its outstanding equity securities and a list of the holders thereof; and (iii) its jurisdiction of organization. For purposes of this Agreement, the term
Subsidiary
means, with respect to any Person, another Person (x) of which such first Person owns or controls, directly or indirectly, securities or other ownership interests representing (1) more than 50% of the voting
power of all outstanding stock or ownership interests of such second Person or (2) the right to receive more than 50% of the net assets available for distribution to the holders of outstanding stock or ownership interests upon a liquidation or
dissolution, or (y) of which such first Person is a general partner.
(b) Each Subsidiary of Public Company is an entity duly
organized, validly existing and in good standing (to the extent such concepts are applicable) under the laws of the jurisdiction of its organization, has all requisite corporate (or similar, in the case of a
non-corporate
entity) power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted, and is duly qualified to do business and is in good standing
as a foreign entity (to the extent such concepts are applicable) in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification necessary, except for such failures
to be so organized, qualified or in good standing, individually or in the aggregate, that are not reasonably likely to have a Public Company Material Adverse Effect. All of the outstanding shares of capital stock and other equity securities or
interests of each Subsidiary of Public Company are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights and all such shares (other than directors qualifying shares in the case of
non-U.S.
Subsidiaries, all of which Public Company has the power to cause to be transferred for no or nominal consideration to Public Company or Public Companys designee) are owned, of record and
beneficially, by Public Company or another of its Subsidiaries free and clear of all security interests, liens, claims, pledges, agreements, limitations in Public Companys voting rights, charges or other encumbrances. There are no outstanding
or authorized options, warrants, rights, agreements or commitments to which Public Company or any of its Subsidiaries is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any
Subsidiary of Public Company. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any Subsidiary of Public Company. To Public Companys Knowledge, there are no voting trusts, proxies or other agreements
or understandings with respect to the voting of any capital stock of any Subsidiary of Public Company.
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(c) Public Company has made available to Private Company complete and accurate copies of the
charter, bylaws or other organizational documents of each Subsidiary of Public Company.
(d) Public Company does not control, directly or
indirectly, any capital stock of any Person that is not a Subsidiary of Public Company, other than securities held for investment by Public Company or any of its Subsidiaries and consisting of less than 5% of the outstanding capital stock of such
Person.
3.4
Authority; No Conflict; Required Filings and Consents
.
(a) Public Company has all requisite corporate power and authority to enter into this Agreement, perform its obligations hereunder and subject
only to the Public Company Stockholder Approval, consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement by Public Company has
been duly authorized by all necessary corporate action on the part of each of Public Company, subject only to the receipt of the Public Company Stockholder Approval. This Agreement has been duly executed and delivered by Public Company and
constitutes the valid and binding obligation of Public Company, enforceable against Public Company in accordance with its terms, subject to the Bankruptcy and Equity Exception).
(b) The execution and delivery of this Agreement by each of Public Company do not, and (assuming that the Public Company Stockholder Approval
is received) the consummation by Public Company of the transactions contemplated by this Agreement shall not, (i) conflict with, or result in any violation or breach of, any provision of the certificate of incorporation or bylaws of Public
Company or of the charter, bylaws or other organizational document of any Subsidiary of Public Company, (ii) conflict with, or result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default
(or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under, require a consent or waiver under, require the payment of a penalty under or result in the imposition of any Lien
(other than a Permitted Lien) on the assets of Public Company or any of its Subsidiaries pursuant to, any of the terms, conditions or provisions of any lease, license, contract or other agreement, instrument or obligation to which Public Company or
any of its Subsidiaries is a party or by which any of them or any of their properties or assets (whether owned or leased) may be bound, or (iii) subject to compliance with the requirements specified in clauses (i) through (iv) of
Section 3.4(c), conflict with or violate any permit, concession, franchise, license, judgment, injunction, order, decree, statute, law, ordinance, rule or regulation applicable to Public Company or any of its Subsidiaries or any of the
properties or assets now owned, operated or leased by any of them, except in the case of clauses (ii) and (iii) of this Section 3.4(b) for any such conflicts, violations, breaches, defaults, terminations, cancellations,
accelerations, losses, penalties or Liens, and for any consents or waivers not obtained, that, individually or in the aggregate, are not reasonably likely to have a Public Company Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or registration, declaration, notice or filing with, any foreign or
domestic court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority, agency or instrumentality (a
Governmental Entity
) or any stock market or stock exchange on which shares of
Public Company Common Stock are listed for trading is required by or with respect to Public Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by Public Company or the consummation by Public Company of
the transactions contemplated by this Agreement, except for (i) the filing of the Proxy Statement with the SEC in accordance with the Securities Exchange Act of 1934, as amended (the
Exchange Act
), (ii) the filing of such
reports, schedules or materials under the Exchange Act or the Securities Act as may be required in connection with this Agreement and the transactions contemplated hereby, (iii) such consents, approvals, orders, authorizations, registrations,
declarations, notices and filings as may be required under applicable state securities laws or the rules and regulations of the Nasdaq Stock Market, (iv) the filing of a NASDAQ Listing ApplicationFor Companies Conducting a Business
Combination that Results in a Change of Control with respect to the shares of Public Company Common Stock to be issued pursuant to this Agreement (the
NASDAQ Listing Application
) and
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(v) such other consents, approvals, licenses, permits, orders, authorizations, registrations, declarations, notices and filings which, if not obtained or made, are not reasonably likely to
have a Public Company Material Adverse Effect.
(d) The affirmative vote in favor of the Public Company Voting Proposal by the holders of
a majority of the shares of Public Company Common Stock present or represented by proxy and voting at the Public Company Meeting is the only vote of the holders of any class or series of Public Companys capital stock or other securities
necessary to approve the Public Company Voting Proposal. There are no bonds, debentures, notes or other indebtedness of Public Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any
matters on which stockholders of Public Company may vote.
3.5
SEC Filings; Financial Statements; Information Provided
.
(a) Public Company has filed all registration statements, forms, reports and other documents required to be filed by Public Company with the
SEC since April 10, 2014. All such registration statements, forms, reports and other documents (including those that Public Company may file after the date hereof until the Closing) are referred to herein as the
Public Company SEC
Reports
. The Public Company SEC Reports (i) were or will be filed on a timely basis, (ii) at the time filed, complied, or will comply when filed, as to form in all material respects with the requirements of the Securities Act and
the Exchange Act applicable to such Public Company SEC Reports and (iii) did not or will not at the time they were or are filed contain any untrue statement of a material fact or omit to state a material fact required to be stated in such
Public Company SEC Reports or necessary in order to make the statements in such Public Company SEC Reports, in the light of the circumstances under which they were made, not misleading in any material respect.
(b) Each of the consolidated financial statements (including, in each case, any related notes and schedules) contained or to be contained
in the Public Company SEC Reports at the time filed (i) complied or will comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) were
or will be prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim financial statements, as
permitted by the SEC on
Form 10-Q
under the Exchange Act), and (iii) fairly presented or will fairly present in all material respects the consolidated financial position of Public Company and its
Subsidiaries as of the dates indicated and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring
year-end
adjustments. The consolidated unaudited balance sheet of Public Company as of December 31, 2016 is referred to herein as the
Public Company Balance Sheet
.
(c) The information to be supplied by or on behalf of Public Company for inclusion in the Proxy Statement (the
Proxy
Statement
) to be sent to the stockholders of Public Company in connection with the meeting of Public Companys stockholders (the
Public Company Meeting
) to consider the issuance of shares of Public Company Common
Stock in the Transaction (the
Public Company Voting Proposal
) under the NASDAQ Stock Market, Inc. (
NASDAQ
) rules (the
Public Company Stockholder Approval
), which information shall be deemed to
include all information about or relating to Public Company, the Public Company Voting Proposal or the Public Company Meeting, shall not, on the date the Proxy Statement is first mailed to stockholders of Public Company or Private Company, or at the
time of the Public Company Meeting or at the Closing, contain any statement that, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements made in the Proxy Statement not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for
the Public Company Meeting that has become false or misleading.
(d) Public Company is in compliance in all material respects with the
applicable provisions of the Sarbanes-Oxley Act of 2002, as amended (the
Sarbanes-Oxley Act
. Each required form, report and document
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containing financial statements that has been filed with or submitted to the SEC was accompanied by any certifications required to be filed or submitted by Public Companys principal
executive officer and principal financial officer pursuant to the Sarbanes-Oxley Act and, at the time of filing or submission of each such certification, any such certification complied in all material respects with the applicable provisions of the
Sarbanes-Oxley Act.
(e) Public Company maintains disclosure controls and procedures required by Rule
13a-15
or
15d-15
under the Exchange Act. Such disclosure controls and procedures are designed to ensure that all material information concerning Public Company is made
known on a timely basis to the individuals responsible for the preparation of Public Companys filings with the SEC and other public disclosure documents. Public Company is in compliance in all material respects with the applicable listing and
other rules and regulations of the Nasdaq Stock Market.
(f) As of the date of this Agreement, (i) Public Company has timely
responded to all comment letters of the staff of the SEC relating to the Public Company SEC Reports, and (ii) the SEC has not advised Public Company that any final responses are inadequate, insufficient or otherwise
non-responsive.
To the extent such comment letters, written inquiries and enforcement correspondence are not publicly available on the SECs EDGAR system, (x) Public Company has made available to the
Company true, correct and complete copies of all comment letters, written inquiries and enforcement correspondence between the SEC, on the one hand, and Public Company, on the other hand, occurring between April 10, 2014 and the date of this
Agreement and (y) will, reasonably promptly following the receipt thereof, make available to the Private Company any such correspondence sent or received after the date hereof. To the Knowledge of Public Company, as of the date of this
Agreement, none of the Public Company SEC Reports is the subject of ongoing SEC review or outstanding SEC comment.
(g) As of the date
hereof, neither Public Company nor, to the Knowledge of Public Company, any director, officer, employee, or internal or external auditor of Public Company has received written notice, or otherwise had or obtained actual Knowledge, of any substantive
material complaint, allegation, assertion or claim that Public Company has engaged in questionable accounting or auditing practices.
3.6
No Undisclosed Liabilities
. Except as disclosed in the Public Company Balance Sheet and except for liabilities incurred in the ordinary course of business consistent in all material respects with past practice (the
Ordinary Course of
Business
) since the date of the Public Company Balance Sheet, Public Company and its Subsidiaries do not have any liabilities of any nature required by GAAP to be reflected on a consolidated balance sheet of Public Company and its
Subsidiaries that, individually or in the aggregate, are reasonably likely to have a Public Company Material Adverse Effect.
3.7
Absence of Certain Changes or Events
. Since the date of the Public Company Balance Sheet, except as contemplated hereby, there has not been a Public Company Material Adverse Effect. From the date of the Public Company Balance Sheet until the
date of this Agreement, except as contemplated hereby, (a) the business of Public Company and its Subsidiaries, taken as a whole, has been conducted in the Ordinary Course of Business and (b) none of Public Company or any of its
Subsidiaries has taken any action that would have required the consent of Private Company under Section 5.1 of this Agreement (other than paragraphs (b), (g), (h) and (j) of Section 5.1 and paragraph (k) of Section 5.1
as it relates to paragraphs (b), (g), (h) and (j) of Section 5.1) had such action or event occurred after the date of this Agreement.
3.8
Taxes
. Except for matters that, individually or in the aggregate, are not reasonably likely to have a Public Company Material
Adverse Effect:
(a) Public Company and each of its Subsidiaries has filed all Tax Returns that it was required to file, and all such Tax
Returns were correct and complete. Public Company and each of its Subsidiaries has paid (or caused to be paid) on a timely basis all Taxes due and owing by Public Company and/or its Subsidiaries, other
B-18
than Taxes that are being contested in good faith through appropriate proceedings and for which the most recent financial statements contained in Public Company SEC Reports reflect an adequate
reserve in accordance with GAAP.
(b) As of the date of this Agreement, no examination or audit of any Tax Return of Public Company or any
of its Subsidiaries by any Governmental Entity is currently in progress or has been proposed in writing. There are no Liens (other than Permitted Liens) for Taxes on any of the assets or properties owned, operated or leased by Public Company or any
of its Subsidiaries.
(c) Neither Public Company nor any of its Subsidiaries has any liability for any Taxes of any Person (other
than Public Company and its Subsidiaries) (i) under Treasury Regulation
Section 1.1502-6
(or any similar provision of Tax law in any jurisdiction) or as a transferee or successor, or
(ii) pursuant to any Tax sharing or Tax indemnification agreement or other similar agreement (other than pursuant to commercial agreements or arrangements that are not primarily related to Taxes).
(d) Neither Public Company nor any of its Subsidiaries has entered into any listed transaction within the meaning of Treasury
Regulation Section
1.6011-4(b)(2).
(e) Neither Public Company nor any of its Subsidiaries was a
distributing corporation or controlled corporation in a transaction intended to qualify under Section 355 of the Code within the past two (2) years or otherwise as part of a plan that includes the Transaction.
(f) Neither Public Company nor any of its Subsidiaries has been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(g) Neither Public Company
nor any of its Affiliates has taken or agreed to take any action which could prevent the Transaction from constituting a transaction qualifying as a reorganization under Section 368(a) of the Code. Neither Public Company nor any of its Subsidiaries
is aware of any agreement, plan or other circumstance that would prevent the Transaction from constituting a transaction qualifying as a reorganization under Section 368(a) of the Code.
(h) Neither Public Company nor any of its Subsidiaries is an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
(i) For purposes of this Agreement:
(i)
Tax Returns
means all reports, returns, forms, or statements required to be filed with a Governmental Entity with
respect to Taxes; and
(ii)
Taxes
means all taxes or other similar assessments or liabilities in the nature of a tax,
including income, capital, capital gains, gross receipts, ad valorem, premium, value-added, excise, real property, personal property, sales, use, services, transfer, stamp duty, withholding, employment, payroll and franchise taxes imposed by the
United States of America or any state, local or foreign government, or any agency thereof, or other political subdivision of the United States or any such government, and any interest, fines, penalties, or additions to tax imposed or assessed with
respect thereto.
3.9
Real Property
.
(a) Neither Public Company nor any of its Subsidiaries owns any real property.
(b) Section 3.9(b) of Public Company Disclosure Schedule sets forth a complete and accurate list as of the date of this Agreement of
all leases, subleases or licenses pursuant to which the Company or any of its
B-19
Subsidiaries leases, , licenses or is otherwise granted a right of use or occupancy of, any real property material to the conduct of the business of the Company and its Subsidiaries, taken as a
whole, as currently conducted, from any Person other than Public Company or any of its Subsidiaries (as amended through the date of this Agreement, the
Public Company Leases
) and the location of the premises subject thereto
(the
Public Company Leased Properties
). The Public Company Leases have not been amended, modified or supplemented in any material respect except as expressly set forth in Section 3.9(b) of the Public Company Disclosure
Schedule. Neither Public Company nor any of its Subsidiaries nor, to Public Companys Knowledge, any other party to any Public Company Lease is in default under any of the Public Company Leases, except where the existence of such defaults,
individually or in the aggregate, is not reasonably likely to have a Public Company Material Adverse Effect. Except as is not reasonably likely to have a Public Company Material Adverse Effect, assuming good fee title to the Public Company Leased
Properties is vested in each of the lessors thereof, and subject to any Permitted Liens affecting the leasehold interest of the Public Company and its Subsidiaries in the Public Company Leased Property, the Public Company and its Subsidiaries have
valid and enforceable leasehold interests in the Public Company Leased Properties, unencumbered by any Liens. Except as is not reasonably likely to have a Public Company Material Adverse Effect, to Public Companys Knowledge, (i) no event
has occurred or condition exists that with the passage of time is likely to result in any default of Public Company or any of its Subsidiaries under any of the Public Company Leases, and (ii) the Public Company Leased Properties, and the
business activities of Public Company and its Subsidiaries at the Public Company Leased Properties, are in compliance with the material terms and conditions of the Public Company Leases, and (iii) the Public Company Leased Properties are
otherwise in good operating condition and repair as of the date of this Agreement, ordinary wear and tear excepted. Neither Public Company nor any of its Subsidiaries leases, subleases or licenses any real property to any Person other than Public
Company and its Subsidiaries. Public Company has made available to Private Company complete and accurate copies of all Public Company Leases.
3.10
Intellectual Property
.
(a) To Public Companys Knowledge, Public Company and its Subsidiaries own, license, sublicense or otherwise possess legally enforceable
rights to use all Intellectual Property used by Public Company and its Subsidiaries in the conduct of the business of Public Company and its Subsidiaries, taken as a whole, as currently conducted (in each case excluding generally commercially
available,
off-the-shelf
software programs), the absence of which, individually or in the aggregate, is reasonably likely to have a Public Company Material Adverse
Effect. For purposes of this Agreement,
Intellectual Property
means (i) patents, trademarks, trade names, domain names, designs and trade secrets, (ii) applications for and registrations of such patents, trademarks,
service marks, trade names, domain names, copyrights and designs, (iii) processes, formulae, methods, schematics, technology,
know-how,
computer software programs and applications and (iv) other
tangible or intangible proprietary or confidential information and materials.
(b) To Public Companys Knowledge, all issued patents
and registrations for trademarks, service marks and copyrights included in Public Company Intellectual Property are subsisting and have not expired or been cancelled. For purposes of this Agreement,
Public Company Intellectual
Property
means any Intellectual Property owned by Public Company or its Subsidiaries that is material to the business of Public Company and its Subsidiaries, taken as a whole, as currently conducted.
(c) To Public Companys Knowledge, the conduct of the business of Public Company and its Subsidiaries, taken as a whole, as currently
conducted, does not infringe, violate or constitute a misappropriation of any Intellectual Property of any third party, except for such infringements, violations and misappropriations that, individually or in the aggregate, are not reasonably likely
to have a Public Company Material Adverse Effect. Between January 1, 2015 and the date of this Agreement, neither Public Company nor any of its Subsidiaries has received any written claim or notice from any Person (i) alleging any such
infringement, violation or misappropriation or (ii) advising that such Person is challenging or threatening to challenge the ownership, use, validity or enforceability of any Public Company Intellectual Property, except, in each case in clauses
(i) and (ii), for any such infringement, violation, misappropriation or challenge that is not reasonably likely to have a Public Company Material Adverse Effect.
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(d) To Public Companys Knowledge, Public Company and its Subsidiaries have implemented
commercially reasonable measures to maintain the confidentiality of Public Company Intellectual Property of a nature that Public Company intends to keep confidential.
(e) To Public Companys Knowledge, no third party is infringing, violating or misappropriating any of Public Company Intellectual
Property, except for infringements, violations or misappropriations that, individually or in the aggregate, are not reasonably likely to have a Public Company Material Adverse Effect.
3.11
Contracts
.
(a)
Public Company has made available to Private Company a copy of each Public Company Material Contract to which Public Company is a party as of the date of this Agreement. For purposes of this Agreement,
Public Company Material
Contract
means (i) any agreement or contract pursuant to which Public Company and its Subsidiaries spent or received, in the aggregate, more than $350,000 during the fiscal year ended December 31, 2016, (ii) any
non-competition
or other agreement that prohibits or otherwise restricts, in any material respect, Public Company or any of its Subsidiaries from freely engaging in any business material to Public Company and its
Subsidiaries, taken as a whole, anywhere in the world, and (iii) any material contract (as such term is defined in Item 601(b)(10) of Regulation
S-K
of the SEC) with respect to Public Company
and its Subsidiaries.
(b) Each Public Company Material Contract is in full force and effect except to the extent it has previously
expired in accordance with its terms or where the failure to be in full force and effect, individually or in the aggregate, is not reasonably likely to have a Public Company Material Adverse Effect. Neither Public Company nor any of its Subsidiaries
nor, to Public Companys Knowledge, any other party to any Public Company Material Contract is in violation of or in default under (nor does there exist any condition which, upon the passage of time or the giving of notice or both, would cause
such a violation of or default under) any Public Company Material Contract, except for violations or defaults that, individually or in the aggregate, are not reasonably likely to have a Public Company Material Adverse Effect.
(c) Neither Public Company nor any of its Subsidiaries has entered into any transaction that would be subject to disclosure pursuant to Item
404 of Regulation
S-K
that has not been disclosed in the Public Company SEC Reports.
3.12
Litigation
. As of the date of this Agreement, there is no action, suit, proceeding, claim, arbitration or investigation pending and of which Public Company has been notified or, to Public Companys Knowledge, threatened against Public
Company or any of its Subsidiaries, in each case that, individually or in the aggregate, is reasonably likely to have a Public Company Material Adverse Effect. As of the date of this Agreement, there are no material judgments, orders or decrees
outstanding against Public Company or any of its Subsidiaries. To the Knowledge of Public Company, no event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or that would reasonably be expected to, give rise
to or serve as a basis for the commencement of any such action, suit, proceeding, claim, arbitration or investigation, and there is no pending investigation by any Governmental Authority involving Public Company or any of its Subsidiaries, in each
case that, individually or in the aggregate, is reasonably likely to have a Public Company Material Adverse Effect.
3.13
Environmental
Matters
.
(a) Except for matters that, individually or in the aggregate, are not reasonably likely to have a Public Company Material
Adverse Effect: (i) neither Public Company nor any of its Subsidiaries is in violation of any applicable law, regulation, order, decree or permit requirement of any governmental jurisdiction relating to: (A) the protection, investigation
or restoration of the environment, human health and safety, or natural resources, (B) the handling, use, storage, treatment, transport, disposal, release or threatened release of any Hazardous Substance or (C) noise, odor or wetlands
protection (each, an
Environmental Law
); and (ii) Public Company
B-21
and its Subsidiaries have all permits, licenses and other authorizations required under any Environmental Law and Public Company and its Subsidiaries are in compliance with such permits, licenses
and other authorizations. For purposes of this Agreement,
Hazardous Substance
means: (a) any substance that is regulated or which falls within the definition of a hazardous substance, hazardous waste
or hazardous material pursuant to any Environmental Law or (b) any petroleum product or
by-product,
asbestos-containing material, polychlorinated biphenyls, radioactive materials or radon.
(b) The only representations and warranties of Public Company in this Agreement as to any environmental matters or any other obligation
or liability with respect to Hazardous Substances or materials of environmental concern are those contained in this Section 3.13. Without limiting the generality of the foregoing, the representations and warranties contained in Sections 3.15
and 3.16 do not relate to environmental matters.
3.14
Employee Benefit Plans
.
(a) Section 3.14(a) of the Public Company Disclosure Schedule sets forth a complete and accurate list, as of the date of this
Agreement, of all material Public Company Employee Plans.
(b) With respect to each Public Company Employee Plan in effect on the date of
this Agreement, Public Company has made available to Private Company a complete and accurate copy of (i) such Public Company Employee Plan, (ii) the most recent annual report (Form 5500) filed with the United States Internal Revenue
Services (the
IRS
), if any, and (iii) each trust agreement, group annuity contract and summary plan description, if any, relating to such Public Company Employee Plan.
(c) Each Public Company Employee Plan is being administered in accordance with ERISA, the Code and all other applicable laws and the
regulations thereunder and in accordance with its terms, except for failures to so administer such Public Company Employee Plan as are not, individually or in the aggregate, reasonably likely to have a Public Company Material Adverse Effect.
(d) With respect to Public Company Employee Plans, there are no benefit obligations for which contributions have not been made or properly
accrued to the extent required by GAAP, except for failures to make such contributions or accruals for contributions as are not, individually or in the aggregate, reasonably likely to have a Public Company Material Adverse Effect.
(e) All Public Company Employee Plans that are intended to be qualified under Section 401(a) of the Code have received determination
letters from the IRS to the effect that such Public Company Employee Plans are qualified and the plans and trusts related thereto are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, or are based on
prototype or volume submitter documents that, to Public Companys Knowledge, have received such letters, and no such determination letter has been revoked and revocation has not been threatened, and no act or omission has occurred, that would
adversely affect its qualification except, in each case, as is not, individually or in the aggregate, reasonably likely to have a Public Company Material Adverse Effect.
(f) None of Public Company, any of Public Companys Subsidiaries or any of their ERISA Affiliates (i) maintains a Public Company
Employee Plan that is subject to Section 412 of the Code or Title IV of ERISA or (ii) is obligated to contribute to a multiemployer plan (as defined in Section 4001(a)(3) of ERISA).
(g) Neither Public Company nor any of its Subsidiaries is a party to any written (i) agreement with any stockholders, director, executive
officer or other key employee of Public Company or any of its Subsidiaries (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Public Company or any of its
Subsidiaries of the nature of any of the transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee or (C) providing severance benefits or other benefits after the termination of employment
of such director, executive
B-22
officer or key employee; or (ii) agreement or plan binding Public Company or any of its Subsidiaries, including any stock option plan, stock appreciation right plan, restricted stock plan,
stock purchase plan or severance benefit plan, any of the benefits of which shall be increased, or the vesting of the benefits of which shall be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of
any of the benefits of which shall be calculated on the basis of any of the transactions contemplated by this Agreement.
(h) None of
Public Company Employee Plans promises or provides retiree medical or other retiree welfare benefits to any Person, except as required by applicable law.
(i) For purposes of this Agreement:
(i)
Employee Benefit Plan
means any employee pension benefit plan (as defined in Section 3(2) of ERISA or
any similar applicable federal, state, local or foreign law or regulation), any employee welfare benefit plan (as defined in Section 3(1) of ERISA or any similar applicable federal, state, local or foreign law or regulation), and
any other agreement involving material direct or indirect compensation involving more than one Person, including insurance coverage, severance benefits, disability benefits, deferred compensation, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive compensation or post-retirement compensation and all unexpired severance agreements, for the benefit of, or relating to, any current or former employee of the Company or any of its Subsidiaries
or an ERISA Affiliate, but excludes any plan, agreement, or arrangement required to be maintained by
non-U.S.
law.
(ii)
ERISA
means the Employee Retirement Income Security Act of 1974, as amended.
(iii)
Public Company Employee Plans
means all Employee Benefit Plans maintained, or contributed to, by Public Company, any
of Public Companys Subsidiaries or any Public Company ERISA Affiliate, other than those required by applicable law.
(iv)
Public Company ERISA Affiliate
means any entity which is a member of (a) a controlled group of corporations (as defined in Section 414(b) of the Code), (b) a group of trades or businesses under common control (as defined in
Section 414(c) of the Code) or (c) an affiliated service group (as defined under Section 414(m) of the Code or the regulations under Section 414(o) of the Code), any of which includes or included Public Company or any of its Subsidiaries.
3.15
Compliance With Laws
.
(a) Public Company and each of its Subsidiaries is in compliance with, and is not in violation of, any applicable statute, law or regulation
with respect to the conduct of its business, or its ownership or leasing, or its occupancy, use or operation, of each of the properties or assets owned, operated or leased by Public Company or any of its Subsidiaries, except for failures to comply
or violations that, individually or in the aggregate, are not reasonably likely to have a Public Company Material Adverse Effect.
(b)
Neither Public Company nor any of its Subsidiaries, nor, to Public Companys Knowledge, any of their respective directors, officers, employees, agents or distributors is violating any provision of the U.S. Foreign Corrupt Practices Act of 1977,
except for violations that, individually or in the aggregate, are not reasonably likely to have a Public Company Material Adverse Effect.
3.16
Permits and Regulatory Matters
.
(a) Public Company and each of its Subsidiaries have all material permits, licenses, registrations, authorizations, certificates, orders,
approvals, franchises, variances and other similar rights issued by or obtained from any Governmental Entities (collectively,
Permits
) required to conduct their businesses as currently conducted, including all such Permits
required by the U.S. Food and Drug Administration (the
FDA
) or any other Governmental Entity exercising comparable authority (the
Public Company Authorizations
).
B-23
(b) Public Company and its Subsidiaries are in compliance in all material respects with the terms
of Public Company Authorizations. No Public Company Authorization shall cease to be effective as a result of the consummation of the transactions contemplated by this Agreement.
(c) All manufacturing, processing, distribution, labeling, storage, testing, specifications, sampling, sale or marketing of products performed
by or on behalf of Public Company or any of its Subsidiaries are in compliance in all material respects with all applicable laws, rules, regulations or orders administered or issued by the FDA or any other Governmental Entity exercising comparable
authority. As of the date of this Agreement, (i) neither Public Company nor any of its Subsidiaries has received any written notices or correspondence from the FDA or any other Governmental Entity exercising comparable authority, and
(ii) to the Knowledge of Public Company there is no action or proceeding pending or threatened (including any prosecution, injunction, seizure, civil fine, suspension or recall), in each case alleging that Public Company or any of its
Subsidiaries is not currently in material compliance with any and all applicable laws, regulations or orders implemented by the FDA or any other Governmental Entity exercising comparable authority.
(d) The studies, tests and preclinical and clinical trials conducted by or on behalf of Public Company or any of its Subsidiaries were and, if
still pending, are being conducted in all material respects in accordance with experimental protocols, procedures and controls pursuant to, where applicable, accepted professional and scientific standards; and, as of the date of this Agreement,
neither Public Company nor any of its Subsidiaries has received any written notices or correspondence from the FDA or any other Governmental Entity exercising comparable authority requiring the termination, suspension or material modification of any
studies, tests or preclinical or clinical trials conducted by or on behalf of Public Company or any of its Subsidiaries.
3.17
Labor
Matters
. Public Company and its Subsidiaries have complied with all applicable laws relating to labor and employment, including those relating to wages, hours, collective bargaining, unemployment compensation, workers compensation, equal
employment opportunity, age and disability discrimination, immigration control and employee classification, except for such failures to comply that, individually or in the aggregate, are not reasonably likely to have a Public Company Material
Adverse Effect. As of the date of this Agreement, neither Public Company nor any of its Subsidiaries is the subject of any proceeding asserting that Public Company or any of its Subsidiaries has committed an unfair labor practice or seeking to
compel it to bargain with any labor union or labor organization that, individually or in the aggregate, is reasonably likely to have a Public Company Material Adverse Effect. As of the date of this Agreement, there are no pending or, to Public
Companys Knowledge, threatened labor strikes, disputes, walkouts, work stoppages, slow-downs or lockouts involving Public Company or any of its Subsidiaries that, individually or in the aggregate, are reasonably likely to have a Public Company
Material Adverse Effect.
3.18
Opinion of Financial Advisor
. The financial advisor of Public Company, Aquilo Partners L.P., has
delivered to the Board of Directors of Public Company (together with any duly authorized committee thereof, the
Public Company Board
) an opinion dated the date of this Agreement to the effect that, as of such date, and based upon
and subject to the factors and assumptions set forth therein, the Exchange Ratio is fair to the holders of Public Company Common Stock from a financial point of view.
3.19
Section
203 of the DGCL
. Assuming the accuracy of the representations and warranties of Private Company in
Section 4.19, Public Company Board has taken all actions necessary so that the restrictions contained in Section 203 of the DGCL applicable to a business combination (as defined in Section 203 of the DGCL) shall not
apply to the execution, delivery or performance of this Agreement, the Support Agreement or the consummation of the Transaction or the other transactions contemplated by this Agreement or the Support Agreement.
3.20
Brokers
. No agent, broker, investment banker, financial advisor or other firm or Person is or shall be entitled, as a result of
any action or agreement of Public Company or any of its Affiliates, to any brokers, finders, financial advisors or other similar fee or commission in connection with any of the transactions contemplated by this Agreement, except as
disclosed in Section 3.20 of Public Company Disclosure Schedule.
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3.21
Independent Investigation
. Public Company acknowledges that it has conducted to its
satisfaction its own independent investigation and analysis of the business, operations, assets, liabilities, results of operations, condition (financial or otherwise) and prospects of Private Company and Private Companys Subsidiaries and that
Public Company and its Representatives have received access to such books and records, facilities, equipment, contracts and other assets of Private Company and Private Companys Subsidiaries that it and its Representatives have desired or
requested to review for such purpose, and that it and its Representatives have had a full opportunity to meet with the management of Private Company and Private Companys Subsidiaries and to discuss the business, operations, assets,
liabilities, results of operations, condition (financial or otherwise) and prospects of Private Company and Private Companys Subsidiaries.
3.22
No Other Private Company Representations or Warranties;
Non-Reliance
. Public Company
hereby acknowledges and agrees that, except for the representations and warranties set forth in Article IV (in each case as qualified and limited by Private Company Disclosure Schedule), (a) none of Private Company or any of its Subsidiaries, or any
of its or their respective Affiliates, stockholders or Representatives, or any other Person, has made or is making any express or implied representation or warranty with respect to Private Company or any of its Subsidiaries or their respective
business or operations, including with respect to any information provided or made available to Public Company or any of its Affiliates, stockholders or Representatives, or any other Person, or, except as otherwise expressly set forth in this
Agreement, had or has any duty or obligation to provide any information to Public Company or any of its Affiliates, stockholders or Representatives, or any other Person, in connection with this Agreement, the transactions contemplated hereby or
otherwise, and (b) to the fullest extent permitted by law, none of Private Company or any of its Subsidiaries, or any of its or their respective Affiliates, stockholders or Representatives, or any other Person, will have or be subject to any
liability or indemnification or other obligation of any kind or nature to Public Company or any of its Affiliates, stockholders or Representatives, or any other Person, resulting from the delivery, dissemination or any other distribution to Public
Company or any of its Affiliates, stockholders or Representatives, or any other Person, or the use by Public Company or any of its Affiliates, stockholders or Representatives, or any other Person, of any such information provided or made available
to any of them by Private Company or any of its Subsidiaries, or any of its or their respective Affiliates, stockholders or Representatives, or any other Person, including any information, documents, estimates, projections, forecasts or other
forward-looking information, business plans or other material provided or made available to Public Company or any of its Affiliates, stockholders, or Representatives, or any other Person, in data rooms, confidential information
memoranda, management presentations or otherwise in anticipation or contemplation of the Transaction or any other transaction contemplated by this Agreement, and (subject to the express representations and warranties of Private Company set forth in
Article IV (in each case as qualified and limited by the Private Company Disclosure Schedule)) none of Public Company or any of its Affiliates, stockholders or Representatives, or any other Person, has relied on any such information (including the
accuracy or completeness thereof).
3.23
Non-Reliance
on Company Estimates, Projections,
Forecasts, Forward-Looking Statements and Business Plans
. In connection with the due diligence investigation of Private Company by Public Company and its Affiliates, stockholders and Representatives, Public Company and its Affiliates,
stockholders and Representatives have received and may continue to receive after the date hereof (including pursuant to Section 6.5(b)) from Private Company and its Affiliates, stockholders and Representatives certain estimates, projections,
forecasts and other forward-looking information, as well as certain business plan information, regarding Private Company and its business and operations. Public Company hereby acknowledges that there are uncertainties inherent in attempting to make
such estimates, projections, forecasts and other forward-looking statements, as well as in such business plans, with which Public Company is familiar, that Public Company is taking full responsibility for making its own evaluation of the adequacy
and accuracy of all estimates, projections, forecasts and other forward-looking information, as well as such business plans, so furnished to it (including the reasonableness of the assumptions underlying such estimates, projections, forecasts,
forward-looking information or business plans), and that Public Company will have no claim against Private Company or any of its Subsidiaries, or any of their respective Affiliates, stockholders or Representatives, or any other Person, with respect
thereto. Accordingly, Public Company hereby acknowledges and agrees that none of Private Company or
B-25
any of its Subsidiaries, nor any of their respective Affiliates, stockholders or Representatives, nor any other Person, has made or is making any express or implied representation or warranty
with respect to such estimates, projections, forecasts, forward-looking statements or business plans (including the reasonableness of the assumptions underlying such estimates, projections, forecasts, forward-looking statements or business plans).
Any estimates, projections, forecasts and other forward-looking information provided to Public Company and its Affiliates stockholders and Representatives by Private Company and its respective Affiliates, stockholders and Representatives are not and
shall not be deemed to be or included in any representations or warranties of Private Company. Public Company expressly disclaims that it is relying upon or has relied upon any representations or warranties or other statements or omissions that may
have been made by Private Company or any Person with respect to Private Company other than the representations and warranties set forth in this Agreement. Public Company expressly disclaims any obligation or duty by Private Company to make any
disclosures of fact not required to be disclosed pursuant to the specific representations and warranties set forth in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PRIVATE COMPANY
Private Company represents and warrants to Public Company that the statements contained in this Article IV are true and correct, except as set
forth herein or in the disclosure schedule delivered by Private Company to Public Company on the date of this Agreement (the
Private Company Disclosure Schedule
). For purposes hereof, the phrase to the knowledge of Private
Company and similar expressions mean the actual knowledge as of the date hereof (without any duty to inquire or investigate) of the individuals identified in Section 4.0 of the Private Company Disclosure Schedule.
4.1
Organization, Standing and Power
. Private Company is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, has all requisite corporate power and authority to own, lease and operate its properties and assets (either owned or leased) and to carry on its business as now being conducted and is duly qualified to do business and,
where applicable as a legal concept, is in good standing as a foreign corporation in each jurisdiction in which the character of the properties it owns, operates or leases or the nature of its activities makes such qualification legally required,
except for such failures to be so organized, qualified or in good standing, individually or in the aggregate, that are not reasonably likely to have a Private Company Material Adverse Effect. For purposes of this Agreement, the term
Private
Company Material Adverse Effect
means any effect that is materially adverse to the business, financial condition or results of operations of Private Company and its Subsidiaries, taken as a whole;
provided
,
however
, that no
effect (by itself or when aggregated or taken together with any and all other effects) directly or indirectly resulting from, arising out of, attributable to, or related to any of the following shall be deemed to be or constitute a Private
Company Material Adverse Effect, and no effect (by itself or when aggregated or taken together with any and all other such effects) directly or indirectly resulting from, arising out of, attributable to, or related to any of the following
shall be taken into account when determining whether a Private Company Material Adverse Effect has occurred or may, would or could occur: (i) general economic conditions (or changes in such conditions) in the United States or any
other country or region in the world, or conditions in the global economy generally; (ii) conditions (or changes in such conditions) in the securities markets, credit markets, currency markets or other financial markets in the United States or
any other country or region in the world, including (A) changes in interest rates in the United States or any other country or region in the world and changes in exchange rates for the currencies of any countries and (B) any suspension of
trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or
over-the-counter
market operating in the United
States or any other country or region in the world; (iii) conditions (or changes in such conditions) in the industries in which Private Company and its Subsidiaries conduct business; (iv) political conditions (or changes in such
conditions) in the United States or any other country or region in the world or acts of war, sabotage or terrorism (including any escalation or general worsening of any such acts of war, sabotage or terrorism) in the United
B-26
States or any other country or region in the world; (v) earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, weather conditions and other
force majeure events in the United States or any other country or region in the world; (vi) the announcement of this Agreement or the pendency or consummation of the transactions contemplated hereby, including (A) the identity of Public
Company, (B) the loss or departure of officers or other employees of Private Company or any of its Subsidiaries directly or indirectly resulting from, arising out of, attributable to, or related to the transactions contemplated by this
Agreement, (C) the termination or potential termination of (or the failure or potential failure to renew or enter into) any contracts with customers, suppliers, distributors or other business partners, whether as a direct or indirect result of
the loss or departure of officers or employees of Private Company or any of its Subsidiaries or otherwise, directly or indirectly resulting from, arising out of, attributable to, or related to the transactions contemplated by this Agreement,
(D) any other negative development (or potential negative development) in the relationships of Private Company or any of its Subsidiaries with any of its customers, suppliers, distributors or other business partners, whether as a direct or
indirect result of the loss or departure of officers or employees of Private Company or any of its Subsidiaries or otherwise, directly or indirectly resulting from, arising out of, attributable to, or related to the transactions contemplated by this
Agreement, and (E) any decline or other degradation in the customer bookings of Private Company or any of its Subsidiaries directly or indirectly resulting from, arising out of, attributable to, or related to the transactions contemplated by
this Agreement; (vii) any actions taken or failure to take action, in each case, which Public Company has approved, consented to or requested; or compliance with the terms of, or the taking of any action required or contemplated by, this
Agreement; or the failure to take any action prohibited by this Agreement; (viii) changes in law or other legal or regulatory conditions (including rules, regulations and administrative policies of the FDA or any other similar Governmental
Entity), or the interpretation thereof, or changes in GAAP or other accounting standards (or the interpretation thereof), or that result from any action taken for the purpose of complying with any of the foregoing; (ix) any product candidate of
Private Company or any of its Subsidiaries, including any change, event, circumstance or development relating to the use or sale of any such product candidate, the suspension, rejection, refusal of, request to refile or any delay in obtaining or
making any regulatory application or filing relating to any such product candidate, any other negative actions, requests, recommendations or decisions of the FDA or any other Governmental Entity relating to any such product candidate, any other
regulatory development affecting any such product candidate, or the failure to conduct successful clinical trials on a timely basis for any such product candidate; (x) any product or product candidate of any Person (other than Private Company
and its Subsidiaries), including the entry into the market of any product competitive with any product or product candidate of Private Company or any of its Subsidiaries; (xi) any clinical trials or studies undertaken by any Person, and any
negative publicity or unfavorable media attention resulting therefrom; (xii) any fees or expenses incurred in connection with the transactions contemplated by this Agreement; (xiii) any failure by Private Company or any of its Subsidiaries
to meet any internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations (but not, in each case, the underlying cause of such changes or failures, unless such changes or failures would
otherwise be excepted from this definition); or (xiv) any legal proceedings made or brought by any of the current or former stockholders of Private Company (on their own behalf or on behalf of Private Company) against Private Company arising
out of the Transaction or in connection with any other transactions contemplated by this Agreement (but not the effect of any such proceeding that would cause the condition set forth in Section 7.1(b) to not be satisfied); except to the extent such
effects directly or indirectly resulting from, arising out of, attributable to or related to the matters described in the foregoing clauses (i) through (v) and (viii) disproportionately adversely affect in a material respect Private
Company and its Subsidiaries, taken as a whole, as compared to other companies that conduct business in the countries and regions in the world and in the industries in which Private Company and its Subsidiaries conduct business (in which case, such
adverse effects (if any) shall be taken into account when determining whether a Private Company Material Adverse Effect has occurred or may, would or could occur solely to the extent they are disproportionate in a material respect).
Private Company has been conducting business operations (within the meaning of the NASDAQ initial listing requirements) since May 28, 2015.
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4.2
Capitalization
.
(a) The authorized capital stock of Private Company as of the date of this Agreement consists of 10,000,000
shares of Private
Company Common Stock. Private Company Common Stock is entitled to the rights and privileges set forth in Private Companys certificate of incorporation. As of the date of this Agreement, (i) 9,100,000 shares of Private Company Common Stock were
issued and outstanding and (ii) no shares of Private Company Common Stock were held in the treasury of Private Company or by Subsidiaries of Private Company.
(b) Section 4.2(b) of the Private Company Disclosure Schedule sets forth a complete and accurate list, as of the date of this Agreement, of
the holders of Private Company Common Stock, showing the number of shares of capital stock, and the class or series of such shares, held by each stockholder and (for shares other than Private Company Common Stock) the number of shares of Private
Company Common Stock (if any) into which such shares are convertible. Section 4.2(b) of the Private Company Disclosure Schedule also sets forth a complete and accurate list of the holders of Private Company Convertible Notes, identifying such notes
and setting forth the number of shares of Private Company Common Stock into which such notes are convertible. Section 4.2(b) of the Private Company Disclosure Schedule also sets forth a complete and accurate list of all issued and outstanding shares
of Private Company Common Stock that constitute restricted stock or that are otherwise subject to a repurchase or redemption right or right of first refusal in favor of Private Company, indicating the name of the applicable stockholder, the vesting
schedule for any such shares, including the extent to which any such repurchase or redemption right or right of first refusal has lapsed as of the date of this Agreement, whether (and to what extent) the vesting will be accelerated in any way by the
transactions contemplated by this Agreement or by termination of employment or change in position following consummation of the Transaction, and whether such holder has the sole power to vote and dispose of such shares.
(c) Private Company has made available to Public Company a complete and accurate list, as of the date hereof, of all Private Company
Stock Plans, indicating for each Private Company Stock Plan, as of the date hereof, (i) the number of shares of Private Company Common Stock issued under such Private Company Stock Plan, (ii) the number of shares of Private Company Common
Stock subject to outstanding options under such Private Company Stock Plan, (iii) the number of shares of Private Company Common Stock reserved for future issuance under such Private Company Stock Plan, (iv) the number of shares of Private
Company Common Stock vested under such Private Company Stock Plan, (v) the number of shares of Private Company Common Stock unvested under such Private Company Stock Plan, and (vi) the average exercise price of the outstanding options
under such Private Company Stock Plan. Private Company has made available to Public Company complete and accurate copies of all (A) Private Company Stock Plans, (B) forms of stock option agreements evidencing Private Company Stock Options
and (C) forms of agreements evidencing any other equity or equity-linked award or compensation arrangement.
(d) Except (i) as
set forth in this Section 4.2 and (ii) as reserved for future grants under Private Company Stock Plans as of the date of this Agreement, (A) there are no equity securities of any class of Private Company, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for issuance or outstanding and (B) there are no options, warrants, equity securities, calls, rights or agreements to which Private Company or any of its Subsidiaries is a party
or by which Private Company or any of its Subsidiaries is bound obligating Private Company or any of its Subsidiaries to issue, exchange, transfer, deliver or sell, or cause to be issued, exchanged, transferred, delivered or sold, additional shares
of capital stock or other equity interests of Private Company or any security or rights convertible into or exchangeable or exercisable for any such shares or other equity interests, or obligating Private Company or any of its Subsidiaries to grant,
extend, accelerate the vesting of, otherwise modify or amend or enter into any such option, warrant, equity security, call, right or agreement. Private Company does not have any outstanding stock appreciation rights, phantom stock, performance based
rights or similar rights or obligations. Neither Private Company nor, to Private Companys Knowledge, any of its Affiliates is a party to or is bound by any agreement with respect to the voting (including proxies) or sale or transfer of
any shares of capital stock or other equity interests of Private Company. Except as contemplated by this Agreement or described in this Section 4.2, and except to the extent
B-28
arising pursuant to applicable state takeover or similar laws, there are no registration rights, and there is no rights agreement, poison pill anti-takeover plan or other similar
agreement to which Private Company or any of its Subsidiaries is a party or by which it or they are bound with respect to any equity security of any class of Private Company.
(e) All outstanding shares of Private Company Common Stock are, and all shares of Private Company Common Stock subject to issuance as
specified in Section 4.2(c) above, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued
in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the DGCL, Private Companys certificate of incorporation or bylaws or any agreement to
which Private Company is a party or is otherwise bound.
(f) There are no obligations, contingent or otherwise, of Private Company or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of Private Company Common Stock or the capital stock of Private Company or any of its Subsidiaries.
(g) No consent of the holders of Private Company Stock Options or Private Company Warrants is required in connection with the actions
contemplated by Section 1.4.
4.3
Subsidiaries
.
(a) Section 4.3 of Private Company Disclosure Schedule sets forth, as of the date of this Agreement, for each Subsidiary of Private Company:
(i) its name; (ii) the number and type of its outstanding equity securities and a list of the holders thereof; and (iii) its jurisdiction of organization.
(b) Each Subsidiary of Private Company is an entity duly organized, validly existing and in good standing (to the extent such concepts are
applicable) under the laws of the jurisdiction of its organization, has all requisite corporate (or similar, in the case of a
non-corporate
entity) power and authority to own, lease and operate its
properties and assets and to carry on its business as now being conducted, and is duly qualified to do business and is in good standing as a foreign entity (to the extent such concepts are applicable) in each jurisdiction where the character of
its properties owned, operated or leased or the nature of its activities makes such qualification necessary, except for such failures to be so organized, qualified or in good standing, individually or in the aggregate, that are not reasonably likely
to have a Private Company Material Adverse Effect. All of the outstanding shares of capital stock and other equity securities or interests of each Subsidiary of Private Company are duly authorized, validly issued, fully paid, nonassessable and free
of preemptive rights and all such shares (other than directors qualifying shares in the case of
non-U.S.
Subsidiaries, all of which Private Company has the power to cause to be transferred for no or
nominal consideration to Private Company or Private Companys designee) are owned, of record and beneficially, by Private Company or another of its Subsidiaries free and clear of all security interests, liens, claims, pledges, agreements,
limitations in Private Companys voting rights, charges or other encumbrances. There are no outstanding or authorized options, warrants, rights, agreements or commitments to which Private Company or any of its Subsidiaries is a party or which
are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Subsidiary of Private Company. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any Subsidiary
of Private Company. To Private Companys Knowledge, there are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of Private Company.
(c) Private Company has made available to Public Company complete and accurate copies of the charter, bylaws or other organizational documents
of each Subsidiary of Private Company.
(d) Private Company does not control, directly or indirectly, any capital stock of any Person that
is not a Subsidiary of Private Company, other than securities held for investment by Private Company or any of its Subsidiaries and consisting of less than 5% of the outstanding capital stock of such Person.
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4.4
Authority; No Conflict; Required Filings and Consents
.
(a) Private Company has all requisite corporate power and authority to enter into this Agreement, perform its obligations hereunder and
consummate the Transaction. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement by Private Company has been duly authorized by all necessary corporate action on the part of Private
Company. This Agreement has been duly executed and delivered by Private Company and constitutes the valid and binding obligation of Private Company, enforceable against Private Company in accordance with its terms, subject to the Bankruptcy and
Equity Exception.
(b) The execution and delivery of this Agreement by Private Company and the Stockholders do not, and the consummation
by Private Company and the Stockholders of the transactions contemplated by this Agreement shall not, (i) conflict with, or result in any violation or breach of, any provision of the certificate of incorporation or bylaws of Private Company or
of the charter, bylaws or other organizational document of any Subsidiary of Private Company, (ii) conflict with, or result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give
rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under, require a consent or waiver under, require the payment of a penalty under or result in the imposition of any Lien (other than
a Permitted Lien) on the assets of Private Company or any of its Subsidiaries pursuant to, any of the terms, conditions or provisions of any lease, license, contract or other agreement, instrument or obligation to which Private Company or any of its
Subsidiaries is a party or by which any of them or any of their properties or assets (whether owned or leased) may be bound, or (iii) conflict with or violate any permit, concession, franchise, license, judgment, injunction, order, decree,
statute, law, ordinance, rule or regulation applicable to Private Company or any of its Subsidiaries or any of the properties or assets now owned, operated or leased by any of them, except in the case of clauses (ii) and (iii) of this
Section 4.4(b) for any such conflicts, violations, breaches, defaults, terminations, cancellations, accelerations, losses, penalties or Liens, and for any consents or waivers not obtained, that, individually or in the aggregate, are not
reasonably likely to have a Private Company Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization
of, or registration, declaration, notice or filing with, any Governmental Entity is required by or with respect to Private Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by Private Company or the
consummation by Private Company of the transactions contemplated by this Agreement, except for such consents, approvals, licenses, permits, orders, authorizations, registrations, declarations, notices and filings which, if not obtained or made, are
not reasonably likely to have a Private Company Material Adverse Effect.
4.5
Financial Statements; Information Provided
.
(a) Private Company has made available to Public Company correct and complete copies of the Financial Statements. Each of the Financial
Statements (i) complied or will comply as to form in all material respects with applicable accounting requirements, (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements), and (iii) fairly presented in all material respects the consolidated financial position of Private Company and its Subsidiaries as of the dates indicated and the consolidated results
of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements are subject to normal and recurring
year-end
adjustments. For purposes of this
Agreement,
Financial Statements
means the unaudited consolidated balance sheets and statements of income, changes in stockholders equity and cash flows of Private Company as of the end of each fiscal year
completed since Private Companys formation (the unaudited consolidated balance sheet of Private Company as of December 31, 2016 (the
Private Company Balance Sheet Date
) being referred to as the
Private Company
Balance Sheet
).
(b) The information to be supplied by or on behalf of Private Company for inclusion in the Proxy Statement,
which information shall be deemed to include all information about or relating to Private Company
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and its Subsidiaries, shall not, on the date the Proxy Statement is first mailed to stockholders of Public Company, or at the time of the Public Company Meeting or as of the Closing, contain any
statement that, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Public Company Meeting that has become false or misleading.
4.6
No Undisclosed Liabilities
. Except as disclosed in the Private Company Balance Sheet and except for liabilities incurred in
the Ordinary Course of Business since the date of the Private Company Balance Sheet, Private Company and its Subsidiaries do not have any liabilities of any nature required by GAAP to be reflected on a consolidated balance sheet of Private Company
and its Subsidiaries that, individually or in the aggregate, are reasonably likely to have a Private Company Material Adverse Effect.
4.7
Absence of Certain Changes or Events
. Since the date of Private Company Balance Sheet, except as contemplated hereby, there has not been a Private Company Material Adverse Effect. From the date of Private Company Balance Sheet until the date
of this Agreement, except as contemplated hereby, (a) the business of Private Company and its Subsidiaries, taken as a whole, has been conducted in the Ordinary Course of Business and (b) none of Private Company or any of its Subsidiaries
has taken any action that would have required the consent of Public Company under Section 5.2 of this Agreement (other than paragraphs (b), (g), (h) and (j) of Section 5.2 and paragraph (k) of Section 5.2 as it relates
to paragraphs (b), (g), (h) and (j) of Section 5.2) had such action or event occurred after the date of this Agreement.
4.8
Taxes
. Except for matters that, individually or in the aggregate, are not reasonably likely to have a Private Company Material Adverse Effect:
(a) Private Company and each of its Subsidiaries has filed all Tax Returns that it was required to file, and all such Tax Returns were correct
and complete. Private Company and each of its Subsidiaries has paid (or caused to be paid) on a timely basis all Taxes due and owing by Private Company and/or its Subsidiaries, other than Taxes that are being contested in good faith through
appropriate proceedings and for which the Private Company Balance Sheet reflect an adequate reserve in accordance with GAAP.
(b) As of
the date of this Agreement, no examination or audit of any Tax Return of Private Company or any of its Subsidiaries by any Governmental Entity is currently in progress or has been proposed in writing. There are no Liens (other than Permitted Liens)
for Taxes on any of the assets or properties owned, operated or leased by Private Company or any of its Subsidiaries.
(c) Neither Private
Company nor any of its Subsidiaries has any liability for any Taxes of any Person (other than Private Company and its Subsidiaries) (i) under Treasury Regulation
Section 1.1502-6
(or any similar
provision of Tax law in any jurisdiction) or as a transferee or successor, or (ii) pursuant to any Tax sharing or Tax indemnification agreement or other similar agreement (other than pursuant to commercial agreements or arrangements that are
not primarily related to Taxes).
(d) Neither Private Company nor any of its Subsidiaries has entered into any listed
transaction within the meaning of Treasury Regulation Section
1.6011-4(b)(2).
(e) Neither
Private Company nor any of its Subsidiaries was a distributing corporation or controlled corporation in a transaction intended to qualify under Section 355 of the Code within the past two (2) years or otherwise as
part of a plan that includes the Transaction.
(f) Neither Private Company nor any of its Subsidiaries has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
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(g) Neither Private Company nor any of its Affiliates has taken or agreed to take any action
which could prevent the Transaction from constituting a transaction qualifying as a reorganization under Section 368(a) of the Code. Neither Private Company nor its Affiliates are aware of any agreement, plan or other circumstance that would prevent
the Transaction from constituting a transaction qualifying as a reorganization under Section 368(a) of the Code.
(h) Neither Private
Company nor any of its Subsidiaries is an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
4.9
Real Property
.
(a) Neither Private Company nor any of its Subsidiaries owns any real property.
(b) Section 4.9(b) of Private Company Disclosure Schedule sets forth a complete and accurate list as of the date of this Agreement
of all leases, subleases or licenses pursuant to which the Company or any of its Subsidiaries leases, , licenses or is otherwise granted a right of use or occupancy of, any real property material to the conduct of the business of the Company and its
Subsidiaries, taken as a whole, as currently conducted, from any Person other than Private Company or any of its Subsidiaries (as amended through the date of this Agreement, the
Private Company Leases
) and the location of the
premises subject thereto (the
Private Company Leased Properties
). The Private Company Leases have not been amended, modified or supplemented in any material respect except as expressly set forth in Section 4.9(b) of the
Private Company Disclosure Schedule. Neither Private Company nor any of its Subsidiaries nor, to Private Companys Knowledge, any other party to any Private Company Lease is in default under any of the Private Company Leases, except where the
existence of such defaults, individually or in the aggregate, is not reasonably likely to have a Private Company Material Adverse Effect. Except as is not reasonably likely to have a Private Company Material Adverse Effect, assuming good fee title
to the Private Company Leased Properties is vested in each of the lessors thereof, and subject to any Permitted Liens affecting the leasehold interest of the Private Company and its Subsidiaries in the Private Company Leased Property, the Private
Company and its Subsidiaries have valid and enforceable leasehold interests in the Private Company Leased Properties, unencumbered by any Liens. Except as is not reasonably likely to have a Private Company Material Adverse Effect, to Private
Companys Knowledge, (i) no event has occurred or condition exists that with the passage of time is likely to result in any default of Private Company or any of its Subsidiaries under any of the Private Company Leases, and (ii) the
Private Company Leased Properties, and the business activities of Private Company and its Subsidiaries at the Private Company Leased Properties, are in compliance with the material terms and conditions of the Private Company Leases, and
(iii) the Private Company Leased Properties are otherwise in good operating condition and repair as of the date of this Agreement, ordinary wear and tear excepted. Neither Private Company nor any of its Subsidiaries leases, subleases or
licenses any real property to any Person other than Private Company and its Subsidiaries. Private Company has made available to Public Company complete and accurate copies of all Private Company Leases.
4.10
Intellectual Property
.
(a) To Private Companys Knowledge, Private Company and its Subsidiaries own, license, sublicense or otherwise possess legally
enforceable rights to use all Intellectual Property used by Private Company and its Subsidiaries in the conduct of the business of Private Company and its Subsidiaries, taken as a whole, as currently conducted (in each case excluding generally
commercially available,
off-the-shelf
software programs), the absence of which, individually or in the aggregate, is reasonably likely to have a Private Company Material
Adverse Effect.
(b) To Private Companys Knowledge, all issued patents and registrations for trademarks, service marks and
copyrights included in Private Company Intellectual Property are subsisting and have not expired or been cancelled. For purposes of this Agreement,
Private Company Intellectual Property
means any Intellectual Property owned by
Private Company or its Subsidiaries that is material to the business of Private Company and its Subsidiaries, taken as a whole, as currently conducted.
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(c) To Private Companys Knowledge, the conduct of the business of Private Company and its
Subsidiaries, taken as a whole, as currently conducted, does not infringe, violate or constitute a misappropriation of any Intellectual Property of any third party, except for such infringements, violations and misappropriations that, individually
or in the aggregate, are not reasonably likely to have a Private Company Material Adverse Effect. Between January 1, 2015 and the date of this Agreement, neither Private Company nor any of its Subsidiaries has received any written claim or
notice from any Person (i) alleging any such infringement, violation or misappropriation or (ii) advising that such Person is challenging or threatening to challenge the ownership, use, validity or enforceability of any Private Company
Intellectual Property, except, in each case in clauses (i) and (ii), for any such infringement, violation, misappropriation or challenge that is not reasonably likely to have a Private Company Material Adverse Effect.
(d) To Private Companys Knowledge, Private Company and its Subsidiaries have implemented commercially reasonable measures to maintain
the confidentiality of Private Company Intellectual Property of a nature that Private Company intends to keep confidential.
(e) To
Private Companys Knowledge, no third party is infringing, violating or misappropriating any of Private Company Intellectual Property, except for infringements, violations or misappropriations that, individually or in the aggregate, are not
reasonably likely to have a Private Company Material Adverse Effect.
4.11
Contracts
.
(a) Private Company has made available to Public Company a copy of each Private Company Material Contract to which Private Company is a party
as of the date of this Agreement. For purposes of this Agreement,
Private Company Material Contract
means (i) any agreement or contract pursuant to which Private Company and its Subsidiaries spent or received, in the
aggregate, more than $350,000 during the fiscal year ended December 31, 2016, (ii) any
non-competition
or other agreement that prohibits or otherwise restricts, in any material respect, Private Company or
any of its Subsidiaries from freely engaging in any business material to Private Company and its Subsidiaries, taken as a whole, anywhere in the world, and (iii) any material contract (as such term is defined in Item 601(b)(10) of
Regulation
S-K
of the SEC) with respect to Private Company and its Subsidiaries (assuming Private Company was subject to the requirements of the Exchange Act).
(b) Each Private Company Material Contract is in full force and effect except to the extent it has previously expired in accordance with its
terms or where the failure to be in full force and effect, individually or in the aggregate, is not reasonably likely to have a Private Company Material Adverse Effect. Neither Private Company nor any of its Subsidiaries nor, to Private
Companys Knowledge, any other party to any Private Company Material Contract is in violation of or in default under (nor does there exist any condition which, upon the passage of time or the giving of notice or both, would cause such a
violation of or default under) any Private Company Material Contract, except for violations or defaults that, individually or in the aggregate, are not reasonably likely to have a Private Company Material Adverse Effect.
(c) Neither Private Company nor any of its Subsidiaries has entered into any transaction that would be subject to disclosure pursuant to Item
404 of Regulation
S-K
(assuming Private Company was subject to the requirements of the Exchange Act).
4.12
Litigation
. As of the date of this Agreement, there is no action, suit, proceeding, claim, arbitration or investigation pending
and of which Private Company has been notified or, to Private Companys Knowledge, threatened against Private Company or any of its Subsidiaries, in each case that, individually or in the aggregate, is reasonably likely to have a Private
Company Material Adverse Effect. As of the date of this Agreement, there are no material judgments, orders or decrees outstanding against Private Company or any of its Subsidiaries. To the Knowledge of Private Company, no event has occurred, and no
claim, dispute or other condition or circumstance exists, that will, or that would reasonably be expected to, give rise to or serve as a basis for the commencement of any such action, suit, proceeding, claim, arbitration or investigation, and there
is no pending
B-33
investigation by any Governmental Authority involving Private Company or any of its Subsidiaries, in each case that, individually or in the aggregate, is reasonably likely to have a Private
Company Material Adverse Effect.
4.13
Environmental Matters
.
(a) Except for matters that, individually or in the aggregate, are not reasonably likely to have a Private Company Material Adverse Effect:
(i) neither Private Company nor any of its Subsidiaries is in violation of any Environmental Law; and (ii) Private Company and its Subsidiaries have all permits, licenses and other authorizations required under any Environmental Law and
Private Company and its Subsidiaries are in compliance with such permits, licenses and other authorizations.
(b) The only representations
and warranties of Private Company in this Agreement as to any environmental matters or any other obligation or liability with respect to Hazardous Substances or materials of environmental concern are those contained in this Section 4.13.
Without limiting the generality of the foregoing, the representations and warranties contained in Sections 4.15 and 4.16 do not relate to environmental matters.
4.14
Employee Benefit Plans
.
(a) Section 4.14(a) of the Private Company Disclosure Schedule sets forth a complete and accurate list, as of the date of this Agreement,
of all material Private Company Employee Plans.
(b) With respect to each Private Company Employee Plan in effect on the date of this
Agreement, Private Company has made available to Public Company a complete and accurate copy of (i) such Private Company Employee Plan, (ii) the most recent annual report (Form 5500) filed with the IRS, if any, and (iii) each
trust agreement, group annuity contract and summary plan description, if any, relating to such Private Company Employee Plan.
(c) Each
Private Company Employee Plan is being administered in accordance with ERISA, the Code and all other applicable laws and the regulations thereunder and in accordance with its terms, except for failures to so administer such Private Company Employee
Plan as are not, individually or in the aggregate, reasonably likely to have a Private Company Material Adverse Effect.
(d) With respect
to Private Company Employee Plans, there are no benefit obligations for which contributions have not been made or properly accrued to the extent required by GAAP, except for failures to make such contributions or accruals for contributions as are
not, individually or in the aggregate, reasonably likely to have a Private Company Material Adverse Effect.
(e) All Private Company
Employee Plans that are intended to be qualified under Section 401(a) of the Code have received determination letters from the IRS to the effect that such Private Company Employee Plans are qualified and the plans and trusts related
thereto are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, or are based on prototype or volume submitter documents that, to Private Companys Knowledge, have received such letters, and no such
determination letter has been revoked and revocation has not been threatened, and no act or omission has occurred, that would adversely affect its qualification except, in each case, as is not, individually or in the aggregate, reasonably likely to
have a Private Company Material Adverse Effect.
(f) None of Private Company, any of Private Companys Subsidiaries or any of their
ERISA Affiliates (i) maintains a Private Company Employee Plan that is subject to Section 412 of the Code or Title IV of ERISA or (ii) is obligated to contribute to a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA).
(g) Neither Private Company nor any of its Subsidiaries is a party to any written
(i) agreement with any stockholders, director, executive officer or other key employee of Private Company or any of its Subsidiaries
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(A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Private Company or any of its Subsidiaries of the
nature of any of the transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee or (C) providing severance benefits or other benefits after the termination of employment of such director,
executive officer or key employee; or (ii) agreement or plan binding Private Company or any of its Subsidiaries, including any stock option plan, stock appreciation right plan, restricted stock plan, stock purchase plan or severance benefit
plan, any of the benefits of which shall be increased, or the vesting of the benefits of which shall be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which shall be
calculated on the basis of any of the transactions contemplated by this Agreement.
(h) None of Private Company Employee Plans promises or
provides retiree medical or other retiree welfare benefits to any Person, except as required by applicable law.
(i) For purposes of this
Agreement:
(i)
Private Company Employee Plans
means all Employee Benefit Plans maintained, or contributed to, by
Private Company, any of Private Companys Subsidiaries or any Private Company ERISA Affiliate, other than those required by applicable law.
(ii)
Private Company ERISA Affiliate
means any entity which is a member of (a) a controlled group of corporations (as
defined in Section 414(b) of the Code), (b) a group of trades or businesses under common control (as defined in Section 414(c) of the Code) or (c) an affiliated service group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or included Private Company or any of its Subsidiaries.
4.15
Compliance With
Laws.
(a) Private Company and each of its Subsidiaries is in compliance with, and is not in violation of, any applicable statute, law
or regulation with respect to the conduct of its business, or its ownership or leasing, or its occupancy, use or operation, of each of the properties or assets owned, operated or leased by Private Company or any of its Subsidiaries, except for
failures to comply or violations that, individually or in the aggregate, are not reasonably likely to have a Private Company Material Adverse Effect.
(b) Neither Private Company nor any of its Subsidiaries, nor, to Private Companys Knowledge, any of their respective directors,
officers, employees, agents or distributors is violating any provision of the U.S. Foreign Corrupt Practices Act of 1977, except for violations that, individually or in the aggregate, are not reasonably likely to have a Private Company Material
Adverse Effect.
4.16
Permits and Regulatory Matters
.
(a) Private Company and each of its Subsidiaries have all material Permits required to conduct their businesses as currently conducted,
including all such Permits required by the FDA or any other Governmental Entity exercising comparable authority (the
Private Company Authorizations
).
(b) Private Company and its Subsidiaries are in compliance in all material respects with the terms of Private Company Authorizations. No
Private Company Authorization shall cease to be effective as a result of the consummation of the transactions contemplated by this Agreement.
(c) All manufacturing, processing, distribution, labeling, storage, testing, specifications, sampling, sale or marketing of products performed
by or on behalf of Private Company or any of its Subsidiaries are in compliance in all material respects with all applicable laws, rules, regulations or orders administered or issued by the FDA or any other Governmental Entity exercising comparable
authority. As of the date of this Agreement,
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(i) neither Private Company nor any of its Subsidiaries has received any written notices or correspondence from the FDA or any other Governmental Entity exercising comparable authority, and
(ii) to the Knowledge of Private Company there is no action or proceeding pending or threatened (including any prosecution, injunction, seizure, civil fine, suspension or recall), in each case alleging that Private Company or any of its
Subsidiaries is not currently in material compliance with any and all applicable laws, regulations or orders implemented by the FDA or any other Governmental Entity exercising comparable authority.
(d) The studies, tests and preclinical and clinical trials conducted by or on behalf of Private Company or any of its Subsidiaries were and,
if still pending, are being conducted in all material respects in accordance with experimental protocols, procedures and controls pursuant to, where applicable, accepted professional and scientific standards; and, as of the date of this Agreement,
neither Private Company nor any of its Subsidiaries has received any written notices or correspondence from the FDA or any other Governmental Entity exercising comparable authority requiring the termination, suspension or material modification of
any studies, tests or preclinical or clinical trials conducted by or on behalf of Private Company or any of its Subsidiaries.
4.17
Labor Matters
. Private Company and its Subsidiaries have complied with all applicable laws relating to labor and employment, including those relating to wages, hours, collective bargaining, unemployment compensation, workers
compensation, equal employment opportunity, age and disability discrimination, immigration control and employee classification, except for such failures to comply that, individually or in the aggregate, are not reasonably likely to have a Private
Company Material Adverse Effect. As of the date of this Agreement, neither Private Company nor any of its Subsidiaries is the subject of any proceeding asserting that Private Company or any of its Subsidiaries has committed an unfair labor practice
or seeking to compel it to bargain with any labor union or labor organization that, individually or in the aggregate, is reasonably likely to have a Private Company Material Adverse Effect. As of the date of this Agreement, there are no pending or,
to Private Companys Knowledge, threatened labor strikes, disputes, walkouts, work stoppages, slow-downs or lockouts involving Private Company or any of its Subsidiaries that, individually or in the aggregate, are reasonably likely to have a
Private Company Material Adverse Effect.
4.18
No Fairness Opinion
. Private Company has not received, and, as of the date hereof,
does not intend to obtain, an opinion from any financial advisor, investment banker or other firm or person performing a similar function, with respect to the fairness of the Transaction, including the fairness of the consideration to be received by
holders of Private Company Common Stock in connection with the Transaction.
4.19
Ownership of Public Company Common Stock
. None of
Private Company nor any of Private Companys Affiliates or Associates directly or indirectly owns, beneficially or otherwise, and at all times during the three-year period prior to the date of this Agreement,
none of Private Companys Affiliates or Associates directly or indirectly has owned, beneficially or otherwise, any of the outstanding Public Company Common Stock, as those terms are defined in
Section 203 of the DGCL
4.20
Brokers
. No agent, broker, investment banker, financial advisor or other firm or Person is or
shall be entitled, as a result of any action or agreement of Private Company or any of its Affiliates, to any brokers, finders, financial advisors or other similar fee or commission in connection with any of the transactions
contemplated by this Agreement, except as disclosed in Section 4.20 of Private Company Disclosure Schedule.
4.21
Certain Business
Relationships With Affiliates
. No Affiliate of Private Company or of any of its Subsidiaries (a) owns any property or right, tangible or intangible, which is used in the business of Private Company or any of its Subsidiaries, (b) has
any claim or cause of action against Private Company or any of its Subsidiaries or (c) owes any money to, or is owed any money by, Private Company or any of its Subsidiaries. Section 4.21 of the Private Company Disclosure Schedule
describes any material Contracts between Private Company and any Affiliate thereof which were entered into or have been in effect during the period covered by the Financial Statements, other than (i) any employment agreements, invention
assignment agreements and other agreements entered into in the Ordinary Course of Business relating to employment, or (ii) agreements relating to stock purchases and awards, stock options and other equity arrangements, in each case relating to
compensation.
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4.22
Controls and Procedures, Certifications and Other Matters
.
(a) The Private Company maintains adequate disclosure controls and procedures designed to ensure that material information relating to the
Private Company is made known to the Chief Executive Officer or President and the Chief Financial Officer of the Private Company by others within those entities. None of the Private Company or, to the Knowledge of the Private Company, any director,
officer, employee, or internal or external auditor of the Private Company has received or otherwise had or obtained actual Knowledge of any substantive material complaint, allegation, assertion or claim, whether written or oral, that the Private
Company has engaged in questionable accounting or auditing practices.
(b) Neither Private Company nor any of its Subsidiaries has
extended or maintained credit, arranged for the extension of credit, modified or renewed an extension of credit, in the form of a personal loan or otherwise, to or for any director or executive officer of Private Company. Section 4.22(c) of the
Private Company Disclosure Schedule identifies any loan or extension of credit maintained by Private Company to which the second sentence of Section 13(k)(1) of the Exchange Act applies.
(c) Private Company either (i) satisfies the conditions to qualification as a smaller reporting company set forth in 17
C.F.R. 229.10(f)(1), or (ii) if shares of Private Company Common Stock were traded on any regulated market or stock exchange, would qualify as a smaller reporting company, as defined by 17 C.F.R. 229.10(f)(1).
4.23
Independent Investigation
. Private Company acknowledges that it has conducted to its satisfaction its own independent
investigation and analysis of the business, operations, assets, liabilities, results of operations, condition (financial or otherwise) and prospects of Public Company and Public Companys Subsidiaries and that Private Company and its
Representatives have received access to such books and records, facilities, equipment, contracts and other assets of Public Company and Public Companys Subsidiaries that it and its Representatives have desired or requested to review for such
purpose, and that it and its Representatives have had a full opportunity to meet with the management of Public Company and Public Companys Subsidiaries and to discuss the business, operations, assets, liabilities, results of operations,
condition (financial or otherwise) and prospects of Public Company and Public Companys Subsidiaries.
4.24
No Other Public
Company Representations or Warranties;
Non-Reliance
. Private Company hereby acknowledges and agrees that, except for the representations and warranties set forth in Article III (in each case as qualified
and limited by Public Company Disclosure Schedule), (a) none of Public Company or any Subsidiary of Public Company, or any of its or their respective Affiliates, stockholders or Representatives, or any other Person, has made or is making any express
or implied representation or warranty with respect to Public Company or any Subsidiary of Public Company or their respective business or operations, including with respect to any information provided or made available to Private Company or any of
its Affiliates, stockholders or Representatives, or any other Person, or, except as otherwise expressly set forth in this Agreement, had or has any duty or obligation to provide any information to Private Company or any of its Affiliates,
stockholders or Representatives, or any other Person, in connection with this Agreement, the transactions contemplated hereby or otherwise, and (b) to the fullest extent permitted by law, none of Public Company or any Subsidiary of Public
Company, or any of its or their respective Affiliates, stockholders or Representatives, or any other Person, will have or be subject to any liability or indemnification or other obligation of any kind or nature to Private Company or any of its
Affiliates, stockholders or Representatives, or any other Person, resulting from the delivery, dissemination or any other distribution to Private Company or any of its Affiliates, stockholders or Representatives, or any other Person, or the use by
Private Company or any of its Affiliates, stockholders or Representatives, or any other Person, of any such information provided or made available to any of them by Public Company, or any Subsidiary of Public Company, or any of its or their
respective Affiliates, stockholders or Representatives, or any other Person, including any information, documents, estimates, projections, forecasts or other forward-looking information, business plans or other material provided or made available to
Private Company or any of its Affiliates, stockholders, or Representatives, or any other Person, in data rooms,
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confidential information memoranda, management presentations or otherwise in anticipation or contemplation of the Transaction or any other transaction contemplated by this Agreement, and (subject
to the express representations and warranties of Public Company set forth in Article III (in each case as qualified and limited by Public Company Disclosure Schedule)) none of Private Company or any of its Affiliates, stockholders or
Representatives, or any other Person, has relied on any such information (including the accuracy or completeness thereof).
4.25
Non-Reliance
on Public Company Estimates, Projections, Forecasts, Forward-Looking Statements and Business Plans
. In connection with the due diligence investigation of Public Company by Private Company and its
Affiliates, stockholders and Representatives, Private Company and its Affiliates, stockholders and Representatives have received and may continue to receive after the date hereof (including pursuant to Section 6.5(b)) from Public Company and its
Affiliates, stockholders and Representatives certain estimates, projections, forecasts and other forward-looking information, as well as certain business plan information, regarding Public Company and its businesses and operations. Private Company
hereby acknowledges that there are uncertainties inherent in attempting to make such estimates, projections, forecasts and other forward-looking statements, as well as in such business plans, with which Private Company is familiar, that Private
Company is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections, forecasts and other forward-looking information, as well as such business plans, so furnished to it (including the
reasonableness of the assumptions underlying such estimates, projections, forecasts, forward-looking information or business plans), and that Private Company will have no claim against Public Company, or any Subsidiary of Public Company, or any of
their respective Affiliates, stockholders or Representatives, or any other Person, with respect thereto. Accordingly, Private Company hereby acknowledges and agrees that none of Public Company, or any Subsidiary of Public Company, nor any of their
respective Affiliates, stockholders or Representatives, nor any other Person, has made or is making any express or implied representation or warranty with respect to such estimates, projections, forecasts, forward-looking statements or business
plans (including the reasonableness of the assumptions underlying such estimates, projections, forecasts, forward-looking statements or business plans). Any estimates, projections, forecasts and other forward-looking information provided to Private
Company and its Affiliates, stockholders and Representatives by Public Company and its Affiliates, stockholders and Representatives are not and shall not be deemed to be or included in any representations or warranties of Public Company. Private
Company expressly disclaims that it is relying upon or has relied upon any representations or warranties or other statements or omissions that may have been made by Public Company or any Person with respect to Public Company other than the
representations and warranties set forth in this Agreement. Private Company expressly disclaims any obligation or duty by Public Company to make any disclosures of fact not required to be disclosed pursuant to the specific representations and
warranties set forth in this Agreement.
ARTICLE V
CONDUCT OF BUSINESS
5.1
Covenants of Public Company
. Except as otherwise contemplated or permitted by this Agreement, as required by applicable law or by
any agreement, plan or arrangement in effect on the date hereof, as set forth in Section 5.1 of the Public Company Disclosure Schedule, or with Private Companys consent (which shall not be unreasonably withheld, conditioned or delayed),
during the period commencing on the date of this Agreement and ending at the Closing or such earlier date on which this Agreement may be terminated in accordance with its terms (the
Pre-Closing
Period
), Public Company shall, and shall cause each of its Subsidiaries to, use commercially reasonable efforts to act and carry on its business in the Ordinary Course of Business, including using commercially reasonable efforts to
(i) pay its debts as and when they come due, (ii) make such filings as are required by the Securities Act, Exchange Act or as are necessary for the Public Company Common Stock to continue being listed on the NASDAQ and (iii) operate
in compliance in all material respects with all applicable Laws and the requirements of all Contracts that constitute Public Company Material Contracts. Without limiting the generality of the foregoing, except as otherwise contemplated or permitted
by this Agreement, as required by
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applicable law or by any agreement, plan or arrangement in effect on the date hereof, as set forth in Section 5.1 of the Public Company Disclosure Schedule, or with Private Companys
consent (which shall not be unreasonably withheld, conditioned or delayed), during the
Pre-Closing
Period Public Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, do
any of the following:
(a) (i) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its capital stock or any of its other securities; or (ii) purchase, redeem or otherwise acquire any shares of its capital stock or any other of its securities or any rights,
warrants or options to acquire any such shares or other securities, except, in the case of this clause (ii), for the acquisition of shares of Public Company Common Stock (A) from holders of Public Company Stock Options in full or partial
payment of the exercise price, (B) from holders of Public Company Stock Options in full or partial payment of any applicable Taxes payable by such holder upon exercise thereof, as applicable, to the extent required or permitted under the terms
thereof or (C) from former employees, directors and consultants in accordance with agreements providing for the repurchase of shares at their original issuance price or forfeiture of shares for no consideration, in each case in connection with
any termination of services to Public Company or any of its Subsidiaries;
(b) issue, deliver, sell, grant, pledge or otherwise dispose of
or encumber any shares of its capital stock, any other voting securities or any securities convertible into or exchangeable for, or any rights, warrants or options to acquire, any such shares, voting securities or convertible or exchangeable
securities, in each case other than the issuance of shares of Public Company Common Stock upon the exercise of Public Company Stock Options outstanding on the date of this Agreement;
(c) amend its certificate of incorporation, bylaws or other comparable charter or organizational documents;
(d) acquire (i) by merging or consolidating with, or by purchasing all or a substantial portion of the assets or any stock of, or by any
other manner, any business or any corporation, partnership, joint venture, limited liability company, association or other business organization or division thereof or (ii) any assets that are material, in the aggregate, to Public Company and
its Subsidiaries, taken as a whole, except purchases of inventory and raw materials in the Ordinary Course of Business;
(e) assign, sell,
lease, sublease, license, pledge, or otherwise dispose of, encumber or convey any right, title or interest in any of the Public Company Leased Properties or any material assets owned, leased or otherwise operated by Public Company or any of its
Subsidiaries other than in the Ordinary Course of Business;
(f) adopt any new stockholder rights plan;
(g) (i) incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person (other than letters of credit or
similar arrangements issued to or for the benefit of suppliers in the Ordinary Course of Business), (ii) issue, sell or amend any debt securities or warrants or other rights to acquire any debt securities of Public Company or any of its
Subsidiaries, guarantee any debt securities of another Person, enter into any keep well or other agreement to maintain any financial statement condition of another Person or enter into any arrangement having the economic effect of any of
the foregoing, (iii) make any loans, advances (other than routine advances to employees of Public Company and its Subsidiaries in the Ordinary Course of Business) or capital contributions to, or investment in, any other Person, other than
Public Company or any of its direct or indirect wholly owned Subsidiaries,
provided
,
however
, that Public Company may continue to make investments in accordance with its investment policy as in effect on the date hereof (a copy of
which has been made available to Private Company), or (iv) other than in the Ordinary Course of Business, enter into any hedging agreement or other financial agreement or arrangement designed to protect Public Company or its Subsidiaries
against fluctuations in exchange rates;
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(h) make any capital expenditures or other expenditures with respect to property, plant or
equipment in excess of $100,000 in the aggregate for Public Company and its Subsidiaries, taken as a whole, other than as included in Public Companys budget for capital expenditures previously made available to Private Company;
(i) make any material changes in accounting methods, principles or practices, except insofar as may be required by a change in GAAP;
(j) (i) adopt, enter into, terminate or amend any employment, severance or similar agreement or material benefit plan for the benefit or
welfare of any current or former director or executive officer or any collective bargaining agreement (except in the Ordinary Course of Business and only if such arrangement is terminable on 60 days or less notice without either a penalty or a
termination payment), (ii) increase the compensation or fringe benefits of, or pay any bonus to, any director or executive officer (except for arrangements disclosed to Private Company), it being understood (for the avoidance of doubt) that
Public Company and its Subsidiaries may hire new employees and promote employees in the Ordinary Course of Business, (iii) accelerate the payment, right to payment or vesting of any compensation or benefits, including any outstanding options or
restricted stock awards, other than as contemplated by this Agreement or (iv) grant any stock options, restricted stock units, stock appreciation rights, stock based or stock related awards, performance units or restricted stock;
(k) enter into, amend in any material respect or terminate any Public Company Material Contract;
(l) commence a lawsuit other than (A) for routine collection of bills, (B) in such cases as Public Company in good faith determines
that failure to commence such lawsuit would result in the material impairment of a valuable aspect of Public Companys and/or any Subsidiary of Public Company business or (C) for a breach of this Agreement; or
(m) authorize any of, or commit or agree, in writing or otherwise, to take any of, the foregoing actions.
5.2
Covenants of Private Company
. Except as otherwise contemplated or permitted by this Agreement, as required by applicable law or by
any agreement, plan or arrangement in effect on the date hereof, as set forth in Section 5.2 of the Private Company Disclosure Schedule, or with Public Companys consent (which shall not be unreasonably withheld, conditioned or delayed),
during the
Pre-Closing
Period, Private Company shall, and shall cause each of its Subsidiaries to, use commercially reasonable efforts to act and carry on its business in the Ordinary Course of Business,
including using commercially reasonable efforts to (i) pay its debts as and when they come due, (ii) operate in compliance in all material respects with all applicable Laws and the requirements of all Contracts that constitute Private
Company Material Contracts and (iii) preserve intact its current business organization and goodwill with all suppliers, customers, landlords, creditors, licensors and licensees. Without limiting the generality of the foregoing, except as
otherwise contemplated or permitted by this Agreement (including Section 6.19(b) hereof), as required by applicable law or by any agreement, plan or arrangement in effect on the date hereof, as set forth in Section 5.2 of the Private Company
Disclosure Schedule, or with Public Companys consent (which shall not be unreasonably withheld, conditioned or delayed), during the
Pre-Closing
Period Private Company shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, do any of the following:
(a) (i) declare, set aside or pay any dividends on, or make
any other distributions (whether in cash, securities or other property) in respect of, any of its capital stock (other than dividends and distributions by a direct or indirect wholly owned Subsidiary of Private Company to its parent),
(ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or any of its other securities; or
(iii) purchase, redeem or otherwise acquire any shares of its capital stock or any other of its securities or any rights, warrants or options to acquire any such shares or other securities, except, in the case of this clause (iii), for the
acquisition of shares of Private Company Common Stock (A) from holders of Private Company Stock Options in full or partial payment of the
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exercise price, (B) from holders of Private Company Stock Options in full or partial payment of any applicable Taxes payable by such holder upon exercise thereof, as applicable, to the
extent required or permitted under the terms thereof or (C) from former employees, directors and consultants in accordance with agreements providing for the repurchase of shares at their original issuance price or forfeiture of shares for no
consideration, in each case in connection with any termination of services to Private Company or any of its Subsidiaries;
(b) issue,
deliver, sell, grant, pledge or otherwise dispose of or encumber any shares of its capital stock, any other voting securities or any securities convertible into or exchangeable for, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible or exchangeable securities, in each case other than the issuance of shares of Private Company Common Stock upon the exercise of Private Company Stock Options outstanding on the date of this Agreement;
(c) amend its certificate of incorporation, bylaws or other comparable charter or organizational documents;
(d) acquire (i) by merging or consolidating with, or by purchasing all or a substantial portion of the assets or any stock of, or by any
other manner, any business or any corporation, partnership, joint venture, limited liability company, association or other business organization or division thereof or (ii) any assets that are material, in the aggregate, to Private Company and
its Subsidiaries, taken as a whole, except purchases of inventory and raw materials in the Ordinary Course of Business;
(e) assign, sell,
lease, sublease, license, pledge, or otherwise dispose of, encumber or convey any right, title or interest in any of the Private Company Leased Properties or any material assets owned, leased or otherwise operated by Private Company or any of its
Subsidiaries other than in the Ordinary Course of Business;
(f) adopt any new stockholder rights plan;
(g) (i) incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person (other than letters of credit or
similar arrangements issued to or for the benefit of suppliers in the Ordinary Course of Business), (ii) issue, sell or amend any debt securities or warrants or other rights to acquire any debt securities of Private Company or any of its
Subsidiaries, guarantee any debt securities of another Person, enter into any keep well or other agreement to maintain any financial statement condition of another Person or enter into any arrangement having the economic effect of any of
the foregoing, (iii) make any loans, advances (other than routine advances to employees of Private Company and its Subsidiaries in the Ordinary Course of Business) or capital contributions to, or investment in, any other Person, other than
Private Company or any of its direct or indirect wholly owned Subsidiaries,
provided
,
however
, that Private Company may continue to make investments in accordance with its investment policy as in effect on the date hereof (a copy of
which has been made available to Public Company), or (iv) other than in the Ordinary Course of Business, enter into any hedging agreement or other financial agreement or arrangement designed to protect Private Company or its Subsidiaries
against fluctuations in exchange rates;
(h) make any capital expenditures or other expenditures with respect to property, plant or
equipment in excess of $100,000 in the aggregate for Private Company and its Subsidiaries, taken as a whole, other than as included in Private Companys budget for capital expenditures previously made available to Public Company;
(i) make any material changes in accounting methods, principles or practices, except insofar as may be required by a change in GAAP;
(j) (i) adopt, enter into, terminate or materially amend any employment, severance or similar agreement or material benefit plan for the
benefit or welfare of any current or former director or executive officer or any collective bargaining agreement (except in the Ordinary Course of Business and only if such arrangement is terminable on 60 days or less notice without either a
penalty or a termination payment), (ii) increase in any
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material respect the compensation or fringe benefits of, or pay any bonus to, any director or executive officer (except for annual increases of salaries in the Ordinary Course of Business and
bonuses consistent with the arrangements disclosed to Public Company), it being understood (for the avoidance of doubt) that Private Company and its Subsidiaries may hire new employees and promote employees in the Ordinary Course of Business,
(iii) accelerate the payment, right to payment or vesting of any material compensation or benefits, including any outstanding options or restricted stock awards, other than as contemplated by this Agreement or (iv) grant any stock options,
restricted stock units, stock appreciation rights, stock based or stock related awards, performance units or restricted stock;
(k) enter
into, amend in any material respect or terminate any Private Company Material Contract;
(l) commence a lawsuit other than (A) for
routine collection of bills, (B) in such cases as Private Company in good faith determines that failure to commence such lawsuit would result in the material impairment of a valuable aspect of Private Companys and/or any Subsidiary of
Private Company business or (C) for a breach of this Agreement; or
(m) authorize any of, or commit or agree, in writing or
otherwise, to take any of, the foregoing actions.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1
No Solicitation
.
(a)
No Solicitation or Negotiation
. Except as set forth in this Section 6.1, until the Specified Time, each of Private Company,
Public Company and their respective Subsidiaries shall not, and each of Private Company and Public Company shall use commercially reasonable efforts to cause its directors, officers, members, employees, agents, attorneys, consultants, contractors,
accountants, financial advisors and other authorized representatives (
Representatives
) not to, directly or indirectly:
(i) solicit, seek or initiate or knowingly take any action to facilitate or encourage any offers, inquiries or the making of any proposal or
offer that constitutes, or could reasonably be expected to lead to, any Acquisition Proposal;
(ii) enter into, continue or otherwise
participate or engage in any discussions or negotiations regarding any Acquisition Proposal, or furnish to any Person any
non-public
information or afford any Person other than Public Company or Private
Company, as applicable, access to such partys property, books or records (except pursuant to a request by a Governmental Entity) in connection with any Acquisition Proposal;
provided
,
however
, that nothing in this
Section 6.1 shall prevent a party or its Representatives from referring a Person to this Section 6.1;
(iii) take any action to
make the provisions of any takeover statute inapplicable to any transaction contemplated by an Acquisition Proposal; or
(iv) publicly
propose to do any of the foregoing described in clauses (i) through (iii).
Notwithstanding the foregoing or anything to the contrary set forth in
this Agreement, prior to the Specified Time, subject to compliance with Section 6.1(c), Public Company may (A) furnish
non-public
information with respect to itself and its Subsidiaries to any
Qualified Person (and the Representatives of such Qualified Person), pursuant to a confidentiality agreement not materially less restrictive with respect to the confidentiality obligations of the Qualified Person than the Confidentiality Agreement,
(B) engage in discussions or negotiations
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(including solicitation of revised Acquisition Proposals) with any Qualified Person (and the Representatives of such Qualified Person) regarding any Acquisition Proposal or (C) amend,
or grant a waiver or release under, any standstill or similar agreement with respect to any capital stock of such party with any Qualified Person. It is understood and agreed that any violation of the restrictions in this Section 6.1 (or action
that, if taken by Public Company or Private Company, as applicable, would constitute such a violation) by any Representative of Public Company or Private Company shall be deemed to be a breach of this Section 6.1 by Public Company or Private
Company, as applicable.
(b)
No Change in Recommendation or Alternative Acquisition Agreement
. Prior to the Specified Time:
(i) Public Company Board shall not, except as set forth in this Section 6.1, withhold, withdraw or modify in a manner adverse to Private
Company, or publicly propose to withdraw or modify in a manner adverse to Private Company, the approval or recommendation by the Public Company Board with respect to the issuance of shares of Public Company Common Stock pursuant to this Agreement (a
Public Company Board Recommendation Change
);
(ii) neither Public Company nor Private Company shall enter into any
letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or similar agreement (an
Alternative Acquisition Agreement
) providing for the consummation of a transaction
contemplated by any Acquisition Proposal (other than, in the case of Public Company, a confidentiality agreement referred to in Section 6.1(a) entered into in the circumstances referred to in Section 6.1(a)); and
(iii) neither the Public Company Board nor the Private Company Board, shall, except in the case of Public Company as set forth in this
Section 6.1, adopt, approve or recommend, or publicly propose to adopt, approve or recommend, any Acquisition Proposal.
Notwithstanding the
foregoing or anything to the contrary set forth in this Agreement (including the provisions of this Section 6.1), at any time prior to the Specified Time, the Public Company Board may effect a Public Company Board Recommendation Change if:
(i) it shall have determined in good faith (after consultation with outside legal counsel) that the failure to effect a Public Company Board Recommendation Change could reasonably be expected to be inconsistent with its fiduciary obligations
under applicable law; (ii) Public Company has provided at least four Business Days prior written notice to Private Company that it intends to effect a Public Company Board Recommendation Change, including a description in reasonable detail of
the reasons for such recommendation change, and written copies of any relevant proposed transaction agreements with any party making a potential Superior Proposal (a
Recommendation Change Notice
) (it being understood that the
Recommendation Change Notice shall not constitute a Public Company Board Recommendation Change for purposes of this Agreement); (iii) Public Company has complied in all material respects with the requirements of this Section 6.1 in connection
with any potential Superior Proposal; and (iv) if Private Company shall have delivered to such Public Company a written, binding and irrevocable offer to alter the terms or conditions of this Agreement during the four Business Day period
referred to in clause (ii) above, the Public Company Board shall have determined in good faith (after consultation with outside legal counsel), after considering the terms of such offer by Private Company, that the failure to effect a Public
Company Board Recommendation Change could still reasonably be expected to be inconsistent with its fiduciary obligations under applicable law. In the event of any material amendment to any Superior Proposal (including any revision in the amount,
form or mix of consideration Public Company stockholders would receive as a result of such potential Superior Proposal), Public Company shall be required to provide Private Company with notice of such material amendment and there shall be a
new two Business Day period following such notification during which Public Company shall comply again with the requirements of this Section 6.1(b) and the Public Company Board shall not make a Public Company Board Recommendation Change prior to the
end of any such period as so extended.
(c)
Notices of Proposals
. Each of Public Company and Private Company will as promptly as
reasonably practicable (and in any event within twenty-four (24) hours after receipt) (i) notify the other such
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party of its receipt of any Acquisition Proposal and (ii) provide to the other such party a copy of such Acquisition Proposal (if written), or a summary of the material terms and conditions
of such Acquisition Proposal (if oral), including the identity of the Person making such Acquisition Proposal, and copies of all written communications with such Person with respect to such actual or potential Acquisition Proposal. Such party in
receipt of an Acquisition Proposal shall notify the other such party, in writing, of any decision of the Public Company Board or the Private Company Board, as the case may be, as to whether to consider any Acquisition Proposal or to enter into
discussions or negotiations concerning any Acquisition Proposal or to provide
non-public
information with respect to such to any Person, which notice shall be given as promptly as practicable after such
determination was reached (and in any event no later than one Business Day after such determination was reached). Such party in receipt of an Acquisition Proposal will (A) provide the other such party with written notice setting forth such
information as is reasonably necessary to keep such other party informed in all material respects of the status and material terms of any such Acquisition Proposal and of any material amendments or modifications thereto, (B) keep such other
party informed as promptly as practicable with respect to any changes to the material terms of an Acquisition Proposal submitted to such party (and in any event within twenty-four (24) hours following any such changes), including by providing a
copy of all written proposals and a summary of all oral proposals or material oral modifications to an earlier written proposal, in each case relating to any Acquisition Proposal, (C) prior to, or substantially concurrently with, the provision
of any
non-public
information of such party to any such Person, provide such information to the other such party (including by posting such information to an electronic data room), to the extent such
information has not previously been made available the other party, and (D) promptly (and in any event within twenty-four (24) hours of such determination) notify the other such party of any determination by the Public Company Board or the
Private Company Board, as the case may be, that such Acquisition Proposal constitutes a Superior Proposal.
(d)
Certain Permitted
Disclosure
. Notwithstanding anything to the contrary in this Agreement, nothing contained in this Agreement shall prohibit the Public Company Board from (i) taking and disclosing to its stockholders a position with respect to a tender
offer contemplated by
Rule 14d-9
or Rule
14e-2
promulgated under the Exchange Act, or from issuing a stop, look and listen statement pending disclosure
of its position thereunder (none of which, in and of itself, shall be deemed to constitute a Public Company Board Recommendation Change), or (ii) making any disclosure to Public Companys stockholders if, in the good faith judgment of the
Public Company Board, after consultation with outside counsel, failure to so disclose could be inconsistent with its obligations under applicable law;
provided
,
however
, that notwithstanding clauses (i) and (ii) of this Section
6.1(d), in no event shall Public Company or the Public Company Board, take, or agree or resolve to take, any action prohibited by Section 6.1(b), except as expressly permitted by Section 6.1(b).
(e)
Cessation of Ongoing Discussions
. Each of Public Company and Private Company shall, and shall direct its Representatives to, cease
immediately all discussions and negotiations that commenced prior to the date of this Agreement regarding any proposal that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal;
provided
,
however
, that the
foregoing shall not in any way limit or modify the rights of any party hereto under the other provisions of this Section 6.1. Public Company and Private Company will each immediately revoke or withdraw access of any Person (other than Public
Company, Private Company and their respective Representatives) to any data room (virtual or actual) containing any
non-public
information with respect to Public Company or Private Company and request from each
third party (other than Public Company, Private Company and their Representatives) the prompt return or destruction of all
non-public
information with respect to Public Company or Private Company, as
applicable, previously provided to such Person.
(f)
Definitions
. For purposes of this Agreement, the following terms shall have
the following meanings:
(i)
Acquisition Proposal
means, with respect to Public Company or Private Company,
(A) any inquiry, proposal or offer for a merger, consolidation, dissolution, sale of substantial assets, recapitalization, share exchange, tender offer or other business combination involving such party and its Subsidiaries (other than mergers,
consolidations, recapitalizations, share exchanges or other business combinations involving solely such party and/or one or more Subsidiaries of such party), (B) any proposal for the issuance by such party of 15% or
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more of its equity securities or (C) any proposal or offer to acquire in any manner, directly or indirectly, 15% or more of the equity securities or consolidated total assets of such party
and its Subsidiaries, in each case other than the transactions contemplated by this Agreement.
(ii)
Qualified Person
means any Person making an unsolicited Acquisition Proposal that the Public Company Board determines in good faith (after consultation with outside counsel and its financial advisor) is, or could reasonably be expected to lead to, a Superior
Proposal, and such Acquisition Proposal has not resulted from a material breach by Public Company of its obligations under
Section 6.1(a)
.
(iii)
Specified Time
means the earliest to occur of (A) the Closing, (B) the date on which the stockholders of
Public Company shall have approved the Public Company Voting Proposal and (C) the time at which this Agreement is terminated in accordance with the terms hereof.
(iv)
Superior Proposal
means any
bona fide
, unsolicited written proposal made by a third party to acquire 50% or
more of the equity securities or consolidated total assets of Public Company and its Subsidiaries, pursuant to a tender or exchange offer, a merger, a consolidation, business combination or recapitalization or a sale or exclusive license of its
assets, (A) on terms which the board of directors of Public Company determines in its good faith judgment to be more favorable to the holders of Public Companys capital stock than the transactions contemplated by this Agreement (after
consultation with its financial and legal advisors), taking into account all the terms and conditions of such proposal and this Agreement (including any termination or
break-up
fees and conditions to
consummation, as well as any written, binding offer by Private Company to amend the terms of this Agreement, which offer is not revocable for at least three Business Days) that the Public Company Board determines to be relevant and (B) which
the Public Company Board has determined to be reasonably capable of being completed on the terms proposed, taking into account all financial, regulatory, legal and other aspects of such proposal that board of directors of such party determines to be
relevant (including the likelihood and timing of consummation (as compared to the transactions contemplated hereby).
6.2
Proxy
Statement
.
(a) As promptly as practicable after the execution of this Agreement, Public Company, with the cooperation of Private
Company, shall prepare and file with the SEC the Proxy Statement. Private Company shall (i) provide to Public Company as promptly as practicable all information, including financial statements and descriptions of its business and financial
condition, as Public Company may reasonably request for inclusion in the Proxy Statement and (ii) cause the timely cooperation of its independent public accountants in connection with the preparation and filing of the Proxy Statement, including
by causing such accountants to provide a consent to the inclusion of such accountants reports in respect of the financial statements of Private Company in the Proxy Statement and to the reference to such accountant firm as an
expert therein. Public Company shall (and Private Company shall furnish such assistance as Public Company may reasonably request in connection with Public Companys efforts to) respond to any comments of the SEC with respect to the
Proxy Statement, use commercially reasonable efforts to file the definitive version of the Proxy Statement as promptly as practicable and cause the Proxy Statement to be mailed to its stockholders at the earliest practicable time after the SEC has
completed its review of the preliminary filing of the Proxy Statement (or once 10 days after the initial filing of the preliminary Proxy Statement, if the SEC will not review the Proxy Statement). Public Company shall notify Private Company promptly
upon the receipt of any comments from the SEC or its staff with respect to the, of any request by the SEC or its staff for amendments or supplements to the Proxy Statement of any request by the SEC or its staff for additional information with
respect to the Proxy Statement, and shall supply Private Company with copies of all correspondence between Public Company or any of its representatives, on the one hand, and the SEC, or its staff, on the other hand, with respect to the Proxy
Statement. Each of Public Company and Private Company shall notify the other such partner promptly upon the receipt of any comments from the SEC or its staff with respect to any filing made by such party pursuant to Section 6.2(b), of any request by
the SEC or its staff for amendments or supplements to any filing made by such party pursuant to Section 6.2(b) or of any request by the SEC or its staff for additional information with respect to any filing made by such party pursuant to Section
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6.2(b), and shall supply the other such party with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff, on the other hand,
with respect to any filing made by such party pursuant to Section 6.2(b). Each of Public Company and Private Company shall use commercially reasonable efforts to cause all documents that it is responsible for filing with the SEC or other regulatory
authorities under this Section 6.2 to comply in all material respects with all applicable requirements of law and the rules and regulations promulgated thereunder. Whenever either Public Company or Private Company shall become aware of the
occurrence of any event which is required to be set forth in an amendment or supplement to the Proxy Statement or any filing pursuant to Section 6.2(b), Public Company or Private Company, as the case may be, shall promptly inform the other of such
occurrence and cooperate in filing with the SEC or its staff or any other regulatory authority, and/or mailing to stockholders of Public Company and Private Company, such amendment or supplement.
(b) Each of Public Company and Private Company shall promptly make all filings (other than the Proxy Statement) that it is required to make
with respect to the Transaction under the Securities Act, the Exchange Act, applicable state blue sky laws and the rules and regulations thereunder.
6.3
Stockholder Approval
.
(a) Public Company, acting through the Public Company Board, shall take all actions in accordance with applicable law, its certificate of
incorporation and bylaws and NASDAQ rules to duly call, give notice of, convene and hold as promptly as practicable, after the SEC has completed its review of the preliminary filing of the Proxy Statement (or once 10 days after the initial filing of
the preliminary Proxy Statement, if the SEC will not review the Proxy Statement), the Public Company Meeting for the purpose of considering and voting upon the Public Company Voting Proposal and the NASDAQ Proposal, if any. Subject to Section
6.1(b), the Public Company Board shall include in the Proxy Statement the recommendation of the Public Company Board in favor of approval of the Public Company Voting Proposal. Subject to Section 6.1(b), Public Company shall use commercially
reasonable efforts to solicit from its stockholders proxies in favor of the Public Company Voting Proposal. Notwithstanding anything to the contrary contained in this Agreement, Public Company, after consultation with Private Company, may adjourn or
postpone Public Company Meeting to the extent necessary to ensure that any required supplement or amendment to the Proxy Statement is provided to Public Companys stockholders or, if as of the time for which the Public Company Meeting is
originally scheduled (as set forth in the Proxy Statement), there are insufficient shares of Public Company Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Public Company
Meeting.
(b) Notwithstanding the foregoing, nothing herein shall limit a partys right to terminate this Agreement pursuant to
Section 8.1.
6.4
NASDAQ Listing
. During the
Pre-Closing
Period, Public Company shall
use its commercially reasonable efforts to continue the listing of Public Company Common Stock on NASDAQ and to cause the shares of Public Company Common Stock being issued in connection with the Transaction to be approved for listing (subject to
notice of issuance) on NASDAQ at or prior to the Closing, including by filing the NASDAQ Listing Application, and shall, with respect to any filings, notifications and applications made pursuant to this Section 6.6, provide Private Company an
opportunity to review and comment thereon, and consider in good faith all reasonable comments provided by Private Company with respect thereto;
provided
that to the extent any such filing, notification or application is made with respect to
the Public Companys efforts to continue the listing of Public Company Common Stock on NASDAQ while a deficiency notice with respect thereto is pending, Public Company shall provide Private Company a reasonable time to review and comment
thereon, and shall incorporate all reasonable comments provided by Private Company with respect thereto. Private Company shall cooperate with Public Company to cause the NASDAQ Listing Application to be approved and shall promptly furnish to Public
Company all information concerning Private Company and its equityholders that may be required or reasonably requested in connection with any action contemplated by this Section 6.4. To the extent necessary in order to maintain the listing of
Public Company Common Stock on NASDAQ (e.g., in order to meet
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the NASDAQ minimum bid price requirement), Public Company shall seek stockholder approval for a reverse stock split as part of the Proxy Statement (the
NASDAQ Proposal
), with
the specific terms for such split to be proposed by Public Company and approved by Private Company (such approval not to be unreasonably withheld, conditioned or delayed).
6.5
Confidentiality; Access to Information
.
(a) Except as expressly modified herein, the confidentiality agreement, dated as of February 21, 2017, between Public Company and Private
Company (the
Confidentiality Agreement
) shall continue in full force and effect in accordance with its terms.
(b)
During the
Pre-Closing
Period, each of Private Company and Public Company shall (and shall cause each of its Subsidiaries to) afford to the Representatives of the other such party, reasonable access, upon
reasonable notice, during normal business hours and in a manner that does not disrupt or interfere with business operations, to all of its books, contracts and records as the other such party shall reasonably request, and, during such period, each
of Private Company and Public Company shall (and shall cause each of its Subsidiaries to) furnish promptly to the other such party (i) a copy of each report, schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of securities laws (federal, state, local, foreign or otherwise) and (ii) all other information concerning its business, properties and assets as the other such party may reasonably request;
provided
,
however
, that (x) Public Company shall not be required to permit any inspection or other access, or to disclose any information, in connection with an Acquisition Proposal and (y) neither such party shall be
required to permit any inspection or other access, or to disclose any information, that in the reasonable judgment of such party would: (1) result in the disclosure of any trade secrets of any third party, (2) violate any legal requirement
or Contract or any obligation of such party with respect to confidentiality or privacy, including under any privacy policy, or (3) jeopardize protections afforded such party under the attorney-client privilege or the attorney work product
doctrine. Any such information shall be subject to the Confidentiality Agreement. Prior to the Closing, neither Private Company nor any Stockholder shall (and each shall cause such Persons Affiliates and Representatives not to) contact or
communicate with any of the employees, licensors or suppliers of Public Company or any of its Subsidiaries, without the prior written consent of Public Company.
6.6
Legal Conditions to the Transaction
.
(a) Subject to the terms hereof, including Section 6.1, each party hereto shall each use its reasonable best efforts to:
(i) take, or cause to be taken, all actions, and do, or cause to be done, and to assist and cooperate with the other parties hereto in doing,
all things necessary, proper or advisable to consummate and make effective the transactions contemplated hereby as promptly as practicable;
(ii) as promptly as practicable, obtain any consents, licenses, permits, waivers, approvals, authorizations, or orders required to be
obtained by such party (or any of its Subsidiaries) from any Governmental Entity in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby;
provided
,
however
, that in no event shall Public Company or any of its Subsidiaries be required to pay any monies or agree to any material undertaking in connection with any of the foregoing;
(iii) as promptly as practicable, make all necessary filings, and thereafter make any other required submissions, with respect to this
Agreement and the Transaction required under (A) the Exchange Act, the Securities Act and any other applicable federal or state securities laws, and (B) any other applicable law;
(iv) contest and resist any action, including any administrative or judicial action, and seek to have vacated, lifted, reversed or overturned
any decree, judgment, injunction or other order (whether temporary,
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preliminary or permanent) which has the effect of making the Transaction illegal or otherwise prohibiting consummation of the Transaction or the other transactions contemplated by this Agreement;
and
(v) execute or deliver any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement.
The parties hereto shall cooperate with each other in connection with the making of all such filings and submissions
contemplated by the foregoing clauses (ii) or (iii), including providing copies of all such documents to the
non-filing
Person and its advisors prior to filing and, if requested, accepting reasonable
additions, deletions or changes suggested in connection therewith. Each party hereto shall use its reasonable best efforts to furnish to each other all information required for any application or other filing to be made pursuant to any applicable
law in connection with the transactions contemplated by this Agreement.
(b) Each of Public Company and Private Company shall give (or
shall cause their respective Subsidiaries to give) any notices to third parties other than Governmental Entities, and use, and cause their respective Subsidiaries to use, their respective reasonable best efforts to obtain any consents from third
parties other than Governmental Entities required in connection with the Transaction that are (i) necessary to consummate the transactions contemplated hereby, (ii) disclosed or required to be disclosed in the Public Company Disclosure
Schedule or the Private Company Disclosure Schedule, as the case may be, or (iii) required to prevent the occurrence of an event that is reasonably likely to have a Public Company Material Adverse Effect or a Private Company Material Adverse
Effect, as the case may be, prior to or after the Closing, it being understood that no Person shall be required to make any payments prior to the Closing in connection with the fulfillment of its obligations under this Section 6.6(b).
6.7
Public Disclosure
. Except as may be required by law or stock market regulations, (i) the press release announcing the
execution of this Agreement shall be issued only in such form as shall be mutually agreed upon by Public Company and Private Company, (ii) Public Company shall use commercially reasonable efforts to consult with Private Company before issuing
any press release or otherwise making any public statement with respect to the Transaction or this Agreement and shall not issue any such press release or make any such public statement prior to using such efforts (
provided
,
however
,
that these restrictions shall not apply to any communications by Public Company with respect to any Acquisition Proposal, Superior Proposal, Recommendation Change Notice or Public Company Board Recommendation Change) and (iii) Private Company
shall not issue any press release or otherwise make any public statement with respect to the Transaction or this Agreement without the prior written consent of Public Company.
6.8
Affiliate Legends
. Section 6.8 of the Private Company Disclosure Schedule sets forth a list of those Persons who are, in
Private Companys reasonable judgment, affiliates of Private Company within the meaning of Rule 145 promulgated under the Securities Act (
Rule
145 Affiliates
). Private Company shall notify Public Company in
writing regarding any change in the identity of its Rule 145 Affiliates prior to the Closing Date. Public Company shall be entitled to place appropriate legends on the certificates evidencing any shares of Public Company Common Stock to be received
by Rule 145 Affiliates of Private Company in the Transaction reflecting the restrictions set forth in Rule 145 promulgated under the Securities Act and to issue appropriate stop transfer instructions to the transfer agent for Public Company Common
Stock.
6.9
Indemnification
.
(a) From the Closing through the sixth anniversary of the date on which the Closing occurs, Public Company and Private Company shall, jointly
and severally, indemnify and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Closing, a director or officer of Private Company, Public Company or any of their respective
Subsidiaries (the
Indemnified Persons
), against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys fees and disbursements, incurred in connection with any
claim, action, suit, proceeding or
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investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that the Indemnified Person is or was an officer, director, employee or agent of
Private Company, Public Company or any of their respective Subsidiaries, or, while a director or officer of Private Company, Public Company or any of their respective Subsidiaries, is or was serving at the request of Private Company, Public Company
or any of their respective Subsidiaries as a director, officer, employee or agent of another Person, whether asserted or claimed prior to, at or after the Closing, to the fullest extent permitted by applicable law. Each Indemnified Person will be
entitled to advancement of expenses (including attorneys fees) incurred in the defense of any such claim, action, suit, proceeding or investigation from each of Public Company and Private Company within 10 Business Days following receipt by
Public Company or Private Company from the Indemnified Person of a request therefor;
provided
that any Indemnified Person to whom expenses are advanced provides an undertaking, to the extent then required by the DGCL, to repay such advances
if it is determined by a final determination of a court of competent jurisdiction (which determination is not subject to appeal) that such Indemnified Party is not entitled to indemnification under applicable law.
(b) From the Closing through the
six-year
anniversary of the date on which the Closing occurs, the
certificate of incorporation and bylaws of Public Company and the Private Company shall contain, and Public Company shall cause the certificate of incorporation and bylaws of the Private Company to so contain, provisions no less favorable with
respect to indemnification, advancement of expenses and exculpation of present and former directors and officers than are set forth in the certificate of incorporation and bylaws of Public Company (in the case of the certificate of incorporation and
bylaws of Public Company) or Private Company (in the case of the certificate of incorporation and bylaws of Private Company) as in effect on the date of this Agreement.
(c) Subject to the next sentence, Public Company shall either (i) maintain at no expense to the beneficiaries, in effect for six
(6) years from the Closing the means the current directors and officers liability insurance policies maintained by Public Company (the
Current D&O Insurance
) with respect to matters existing or occurring at or
prior to the Closing (including the transactions contemplated by this Agreement), so long as the annual premium therefor would not exceed 300% of the last annual premium paid prior to the Closing for the Current D&O Insurance (the
Maximum Premium
), or (ii) purchase a six (6) year extended reporting period endorsement with respect to the Current D&O Insurance (
Reporting Tail Endorsement
) and maintain such endorsement in full
force and effect for its full term. If Public Companys existing insurance expires, is terminated or canceled during such
six-year
period or exceeds the Maximum Premium, Public Company shall obtain, as
much directors and officers liability insurance as can be obtained for the remainder of such period for an annualized premium not in excess of the Maximum Premium, on terms and conditions no less advantageous to the Indemnified Persons
than the Current D&O Insurance. Notwithstanding anything to the contrary in this Agreement, Public Company may, prior to the Closing, purchase a Reporting Tail Endorsement, provided that Public Company does not pay more than six times the
Maximum Premium for such Reporting Tail Endorsement. If a Reporting Tail Endorsement has been purchased by Public Company prior to the Closing, Public Company shall cause such Reporting Tail Endorsement to be maintained in full force and effect, for
its full term, and cause all obligations thereunder to be honored by Public Company.
(d) In the event Public Company or Private Company
or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any Person, then, and in each such case, proper provision shall be made so that the successors and assigns of Public Company or Private Company, as the case may be, shall expressly assume and succeed
to the obligations set forth in this Section 6.9.
(e) If any Indemnified Person makes any claim for indemnification or advancement
of expenses under this Section 6.9 that is denied by Public Company and/or Private Company, and a court of competent jurisdiction determines that the Indemnified Person is entitled to such indemnification or advancement of expenses, then Public
Company or Private Company shall pay the Indemnified Persons costs and expenses, including reasonable legal fees and expenses, incurred by the Indemnified Person in connection with pursuing his or her claims to the fullest extent permitted by
law.
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(f) The provisions of this Section 6.9 are intended to be in addition to the rights
otherwise available to any Indemnified Person by law, charter, statute, bylaw or agreement, and shall operate for the benefit of, and shall be enforceable by, each of the Indemnified Persons, their heirs and their representatives.
6.10
Notification of Certain Matters
. During the
Pre-Closing
Period, Private Company shall give
prompt notice to Public Company, and Public Company shall give prompt notice to Private Company, upon becoming aware of (a) the occurrence, or failure to occur, of any event, which occurrence or failure to occur is reasonably likely to result
in the failure of any condition set forth in Section 7.2(a) or Section 7.2(b) (in the case of Public Companys obligation to provide notice) or Section 7.3(a) or Section 7.3(b) (in the case of Private Companys obligation to provide
notice).
6.11
Employee Benefits Matters
.
(a) From and after the Closing, Public Company shall carry out all employer responsibilities under all Public Company Employee Plans and all
employment, severance and termination plans and agreements (including any letter agreements providing for severance benefits), in each case in accordance with their terms as in effect immediately before the Closing.
(b) The provisions of Section 6.11(a) shall not apply to persons employed by the Company or any of its Subsidiaries outside the United States,
it being agreed that such persons shall be treated in accordance with applicable law and the terms of any contracts covering them.
6.12
Corporate Identity
. Promptly after the Closing, Public Company shall take all action necessary to cause its certificate of incorporation to be amended to reflect a change in Public Companys name to Daré Bioscience, Inc.
6.13
Succession
. Promptly after the Closing, Public Company shall take all action necessary to cause the persons identified in
Section 6.13 of the Public Company Disclosure Schedule to be appointed as executive officers of Public Company.
6.14
Board of
Directors of Public Company
. Promptly after the Closing, Public Company shall take all action necessary to (a) cause the number of members of Public Company Board to be fixed at five (5), to cause the persons identified in Section 6.14(a)
of the Public Company Disclosure Schedule to be appointed to Public Company Board as directors of the class set forth opposite their respective names in Section 6.14(a) of the Public Company Disclosure Schedule and (b) obtain the resignations
of the directors and officers identified in Section 6.14(b) of the Public Company Disclosure Schedule effective at the time of such appointment.
6.15
FIRPTA Tax Certificates
. On or prior to the Closing, Private Company shall deliver to Public Company a properly executed
certification that shares of Private Company Common Stock are not U.S. real property interests in accordance with the Treasury Regulations under Sections 897 and 1445 of the Code, together with a notice to the IRS (which shall be filed
by Public Company with the IRS following the Closing) in accordance with the provisions of Section
1.897-2(h)(2)
of the Treasury Regulations. If Public Company does not receive the certification and notice
described above on or before the Closing Date, Public Company shall be permitted to withhold from the payments to be made pursuant to this Agreement any required withholding tax under Section 1445 of the Code.
6.16
State Takeover Laws
. If any fair price, business combination or control share acquisition
statute or other similar statute or regulation is or may become applicable to any of the transactions contemplated by this Agreement, the parties hereto shall use their respective commercially reasonable efforts to (a) take such actions as are
reasonably necessary so that the transactions contemplated hereunder may be consummated as promptly as practicable on the terms contemplated hereby and (b) otherwise take all such actions as are reasonably necessary to eliminate or minimize the
effects of any such statute or regulation on such transactions.
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6.17
Section 368(a) Reorganization
. Each party hereto shall use reasonable best efforts to
cause the Transaction to be treated as a reorganization within the meaning of Section 368(a) of the Code. No party hereto shall unless otherwise required by applicable law, file any Tax Return on a basis inconsistent with such treatment. Each party
hereto hereby adopts this Agreement as a plan of reorganization within the meaning of Section 368(a) of the Code and the regulations thereunder
6.18
Security Holder Litigation
. Notwithstanding anything to the contrary herein, each of Public Company and Private Company shall have
the right to control the defense and settlement of any litigation related to this Agreement, the Transaction or the other transactions contemplated by this Agreement brought by any stockholder of such party or any holder of such partys other
securities against such party and/or such partys directors or officers, provided that such party shall give the other such party the opportunity to participate, at the other such partys expense, in the defense of any such litigation and
such party shall consider the other such partys advice with respect to such litigation.
6.19
Private Company Convertible Notes;
Permitted Private Company Equity Issuances
.
(a)
Conversion
. Prior to the Closing each Stockholder shall convert to shares of
Private Company Common Stock all Private Company Convertible Notes such Stockholder holds which are so convertible.
(b)
Permitted
Private Company Equity Issuances
. Prior to the Closing, Private Company may issue convertible promissory notes and/or shares of Private Company Common Stock; provided that the sum of (i) the aggregate principal amount of any convertible
notes so issued plus (ii) the aggregate purchase price of any shares of Private Company Common Stock so issued shall not exceed $3,000,000 in the aggregate. Notwithstanding anything to the contrary contained herein, if Private Company issues
additional convertible promissory notes or shares of Private Company Common Stock after the date hereof and prior to the Closing, as a condition precedent to any such issuance any purchaser of such notes or shares shall become a party to this
Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed a Stockholder for all purposes hereunder. The representations and warranties made by each such additional
Stockholder in Section 2 hereof shall be made by such Stockholder on the date such purchaser becomes a Stockholder. No action or consent by the parties shall be required for such joinder to this Agreement by such additional Stockholder, so long
as such additional Stockholder has, as a condition precedent to the issuance of such notes or shares, agreed in writing to be bound by all of the obligations as a Stockholder hereunder. Any notes issued in accordance with this Section
6.19(b) shall be deemed to be Private Company Convertible Notes and any shares issued in accordance with this Section 6.19(b) shall be deemed to be Private Company Common Stock for all purposes under this Agreement, and this Agreement,
including Section 4.2(b) of the Private Company Disclosure Schedule, shall be amended to include any additional Private Company Convertible Note or Private Company Common Stock issued, without the need for the consent of any party hereto.
6.20
Audited Financial Statements for Private Company
. Private Company shall cause, prior to March 31, 2017, an independent
accounting firm appropriately qualified to conduct an SEC practice to complete an audit of the Financial Statements in a manner that results in such firm issuing an unqualified opinion, and upon such completion, Private Company shall promptly
deliver such audited financial statements and opinion to Public Company (the
Audited Financial Statements
).
6.21
Section 280G
. Not less than five (5) Business Days prior to the Closing Date, Private Company shall submit to a stockholder vote, in a manner that satisfies the stockholder approval requirements under Section 280G(b)(5)(B) of the Code
and the Treasury Regulations promulgated thereunder, the right of any disqualified individual (as defined in Section 280G(c) of the Code) to receive any and all payments (or other benefits) contingent on the consummation of the
transactions contemplated by this Agreement (within the meaning of Section 280G(b)(2)(A)(i) of the Code) to the extent necessary so that no payment received by such disqualified individual who has provided any required waiver or consent
prior to such vote shall be a parachute payment under Section 280G(b) of the Code (determined without regard to Section 280G(b)(4) of the Code). Such vote
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shall establish each disqualified individuals right to the payment or other compensation, and Private Company shall use commercially reasonable efforts to obtain any required waivers or
consents from the disqualified individual prior to the vote. In addition, Private Company shall provide adequate disclosure to stockholders that hold voting Private Company Common Stock of all material facts concerning all payments to any such
disqualified individual that, but for such vote, could be deemed parachute payments under Section 280G of the Code in a manner that satisfies Section 280G(b)(5)(B)(ii) of the Code and Treasury Regulations promulgated thereunder. At least
five (5) Business Days prior to the vote, Public Company and its counsel shall be given the right to review and comment on all documents required to be delivered to the stockholders of Private Company in connection with such vote and any
required disqualified individual waivers or consents, and Private Company shall reflect all reasonable comments of Public Company thereon. Public Company and its counsel shall be provided copies of all documents executed by the stockholders and
disqualified individuals in connection with such vote.
ARTICLE VII
CONDITIONS TO TRANSACTION
7.1
Conditions to Each Party
s Obligation to Effect the Transaction
. The respective obligations of each party hereto
to effect the Transaction shall be subject to the satisfaction at or prior to the Closing of the following conditions:
(a)
Stockholder
Approval
. The Public Company Voting Proposal shall have been approved at the Public Company Meeting, at which a quorum is present, by the requisite vote of the stockholders of Public Company under applicable law and stock market regulation.
(b)
No Injunctions
. No Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any
order, executive order, stay, decree, judgment or injunction (preliminary or permanent) or statute, rule or regulation which is in effect and which has the effect of making the Transaction illegal or otherwise prohibiting consummation of the
Transaction,
(c)
NASDAQ Notification
. The NASDAQ Listing Application shall have been approved.
7.2
Additional Conditions to Obligations of Private Company and the Stockholders to Effect the Transaction
. The obligations of Private
Company and the Stockholders to effect the Transaction shall be subject to the satisfaction at or prior to the Closing of each of the following additional conditions:
(a)
Representations and Warranties
. The representations and warranties of Public Company contained in this Agreement that (i) are
not made as of a specific date shall be true and correct as of the Closing, as though made at and as of the Closing, and (ii) are made as of a specific date shall be true and correct as of such date, in each case, except where the failure of
such representations or warranties to be true and correct (without giving effect to any limitation as to materiality or Public Company Material Adverse Effect set forth in such representations and warranties, other than the
Public Company Material Adverse Effect limitation set forth in the first sentence of Section 3.7) is not reasonably likely to have a Public Company Material Adverse Effect.
(b)
Performance of Covenants and Obligations
. Public Company shall have performed in all material respects its covenants and
obligations required to be performed or complied with by it under this Agreement at or prior to the Closing.
(c)
Officers
Certificate
. Private Company shall have received a certificate executed by Public Companys Chief Executive Officer and Chief Financial Officer confirming on behalf of Public Company that the conditions set forth in Section 7.2(a) and
Section 7.2(b) have been duly satisfied.
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(d)
NASDAQ Listing
. Public Company Common Stock shall then be listed on the NASDAQ Stock
Market.
7.3
Additional Conditions to Obligations of Public Company to Effect the Transaction
. The obligations of Public Company to
effect the Transaction shall be subject to the satisfaction at or prior to the Closing of each of the following additional conditions:
(a)
Representations and Warranties
. The representations and warranties of Private Company and the Stockholders, respectively, contained in this Agreement that (i) are not made as of a specific date shall be true and correct as of the
Closing, as though made at and as of the Closing, and (ii) are made as of a specific date shall be true and correct as of such date, in each case, except where the failure of such representations or warranties to be true and correct (without
giving effect to any limitation as to materiality or Private Company Material Adverse Effect set forth in such representations and warranties, other than the Private Company Material Adverse Effect limitation set
forth in the first sentence of Section 4.7) is not reasonably likely to have a Private Company Material Adverse Effect or a material adverse effect on the ability of the Stockholders to perform their obligations hereunder or consummate the
transactions contemplated hereby.
(b)
Performance of Covenants and Obligations
. Private Company and each Stockholder shall have
performed in all material respects such Persons covenants and obligations required to be performed or complied with by such Person under this Agreement at or prior to the Closing.
(c)
Officers Certificate
. Public Company shall have received a certificate executed by Private Companys Chief Executive
Officer and Chief Financial Officer confirming on behalf of Private Company that the conditions set forth in Section 7.3(a) and Section 7.3(b) have been duly satisfied.
(d)
Resignations
. Public Company shall have received copies of the resignations, effective as of the Closing, of each director of
Private Company and its Subsidiaries.
7.4
Frustration of Conditions
. No party hereto may invoke the failure or nonsatisfaction of
any condition set forth in this Article VII if the failure of such party (or any Affiliate of such party) to fulfill any obligation under this Agreement has been a principal cause of or resulted in the failure or nonsatisfaction of such condition.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1
Termination
. This Agreement may be terminated and the Transaction may be abandoned at any time prior to the Closing (with respect
to Sections 8.1(b) through 8.1(i), by written notice by the terminating party to the other party), whether before or, subject to the terms hereof, after approval of the Public Company Voting Proposal:
(a) by mutual written consent of Public Company and Private Company;
(b) by either Public Company or Private Company if the Closing shall not have occurred on or before September 15, 2017 (the
Outside Date
) (provided that the right to terminate this Agreement pursuant to this Section 8.1(b) shall not be available to any party hereto if the failure of such party (or any Affiliate of such party) to fulfill any obligation
under this Agreement has been a principal cause of or resulted in the failure of the Closing to occur on or before the Outside Date);
(c)
by either Public Company or Private Company if a Governmental Entity of competent jurisdiction shall have issued a nonappealable final order, decree or ruling or taken any other nonappealable final action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting consummation of the
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Transaction;
provided
,
however
, that a party hereto shall not be permitted to terminate this Agreement pursuant to this Section 8.1(c) if the failure of such party (or any Affiliate
of such party) to fulfill any obligation under this Agreement has been a principal cause of or resulted in the issuance of any such order, decree, ruling or the taking of such other action;
(d) by either Public Company or Private Company if at the Public Company Meeting (including any adjournment or postponement thereof permitted
by this Agreement) at which a vote on the Public Company Voting Proposal is taken, the requisite vote of the stockholders of Public Company in favor of Public Company Voting Proposal shall not have been obtained;
provided
,
however
,
that a party hereto shall not be permitted to terminate this Agreement pursuant to this Section 8.1(d) if the failure of such party (or any Affiliate of such party) to fulfill any obligation under this Agreement has been a principal cause of or
resulted in the failure to obtain the requisite vote of the stockholders of Public Company in favor of Public Company Voting Proposal;
(e) by Public Company, if Private Company shall have knowingly and materially breached its obligations under Section 6.1 of this
Agreement;
(f) by Private Company, if at any time prior to the receipt of the Public Company Stockholder Approval: (i) Public
Company Board shall have failed to give its recommendation to the approval of the Public Company Voting Proposal in the Proxy Statement or shall have withdrawn or modified its recommendation of the Public Company Voting Proposal; (ii) after the
receipt by Public Company of an Acquisition Proposal, Private Company requests in writing that Public Company Board reconfirm its recommendation of this Agreement or the Transaction and Public Company Board fails to do so within ten Business Days
after its receipt of Private Companys request; (iii) Public Company Board shall have approved or recommended to the stockholders of Public Company an Acquisition Proposal; (iv) a tender offer or exchange offer for outstanding shares
of Public Company Common Stock is commenced (other than by Private Company or an Affiliate of Private Company), and Public Company Board recommends that the stockholders of Public Company tender their shares in such tender or exchange offer or,
within 10 Business Days after the commencement of such tender offer or exchange offer, Public Company Board fails to recommend against acceptance of such offer; or (v) Public Company shall have knowingly and materially breached its obligations
under Section 6.1 or Section 6.3(b) of this Agreement;
(g) by Public Company, if there has been a breach of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of Private Company or any Stockholder, which breach (i) would cause the conditions set forth in Section 7.3(a) or Section 7.3(b) not to be satisfied and (ii) shall not
have been cured within 20 Business Days following receipt by Private Company of written notice of such breach from Public Company;
provided
that neither Public Company nor any Stockholder is then in material breach of any representation,
warranty, covenant or agreement under this Agreement;
(h) by Private Company, if there has been a breach of any representation, warranty,
covenant or agreement set forth in this Agreement on the part of Public Company, which breach (i) would cause the conditions set forth in Section 7.2(a) or Section 7.2(b) not to be satisfied and (ii) shall not have been cured within 20
Business Days following receipt by Public Company of written notice of such breach from Private Company;
provided
that Private Company is not then in material breach of any representation, warranty, covenant or agreement under this Agreement;
(i) by Public Company if, at any time prior to the receipt of the Public Company Stockholder Approval, each of the following occur:
(A) Public Company shall have received a Superior Proposal; (B) Public Company shall have complied in all material respects with its obligations under Section 6.1 in order to accept such Superior Proposal; (C) the Public Company
Board approves, and Public Company concurrently with the termination of this Agreement enters into, a definitive agreement with respect to such Superior Proposal; and (D) prior to or concurrently with such termination, Public Company pays to
Private Company the amount contemplated by Section 8.3(c);
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(j) by Public Company if Audited Financial Statements, accompanied by the unqualified opinion
thereon of the firm referred to in Section 6.20, that do not differ in any material respect from the Financial Statements are not delivered to Public Company no later than March 31, 2017; or
(k) by Private Company or Public Company if the condition set forth in Section 7.2(d) would not then be satisfied and such condition is
incapable of being satisfied on or prior to the Outside Date.
8.2
Effect of Termination
. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall immediately become void and there shall be no liability or obligation on the part of Public Company, Private Company, or their respective Representatives, stockholders or Affiliates;
provided
that, subject to Section 8.3(f), (a) any such termination shall not relieve any party hereto from liability for any material breach of any covenant or agreement set forth in this Agreement that is a consequence of an act, or failure
to act, undertaken by the breaching party with the knowledge that the taking of such act, or failure to act, would result in such breach and (b) the provisions of Section 6.5(a) (Confidentiality), this Section 8.2 (Effect of Termination),
Section 8.3 (Fees and Expenses) and Article IX (Miscellaneous) of this Agreement and the Confidentiality Agreement shall remain in full force and effect and survive any termination of this Agreement.
8.3
Fees and Expenses
.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether or not the Transaction is consummated;
provided,
however
, that Private Company and Public Company shall share equally all fees and expenses, other than
accountants and attorneys fees, incurred with respect to the printing, filing and mailing of the Proxy Statement (including any related preliminary materials) and any amendments or supplements thereto.
(b) Private Company shall pay Public Company a termination fee of $450,000 (the
Private Company Termination Fee
) in the
event that this Agreement is terminated:
(i) by Public Company pursuant to Section 8.1(e); or
(ii) by either Public Company or Private Company, as applicable, pursuant to Sections 8.1(b), 8.1(g) or 8.1(j), so long as (A) prior to
the termination of this Agreement, any Person makes an Acquisition Proposal or amends an Acquisition Proposal made prior to the date of this Agreement with respect to Private Company; and (B) within 12 months after such termination Private
Company enters into a definitive agreement to consummate, or consummates, any Acquisition Proposal (regardless of whether made before or after the termination of this Agreement);
provided
that for purposes of this Section 8.3(b)(iii), the
references to 15% in the definition of Acquisition Proposal shall be deemed to be 50%.
(c) Public Company shall pay Private Company a
termination fee of $300,000 (the
Public Company Termination Fee
) in the event of the termination of this Agreement:
(i)
by Private Company pursuant to Section 8.1(f);
(ii) by Public Company pursuant to Section 8.1(i); or
(iii) by Public Company or Private Company, as applicable, pursuant to Sections 8.1(b) or 8.1(h), so long as (A) prior to the termination
of this Agreement, any Person makes an Acquisition Proposal or amends an Acquisition Proposal made prior to the date of this Agreement with respect to Public Company; and (B) within 12 months after such termination Public Company enters into a
definitive agreement to consummate, or consummates, any Acquisition Proposal (regardless of whether made before or after the termination of this Agreement);
provided
that for purposes of this Section 8.3(c)(iii), the references to 15% in the
definition of Acquisition Proposal shall be deemed to be 50%.
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(d) Any fee due under Section 8.3(b)(i) or 8.3(c)(i) shall be paid by wire transfer of
same-day
funds within two Business Days after the date of termination of this Agreement. Any fee due under Section 8.3(b)(ii) or 8.3(c)(ii) shall be paid by wire transfer of
same-day
funds on or before the date of termination of this Agreement. Any fee due under Section 8.3(b)(iii) or 8.3(c)(iii) shall be paid by wire transfer of
same-day
funds within two Business Days after the date on which the transaction referenced in clause (B) of such Section 8.3(b)(iii) or Section 8.3(c)(iii), as applicable, is consummated. If one party fails to promptly pay to the other any fee due under
this Section 8.3, the defaulting party shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with
interest on the amount of any unpaid fee at the publicly announced prime rate of Bank of America, N.A. plus five percent per annum, compounded quarterly, from the date such fee was required to be paid.
(e) In no event shall Private Company be required to pay the Private Company Termination Fee on more than one occasion, nor shall Public
Company be required to pay the Public Company Termination Fee on more than one occasion, in each case whether or not such fee may be payable under more than one provision of this Agreement at the same or at different times and the occurrence of
different events.
(f) The parties hereto acknowledge that the agreements contained in this Section 8.3 are an integral part of the
transactions contemplated by this Agreement, and that the parties hereto would not enter into this Agreement absent such agreements. Notwithstanding Section 8.2 or any other provision of this Agreement, payment of the fees described in this
Section 8.3 shall constitute the sole and exclusive remedy of Public Company or Private Company, as applicable in connection with any termination of this Agreement in the circumstances in which such fees became payable. In the event that Public
Company or Private Company shall receive the payment of a fee described in this Section 8.3, the receipt of such fee shall be deemed to be liquidated damages for any and all losses or damages suffered or incurred by the party receive such fee
and any of its Affiliates in connection with this Agreement (and the termination hereof), the transactions contemplated hereby (and the abandonment thereof) or any matter forming the basis for such termination, and neither the party receiving such
fee nor any of its Affiliates, shall be entitled to bring or maintain any other claim, action or proceeding against the party paying such fee or any of its Affiliates arising out of this Agreement, any of the transactions contemplated hereby or any
matters forming the basis for such termination.
8.4
Amendment
. This Agreement may be amended by the parties hereto, in the case of
Public Company and Private Company, by action taken or authorized by their respective Boards of Directors, and in the case of the Stockholders, by action taken by Stockholder Representative, at any time before or after approval of the matters
presented in connection with the Transaction by the stockholders of any party, but, after any such approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the parties hereto. Notwithstanding the foregoing, this Agreement and the Private Company Disclosure Schedule may be amended to add a party as a Stockholder and a convertible
promissory note issued by Private Company as a Private Company Convertible Note or a share issued by Private Company as Private Company Common Stock in accordance with Section 6.19(b) without the consent of any other party, including Public Company,
by delivery to the parties of a counterpart signature page to this Agreement and Private Companys delivery to Public Company of a supplement to Section 4.2(b) of the Private Company Disclosure Schedule. Such amendment shall take effect
immediately upon, and shall be conditioned upon, the satisfaction of the requirements set forth in the immediately preceding sentence and in Section 6.19(b) and such party shall thereafter be deemed a Stockholder and such note shall
thereafter be deemed a Private Company Convertible Note or such share shall be deemed a share of Private Company Common Stock for all purposes hereunder, and Section 4.2(b) of the Private Company Disclosure Schedule shall be updated to
reflect the addition of such Private Company Convertible Note or share of Private Company Common Stock.
8.5
Extension; Waiver
. At
any time prior to the Closing, the parties hereto, by action taken or authorized by their respective Boards of Directors (in the case of Public Company and Private Company) or the Stockholders Representative (in the case of the Stockholders), may,
to the extent legally allowed, (a) extend the time for the
B-56
performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party. Such extension or waiver shall not apply to any time for performance, inaccuracy in any representation or warranty, or noncompliance with any agreement or condition, as the case may be, other than that which is
specified in the extension or waiver. The failure of any party hereto to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights.
8.6
Procedure for Termination, Amendment, Extension or Waiver
. A termination of this Agreement pursuant to Section 8.1, an
amendment, modification or supplement of this Agreement pursuant to Section 8.4 or an extension or waiver of this Agreement pursuant to Section 8.5 shall, in order to be effective, require action by the respective Boards of Directors of
the applicable parties (in the case of Public Company and Private Company) or the Stockholders Representative (in the case of the Stockholders).
ARTICLE IX
MISCELLANEOUS
9.1
Nonsurvival of Representations, Warranties and Agreements
. None of the representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Closing, except for the
agreements contained in Article I, Article II, Section 6.9, Section 6.11, Section 6.12, Section 6.13, Section 6.14, Section 6.17 and this Article IX.
9.2
Notices
. All notices and other communications hereunder shall be in writing and shall be deemed duly delivered (i) four
Business Days after being sent by registered or certified mail, return receipt requested, postage prepaid, (ii) one Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable overnight courier service, or
(iii) on the date of confirmation of receipt (or, the first Business Day following such receipt if the date of such receipt is not a Business Day) of transmission by facsimile or electronic mail, in each case to the intended recipient as
set forth below:
(a) if to Public Company, to:
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Cerulean Pharma Inc.
35 Gatehouse
Drive
Waltham, MA 02451
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Attn: Christopher D. T. Guiffre
|
E-mail:
cguiffre@ceruleanrx.com
|
|
with a copy (which shall not constitute notice) to:
|
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Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
|
Attn:
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Lia Der Marderosian, Esq.
|
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Hal J. Leibowitz, Esq.
|
E-mail:
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lia.dermarderosian@wilmerhale.com
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hal.leibowitz@wilmerhale.com
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Facsimile: +1 617 526 5000
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B-57
(b) if to Private Company or any Stockholder, to
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Daré Bioscience, Inc.
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[ ]
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[ ]
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Attn:
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Sabrina Martucci Johnson, CEO
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Email:
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sjohnson@darebioscience.com
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with a copy (which shall not constitute notice) to:
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Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
3580 Carmel Mountain Road, Suite 300
San Diego, CA
92130
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Attn:
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Sebastian Lucier, Esq.
|
E-mail:
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SELucier@mintz.com
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Facsimile: +1 858 314 1501
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Any party hereto may give any notice or other communication hereunder using any other means (including personal
delivery, messenger service, or ordinary mail), but no such notice or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Any party hereto may change the address
to which notices and other communications hereunder are to be delivered by giving the other parties hereto notice in the manner herein set forth.
9.3
Entire Agreement
. This Agreement (including the Schedules and Exhibits hereto and the documents and instruments referred to herein)
constitutes the entire agreement among the parties hereto and supersedes any prior understandings, agreements or representations by or among the parties hereto, or any of them, written or oral, with respect to the subject matter hereof, and the
parties hereto specifically disclaim reliance on any such prior understandings, agreements or representations to the extent not embodied in this Agreement. Notwithstanding the foregoing, the Confidentiality Agreement shall remain in effect in
accordance with its terms.
9.4
No Third Party Beneficiaries
. This Agreement is not intended to, and shall not, confer upon any
other Person any rights or remedies hereunder, except as set forth in or contemplated by the terms and provisions of Section 6.9 (with respect to which the Indemnified Persons shall be third party beneficiaries).
9.5
Assignment
. Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise by any of the parties hereto without the prior written consent of the other parties, and any such assignment without such prior written consent shall be null and void. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns.
9.6
Severability
. Any term or provision (or part thereof) of this Agreement that is invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions (or parts thereof) hereof or the validity or enforceability of the offending term or provision (or part thereof) in any other situation or in any
other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision (or part thereof) hereof is invalid or unenforceable, the court making such determination shall have the power to limit the term or
provision (or part thereof), to delete specific words or phrases, or to replace any invalid or unenforceable term or provision (or part thereof) with a term or provision (or part thereof) that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision (or part thereof), and this Agreement shall be enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the
parties hereto shall replace such invalid or unenforceable term or provision (or part thereof) with a valid and enforceable term or provision (or part thereof) that will achieve, to the extent possible, the economic, business and other purposes of
such invalid or unenforceable term (or part thereof).
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9.7
Counterparts and Signature
. This Agreement may be executed in two or more counterparts
(including by facsimile or by an electronic scan delivered by electronic mail), each of which shall be deemed an original but all of which together shall be considered one and the same agreement and shall become effective when counterparts have been
signed by each of the parties hereto and delivered to the other parties, it being understood that all parties need not sign the same counterpart. This Agreement may be executed and delivered by facsimile or by an electronic scan delivered by
electronic mail.
9.8
Interpretation
. Except where expressly stated otherwise in this Agreement, the following rules of
interpretation apply to this Agreement: (a) either and or are not exclusive and include, includes and including are not limiting; (b) hereof, hereto,
hereby, herein and hereunder and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement; (c) date hereof refers to
the date set forth in the initial caption of this Agreement; (d) extent in the phrase to the extent means the degree to which a subject or other thing extends, and such phrase does not mean simply if; (e)
descriptive headings, the table of defined terms and the table of contents are inserted for convenience only and do not affect in any way the meaning or interpretation of this Agreement; (f) definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms; (g) references to a Person are also to its permitted successors and assigns; (h) references to an Article, Section, Recital,
introductory paragraph, Annex, Exhibit or Schedule refer to an Article, Section, Recital or introductory paragraph of, or an Annex, Exhibit or Schedule to, this Agreement; (i) references to
$ or otherwise to dollar amounts refer to the lawful currency of the United States; (j) references to a federal, state, local or foreign statute or law include any rules, regulations and delegated legislation issued thereunder; and
(k) references to a communication by a regulatory agency include a communication by the staff of such regulatory agency. When reference is made in this Agreement to information that has been made available then (i) with respect
to information that has been made available to Private Company, that shall mean that such information was either (A) publicly available on the SECs EDGAR system prior to the date of this Agreement, (B) included in the Companys
electronic data room no later than 2:00 p.m., Eastern Time, on the date of this Agreement or (C) provided directly to Private Company or its counsel, and (ii) with respect to information that has been made available to Public Company, that
shall mean that such information was either (i) included in Private Companys electronic data room no later than 2:00 p.m., Eastern Time, on the date of this Agreement or (ii) provided directly to Public Company or its counsel. The
language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party hereto. No summary of this Agreement prepared by
any party shall affect the meaning or interpretation of this Agreement
9.9
Governing Law
. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of
laws of any jurisdictions other than those of the State of Delaware.
9.10
Remedies
.
(a) Except as otherwise provided herein, any and all remedies herein expressly conferred upon a Person will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such Person, and the exercise by a Person of any one remedy will not preclude the exercise of any other remedy.
(b) Irreparable damage would occur in the event that any provision of this Agreement were not performed in accordance with its specific terms
or were otherwise breached, as money damages or other legal remedies would not be an adequate remedy for any such damages. Accordingly, in the event of any breach or threatened breach by Public Company, on the one hand, or Private Company or any
Stockholder, on the other hand, of any of their respective covenants or obligations set forth in this Agreement, and Public Company, on the one hand, and Private Company and the Stockholders, on the other hand, shall be entitled to an injunction or
B-59
injunctions to prevent or restrain breaches or threatened breaches of this Agreement, by the other (as applicable), and to specifically enforce the terms and provisions of this Agreement to
prevent breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of the other under this Agreement, in each case without posting a bond or other security. No party hereto shall raise any objections to the
availability of the equitable remedy of specific performance to prevent or restrain breaches or threatened breaches of this Agreement by Private Company or any Stockholder, or to specifically enforce the terms and provisions of this Agreement to
prevent breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of Private Company or any Stockholder under this Agreement. Time shall be of the essence for purposes of this Agreement.
9.11
Submission to Jurisdiction
. Each of the parties hereto (a) consents to submit itself to the exclusive personal jurisdiction
of the Court of Chancery of the State of Delaware, New Castle County, or, if that court does not have jurisdiction, a federal court sitting in the State of Delaware in any action or proceeding arising out of or relating to this Agreement or any of
the transactions contemplated by this Agreement, (b) agrees that all claims in respect of such action or proceeding shall be heard and determined in any such court, (c) agrees that it shall not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (d) agrees not to bring any action or proceeding arising out of or relating to this Agreement or any of the transaction contemplated by this Agreement in any other
court. Each of the parties hereto waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other Person with respect thereto. Any
party hereto may make service on another party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 9.2. Nothing in this Section 9.11,
however, shall affect the right of any Person to serve legal process in any other manner permitted by law.
9.12
Disclosure
Schedule
. Each of the Private Company Disclosure Schedule and the Public Company Disclosure Schedule shall be arranged in sections corresponding to the numbered sections contained in this Agreement, and the disclosure in any section shall
qualify (a) the corresponding section of this Agreement and (b) the other sections of this Agreement, to the extent that it is reasonably apparent from a reading of such disclosure that it also qualifies or applies to such other sections.
The inclusion of any information in the Private Company Disclosure Schedule or the Public Company Disclosure Schedule, as applicable, shall not be deemed to be an admission or acknowledgment, in and of itself, that such information is required by
the terms hereof to be disclosed, is material, has resulted in or would result in a Private Company Material Adverse Effect or a Public Company Material Adverse Effect, as applicable, or is outside the Ordinary Course of Business.
[Remainder of Page Intentionally Left Blank]
B-60
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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PUBLIC COMPANY
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CERULEAN PHARMA INC.
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By:
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/s/ Christopher D. T. Guiffre
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Name:
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Christopher D. T. Guiffre
|
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Title:
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President & Chief Executive Officer
|
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-61
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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PRIVATE COMPANY
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DARÉ BIOSCIENCE, INC.
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By:
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/s/ Sabrina Martucci Johnson
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Sabrina Martucci Johnson, CEO
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-62
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
|
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STOCKHOLDER REPRESENTATIVE
|
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By:
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/s/ Sabrina Martucci Johnson
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Sabrina Martucci Johnson
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-63
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
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By:
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/s/ Sabrina Martucci Johnson
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Sabrina Martucci Johnson
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-64
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
|
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STOCKHOLDER:
|
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VINCENT S. JOHNSON AND SABRINA M. JOHNSON FAMILY TRUST, DATED FEBRUARY 14, 2005
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By:
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/s/ Vince Johnson
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Vince Johnson, Trustee
|
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By:
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/s/ Sabrina Martucci Johnson
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Sabrina Martucci Johnson, Trustee
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-65
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
|
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STOCKHOLDER:
|
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LISA WALTERS-HOFFERT SURVIVORS TRUST DATED OCTOBER 31, 2002
|
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By:
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/s/ Lisa Walters-Hoffert
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Lisa Walters-Hoffert, Trustee
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-66
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
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By:
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/s/ Samuel Neff
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Samuel Neff
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-67
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
|
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By:
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/s/ Edward F. Kessig
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Edward F. Kessig
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-68
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
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PIPELINE ONE PROPERTIES LLC
|
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By:
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/s/ Mary S. Siegrist
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Name:
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Mary S. Siegrist
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Its:
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Principal
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-69
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
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By:
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/s/ Robert Willie Prince
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Robert Willie Prince
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-70
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
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By:
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/s/ Mark Walters
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Mark Walters
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-71
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
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By:
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/s/ R. Michael Gendreau
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R. Michael Gendreau
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-72
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
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ROBIN J. STEELE TRUST DTD 1/30/2015
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By:
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/s/ Robin Steele
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Robin J. Steele, Trustee
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-73
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
|
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STOCKHOLDER:
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By:
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/s/ Roger Hawley
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Roger L. Hawley
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-74
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
|
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STOCKHOLDER:
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By:
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/s/ Carola Schropp
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Carola Schropp
|
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-75
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
|
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STOCKHOLDER:
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BLATT FAMILY TRUST, DATED
08-24-2014
|
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By:
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|
/s/ Lawrence Blatt
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Name:
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Its:
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-76
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
|
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STOCKHOLDER:
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THE HAWLEY FAMILY TRUST DATED OCTOBER 22, 2004
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By:
|
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/s/ Roger L. Hawley
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Roger L. Hawley, Trustee
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By:
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/s/ Nancy D. Hawley
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Nancy D. Hawley, Trustee
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-77
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
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By:
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/s/ Michael Potter
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Michael Potter
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-78
Public Company, Private Company, the Stockholders and the Stockholder Representative have
executed this Agreement as of the date set forth in the initial caption of this Agreement.
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STOCKHOLDER:
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THE KENNEDY TRUST DATED SEPTEMBER 18, 2014
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By:
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/s/ Ciara Kennedy
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Ciara Kennedy, Trustee
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By:
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/s/ John Kennedy
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John Kennedy, Trustee
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-79
The undersigned hereby agrees to be bound by and to observe all of the terms and conditions of
the Stock Purchase Agreement, dated as of March 19, 2017, by and among Cerulean Pharma Inc. (the
Public Company
), Daré Bioscience, Inc. (the
Private Company
), the Stockholders identified on the signature
pages thereto, and solely for the purposes of being bound by Article I, Article VIII and Article IX thereof and solely in such persons capacity as the Stockholder Representative, Sabrina Martucci Johnson (the
Stock Purchase
Agreement
) as a Stockholder thereunder. The undersigned hereby authorizes the Private Company and the Public Company to attach this counterpart signature page to the Stock Purchase Agreement.
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STOCKHOLDER:
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/s/ George D. Bonaros
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George D. Bonaros
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[COUNTERPART SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-80
The undersigned hereby agrees to be bound by and to observe all of the terms and conditions of
the Stock Purchase Agreement, dated as of March 19, 2017, by and among Cerulean Pharma Inc. (the
Public Company
), Daré Bioscience, Inc. (the
Private Company
), the Stockholders identified on the signature
pages thereto, and solely for the purposes of being bound by Article I, Article VIII and Article IX thereof and solely in such persons capacity as the Stockholder Representative, Sabrina Martucci Johnson (the
Stock Purchase
Agreement
) as a Stockholder thereunder. The undersigned hereby authorizes the Private Company and the Public Company to attach this counterpart signature page to the Stock Purchase Agreement.
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STOCKHOLDER:
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Backes and Burow 2012 Revocable Trust
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By:
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/s/ Kristina Burow, Trustee
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Kristina Burrow, Trustee
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[COUNTERPART SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-81
The undersigned hereby agrees to be bound by and to observe all of the terms and conditions of
the Stock Purchase Agreement, dated as of March 19, 2017, by and among Cerulean Pharma Inc. (the
Public Company
), Daré Bioscience, Inc. (the
Private Company
), the Stockholders identified on the signature
pages thereto, and solely for the purposes of being bound by Article I, Article VIII and Article IX thereof and solely in such persons capacity as the Stockholder Representative, Sabrina Martucci Johnson (the
Stock Purchase
Agreement
) as a Stockholder thereunder. The undersigned hereby authorizes the Private Company and the Public Company to attach this counterpart signature page to the Stock Purchase Agreement.
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STOCKHOLDER:
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Susan Morse-Lebow Trust
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By:
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/s/ Susan Morse-Lebow, Trustee
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Susan Morse-Lebow, Trustee
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[COUNTERPART SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
B-82
Annex C
FORM OF CERTIFICATE OF AMENDMENT OF THE RESTATED
CERTIFICATE OF INCORPORATION OF CERULEAN PHARMA INC.
(REGARDING THE REVERSE STOCK SPLIT)
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
Cerulean Pharma Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State
of Delaware (the General Corporation Law),
DOES HEREBY CERTIFY:
1. That the name of this corporation is Cerulean Pharma Inc. (the Corporation), and that the Corporation was originally
incorporated pursuant to the General Corporation Law on November 28, 2005 under the name Tempo Pharmaceuticals, Inc. The original Certificate of Incorporation of the Corporation was amended on each of December 1,
2005, October 20, 2006, December 22, 2006, May 8, 2007, December 6, 2007, October 14, 2008, July 9, 2009, July 13, 2009, May 26, 2010, November 12,
2010, December 2, 2011, November 29, 2012, January 11, 2013, February 19, 2013, August 14, 2013, January 30, 2014, February 10, 2014, March 21, 2014, March 28,
2014, March 31, 2014 and March 31, 2014, and amended and restated on April 15, 2014.
2. A resolution was duly adopted
by the Board of Directors of the Corporation pursuant to Section 242 of the General Corporation Law proposing this Amendment of the Corporations Restated Certificate of Incorporation and declaring the advisability of this Amendment of the
Restated Certificate of Incorporation and authorizing the appropriate officers of the Corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment is as follows:
RESOLVED, that the first paragraph of Article FOURTH of the Restated Certificate of Incorporation of the Corporation, as amended, be and hereby is deleted in
its entirety and the following paragraphs are inserted in lieu thereof:
FOURTH. Effective upon the filing of this Certificate of Amendment to the
Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the Effective Time), a one-for-[ ] reverse stock split of the
Corporations common stock, par value $0.0001 per share (the Common Stock), shall become effective, pursuant to which each [ ] shares of Common Stock outstanding
and held of record by each stockholder of the Corporation (including treasury shares) immediately prior to the Effective Time shall be reclassified and combined into one validly issued, fully paid and nonassessable share of Common Stock
automatically and without any action by the holder thereof upon the Effective Time and shall represent one share of Common Stock from and after the Effective Time (such reclassification and combination of shares, the Reverse Stock
Split). The par value of the Common Stock following the Reverse Stock Split shall remain at $0.0001 per share. No fractional shares of Common Stock shall be issued as a result of the Reverse Stock Split and, in lieu thereof, upon surrender
after the Effective Time of a certificate which formerly represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time, any person who would otherwise be entitled to a fractional share of Common Stock as
a result of the Reverse Stock Split, following the Effective Time, shall be entitled to receive a cash payment equal to the fraction of a share of Common Stock to which such holder would otherwise be entitled multiplied by the fair value per share
of the Common Stock immediately prior to the Effective Time as determined by the Board of Directors of the Corporation.
Each stock certificate that,
immediately prior to the Effective Time, represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time shall, from and after the Effective Time, automatically and without the necessity of presenting the
same for exchange, represent that number of whole shares of Common Stock after the Effective Time into which the shares formerly represented by such certificate
C-1
have been reclassified (as well as the right to receive cash in lieu of fractional shares of Common Stock after the Effective Time); provided, however, that each person of record holding a
certificate that represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time shall receive, upon surrender of such certificate, a new certificate evidencing and representing the number of whole shares
of Common Stock after the Effective Time into which the shares of Common Stock formerly represented by such certificate shall have been reclassified.
The
total number of shares of all classes of stock which the Corporation shall have authority to issue is 125,000,000 shares, consisting of (i) 120,000,000 shares of Common Stock, $.0001 par value per share (Common Stock), and
(ii) 5,000,000 shares of Preferred Stock, $.01 par value per share (Preferred Stock).
3: This Certificate of Amendment of the
Restated Certificate of Incorporation has been duly adopted by the stockholders of the Corporation in accordance with the provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF
, this Corporation has caused this Certificate of Amendment of the Restated Certificate of Incorporation to be signed by its
President and Chief Executive Officer this day of , 2017.
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Christopher D. T. Guiffre
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President and Chief Executive Officer
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C-2
Annex D
March 19, 2017
Board
of Directors
Cerulean Pharma Inc.
35 Gatehouse Drive
Waltham, Massachusetts 02451
Members of the Board of Directors:
You have asked us to advise you with respect to the fairness, from a financial point of view, to the holders of common stock par value $0.0001 per share
(the Common Stock), of Cerulean Pharma Inc. (Cerulean, or the Company) of the Exchange Ratio set forth in the Stock Purchase Agreement, dated as of March 19, 2017 (the Purchase Agreement), among
the Company, Daré Bioscience, Inc. (Daré), the holders of the outstanding common stock of Daré (the Daré Stockholders) and the Stockholder Representative. The Purchase Agreement provides that, upon
the terms and subject to the conditions set forth in the Purchase Agreement, each Daré Stockholder will sell to Cerulean and Cerulean will purchase from each Daré Stockholder all of the shares of common stock of Daré, par value
$0.0001 per share (the Daré Common Stock), owned by such Daré Stockholder. The consideration for the purchase of all of the Daré Common Stock will be shares of the Companys Common Stock (the Cerulean
Common Stock) equal to product of (a) the number of shares of Daré Common Stock held by such Daré Stockholder multiplied by (b) the Exchange Ratio. In addition, the Company has agreed to assume from Daré the
Private Company Stock Options and Private Company Warrants. The Exchange Ratio is determined as set forth in the Purchase Agreement and, pursuant to the Purchase Agreement, the application of the Exchange Ratio may result in the issuance of Cerulean
Common Stock to the Daré Stockholders and rights to purchase Cerulean Common Stock to the holders of Private Company Stock Options and Private Company Warrants representing, in the aggregate, between 51% and 70% of the fully-diluted
capitalization of the Company upon the closing of the transactions contemplated by the Purchase Agreement, subject to adjustment based on the Net Cash of each of the Company and Daré at the time of the closing of the Transaction. The
transactions contemplated by the Purchase Agreement shall be referred to herein as the Transaction. Defined terms used herein but not otherwise defined are given the meaning set forth in the Purchase Agreement.
In arriving at our opinion, we have reviewed, analyzed and considered the Purchase Agreement; certain publicly available business and financial information
relating to the Company and Daré; the publicly available financial terms of certain sale transactions involving companies we deemed relevant and the consideration paid for such companies and comparisons of these terms with the proposed
financial terms of the Transaction; and such other publicly available financial and business information concerning certain other companies we deemed relevant and comparisons of this financial and business information to that of the Company and
Daré. We have also reviewed certain other
non-public
information relating to the Company that was prepared and provided to us by the Company, including certain operating and financial information
relating to the Companys business, including the Companys unaudited financial statements for the year ended December 31, 2016 and its cash and debt position as of the month ended February 28, 2017; financial and business
forecasts and projections prepared by management of the Company relating to the Companys prospects after giving effect to the CRLX Asset Sale
One Maritime Plaza, 14th Floor San Francisco, CA 94111
D-1
March 19, 2017
Page
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(as defined below), both assuming the
Transaction is completed and the Transaction is not completed, and both assuming the Platform Asset Sale (as defined below) is completed and the Platform Asset Sale is not completed; materials prepared by management of the Company reflecting the
distribution of cash, after giving effect to the cash proceeds to be received from the CRLX Asset Sale (as defined below), to the Companys stockholders in the event of an orderly wind-down of the Company, both assuming the Platform Asset Sale
is completed and the Platform Asset Sale is not completed, as of June 30, 2017 (the Liquidation Information); the Asset Purchase Agreement, dated the date hereof, between the Company and NewLink Genetics Corporation, pursuant to
which the Company sold all of the assets related to its lead product candidate, CRLX101, and CRLX301 to NewLink Genetics Corporation, effective as of the date hereof (the CRLX Asset Sale); the Asset Purchase Agreement, dated the date
hereof, between the Company and Novartis Institutes for BioMedical Research, Inc. (Novartis), pursuant to which the Company is selling all of the assets related to its proprietary Dynamic Tumor Targeting platform to Novartis,
subject to, among other things, Cerulean stockholder approval (the Platform Asset Sale); and such other information that we have considered appropriate to opine as to the fairness of the Exchange Ratio to the holders of Cerulean Common
Stock. In addition, we have reviewed certain other
non-public
information relating to Daré that was prepared and provided to us by Daré, including certain operating and financial information
relating to Darés business, including Darés unaudited financial statements for the year ended December 31, 2016 and the two months ended February 28, 2017; Darés management presentation to the
Company; a five-year development budget forecast for Darés lead product in development, Ovaprene
®
; a market and sales forecast regarding Ovaprene
®
, as prepared by SmartPharma for Daré; the capitalization table of Daré; and such other information that we have considered appropriate to opine as to the fairness of the Exchange
Ratio to the holders of Cerulean Common Stock. In addition, we have discussed with management of the Company and management of Daré, the business, operations, financial condition and prospects of the Company and Daré, respectively, and
as a combined company, including, in the case of the Company, such managements views of the operational and financial risks and uncertainties associated with continuing to operate the Company as a going concern following the CRLX Asset Sale
and whether or not the Platform Asset Sale is completed.
In connection with our review, we have not assumed any responsibility for independent
verification of any of the foregoing information and have, with your consent, relied on such information being complete and accurate. With respect to the financial forecasts for the Company, both assuming the Transaction is completed and the
Transaction is not completed, the management of the Company has advised us, and we have assumed with your consent, that such forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company; and, with respect to the financial forecasts for Daré, the management of Daré has advised us, and we have assumed with your consent, that such forecasts
have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Daré as to the future financial performance of Daré. In addition, with respect to the Liquidation Information,
the management of the Company has advised us, and we have assumed with your consent, that such information has been reasonably prepared on a basis reflecting the best currently available estimates and judgments of management of the Company. We have
relied upon, without independent verification, the assessment of the Companys management and Darés management as to the viability of, and risks associated with, the current and future products of the Company following the
Transaction (including without limitation, the development, testing and marketing of such products, the receipt of all necessary governmental and other regulatory approvals for the development, testing and marketing thereof, and the life and
enforceability of all relevant patents and other intellectual and other property rights associated with such products). We have assumed, with your consent, that the application of the Exchange Ratio will result in the issuance of Cerulean Common
Stock to the Daré Stockholders and rights to purchase Cerulean Common Stock to the holders of Private Company Stock Options and Private Company Warrants representing, in the aggregate, no less than 51% and no more than 70% of the
fully-diluted capitalization of the Company upon the closing of the Transaction.
D-2
March 19, 2017
Page
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We have also assumed, with your
consent, that, in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the Transaction no delay, limitation, restriction or condition will be imposed that would have an adverse effect on the
Company, Daré, the Daré Stockholders or the contemplated benefits of the Transaction and that the Transaction will be consummated in accordance with the terms of the Purchase Agreement without waiver, modification or amendment of any
material term, condition or agreement thereof. In addition, we have not been requested to make, and have not made, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company or Daré, nor did
we conduct a physical inspection of any of the properties or facilities of the Company or Daré, nor have we been furnished with any such evaluations, appraisals or inspections, nor do we assume any responsibility to obtain any such
evaluations, appraisals or inspections. During the course of our engagement, we were directed by the Board of Directors of the Company to solicit indications of interest from various third parties regarding a transaction with the Company, and we
have considered the results of such solicitation in rendering our opinion. We have also assumed that the representations and warranties contained in the Purchase Agreement made by the parties thereto are true and correct in all respects material to
our analysis, and have assumed, with your consent, that the CRLX Asset Sale has been completed.
Our opinion addresses only the fairness, from a financial
point of view, to the holders of Cerulean Common Stock of the Exchange Ratio, and does not address any other aspect or implication of the Transaction or any other agreement, arrangement or understanding entered into in connection with the
Transaction or otherwise. For the avoidance of doubt, our opinion does not address, nor have we been asked to address, the fairness of the CRLX Asset Sale or the proposed Platform Asset Sale to the Company. Our opinion is necessarily based upon
information made available to us as of the date hereof and financial, economic, market and other conditions as they exist and can be evaluated on the date hereof. We do not express any opinion as to the price or range of prices at which the shares
of Cerulean Common Stock may trade subsequent to the announcement or closing of the Transaction or at any time.
We have acted as financial advisor to the
Company in connection with the Transaction. We will receive a fee for our services, a portion of which is payable upon delivery of this opinion and a significant portion of which is contingent upon consummation of the Transaction. We received a
warrant to purchase 65,000 shares of Cerulean Common Stock at an exercise price of $1.00 per share in connection with our engagement as the Companys financial advisor. In addition, the Company has agreed to indemnify us for certain liabilities
and other items arising out of our engagement.
You have not asked us to address, and this opinion does not address, the relative merits of the
Transaction as compared to alternative transactions or strategies that might be available to the Company, nor the underlying business decision of the Company to proceed with the Transaction. Our opinion addresses only the fairness, from a financial
point of view, to the holders of Cerulean Common Stock of the Exchange Ratio, and we express no opinion as to the fairness of any consideration paid in connection with the Transaction to the holders of any other class of securities, creditors or
other constituencies of the Company as to the underlying decision by the Company to engage in the Transaction. We are not legal, tax or regulatory advisors and have relied upon, without independent verification, the assessment of the Company and its
legal, tax and regulatory advisors with respect to such matters. We have not performed any tax analysis, nor have we been furnished with any such analysis. Furthermore, we express no opinion with respect to the amount or nature of any compensation
to any officers, directors or employees of any party to the Transaction, or any class of such persons relative to the Exchange Ratio or with respect to the fairness of any such compensation.
The issuance of this opinion has been approved by a fairness opinion committee of Aquilo Partners, L.P. (Aquilo Partners). This opinion is for the
use and benefit of the Board of Directors of the Company in connection with its evaluation of the Transaction. This opinion does not constitute a recommendation to any
D-3
March 19, 2017
Page
4
stockholder as to how such
stockholder should vote with respect to the Transaction or any other matter. This opinion shall not be reproduced, disseminated, quoted, summarized or referred to at any time, in any manner or for any purpose, nor shall any public references to
Aquilo Partners or any of its affiliates be made by the Company or any of its affiliates, without the prior written consent of Aquilo Partners, provided that this opinion may be reproduced in full in any proxy or information statement mailed to
stockholders of the Company.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of Cerulean Common Stock.
Very truly yours,
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AQUILO PARTNERS, L.P.
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By:
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/s/ John Rumsey
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John Rumsey
Managing Director
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D-4
Annex E
CERTIFICATE OF INCORPORATION
OF
DARÉ
BIOSCIENCE, INC.
ARTICLE I.
The name of this corporation is Daré Bioscience, Inc. (the Corporation).
ARTICLE II.
The address
of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle 19808. The name of the registered agent at that address is Corporation Service Company.
ARTICLE III.
The
purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV.
The name of
the Corporations incorporator is Sebastian Lucier and the incorporators mailing address is 3580 Carmel Mountain Road, Suite 300, California 92130.
ARTICLE V.
This
Corporation is authorized to issue one class of stock to be designated Common Stock. The total number of shares that the Corporation is authorized to issue is Ten Million (10,000,000) shares, par value $0.001.
ARTICLE VI.
A director
of the Corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the directors duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction from which the director derived any improper personal benefit. If the General Corporation Law of the State of Delaware is amended after approval by the stockholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware as so amended.
Any repeal or modification of the foregoing provisions of this Article VI by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
E-1
ARTICLE VII.
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation.
ARTICLE VIII.
Election
of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE IX.
The number of directors which shall constitute the whole Board of Directors of the Corporation shall be fixed from time to time by, or in the
manner provided in, the Bylaws of the Corporation or in an amendment thereof duly adopted by the Board of Directors of the Corporation or by the stockholders of the Corporation.
ARTICLE X.
Meetings of
stockholders of the Corporation may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the Board of Directors of the Corporation or in the Bylaws of the Corporation.
ARTICLE XI.
Except as
otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, repeal, alter, amend and rescind any or all
of the Bylaws of the Corporation.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of Incorporation this 28th day of May,
2015.
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/s/ Sebastian Lucier
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Sebastian Lucier, Sole Incorporator
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E-2
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CERULEAN PHARMA INC.
35 GATEHOUSE DRIVE
WALTHAM, MA 02451
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VOTE BY INTERNET - www.proxyvote.com
Use
the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the
instructions to obtain your records and to create an electronic voting instruction form.
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Investor Address Line 1
Investor Address Line 2
Investor Address Line 3
Investor Address Line 4
Investor Address Line 5
John Sample
1234
ANYWHERE STREET
ANY CITY, ON A1A 1A1
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ELECTRONIC DELIVERY OF FUTURE PROXY
MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy
statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or
access proxy materials electronically in future years.
VOTE BY PHONE -
1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or
meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return
it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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CONTROL #
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NAME
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THE COMPANY
NAME INC. - COMMON
THE COMPANY NAME INC. - CLASS A
THE COMPANY NAME INC. - CLASS B
THE COMPANY NAME INC. -
CLASS C
THE COMPANY NAME INC. - CLASS D
THE
COMPANY NAME INC. - CLASS E
THE COMPANY NAME INC. - CLASS F
THE COMPANY NAME INC. - 401 K
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SHARES
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123,456,789,012.12345
123,456,789,012.12345
123,456,789,012.12345
123,456,789,012.12345
123,456,789,012.12345
123,456,789,012.12345
123,456,789,012.12345
123,456,789,012.12345
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS
FOLLOWS:
☒
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PAGE 1 OF 2
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KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS
PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND
DATED.
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The Board of Directors recommends you vote FOR
proposals 1, 2, 3 and 4.
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For
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Against
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Abstain
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1
. To approve the sale of Ceruleans Platform pursuant to the terms of the
Novartis Asset Purchase Agreement (the Novartis Asset Sale Proposal);
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2
. To approve the issuances of shares of Cerulean common stock pursuant to the
terms of the Daré Stock Purchase Agreement (the Daré Share Issuance Proposal);
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3
. To approve and adopt an amendment to Ceruleans Restated Certificate of
Incorporation to effect a reverse stock split of Cerulean common stock, at a ratio ranging from 1:10 to 1:20, as determined by the Cerulean Board, which split may be effected at any time within six months of the date of the special meeting (the
Reverse Stock Split Proposal); and
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4
. To adjourn the special meeting to solicit additional votes to approve the
Novartis Asset Sale Proposal, the Daré Share Issuance Proposal or the Reverse Stock Split Proposal, if necessary (the Adjournment Proposal).
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☐
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NOTE:
Any other business that may properly come
before the special meeting and any adjournments or postponements thereof.
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For address change/comments, mark here.
(see reverse for instructions)
Please indicate if you plan to attend this meeting
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Yes
☐
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No
☐
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☐
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must
sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
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SHARES
CUSIP #
SEQUENCE #
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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JOB #
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Signature (Joint Owners)
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Date
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Important Notice Regarding the Availability of Proxy Materials for the Special Meeting:
The Notice &
Proxy Statement is available at
www.proxyvote.com
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CERULEAN PHARMA INC.
Special Meeting of Shareholders
July 19, 2017 9:00 AM
This proxy is solicited by the Board of Directors
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The shareholder(s) hereby appoint(s) Christopher D. T.
Guiffre and Gregg Beloff, or either of them, as proxies, each with the power to appoint (his/her) substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common stock of
CERULEAN PHARMA INC. that the shareholder(s) is/are entitled to vote at the Special Meeting of shareholder(s) to be held at 09:00 AM, EST on July 19, 2017, at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109, and any adjournment or postponement thereof.
This proxy, when
properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors recommendations.
Address change/comments:
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(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)
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Continued and to be signed on reverse side
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